REG - Victoria PLC - Preliminary Results
19/07/2022 07:15
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RNS Number : 9431S Victoria PLC 19 July 2022
For Immediate Release 19 July 2022
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Preliminary Results
for the year ended 2 April 2022
and
Q1 FY2023 Trading Update
Record FY2022 Revenues and Operating Profits
Victoria PLC (LSE: VCP) the international designers, manufacturers and
distributors of innovative floorcoverings, is pleased to announce its
preliminary results for the year ended 2 April 2022.
FY2022 Financial and Operational highlights
Continuing operations Year ended Year ended Change on prior year
2 April 2022 3 April 2021
Revenue £1,019.8m £662.3m +54.0%
Underlying EBITDA(1) £162.8m £127.4m +27.8%
Underlying operating profit(1) £107.9m £79.8m +35.2%
Operating profit £53.6m £45.9m +16.8%
Underlying profit before tax(1) £73.8m £50.1m +47.3%
Net profit / (loss) after tax (£12.4m) £2.8m -
Underlying free cash flow(2) £34.2m £38.8m -
Net debt(3) £406.6m £345.7m -
Net debt / EBITDA(4) 2.66x 3.10x -
Earnings / (loss) per share:
- Basic (10.61p) 2.30p -
- Diluted adjusted(1) 40.21p 28.66p +40.3%
· FY2022 was the ninth consecutive record year for Victoria in terms of
revenue and underlying operating profit, despite challenging operational
conditions due to supply chain constraints and significant inflationary
pressures.
· Five value-adding acquisitions completed during the year - one in the
UK & Europe Soft Flooring division, three in the UK & Europe Ceramic
Tiles division, and one in the US forming a new North America division.
· Strong trading continued, achieving record annual revenue of £1,020
million, including like-for-like organic growth of +19.2%.
· Underlying EBITDA grew by +27.8% over the prior year to £162.8
million.
· Notwithstanding the significant increase in EBITDA on an absolute
basis, the underlying EBITDA margin % was 16.0% due to two key mathematical
factors:
(1) acquisition mix effect of c. -190bps - our acquisition targets
generally had significantly lower margins than the incumbent group on
acquisition; and
(2) cost inflation pass-through effect of c. -180bps - unprecedented
cost inflation during the year was, to the extent not mitigated by operational
measures, passed onto customers but without any mark-up, thereby protecting
absolute profits but not % margins.
After accounting for these factors, the residual organic movement in margin
was c. +50bps.
· Strong cash generation with £34.2 million of underlying free cash
flow, which equated to a 32% conversion from underlying operating profit. The
group increased capex following Covid-19 related reductions in the prior year,
and also increased investment into raw materials as a precautionary measure to
protect our production schedules in the face of possible supply chain
disruption. The resulting uplift in inventory is expected to unwind in the
future. B
· Successful £150 million incremental issue of preferred equity to
Koch Equity Development, with beneficial changes in terms including a 100bps
reduction in coupon.
· Year-end net leverage was 2.66x, with the Group's senior debt
consisting entirely of fixed rate, covenant-lite bonds falling due in August
2026 and March 2028.
· A resilient balance sheet, with cash and undrawn credit lines at the
year-end, even after adjusting for the post year-end acquisition of Balta, in
excess of £200 million.
Q1 FY2023 Trading Update
Overall revenue and earnings during the first quarter of Victoria's financial
year were in line with the Board's original budget expectations. The value of
the geographic diversity that the Group has carefully built over the last nine
years is again to the fore as outperformance in some markets supports softer
demand elsewhere.
Whilst the Board remains very mindful of the economic headwinds in the world
and is taking numerous actions to mitigate their impact, with Victoria's track
record of resilience and strong management, it is confident that the business
is well positioned to meet these challenges and capitalise upon them.
