REG - Victoria PLC - Interim Results
23/11/2021 07:00
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RNS Number : 2463T Victoria PLC 23 November 2021
For Immediate Release 23 November 2021
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Interim Results
for the six months ended 2 October 2021
All-time Record Results
Victoria PLC (LSE: VCP) the international designers, manufacturers and
distributors of innovative floorcoverings, is pleased to announce its interim
results for the six months ended 2 October 2021.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
H1 FY22
Continuing operations
H1 FY21
Revenue £489.0m £305.5m
Underlying EBITDA(1) £84.5m £52.4m
Underlying operating profit(1) £58.6m £28.2m
Operating profit £27.7m £10.7m
Underlying profit before tax(1) £41.1m £13.7m
Profit / (loss) before tax £2.9m £(4.7)m
Underlying free cash flow(2) £18.0m £18.3m
Net debt(3) £519.3m £364.6m
Net debt / EBITDA(4) 3.3x 3.3x
Earnings / (loss) per share:
- Diluted adjusted(1) 24.32p 8.09p
- Diluted (2.68)p (3.11)p
(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) 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
· Unprecedented 30% like-for-like organic revenue growth led to
all-time record operating results
· Continued like-for-like expansion of operating margins, with 130bps
organic uplift offset by mix-effect of acquisition of lower margin businesses
· Inflationary pressures and supply chain constraints successfully
mitigated with proactive management of raw materials and energy costs
· Four value-enhancing acquisitions completed in Italy, the Netherlands
and the USA; providing meaningful earnings and cash flow enhancement along
with material operational synergy opportunities
· Despite these significant investments, leverage maintained at a
consistent level with the prior year end, in-line with the Group's financial
policy
· Outlook remains very positive, along with a healthy pipeline of
acquisition opportunities
Geoff Wilding, Executive Chairman of Victoria PLC commented:
"Victoria capitalised on its operational competitive advantages and balance
sheet strength during the first half of FY22 to again deliver all-time record
trading results and further value-enhancing acquisitions in a continuation of
its mission to create wealth for shareholders."
For more information contact:
Victoria PLC +44 (0) 1562 749 610
Geoff Wilding, Executive Chairman
Philippe Hamers, Group Chief Executive
Michael Scott, Group Finance Director
Singer Capital Markets (Nominated Adviser and Joint Broker) +44 (0) 207 496 3095
Rick Thompson, Phil Davies, Alex Bond
Berenberg (Joint Broker) +44 (0) 203 207 7800
Ben Wright, Mark Whitmore
+44 (0) 207 418 8900
Peel Hunt (Joint Broker)
Adrian Trimmings, Andrew Clark +44 (0) 20 7466 5000
Buchanan Communications (Financial PR)
Charles Ryland, Chris Lane, Vicky Hayns, Tilly Abraham
About Victoria
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 Group, which is headquartered in Kidderminster, 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, the USA, and Australia and employs approximately 4,000 people
across more than 26 sites. Victoria is the UK's largest carpet manufacturer
and the second largest in Australia, as well as the largest manufacturer of
underlay in both regions.
The Group'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. (Further information about
Victoria can be found on its website, www.victoriaplc.com
(http://www.victoriaplc.com/) )
About Victoria
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 Group, which is headquartered in Kidderminster, 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, the USA, and Australia and employs approximately 4,000 people
across more than 26 sites. Victoria is the UK's largest carpet manufacturer
and the second largest in Australia, as well as the largest manufacturer of
underlay in both regions.
The Group'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. (Further information about
Victoria can be found on its website, www.victoriaplc.com
(http://www.victoriaplc.com/) )
CHAIRMAN & CHIEF EXECUTIVE'S LETTER TO SHAREHOLDERS
One of our US-based shareholders recently shared a letter from legendary
investor, Bill Miller of Miller Value Partners. Although clearly not directly
related to the flooring industry, he shares some wisdom we think is worth
remembering whilst there seems to be some extraordinary things happening in
global economies.
"Since no one has privileged access to the future, forecasting the market is a
waste of time... In the post-war period the US stock market has gone up in
around 70% of the years because the US economy grows most of the time. Odds
much less favorable than that have made casino owners very rich, yet most
investors try to guess the 30% of the time stocks decline, or even worse spend
time trying to surf, to no avail, the quarterly up and down waves in the
market. Most of the returns in stocks are concentrated in sharp bursts
beginning in periods of great pessimism or fear, as we saw most recently in
the 2020 pandemic decline. We believe time, not timing, is key to building
wealth in the stock market."
Certainly, when executing our acquisition strategy, Victoria's Board spends
little time trying to predict precisely where we are in the economic cycle,
but rather focuses on ensuring we are buying high quality, resilient
businesses at valuations that provide a margin of safety for our shareholders.
This has stood us in good stead over the last nine years and we are therefore
pleased to report that the operating results for the six months to 2 October
were an all-time record for Victoria, as can be seen in the below table.
H1, Financial Year 2022 2021 2020 2019 2018 2017
Revenue £489.0m £305.5m £312.9m £273.4m £189.5m £153.4m
Pre IFRS 16 Underlying EBITDA £75.1m £44.9m £53.8m £45.4m £24.6m £20.2m
Post IFRS 16 Underlying EBITDA £84.5m £52.4m £58.5m
Unsurprisingly, given H1 FY21 was affected by various national lockdowns in
Victoria's primary markets, revenues increased by 60% in H1 FY22.
Additionally, Victoria completed four acquisitions during the period, which
also contributed to the financial performance of the Group. On a LFL basis,
revenues increased by 29.8% over H1 FY21 and, perhaps more relevantly, 9.2%
over H1 FY20, demonstrating the strong organic growth the operational strategy
is delivering for shareholders.
Although Victoria saw significant inflation in raw material prices during the
period, the impact was largely mitigated by management actions, with the
result that the underlying EBITDA margin grew by +130bps on a LFL basis(5).
(The reported margin of 17.3% was the result of the optical margin dilutive
effects of acquisitions made during the period - dilution that will, as
achieved with previous acquisitions, be offset by synergy benefits as the
businesses are integrated into Victoria).
(5) LFL margin variance calculated by normalising the impact of acquisitions
OPERATIONAL REPORT BY DIVISION
UK & Europe Soft Flooring - operating margin +190bps
H1 FY22 H1 FY21
Total
Revenue £214.0 million £126.0 million
Absolute growth % 69.8%
LFL growth % 48.4%
Underlying EBITDA margin 18.0% 15.2%
LFL margin variance % +190bps
The UK & Europe Soft Flooring division again delivered an extremely strong
result.