Geoff Wilding, Executive Chairman of Victoria PLC commented:
"Victoria continues to be in an enviable operational position thanks to the
achievements of our management team, who have successfully managed a year that
has seen the highest inflation in a generation alongside massive disruption to
global supply chains. This year they remain laser-focussed on integration of
recent acquisitions and execution of detailed synergy plans that will drive
higher productivity, lower costs, and better customer service. I remain
confident Victoria will continue to create wealth for shareholders."
(1) Underlying performance is stated before exceptional and non-underlying
items. In addition, underlying profit before tax and adjusted EPS are stated
before non-underlying items within finance costs.
(2) Underlying free cash flow represents cash flow after interest, tax and
replacement capital expenditure, but before investment in growth, financing
activities and exceptional items.
(3) Net debt shown before right-of-use lease liabilities, preferred equity,
bond issue premia and the deduction of prepaid finance costs.
(4) Leverage shown consistent with the measure used by our lending banks
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, Richard Bootle
Peel Hunt (Joint Broker) +44 (0) 207 418 8900
Adrian Trimmings, Andrew Clark
Buchanan Communications (Financial PR) +44 (0) 20 7466 5000
Charles Ryland, Chris Lane, Jack Devoy
Chairman and CEO's Review
INTRODUCTION
FY2022 has not been without its challenges. However, we are pleased to report
that, thanks to the remarkable efforts of our management team, Victoria has
again produced record operating profits and operating cash generation. As set
out in previous Annual Reports, the historical progression of some KPIs has
been summarised in the table below:
Underlying EBITDA per share(1,2) Underlying EBITDA margin(1) Diluted adjusted EPS(2) Underlying operating cash flow per share(2,3) EBITDA by geography(1)
Year £ % Pence £ UK Australia Europe North America(4)
FY15 0.27 12.5% 10.47 0.30 79.5% 20.5% - -
FY16 0.39 12.6% 16.32 0.40 79.3% 20.7% - -
FY17 0.50 13.8% 24.42 0.48 75.1% 23.6% 1.3% -
FY18 0.64 15.2% 30.61 0.64 48.3% 22.0% 29.7% -
FY19 0.78 16.8% 35.25 0.86 25.8% 9.7% 64.5% -
FY20 0.86 17.3% 28.42 0.78 26.9% 7.5% 65.6% -
FY21 0.87 16.9% 30.21 0.77 33.6% 13.0% 53.4% -
FY22 1.04 14.1% 40.21 0.96 42.1% 10.0% 43.9% 3.9%
The KPIs in the table above are alternative performance measures used by
management along with other figures to measure performance. Full financial
commentary is provided in the Financial Review below.
This review focuses on the underlying operating results of the business, which
delivered underlying EBITDA of £162.8 million (FY21: £127.4m) and underlying
EBIT of £107.9 million (FY21: £79.8m). The Financial Review covers
non-underlying items in detail, following which IFRS reported operating profit
was £53.6 million (FY21: £45.9m), and furthermore covers items in the income
statement below operating profit (financial items and tax).
One of the objectives of this review, along with the Financial Review, is to
help our shareholders better understand the business and be able to reach an
informed view of the value of the company, its future prospects, and its
financial resilience. We also hope that investors will better appreciate some
of Victoria's unique characteristics that the Board believes makes it an
attractive investment.
To achieve these objectives requires data to be shared in a way that
communicates information and this will include both IFRS-compliant and
non-IFRS, performance measures. Shareholders are of course free to accept or
discard any of this data, but we want to ensure that you have access to
similar information used by Victoria's board and management in making
decisions.
1 In this review, underlying EBITDA in FY20, FY21 and FY22 is stated before
the impact of IFRS 16 for consistency of comparison with earlier years.
2 FY15 adjusted for 5-for-1 share split; FY16 and FY20 figures for continuing
operations.
(3) Number of shares based on basic, weighted-average calculation consistent
with basic EPS.
(4) Victoria's North American business, Cali, was acquired on 23 June 2021 and
therefore contributed 9 months of trading in FY2022. On an annualised basis,
the contribution is c. 5% of Group EBITDA.
FY2022 OPERATIONAL REVIEW
Overview
Anyone hoping for an easier year in FY2022 following the previous two
challenging years was disappointed. However, the work achieved by our
operational management during FY2020 and FY2021 - improving our market
position, sustainably improving productivity, and taking advantage of some
weaker competition - ensured the business prospered, in spite of the wider
operating environment.
Before commenting specifically on each of the different operating divisions,
there were several Group-wide items in FY2022 that we think are worth
highlighting.
Inflation
We are not macro-economists and therefore express no opinion on whether the
inflation we have experienced over the last 18 months is "transitory",
"enduring", or "systemic". What we are doing is managing the business to
ensure our return on equity remains acceptable for equity investors, taking
into account the effects of inflation. Management reacted with alacrity to
protect the business and we would like to draw shareholders' attention to some
of Victoria's qualities that underpin our business model:
· Victoria has a long-proven ability to increase prices and
successfully did so up to four times across each product area during FY2022 to
protect earnings.
· Management is laser-focussed on delivering a number of carefully
planned synergy projects that will increase operating margins, mitigating some
inflationary pressures.
· The Group's industry-leading operating margins provide room for
manoeuvre against struggling competitors.
· We actively hedge or otherwise manage key input costs to provide
management with time to adapt our business and prices to higher input costs so
that margins are protected.
Notwithstanding the above, Victoria is fortunate to have an operational
management team who have personal experience of running a business in a high
inflationary environment (it is one of the few advantages of age) and who
recognises that high inflation is an invidious force whose effects are far
more wide-ranging than the simple margin impact described in the preceding
paragraph. These less obvious factors, which include the level of investment
required in tangible assets, must also be successfully negotiated by
management in order for wealth to continue to be built.
For example, whilst margins are protected through price increases, the
consequential increase of purchases and sales in nominal Sterling (or Euros or
Dollars) generates a one-off reduction in free cash flow and results in a
proportionally greater amount of cash absorbed in receivables and inventories
(partially offset by an increase in creditors). Options to address this
include additional price increases to ensure an adequate investment return on
the increased working capital, negotiating better payment terms from
suppliers, improving inventory turn to offset the capital being absorbed, as
well as faster debtor collection.
Furthermore, if inflation endures for an extended period, the money invested
in fixed assets (plant and machinery) will also increase over time, absorbing
cash. When the time comes - and it always does - to replace those assets, the
purchase price of the new machinery is dramatically higher due to inflation
and the amount put aside by depreciating the old equipment is inadequate. This
impact is exacerbated by the fact that fixed assets are depreciated at their
historical cost, which means the tax shelter legitimately generated is also
insufficient.
The risk, if these often-overlooked effects aren't addressed, is that the
business may barely generate sufficient cash to fund the inflationary needs of
the existing business, with nothing left over for real growth, for
distribution to owners, or for the acquisition of new businesses.
However, Victoria benefits from having a much higher return on tangible assets
(consistently in excess of 25%) than many of its competitors. Furthermore, and
because we have only acquired high quality businesses, much of our historical
investment is tied to intangible assets. In contrast with tangible assets,
during periods of inflation, intangible assets (goodwill, brands, customer
relationships) that genuinely generate income are wonderful. The income they
generate continues to increase (in nominal EUR/GBP/USD/AUD) and yet none of
this cash is required to maintain the assets - almost all of it is available
for investment purposes.
Demand
Sam Goldwyn famously said "Forecasts are difficult to make - particularly
those about the future." With that caveat, there are some reasons to be
cautiously positive about demand for Victoria's products.
Firstly, as a manufacturer and distributor of typically mid to high-end
flooring, Victoria's core customers are less sensitive to economic uncertainty
and inflation. A (relatively) recent example of this was demonstrated during
the 2007-9 global financial crisis during which Victoria's organic revenues
continued to grow:
· 2007 £55.4 million
· 2008 £61.7 million
· 2009 £62.2 million
And over the last 25 years, revenues have grown organically by more than 3%
CAGR.