There were two prime reasons for this very pleasing outcome:
1. Inflationary pressures seen in raw materials and energy costs were
quickly addressed by our operational management with more than one selling
price increase in the year to date. Mitigating actions will continue whilst
input prices remain under pressure, balancing as always between margin and
growth. Victoria's level of service, which is highly valued by retailers, has
ensured a significant degree of acceptance of these increases and demand for
our product remains strong.
2. The Group's operational management anticipated the possibility of
supply chain disruption and consequently increased raw material inventory
ahead of many of our competitors. These higher-than-normal holdings of raw
materials safe-guarded service levels and further contributed to Victoria's
reputation as a reliable supplier of product, which leads to increased wallet
share.
Specific initiatives during the period included:
Carpet Manufacturing
· Broadloom carpet has maintained a remarkably consistent market share
over the last 15 years at c.60% of the UK residential flooring market.
Different types of hard flooring (such as tiles, laminates, LVT, hardwoods,
etc) have been used by consumers in kitchens, entrances, and bathrooms during
this period, but carpet predominates in the other areas of the house.
Accordingly, we continue to invest in our UK factories to improve both
productivity and output.
· The relocation of the Westex operations (plant, offices and showroom)
to Dewsbury was completed during the period, which finalised our major
production optimisation plan in the UK.
· We continued the roll-out of high-speed tufting machines, increasing
productivity as well as creating the option of running small batch sizes
(using beams instead of creels), which enables increased flexibility and
reduces working capital (inventory) demands.
· The company completed the construction of a new warehouse for
finished carpet rolls on the Abingdon site in Wales, which will reduce the
cost of volume shipments and reduce the pressure on the logistics centres.
Underlay
· Victoria's largest underlay business obtained full ISO accreditation
of the Integrated Management System, giving us ISO 9001 (quality management),
ISO 14001 (environmental management) and ISO 45001 (occupational Health &
Safety).
· We launched the new 'Acoustics' Division with the development of a
technologically sophisticated underlay product under the new brand 'Sonixx'
for attacking the acoustic building materials market
Artificial grass manufacturing
· Artificial landscaping grass (which is entirely different to
artificial sports fields) is possibly the fastest growing flooring category in
Europe, with growing consumer acceptance of artificial grass due to enhanced
realism and increasing awareness of its advantages when compared with natural
grass, such as limited maintenance and no water requirements. European demand
for artificial grass is expected to achieve double-digit growth from 82.4
million m(2) in 2020 to 110.6 million m(2) in 2023 (10.3% p.a. in volumes) AMI
Consulting (2020).
· Victoria made its first investment in the sector in February 2017,
with the acquisitions of Netherlands-based Avalon and Grass Inc. These
businesses have been highly successful - organically doubling in size over the
last four years.
· In May we acquired Edel Group, which is based in the Netherlands and
Germany, to create Europe's largest premium landscaping grass group. For the
year ended 31 December 2020, Edel generated unaudited total revenues of
€47.6 million (£41.4m) and normalised EBITDA of €10 million (£8.7m).
· The integration of Edel with Victoria's existing artificial grass
business is now well underway and will create significant opportunities for
value-creating commercial and operating synergies:
· Victoria has been outsourcing the production of c.4 million m(2) of
artificial grass. Capitalising on the manufacturing capabilities of Edel and
insourcing this production will increase the margin on Victoria's existing
artificial grass revenue.
· There have been sharp price increases in the raw materials for
artificial grass this year but the increased scale of the integrated
businesses will provide an opportunity to both reduce raw material costs and
improve productivity at the factories, with a consequential improvement in
operating margin.
· Both Edel and Victoria have extensive, but largely non-overlapping
distribution networks across Europe, providing a real opportunity to grow the
combined revenues by collaboration on sales and distribution.
Alliance Logistics
· It is difficult to overstate the strategic value of our investment in
our logistics capability. It is a key differentiator, separating Victoria from
the continental carpet suppliers by meaningfully enhancing our service
proposition. Retailers place great value on fast, on-time delivery as it
allows them to reduce their inventory levels and warehouse overheads.
· Victoria now has more than 240 delivery vehicles on the road, with
further enhancement to the Microlise fleet management software during the
period enabling live traffic updates and live route planning. Due to the
demand in the UK for drivers, our wages cost has increased by about £1
million per year, but we have avoided any disruption from the widely reported
national driver shortages.
· We continued to enhance the service offering with track & trace
functionality now providing our customers with live tracking of their orders,
alongside real-time updates via email and SMS.
· We signed a commitment for a completely new, environmentally-friendly
distribution centre (185,000 ft²) in Worcester, which will replace the
Kidderminster warehouse upon the completion of construction in December 2022.
This building will lower our operating costs and allow for further sales
growth.
· Significantly, Alliance is now attracting 3(rd) party deliveries at
profitable price levels.
UK & Europe Ceramic Tiles - underlying EBITDA +35% to £37.4 million
H1 FY22 H1 FY21
Total
Revenue £182.5 million £132.5 million
Absolute growth % +37.7%
LFL growth % +17.4%
Underlying EBITDA margin 20.5% 20.9%
LFL margin variance % +180bps
Sharply rising energy costs have been a headwind in recent months. However,
unlike some competitors, the Group benefits from having much of its energy
pricing hedged, which dampens the short-term impact of higher energy prices
and provides time to respond with mitigating actions. We do not expect the
current high energy prices to be indefinite - indeed new hedges can be secured
with forward prices markedly below the current spot price - but we anticipate
some level of impact on margins in H2, although these are being mitigated with
price increases.
Operational highlights during the period include:
Italy
· We have previously advised that, due to strong customer demand,
Victoria's Italian ceramic tile business has its full output sold out until Q2
2022, despite the production capacity added earlier this year by the
acquisition of the factory and assets of Ceramiche Santa Maria. Integration of
this business continues, with a second refurbished atomiser expected to be
operational by the end of November - increasing production capacity and
lowering raw material costs.
· The acquisition of Santa Maria, along with Colli and Vallelunga,
materially, but temporarily, diluted the operating margin in the short term in
our ceramics division during the period. This effect is being rapidly
alleviated as the businesses are integrated into our core operations.
· Further capacity is expected to become available when the new and
more energy efficient multi-purpose (red body/porcelain) replacement kiln at
Ceramiche Serra currently being installed becomes operational in mid-January
2022.
· Additionally, a brand new, large-size production line became
operational in the Ceramiche Ascot factory at the end of September, which
allows for increased output in larger tile sizes.
Spain
· The performance of the newly integrated brand Ibero/Casa Infinita,
which is aimed at a more value-conscious customer, has been very pleasing.
· Significant improvements were achieved in the overall production cost
in our Spanish factories from OPEX savings and productivity enhancing
initiatives to reduce the cost of goods sold.
Turkey
· Following the half-year balance date, Victoria entered into an
agreement to acquire Turkish ceramic tile manufacturer, Graniser. This is a
profitable and growing business, which delivers a good quality, low-cost
manufacturing platform to the Group. Upon completion of the acquisition, which
is anticipated in January, the business will be quickly integrated into the
Group's ceramic tiles division and is expected to provide us with a meaningful
competitive advantage for certain product lines and end markets.
Australia - Like-for-like Revenue +14.6%
H1 FY22 H1 FY21
Total
Revenue £53.4 million £47.0 million
Absolute growth % 13.6%
LFL growth % 14.6%
Underlying EBITDA margin 13.3% 13.2%
LFL margin variance % +10bps
Our Australian business has performed exceptionally well, despite very trying
operating conditions.
Melbourne, where all our carpet factories are located, had the dubious
distinction this period of enduring the world's longest lockdown, and only
reopened for business in October. Sydney, where our underlay factory is based,
also experienced an extended lockdown during H1. And New Zealand, which is an
important market for our Australian-produced flooring, also saw revenues
significantly disrupted with long, rolling lockdowns shutting down all retail
activity.
Supplying the construction industry was, however, still permitted in Australia
during this period and the division capitalised on this opportunity (albeit at
slightly lower margins than our usual consumer business), together with
supplying retailers in the other Australian states, which were not subject to
restrictions.
As elsewhere, raw material prices have increased, which has led to the
business raising its selling prices across the board to protect earnings.
Despite all of the above, the Australia division grew both its revenues and
operating margins versus the same period last year (a comparative period
during which Australia experienced a much shorter and less-impactful lockdown
compared to our European markets).
The Australian lockdowns have as of last month largely come to an end and we
are anticipating a strong contribution to H2 as economies open and pent-up
demand is released.
North America - acquisition of fast-growing brand and distribution capability
H1 FY22 (14 weeks)
Revenue £39.1 million
Underlying EBITDA £2.6 million
EBITDA margin 6.6%
On 23 June we announced the expansion of our North American presence
(previously based solely on exports from our European factories) with the
acquisition of Cali Bamboo Holdings Inc. ("Cali"). Victoria's US strategy is
to acquire good brands and distribution (not manufacturing) businesses, which
sell the same categories of product as the Group manufactures or sells in
Europe. Significant demand exists for European flooring in the US and there
are material synergy opportunities to be secured by integrating US
distribution capability into our business.
Highlights in H1 include:
· Cali is, in itself, a high-growth business that has achieved an
organic CAGR of 17% for the past five years via its omni-channel distribution
model, resulting in revenues for the 12 months ended 30 April 2021 of US$171.6
million (£124.3m). Revenues for the 14 weeks under Victoria ownership in H1
were a very satisfying US$54.3 million (£39.2m), but more could have been
achieved if supply constraints (primarily shipping) had not limited consumer
access to product. Since the acquisition, Victoria has made some operational
changes, which are expected to flow through to much better supply of product
in H2.
· The integration of Cali into the Victoria Group is well underway with
the preparation of artificial turf as an enlargement of the outdoor product
offer. Along with outdoor flatwoven rugs, these 2 new categories will be
introduced in Q4.
· More than 50% of Cali's revenues are in the US's highest growth
(27.7% CAGR 2014-19)(6) flooring product category of LVT/LVP (Luxury Vinyl
Tile/Luxury Vinyl Plank), with the balance consisting of engineered hardwoods,
composite decking, and other items.
· Cali has incorporated Amazon as an advertising and sales channel,
with revenues expected to start flowing in H2.
(6) US Floor Report 2020
CASHFLOW & LIQUIDITY
Net operating cash flow before interest, tax and exceptional items was again
very good at £61.2 million for the half year ended 2 October.
Our operating management team anticipated possible supply chain issues earlier
in the year and therefore invested heavily in raw materials to minimise the
risk of any disruption to our manufacturing. This investment resulted in
working capital increasing by £14.0 million, but it is temporary and will
unwind as raw material levels return to normal levels when supply chains
become more stable over the next few months. We manage working capital tightly
(as we do all our capital) and are confident this investment was the right
thing to do as it has enhanced our reputation as a reliable supplier of
flooring when some of our competitors have struggled.
Victoria continued to maintain a strong liquidity position and the Group
finished the period with cash and undrawn credit lines in excess of £280
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
2026.
OUTLOOK
Operations
The strong demand for flooring experienced this year has primarily come from
existing home owners, motivated by spending more time in their homes, deciding
to redecorate. However, the Board expects demand to continue next year and
beyond, due to the high level of housing transactions that has been
experienced in many of the Group's key markets this year. Housing sales are a
good 12-18 month leading indicator of remodelling-led demand for flooring.
High savings rates - particularly of consumers that form Victoria's target
market - are underpinning the demand for flooring and consequently, despite
selling price increases, consumers are continuing to prioritise redecorating
their home.
The integration of the acquisitions we have made this year are still at an
early stage but are progressing well, and so the synergy gains that are
expected as the integration work proceeds will drive further earnings and
margin gains, helping to offset some of the inflationary pressures being
experienced.
The Group's extensive Luxury Vinyl Tile ('LVT') product range continues to
grow and now generates nearly 10% of Group revenues. After more than two
decades in the European market, where it was invented, LVT continues to
replace laminates and sheet vinyl as a floor-covering, rather than soft
flooring and ceramic tiles whose market share has remained broadly unchanged
for the last 15 years, comprising around 60% of flooring purchased in
Victoria's primary markets.
Although the significant inflationary pressures experienced earlier in the
year on many raw materials have eased somewhat, energy and other costs
continue to rise. Therefore, the Group will continue to actively manage
pricing with suppliers and customers, and re-engineering products to hit price
points in the market to protect margins on a LFL basis. There is always a time
lag in passing on costs, but the Group has demonstrated its pricing resilience
over the last nine years with steadily increasing operating margins, despite a
wide range of trading conditions.