Secondly, since late last (calendar) year, we have seen commercial demand
returning. After two years of very substantially reduced spending on flooring,
hospitality, healthcare, cruise ships, offices, etc. are all again investing
in maintaining and upgrading their facilities and driving demand for flooring
products. This renewed commercial demand (40.5% of the flooring market by
volume in the US; 54.6% in Europe, including the UK(4)) is additive to
consumer spending and is still early in the cycle.
(4) Source: Freedonia Global Flooring Report 2021
Nonetheless lower demand for a period of time cannot be ruled out. However, it
is our view that Victoria is uniquely placed within the flooring sector to
weather such an event:
· The Group has been deliberately structured with low operational
gearing. (In other words, a high proportion of costs vary with revenue). The
benefit was clearly demonstrated during the pandemic when the Group remained
EBITDA positive every quarter despite lockdowns driving down revenues by as
much as 80%. This was not just an accounting benefit - shareholders will
recall that, despite the lockdown in all of Victoria's geographies in the June
2020 quarter, negative cash flow was just £7 million for the three months.
· Victoria has averaged 90.5% pre-tax operating cash conversion(5) over
the last five years. The Group is highly effective at managing its working
capital. High cash conversion ensures the Group continues to generate cash,
even during periods of lower demand.
· Much of our production output is supplied to our customers based on
end-consumer orders, not supplied to our customers (retailers) for inventory.
This reduces exposure to de-stocking risks.
· A resilient balance sheet with cash and undrawn credit lines at the
year-end, even after adjusting for the post year-end acquisition of Balta, in
excess of £200 million. Furthermore, the Group's senior debt consists
entirely of long-duration, fixed interest rate, covenant-lite bonds.
(5) Based on underlying cash flow before interest, tax and exceptional items;
Conversion from pre-IFRS 16 EBITDA
Finally, it is our strong view that in the event of one or two years of
subdued demand, after which the business returns to growth (we think it is a
reasonable assumption that people will continue to need to walk on floors),
there will be little impact on the long-term value of Victoria. Remember,
Victoria's revenue has grown organically at more than 3% CAGR for the last 25
years - which includes the recession of 2001-2, the global financial crisis of
2007-8, Brexit in 2016, and the Covid-19 pandemic in 2020-21. For 127 years
Victoria has been a remarkably resilient business.
Koch Equity Investment
Following the success of their initial investment in November 2020, Koch
Equity Development agreed to increase their preferred equity investment in
Victoria in January of this year to a total of £225 million, alongside a
holding of 12.5 million ordinary shares that they acquired in 2020 in the
secondary market. The purpose of this capital has been, and will continue to
be, investment in both expansion capex and acquisitions to accelerate the
growth of Victoria's earnings and free cash flow per share. It is the current
intention of the Board to be in a position to fully redeem the preferred
equity shares with cash on hand prior to their conversion.
The commercial terms of this investment are detailed in Note 6 to the accounts
and we do not propose to repeat them here. However, part of Koch's investment
return on their preferred equity is expected to come from attached ordinary
share warrants and we thought it would be helpful for shareholders to update
the table provided in the Interim Report illustrating the maximum number of
ordinary shares that can be issued, if the warrants are exercised:
Number of ordinary shares issued on exercise of warrants
Share Price at exercise date £8.00 £10.00 £12.00 £14.00 £16.00 £18.00
Number of shares* 4.21m 3.37m 2.81m 2.41m 2.11m 1.87m
% of shares in issue** 3.6% 2.9% 2.4% 2.1% 1.8% 1.6%
*Assuming the warrants are exercised 36 months after the initial funds were
received and net settled. Note that no new warrants were issued as part of the
follow-on preferred equity issuance in January 2022, but the number of
ordinary shares to be issued on exercise has changed slightly as a result of
the mathematical impact on the warrants mechanism.