We are acutely aware of the impact on inventory values of higher raw material
costs and are closely monitoring inventory turn and holding levels to ensure
we maintain an appropriate return on the capital employed in the business.
We plan to roll-out further initiatives in logistics to ensure we remain the
leading company in order fulfilment, which makes retailers a little less
sensitive to price increases - being able to fulfil a consumer's order is more
important than the last few pennies on the cost of the product.
Acquisitions
Victoria has always been a disciplined and selective buyer - something that is
reflected in the quality and pricing of the acquisitions it has made to date.
This characteristic is even more important now, given the strong market for
flooring products over the last 12 months and the buoyant merger and
acquisition activity widely seen. With some of the multiples we see being paid
by other companies, it will take years, if ever, for investors to see any sort
of return on their capital. However, we value our capital highly and while we
fully expect to conclude further acquisitions, shareholders can be assured
that we will not overpay.
Regarding this policy, we are helped by the fact that Victoria is acknowledged
in the industry as a reliable buyer, who will pay a fair price, move quickly
and confidentially, and treat the business and its employees respectfully,
post-completion. Consequently, we get to see a large number of opportunities,
which means we are never under pressure to do a particular deal. If the
valuation becomes too expensive, we will, without hesitation, move on to other
opportunities.
CONCLUSION
In the short term, we expect inflation to continue to impact the cost of goods
sold. Notwithstanding this, the fundamental outlook for the Group remains very
positive given its historically proven capacity to maintain margins, demand
for its products, synergies it expects to realise from the acquisitions it has
made, and the opportunity it has to continue to make very meaningful
acquisitions. Consequently, the Board expects the next 12 months to be another
period of positive wealth creation for Victoria's shareholders.
Geoff Wilding
Executive Chairman
Philippe Hamers
Group Chief Executive
Condensed Consolidated Income Statement
For the 26 weeks ended 2 October 2021 (unaudited)
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020 53 weeks ended 3 April 2021
(restated) (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
Continuing Operations
Revenue 3 489.0 - 489.0 305.5 - 305.5 662.3 - 662.3
Cost of Sales (315.6) (4.7) (320.3) (203.2) - (203.2) (427.4) - (427.4)
Gross profit 173.4 (4.7) 168.7 102.3 - 102.3 234.9 - 234.9
Distribution costs (50.6) - (50.6) (36.0) - (36.0) (74.8) - (74.8)
Administrative expenses (66.3) (26.2) (92.5) (39.6) (17.5) (57.1) (84.2) (33.9) (118.1)
Other operating income 2.1 - 2.1 1.5 - 1.5 3.9 - 3.9
Operating profit 58.6 (30.9) 27.7 28.2 (17.5) 10.7 79.8 (33.9) 45.9
Comprising:
Operating profit before credit losses, non-underlying and exceptional items 59.4 - 59.4 29.8 - 29.8 81.3 - 81.3
Increase in credit loss provision (0.8) - (0.8) (1.6) - (1.6) (1.5) - (1.5)
Amortisation of acquired intangibles 4 - (16.0) (16.0) - (13.5) (13.5) - (26.8) (26.8)
Other non-underlying items 4 - (7.4) (7.4) - (0.6) (0.6) - 0.7 0.7
Other exceptional items 4 - (7.5) (7.5) - (3.4) (3.4) - (7.8) (7.8)
Finance costs 5 (17.5) (7.3) (24.8) (14.5) (0.9) (15.4) (29.7) (23.7) (53.4)
Comprising:
Interest on loans and notes 5 (14.2) - (14.2) (11.6) (1.4) (13.0) (23.9) (1.4) (25.3)
Amortisation of prepaid finance costs and accrued interest 5 (1.1) - (1.1) (1.3) - (1.3) (2.6) (7.3) (9.9)
Unwinding of discount on right-of-use lease liabilities 5 (2.2) - (2.2) (1.5) - (1.5) (3.0) - (3.0)
Preferred equity items 5 - (10.4) (10.4) - - - - (13.1) (13.1)
Other finance items 5 - 3.1 3.1 (0.1) 0.5 0.4 (0.2) (1.9) (2.1)
Profit / (loss) before tax 41.1 (38.2) 2.9 13.7 (18.4) (4.7) 50.1 (57.6) (7.5)
Taxation (charge) / credit 6 (10.3) 4.3 (6.0) (3.5) 4.3 0.8 (13.0) 23.3 10.3
Profit / (loss) for the period from continuing operations 30.8 (33.9) (3.1) 10.2 (14.1) (3.9) 37.1 (34.3) 2.8
(Loss) / earnings per share - pence basic 7 (2.68) (3.11) 2.30
diluted 7 (2.68) (3.11) 2.29
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks ended 2 October 2021 (unaudited)
26 weeks ended 27 weeks ended 53 weeks ended
2 October 2021
3 October 2020
3 April 2021
(restated) (audited)
£m £m £m
(Loss) / profit for the period (3.1) (3.9) 2.8
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial gain / (loss) on defined benefit pension scheme 0.2 (1.2) (0.1)
Increase in deferred tax asset relating to pension scheme liability - 0.2 -
Items that will not be reclassified to profit or loss 0.2 (1.0) (0.1)
Items that may be reclassified subsequently to profit or loss:
Retranslation of overseas subsidiaries 1.3 3.7 (6.1)
Items that may be reclassified subsequently to profit or loss 1.3 3.7 (6.1)
Other comprehensive income / (expense) 1.5 2.7 (6.2)
Total comprehensive expense for the period attributable to the owners of the (1.6) (1.2) (3.4)
parent
Condensed Consolidated Balance Sheet
As at 2 October 2021 (unaudited)
Group
2 October 2021 3 October 2020 3 April 2021
(restated) (audited)
£m £m £m
Non-current assets
Goodwill 236.5 176.0 164.8
Intangible assets other than goodwill 263.5 233.8 224.2
Property, plant and equipment 234.0 208.6 202.1
Right-of-use lease assets 99.6 73.4 82.6
Investment property 0.2 0.2 0.2
Deferred tax assets 18.5 5.3 17.2
Total non-current assets 852.3 697.3 691.1
Current assets
Inventories 241.4 141.6 164.4
Trade and other receivables 194.4 140.9 150.1
Cash and cash equivalents 178.3 134.0 348.8
Total current assets 614.1 416.5 663.3
Total assets 1,466.4 1,113.8 1,354.4
Current liabilities
Trade and other current payables 285.3 200.4 213.8
Current tax liabilities 8.4 0.6 5.1
Obligations under right-of-use leases - current 14.4 7.3 13.0
Other financial liabilities 34.5 7.0 30.2
Total current liabilities 342.6 215.3 262.1
Non-current liabilities
Trade and other non-current payables 12.8 15.2 17.0
Obligations under right-of-use leases - non-current 94.8 71.6 74.0
Other non-current financial liabilities 647.3 495.7 647.5
Preferred equity 77.8 - 70.1
Preferred equity - contractually-linked warrants 5.8 - 6.1
Deferred tax liabilities 71.6 68.7 62.9
Retirement benefit obligations 6.1 7.5 6.5
Total non-current liabilities 916.2 658.7 884.1
Total liabilities 1,258.8 874.0 1,146.2
Net Assets 207.6 239.8 208.2
Equity
Share capital 6.3 6.3 6.3
Share premium - 288.7 -
Retained earnings 195.8 (67.6) 198.7
Foreign exchange reserve 0.9 9.4 (0.4)
Other reserves 4.6 3.0 3.6
Total equity 207.6 239.8 208.2
Condensed Consolidated Statement of Changes in Equity
For the 26 weeks ended 2 October 2021 (unaudited)
Share Share Retained Foreign exchange reserve Other Total
capital
premium
earnings
reserves
equity
£m £m £m £m £m £m
At 28 March 2020 (restated) 6.3 288.7 (62.7) 5.7 2.6 240.6
Profit for the period to 3 April 2021 - - 2.8 - - 2.8
Other comprehensive loss for the period - - (0.1) - - (0.1)
Retranslation of overseas subsidiaries - - - (6.1) - (6.1)
Total comprehensive loss - - 2.7 (6.1) - (3.4)
Cancellation of share premium account - (288.7) 288.7 - - -
Buy back of ordinary shares - - (30.0) - - (30.0)
Share-based payment charge - - - - 1.0 1.0
Transactions with owners - (288.7) 258.7 - 1.0 (29.0)
At 3 April 2021 6.3 - 198.7 (0.4) 3.6 208.2
Loss for the period to 2 October 2021 - - (3.1) - - (3.1)
Other comprehensive income for the period - - 0.2 - - 0.2
Retranslation of overseas subsidiaries - - - 1.3 - 1.3
Total comprehensive loss - - (2.9) 1.3 - (1.6)
Share-based payment charge - - - - 1.0 1.0
Transactions with owners - - - - 1.0 0.9
At 2 October 2021 6.3 - 195.8 0.9 4.6 207.6
At 28 March 2020 (restated) 6.3 288.7 (62.7) 5.7 2.6 240.6
Loss for the period to 3 October 2020 - - (3.9) - - (3.9)
Other comprehensive loss for the period - - (1.0) - - (1.0)
Retranslation of overseas subsidiaries - - - 3.7 - 3.7
Total comprehensive loss - - (4.9) 3.7 - (1.2)
Share-based payment charge - - - - 0.4 0.4
Transactions with owners - - - - 0.4 0.4
At 3 October 2020 (restated) 6.3 288.7 (67.6) 9.4 3.0 239.8
Condensed Consolidated Statement of Cash Flows
For the 26 weeks ended 2 October 2021 (unaudited)
26 weeks ended 27 weeks ended 53 weeks ended
2 October 2021 3 October 2020 3 April 2021
(restated) (audited)
£m £m £m
Cash flows from operating activities
Operating profit 27.7 10.7 45.9
Adjustments For:
Depreciation and amortisation of IT software 25.9 24.2 47.7
Amortisation of acquired intangibles 16.0 13.5 26.8
Negative goodwill arising on acquisition - - (6.5)
Amortisation of government grants (0.2) (0.3) (0.5)
Profit on disposal of property, plant and equipment (0.1) (0.1) (0.1)
Share incentive plan charge 1.0 0.5 1.0
Defined benefit pension (0.1) (0.1) (0.1)
Net cash flow from operating activities before movements in working capital, 70.2 48.4 114.2
tax and interest payments
Change in inventories (26.1) 26.7 7.6
Change in trade and other receivables (14.0) 1.3 (0.3)
Change in trade and other payables 26.1 (29.0) (25.6)
Cash generated by continuing operations before tax and interest payments 56.2 47.4 95.9
Interest paid on loans and notes (16.1) (16.1) (30.4)
Interest relating to right-of-use lease assets (2.2) (1.5) (3.0)
Income taxes paid (6.6) (0.6) (5.0)
Net cash inflow from operating activities 31.3 29.2 57.5
Investing activities
Purchases of property, plant and equipment (29.9) (11.5) (27.6)
Purchases of intangible assets (0.7) (0.3) (0.9)
Proceeds on disposal of property, plant and equipment 2.0 0.5 1.2
Deferred consideration and acquisition-related performance plan payments (12.0) (10.0) (15.6)
Acquisition of subsidiaries net of cash acquired (140.3) - (2.8)
Net cash used in investing activities (180.9) (21.3) (45.7)
Financing activities
Increase in new borrowings, net of refinancing costs - - 303.7
Repayment of borrowings (23.4) (48.2) (164.7)
Issue of preferred equity, net of refinancing costs - - 65.3
Buy back of ordinary shares - - (30.0)
Payments under right-of-use lease obligations (6.7) (5.1) (11.3)
Net cash (used) / generated in financing activities (30.1) (53.3) 163.0
Net (decrease) / increase in cash and cash equivalents (179.7) (45.4) 174.8
Cash and cash equivalents at beginning of period 344.8 174.7 174.7
Effect of foreign exchange rate changes 2.9 0.3 (4.7)
Cash and cash equivalents at end of period 167.9 129.6 344.8
Comprising:
Cash and cash equivalents 178.3 134.0 348.8
Bank overdrafts (10.4) (4.4) (4.0)
167.9 129.6 344.8
1. General information
These condensed consolidated interim financial statements for the 26 weeks
ended 2 October 2021 have not been audited or reviewed by the Auditor. They
were approved by the Board of Directors on 22 November 2021.
The information for the 53 weeks ended 3 April 2021 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 Auditor's report on those accounts was unqualified and did not
include a reference to any matter to which the Auditor drew attention by way
of emphasis without qualifying the report and did not contain statements under
Section 498(2) or 498(3) of the Companies Act 2006.
2. Basis of preparation and accounting policies
These condensed consolidated interim financial statements should be read in
conjunction with the Group's financial statements for the 53 weeks ended 3
April 2021, 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 53 weeks ended 3 April 2021.
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 interim financial statements of the Group.