**Based on number of shares in issue at the year-end (116,843,232).
Koch continue to be excellent partners, actively supporting Victoria's growth
both financially and practically. We are delighted to have them as
shareholders.
Operating Margins
Price increases, alongside other cost saving measures during the year,
successfully mitigated the impact of significant inflation in raw material and
energy prices on operating profit - albeit %age margins experienced an impact
from the resultant increase in revenue, as we chose to focus on achieving
earnings and not to add a mark-up when covering cost inflation. Details of
this mathematical impact are provided in the Financial Review section.
It is essential to understand the impact on reported margins from
acquisitions. Given Victoria's operational management team's extraordinary
skill in optimising the productivity and profitability of our subsidiaries and
consequently achieving truly industry-leading operating margins, it is an
inevitable corollary that most new acquisitions will be margin dilutive - at
least until they too are fully integrated. This is why, in a year when
Victoria completed no major acquisitions, a record underlying EBITDA margin of
19.2% was achieved in FY2021.
It is important shareholders appreciate that, unlike the last three financial
years, there will be some exceptional and reorganizational costs in FY2023 as
our management integrate the recent acquisitions. Omelettes cannot be made
without eggs being broken. However, the track record of Victoria's management
delivering synergy projects on time and on budget with the planned outcome
achieved is exemplary and the uplift in earnings and cash flow on completion
of these projects will be material.
DIVISIONAL REVIEW
This section focuses on the underlying operating performance of each
individual division, excluding exceptional and non-underlying items, which are
discussed in detail in the Financial Review and Note 2 to the accounts.
UK & Europe Soft Flooring - record revenues and profits
FY22 FY21 Growth
Revenue £423.1 million £280.4 million +50.9%
Underlying EBITDA £70.3 million £49.0 million +43.4%
Underlying EBITDA margin 16.6% 17.5%
Underlying EBIT £45.4 million £28.7 million +58.5%
Underlying EBIT margin 10.7% 10.2%
The UK & Europe Soft Flooring division delivered an extraordinarily strong
performance, with true LFL revenues(6) having increased organically by 31%
whilst maintaining operating margins, despite inflationary pressures. Managing
director, Jan Debrouwere, has, together with his management team, completed an
incredible job in optimising operations (it was only a few years ago this was
a mid-single-digit margin business). He and his team are now focussed on
integrating Balta's carpet business where similar margin expansion is expected
over time.
(6) Revenue growth normalised for the one-off impact of acquisitions, the
extra week in the prior financial year, and translational exchange rate
differences.
Historically, revenues in this division were slightly weighted towards H2.
This is no longer the case as our artificial grass business, which contributes
almost £100 million of annual revenue, is very heavily weighted towards H1
with people buying grass for the summer season.
Carpet and underlay
· The Group completed the relocation of its prestigious Westex brand
manufacturing to new production facilities in Dewsbury, Yorkshire. The
significantly improved productivity at the new site has lifted operating
margins, and a full payback on the capital cost is expected in less than three
years.
· High-speed tufters and a beaming facility were installed in the
Abingdon plant in Wales to enhance productivity, enabling smaller production
runs to be efficient, enhancing productivity and reducing working capital.
· We created an extra layer of inventory, being 'mother-rolls', to
further improve service levels above our competitors and reduce the conversion
time of yarn (fibre) into finished product.
Logistics
· The investment in our logistics capacity provides Victoria with an
unassailable competitive advantage that continues to drive market share gains.
Retailers value service over the last few pennies in price. It is one of the
key reasons for our 31%+ LFL revenue growth over FY2022.
· On-Time-Delivery for available stock across the country within three
days further increased to 94.4%, resulting in retailers favouring Victoria
Group products over those from competitors with slower and less certain
delivery.
· During FY2022 we completed the construction of a new warehouse on the
Abingdon site in Wales. This provides storage for roll-stock deliveries and
takes pressure off the fulfilment centres, which can remain focussed on
delivering higher-margin cut length carpet.
· The Group committed to a state-of-the-art, carbon neutral,
purpose-built 185 000 ft² warehouse in Worcester. This fulfilment centre will
replace the Kidderminster warehouse (the former Victoria carpet factory) and
will house the Victoria Group HQ. This project is under construction and will
be ready for occupancy by December 2022.
UK & Europe Ceramic Tiles - record revenues and profits
FY22 FY21 Growth
Revenue £371.6 million £282.4 million +31.6%
Underlying EBITDA £71.4million £63.1 million +13.2%
Underlying EBITDA margin 19.2% 22.3%
Underlying EBIT £47.5million £40.4 million +17.5%
Underlying EBIT margin 12.8% 14.3%
There is typically a revenue and earnings bias towards H1 in the ceramics
division. Nonetheless, against very strong comparatives, the Group's ceramic
tile division delivered record revenues and profits in FY2022.
With regard to margin performance, it is important to understand that the main
reason for the difference between FY2021 and FY2022 is the pro-forma effect of
acquisitions. Victoria acquired three ceramic tile businesses during 2022 -
all of which were producing lower margins than the incumbent businesses in
this division. However, the margins of these new acquisitions will grow as
integration continues.
Furthermore, the management team had to contend with extraordinarily high
energy prices for part of H1 and the entirety of H2. Energy costs comprise
approximately 10% of revenues for our ceramic business and therefore, the
continued gains achieved in H2 is a credit to the management and the material
synergies they are delivering from integrating the acquisitions made in early
(calendar) 2021. (Given 12 months have now elapsed since energy prices started
to increase substantially, shareholders should note that the pricing
mechanisms and operational changes implemented to deal with them are now baked
into our business).
Finally, it is worth highlighting the advantage that Victoria's scale provides
in flexing costs with demand. We have 20 kilns instead of the usual 2 or 3
kilns of smaller ceramics manufacturers. This means that if revenue declines
by 5% we can turn off one kiln - saving energy, labour, maintenance, etc. and
keep the balance in full production. A smaller operator has to wait until
revenue has declined 33% (if they have three kilns) before being able to do
the same. Until they reach this point, the cost of keeping three kilns
operating with, say, 20% less revenue is very expensive. Alternatively, they
can shut their kiln down early, which results in them losing the revenue that
the kiln was making. Either way, smaller operators have much higher operating
leverage than Victoria.
Italy
· Despite adding a very material amount of capacity, all the additional
production output was sold, and we have an order backlog of many months.
· Our €10 million investment program, streamlining the production
activities of the Italian plants, was finalised. This comprised:
o bringing the Santa Maria plant (acquired in April 2021) up to standard and
certification as well as activation of the 2(nd) atomiser available at the
plant. The atomising capacity can now serve 3 kilns for the Group;
o at the Serra plant, replacing one of three lines (a 24 year-old line) with a
new, more efficient, and multi-purpose line capable of making both red body
and porcelain tiles; and
o at the Dom plant (acquired in February 2020), replacing an old line and
installation of a new large-size line, along with a new polishing line that
allows us to insource a high-cost process that until recently we paid a third
party to do.
· All logistics and administration activities were consolidated into a
building immediately adjacent to our factories that was acquired during the
year.
Spain
· With no new acquisitions in Spain this year, focus on organic
performance resulted in significant LFL revenue growth despite continued and
substantial disruption from government-mandated actions related to Covid-19
that lasted much longer than in other European countries.
Turkey
· Victoria completed the acquisition of Turkish ceramic tile
manufacturer, Graniser, in February this year. This is a profitable and
growing business, primarily exporting to Europe and delivers a good-quality,
low-cost manufacturing platform to the Group. With the vast majority of
Graniser's revenue in Euros or Dollars whilst most costs are in Lira, the
business provides us with a meaningful competitive advantage for certain
product lines and end markets.