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 in the UK,
Republic of Ireland, the Netherlands and Belgium, whose operations involve the
manufacture and distribution of carpets, flooring underlay, artificial grass,
LVT, and associated accessories. The UK & Europe Ceramic Tiles segment
comprises legal entities primarily in Spain 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 and LVT.
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 2 October 2021 27 weeks ended 3 October 2020 (restated)
UK & UK & Australia North Unallocated Total UK & UK & Australia Unallocated Total
Europe
Europe
America
central
Europe
Europe
central
Soft Flooring
Ceramic Tiles
expenses
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m £m £m £m £m £m
Income statement
Revenue 214.0 182.5 53.4 39.1 - 489.0 126.0 132.5 47.0 - 305.5
Underlying operating profit 27.0 25.9 4.8 2.1 (1.2) 58.6 10.2 15.2 3.8 (1.0) 28.2
Non-underlying operating items (4.4) (13.4) (0.9) (3.4) (1.3) (23.4) (2.0) (10.3) (0.9) (0.9) (14.1)
Exceptional operating items (4.0) (1.7) (0.1) (1.5) (0.2) (7.5) (1.6) (1.7) - (0.1) (3.4)
Operating profit 19.8 11.9 3.8 (1.6) (6.2) 27.7 6.6 3.2 2.9 (2.0) 10.7
Underlying net finance costs (17.5) (14.5)
Non-underlying finance costs (7.3) (0.9)
Profit/ (loss) before tax 2.9 (4.7)
Tax (charge) / credit (6.0) 0.8
Loss for the period (3.1) (3.9)
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020
UK & UK & Australia North Unallocated Total UK & UK & Australia Unallocated Total
Europe
Europe
America
central
Europe
Europe
central
Soft Flooring
Ceramic Tiles
expenses
Soft Flooring
Ceramic Tiles
expenses
£m £m £m £m £m £m £m £m £m £m £m
Depreciation and amortisation of IT software (including depreciation of 11.6 11.5 2.2 0.5 0.1 25.9 9.0 12.5 2.4 0.3 24.2
right-of-use lease assets)
Amortisation of acquired intangibles 3.6 10.7 0.9 0.8 - 16.0 2.4 10.3 0.8 - 13.5
15.2 22.2 3.1 1.3 0.1 41.9 11.4 22.8 3.2 0.3 37.7
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020
UK & UK & Australia North Central Total UK & UK & Australia Central Total
Europe
Europe
America
Europe
Europe
Soft Flooring
Ceramic Tiles
Soft Flooring
Ceramic Tiles
£m £m £m £m £m £m £m £m £m £m £m
Total capital expenditure (cashflow) 7.4 19.2 1.8 0.1 0.1 28.6 3.2 7.0 1.1 - 11.3
4. Exceptional and non-underlying items
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020 (restated)
£m £m
Exceptional items
(a) Acquisition and disposal related costs (4.4) (0.4)
(b) Reorganisation and Covid-related exceptional costs (1.2) (3.0)
(c) Negative goodwill reversal (1.9) -
Total exceptional items (7.5) (3.4)
Non-underlying operating items
(d) Acquisition-related performance plans (1.7) (0.1)
(e) Non-cash share incentive plan charge (1.0) (0.5)
(f) Amortisation of acquired intangibles (16.0) (13.5)
(g) Unwind of fair value uplift to acquisition opening inventory (4.7) -
(23.4) (14.1)
All exceptional items are classified within administrative expenses.
(a) One-off third-party professional fees in connection with prospecting and
completing specific acquisitions during the period.
(b) One-off costs relating to a number of efficiency projects during the year,
including post-acquisition integration activities in Italy and the closure of
the Westex factory in West Yorkshire, of which the majority were redundancy
costs. In the prior period, this figure included one-off expenditure relating
to precautionary measures for health and safety in light of Covid-19. Other
than redundancy payments these items relate entirely to exceptional
third-party purchases and fees, and do not include any allocation of internal
resources.
(c) Negative goodwill of £2.2m arising on the acquisition of Hanover was
credited to the income statement during the prior period. In accordance with
the terms of the contract, an adjustment to the cash consideration paid on
completion was subsequently assessed and settled. This payment of £1.9m was
made following the year end and is therefore recognised as a charge to the
Income Statement in the period.
(d) Charge relating to the accrual of expected liability under
acquisition-related performance plans (see Note 11 for further details).
(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 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 (see Note 9 for further details).
5. Finance costs
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020 (restated)
£m £m
Underlying finance items
Interest on bank facilities and notes 13.8 11.2
Interest on unsecured loans 0.4 0.4
Total interest on loans and notes 14.2 11.6
Amortisation of prepaid finance costs on loans and notes 1.1 1.3
Unwinding of discount on right-of-use lease liabilities 2.2 1.5
Net interest expense on defined benefit pensions - 0.1
17.5 14.5
Non-underlying finance items
(a) Finance items related to preferred equity 10.4 -
Preferred equity related 10.4 -
(b) Other adjustments to present value of contingent earn-out liabilities - 0.5
(c) Unwinding of present value of acquisition-related performance plans - 0.6
Acquisitions related - 1.1
(d) Interest on short-term draw of Group revolving credit facility - 1.4
(e) Fair value adjustment to notes redemption option (1.1) (0.7)
(f) Unsecured loan redemption premium charge 0.1 -
(g) Mark to market adjustments and gains on foreign exchange forward contracts (2.4) 2.6
(h) Translation difference on foreign currency loans 0.3 (3.5)
Other non-underlying (3.1) (0.2)
7.3 0.9
(a) The net impact of non-cash items relating to preferred equity issued to
Koch Equity Development during the prior year. This comprises: i) accrual of
preferred dividends and other value movements of the host contract (£5.0m);
ii) fair value adjustment to embedded derivative representing a cash
settlement option (£1.8m); iii) amortisation of associated instrument
representing the option to issue additional preferred equity (£0.9m); iv)
fair value adjustment to contractually-linked warrants (credit: £0.3m); and
iv) 6% ticking fee on option to issue £100.0m additional preferred equity
(£2.9m).
(b) Non-cash items relating to changes in contingent earn-out consideration
arising from the evolution of actual and forecast financial performance of the
relevant acquisitions during the prior period.
(c) Non-cash cost relating to unwinding of the present value discount on
acquisition-related performance plans during the prior period.
(d) Interest cost associated with the drawing of the Group's £75m revolving
credit facility in March 2020, as a precautionary measure in response to the
Coronavirus pandemic.