Australia - strong LFL revenue growth +11.4%
FY22 FY21 Growth
Revenue £109.5 million £99.6 million +10.0%
Underlying EBITDA £16.4 million £16.6 million -1.4%
Underlying EBITDA margin 15.0% 16.7%
Underlying EBIT £11.8 million £11.9 million -0.8%
Underlying EBIT margin 10.8% 12.0%
FY2022 saw another very strong result from our Australian management team.
Incredibly they managed to achieve LFL revenue growth of 11.4%, despite
rolling lock-downs that impacted both the Group's production facilities and
its customers, and which lasted until October.
The Victoria brand is particularly strong in Australia and the company is seen
as a trusted partner by retailers. Material inflationary pressures alongside
higher operating costs due to Covid-19 measures had a small impact on margins,
albeit cash profits remained constant. It is also worth mentioning that this
was against an especially strong comparative - margins increased by 590bps
last year.
North America - a new division with strong organic growth +22%(7)
FY22*
Revenue £115.6 million
Underlying EBITDA £6.4 million
Underlying EBITDA margin 5.6%
Underlying EBIT £5.2 million
Underlying EBIT margin 4.5%
*Data for 9 months only; Cali was not a Victoria subsidiary until 23 June
2021.
(7) Organic growth based on unaudited USD revenues for 12 months ended March
2022 versus March 2021.
On 23 June 2021, we acquired Cali Bamboo Holdings Inc. ("Cali"). Cali already
had a long track record of good organic growth (17.6% CAGR for 2016-2020), but
this has accelerated under Victoria's ownership to 22% for the 12 months ended
March 2022. Even more could have been achieved but significant constraints
(primarily shipping) limited product availability until post-acquisition
operational changes by Victoria flowed through to deliver much better supply
of product in H2.
New product categories are being introduced into Cali's omnichannel
distribution system this year - primarily outdoor rugs and artificial grass
manufactured by Victoria's European subsidiaries. February 2022 saw the
successful debut of Cali at the US flooring exhibition, Surfaces 2022,
introducing "Your Floor Outdoor"™ with product category expansion into Rugs,
Turf, and Laminate Tile categories. Our strategy continues to be to
diversify the Cali product mix while leveraging Victoria's sourcing,
manufacturing, and logistics competencies to capture additional share in the
US marketplace.
As a pure distribution business, Cali requires nominal capex required to
maintain its income. Therefore we are, of course, entirely comfortable with a
lower EBITDA margin as free cash flow generation is strong. Nonetheless there
are specifically identified opportunities to increase the current operating
margins and management are expected to deliver materially improved margins
this year alongside continued revenue growth.
CAPITAL ALLOCATION
It is the firmly held view of Victoria's Board that the greatest wealth will
be created for shareholders by maximising medium-term free cash flow per
share. It is free cash flow - which is cash flow from underlying operations,
after interest and tax, but before specific growth investments - that enables
us to pay down debt, fund growth (whether acquisitions or organic), and in due
course progressively return capital to shareholders through dividends or share
buybacks. Consequently, every decision is viewed through this prism.
In FY2022 our businesses generated £101.4 million of cash from underlying
operations before investing £26.3 million into working capital and £40.9
million on replacing and upgrading plant and machinery:
· The large investment into working capital was partially the result of
inflation, and partially the result of a deliberate decision to increase our
raw materials inventory to protect our production output during a year of
supply chain disruption and uncertainty. (Shareholders may recall we began
this action in late-FY2021). As supply chains continue to normalise (and we
are seeing a trend in that direction), we will allow our inventory levels to
return to normal, which will release cash for other investment purposes.
· This 'maintenance capex' was significantly higher than normal - 61%
higher than in FY2020 - due to reduced capex during the pandemic the previous
year, and is expected to normalise going forwards.