(e) Fair value adjustment to embedded derivative representing the early
redemption option within the terms of the senior secured notes.
(f) Unsecured loan redemption premium charge - non-cash item relating to the
£2.1 million redemption premium on the BGF loan.
(g) Non-cash fair value adjustments on foreign exchange forward contracts.
(h) Net impact of exchange rate movements on third party and intercompany
loans.
6. Taxation
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020
£m £m
Current tax
- Current year UK 2.4 -
- Current year overseas 7.6 1.1
10.0 1.1
Deferred tax
- Credit recognised in the current year (4.0) (1.9)
(4.0) (1.9)
Total tax charge / (credit) 6.0 (0.8)
Corporation tax is calculated at the applicable percentage of the estimated
assessable profit for the year in each respective geography. This is 19% in
the UK; 25% in the Netherlands and Spain; 27.9% in Italy; 30% in Australia;
29% in Belgium; 12.5% in Ireland an 26% in North America.
The overall effective corporation tax rate on underlying profit is 25.0%
(2020: 25.5%), 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 2 October 2021 27 weeks ended 3 October 2020
Basic Adjusted Basic Adjusted
(restated) (restated)
£m £m £m £m
Loss attributable to ordinary equity holders of the parent entity (3.1) (3.1) (3.9) (3.9)
Exceptional and non-underlying items:
Income statement impact of preferred equity - 10.4 - -
Amortisation of acquired intangibles - 16.0 - 13.5
Other non-underlying items - 7.4 - 0.6
Other exceptional items - 7.5 - 3.4
Interest on short -term draw of Group revolving credit facility - - - 1.4
Amortisation of prepaid finance costs - - - -
Fair value adjustment to notes redemption option - (1.1) - (0.7)
Translation difference on foreign currency loans - 0.3 - (3.5)
Other non-underlying finance items - (2.3) - 3.7
Tax effect on adjusted items where applicable - (4.3) - (4.3)
(Loss) / earnings for the purpose of basic and adjusted earnings per share (3.1) 30.8 (3.9) 10.2
from continuing operations
(Loss) / earnings for the purpose of basic and adjusted earnings per share (3.1) 30.8 (3.9) 10.2
Weighted average number of shares
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020
Number Number
of shares
of shares
(000's) (000's)
Weighted average number of shares for the purpose of basic and adjusted 116,852 125,398
earnings per share
Effect of dilutive potential ordinary shares:
Share options 1,657 625
Weighted average number of ordinary shares for the purposes of diluted 118,509 126,023
earnings per share
Preferred equity and contractually-linked warrants 7,990 -
Weighted average number of ordinary shares for the purposes of diluted 126,499 126,023
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 2 October 2021 27 weeks ended 3 October 2020
(restated)
Pence Pence
Earnings / (loss) per share
Basic loss per share (2.68) (3.11)
Diluted loss per share (2.68) (3.11)
Basic adjusted earnings per share 26.32 8.13
Diluted adjusted earnings per share 24.32 8.09
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.
8. Rates of exchange
26 weeks ended 2 October 2021 27 weeks ended 3 October 2020 53 weeks
ended
2 Apr 2021
Australia (A$) - average rate 1.8161 1.8665 1.8049
Australia (A$) - period end 1.8649 1.8053 1.8377
Europe (€) - average rate 1.1659 1.1151 1.1344
Europe (€) - period end 1.1683 1.1038 1.1624
USD ($) - average rate 1.3849 N/A N/A
USD ($) - period end 1.3545 N/A N/A
9. Acquisition of subsidiaries
(a) Colli and Vallelunga
On 21 April 2021 the Group completed the purchase of the business and assets
of ceramic tile distributors, Ceramica Colli and Vallelunga.
Located near Victoria's existing Italian operations, these successful, growing
brands bring significant additional spare production capacity and enable
continued growth in Victoria's already established Italian ceramics business
through the utilisation of that spare production capacity.
The total cash consideration for Ceramica Colli and Vallelunga was €15.3m
(£13.3m(1)).
The valuation exercise to identify intangible assets acquired, as required
under IFRS3, has been provisionally applied as at the half year. The final
valuation will be reflected in the Annual Report and Accounts for the Group
for the year ending 2 April 2022 together with the appropriate IFRS 3
disclosures. Identifiable net assets with a total fair value of €13.6m
(£11.8m(1)) and goodwill of €1.7m (£1.5m(1)) have provisionally been
recognised in the opening balance sheet.
Within net assets we have provisionally recognised €1.4m (£1.3m(1)) in
relation to the fair value uplift of inventory in accordance with IFRS 3. The
fair value has been assessed as the estimated selling price less any estimated
selling costs, therefore by definition no operating profit is recognised on
sale of the opening inventory. As of 2 October 2021, all of the applicable
inventory had been sold. Given the resulting uplift in cost of sales is not
representative of the underlying performance of the business in relation to
the actual costs incurred in acquiring and producing the inventory, but
instead represents the one-off impact of this fair value accounting adjustment
within the purchase price allocation, this uplift has been separately
disclosed as an exceptional cost.
(b) Ceramiche Santa Maria
On 21 April 2021 the Group acquired 100% of the equity of the Italian ceramic
tile manufacturer, Ceramiche Santa Maria.
The purchase of Santa Maria will further support the growth in our Italian
ceramics brands.
The total cash consideration of €8.5m (£7.3m(1)) was paid on completion.
The valuation exercise to identify intangible assets acquired, as required
under IFRS3, has been provisionally applied as at the half year. The final
valuation will be reflected in the Annual Report and Accounts for the Group
for the year ending 2 April 2022 together with the appropriate IFRS 3
disclosures. Identifiable net assets with a total fair value of €7.8m
(£6.7m(1)) and goodwill of €0.7m (£0.6m(1)) have provisionally been
recognised in the opening balance sheet.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1573.
(c) Edel Group
On 4 May 2021 the Group acquired 100% of the equity of Edel Group BV ("Edel"),
Netherlands-based designers, manufacturers, and distributers of artificial
grass and carpets.
Established in 1918, Edel primarily supplies artificial grass for domestic and
landscaping purposes across Europe, a market in which Victoria already has a
strong presence following its February 2017 acquisitions of Avalon and
GrassInc.
Consideration of €49.8m (£43.1m(2)) was paid in cash on completion.
The valuation exercise to identify intangible assets acquired, as required
under IFRS3, has been provisionally applied as at the half year. The final
valuation will be reflected in the Annual Report and Accounts for the Group
for the year ending 2 April 2022 together with the appropriate IFRS 3
disclosures. Identifiable net assets with a total fair value of €13.1m
(£11.4m(2)) and goodwill of €36.7m (£31.7m(2)) have provisionally been
recognised in the opening balance sheet.
Within net assets we have provisionally recognised €1.0m (£0.9m(2)) in
relation to the fair value uplift of inventory in accordance with IFRS 3. The
fair value has been assessed as the estimated selling price less any estimated
selling costs, therefore by definition no operating profit is recognised on
sale of the opening inventory. As of 2 October 2021, all of the applicable
inventory had been sold. Given the resulting uplift in cost of sales is not
representative of the underlying performance of the business in relation to
the actual costs incurred in acquiring and producing the inventory, but
instead represents the one-off impact of this fair value accounting adjustment
within the purchase price allocation, this uplift has been separately
disclosed as an exceptional cost.
Subsequently, on 17 August 2021 the Group acquired 100% of the equity of Edel
Grass.
Consideration of €6.1m (£5.2m(3)) was paid in cash on completion.
The valuation exercise to identify intangible assets acquired, as required
under IFRS3, has been provisionally applied as at the half year. The final
valuation will be reflected in the Annual Report and Accounts for the Group
for the year ending 2 April 2022 together with the appropriate IFRS 3
disclosures. Identifiable net assets with a total fair value of €4.7m
(£4.0m(3)) and therefore goodwill of €1.4m (£1.2m(3)) have provisionally
been recognised in the opening balance sheet.
(2) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1561.
(3) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1675.
(d) Cali Bamboo Holdings Inc
On 23 June 2021 the Group acquired 100% of the equity of Cali Bamboo Holdings
Inc. ("Cali").
Cali is a multi-channel US flooring distributor with the majority of revenue
generated through sales of luxury vinyl tile / luxury vinyl plank, along with
engineered hardwood, composite decking and other items.
Total consideration of Cali was $112.1m (£80.3m(5)). The consideration of
$111.6m (£79.9m(5)) was paid in cash on completion and $0.5mn (£0.4m(5)) was
paid subsequently in November 2021 as a closing cash adjustment. The total
consideration paid included repayment of existing debt at time of acquisition.
The valuation exercise to identify intangible assets acquired, as required
under IFRS3, has been provisionally applied as at the half year. The final
valuation will be reflected in the Annual Report and Accounts for the Group
for the year ending 2 April 2022 together with the appropriate IFRS 3
disclosures. Identifiable net assets with a total fair value of $62.1m
(£44.5m(4)) and goodwill of $50.0m (£35.8m(4)) have provisionally been
recognised in the opening balance sheet.
Within net assets we have provisionally recognised $3.6m (£2.6m(4)) in
relation to the fair value uplift of inventory in accordance with IFRS 3. The
fair value has been assessed as the estimated selling price less any estimated
selling costs, therefore by definition no operating profit is recognised on
sale of the opening inventory. As of 2 October 2021, all of the applicable
inventory had been sold. Given the resulting uplift in cost of sales is not
representative of the underlying performance of the business in relation to
the actual costs incurred in acquiring and producing the inventory, but
instead represents the one-off impact of this fair value accounting adjustment
within the purchase price allocation, this uplift has been separately
disclosed as an exceptional cost.
(4 )Applying the GBP to USD exchange rate at the date of acquisition of
1.3967.
10. Post balance sheet events
Acquisitions of B3 Ceramics Danismanlik ("Graniser")
On 10 November 2021 the Group signed a definitive agreement to acquire the
shares of Turkish ceramic tile manufacturer and exporter, B3 Ceramics
Danismanlik ("Graniser") for total cash consideration of €8.4 million (£7.1
m(1)), which will be funded entirely from the Group's cash balances. In
addition, Graniser has approximately €39.8 million (c. £33.7m(1)) of net
debt (including shareholder loans), which will be repaid on completion. For
the 12 months ended 31 December 2020, Graniser generated audited revenues of
€59.3 million(2) (c. £52.8m(2)). Current normalised EBITDA is
approximately €9 million (c. £7.7m(1)). Completion is subject to procedural
approval by the Turkish competition authorities and is expected to take place
in January 2022.
(1) Converted to GBP at a rate of 1.18 GBP/EUR.
(2) 2020 Revenue of 477.1mm Turkish Lira converted to EUR and GBP at 2020
average rate of 8.04 TL/EUR and 9.03 TL/GBP, respectively.
11. Restatement of acquisition accounting
The prior period income statement, balance sheet, cash flow statement and
related other statements and notes have been re-stated to reflect a change in
accounting treatment of the contingent earn-out consideration payable on
certain historical acquisitions. Earn-outs are deferred elements of
consideration, typically paid in cash over a three to four-year period
following acquisition, that are contingent on the financial performance of the
target business meeting certain pre-determined targets over that period.
This accounting change has no impact on the underlying results, the cash flow
or the tax position of the Group.
Whilst earn-outs form part of the purchase price that was negotiated in the
past with each respective seller, and are contractually payments in exchange
for the shares or assets of a business, on review of developing and developed
guidance regarding interpretation of the relevant standards (including
revisiting our assessment of IFRS Interpretations Committee decision "IFRS 3
Business Combinations-Continuing employment") the Group has remedied the
accounting treatment of these items where leaver provisions exist that result
in the earn-out effectively being contingent on the continued employment of
the seller(s) following the acquisition. This is relevant where the leaver
provisions included in the acquisition agreement result in a "good leaver"
scenario being highly unlikely or outside the control of the seller (a good
leaver scenario is where the seller is able to leave employment but still
retain all or a proportion of their unpaid earn-out). Such leaver provisions
are included in our acquisitions in order to protect the goodwill being
acquired over the first few years of ownership. However, in accordance with
the IFRS interpretation noted above, in such circumstances the relevant
earnouts are now being treating as non-underlying remuneration costs, accrued
over the earn-out period (i.e. the period over which the effective employment
condition is applicable). Previously they were fully recognised at fair value
at the point of acquisition, thereby forming part of goodwill.
The restatement resulted in the prior period loss of £2.1m increasing by
£1.8m to a restated loss of £3.9m. Net assets decreased by £21.9m from
£261.7m to £239.8m with the majority of the decrease being within goodwill.
For further details of the restatement of acquisition accounting and impacts
to prior periods statements see note 29 of the Annual Report and Accounts for
the year ended 3 April 2021.
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