From the free cash flow of the Group, £12.4 million was invested into
discrete growth projects we expect to deliver a high return on capital, (which
we measure cash-on-cash). The table below sets out the breakdown of capex
spending for the last five years:
2018 2019 2020 2021 2022
£m £m £m £m £m
Capex
Maintenance 14.1 23.5 25.4 20.9 40.9
Growth* 15.2 20.9 8.4 7.6 12.4
29.3 44.4 33.8 28.5 53.3
* Includes capital expenditure incurred as part of reorganizational and
synergy projects to drive higher productivity and lower operating costs.
A full description of the Group's cash flows is provided in the Financial
Review.
It is worthwhile noting that whilst businesses in some sectors consume vast
amounts of cash in working capital as they grow, a well-run flooring group
like Victoria does not due to high cash conversion ratios, which is one of the
attractions Berkshire Hathaway referenced in making the decision to acquire
the world's second-largest flooring company, Shaw Industries.
Return on Tangible Assets
Finally, whilst on the subject of capital allocation, it is worth highlighting
that, because we focus on buying high quality flooring businesses, the return
on tangible assets (such as working capital and plant and machinery) is
invariably excellent. The 'trade-off' is that a significant proportion of the
purchase price is customarily goodwill or other intangible assets.
As explained in previous years, this is of more than academic interest. It is
important to understand that the higher the return achieved on tangible
assets, the better it is for long-term wealth creation. This is for two
related reasons: firstly, the intangible 'cost' never needs to be replaced
whereas plant and machinery wears out and needs to be replaced, consuming
cash; and, secondly, as revenues grow, less cash needs to be invested into
working capital and less cash is consumed in adding new fixed assets to
manufacture the increased sales. (This advantage is accentuated in times of
sustained inflation). Consequently, businesses achieving a high return on
tangible assets generate more free cash over time, which is then available to
further grow the value of the business.
Below is a table setting out Victoria's Return on Tangible Assets for the last
five years, which shows the ability of the company to generate sustainable
returns in excess of 25% - despite a very substantial increase in the capital
base - producing cash that we can continue to deploy to grow the value of the
company.
(£millions) Pro-forma underlying EBIT Net tangible assets RoTA
FY 2016 28.2 83.4 33.9%
FY 2017 40.3 102.6 39.3%
FY 2018 76.7 228.1 33.6%
FY 2019 76.9 280.3 27.4%
FY 2020 82.0 309.4 26.5%
FY 2021 84.9 324.4 26.2%
FY 2022 120.5 444.4 27.1%
DIVIDENDS
For the reasons detailed in previous years' Annual Reports, it remains the
Board's view (as it has been for the last nine years) that it can continue to
successfully deploy capital to optimise the creation of wealth for
shareholders and therefore it has again resolved not to pay a final dividend
for FY2022.
OUTLOOK
All our businesses have strong economic fundamentals, and skilled and
dedicated management. Nonetheless there are some important external headwinds
we (and all other businesses) must now face: ongoing inflationary pressures,
higher corporate taxes in some jurisdictions, and falling consumer confidence,
amongst others.
Operations
Victoria has been manufacturing and selling flooring for 127 years. It is a
remarkably resilient business: revenues have grown organically over the last
25 years at more than 3% CAGR. And, properly managed, flooring manufacturers
generate a significant amount of cash due to the longevity of the assets and
high cash conversion.
As a stress-case exercise, we have given detailed consideration to, and
modelled, a range of scenarios for the current year including a very
substantial double-digit drop in revenues (much deeper than the sector
experienced during the 2008 Global Financial Crisis) and, as predicted given
our operational structure, we would expect the Group to continue to be both
profitable and cash generative even in such extreme circumstances. We would
stress that this is not our expected outcome for the year, but is illustrative
of Victoria's deep financial resilience.
Additionally, Victoria is in the fortunate position of having a number of
internal projects underway that will drive up underlying operating margins and
earnings. These synergies flow out of our recent acquisitions and will
mitigate the effects of continued inflation or possible demand weakness.
In most situations a handful of variables drive the majority of outcomes. We
have sought to identify these few things that matter for each business and
ensure our operational plan covers them. Therefore, we feel confident in the
future earnings power of our businesses.
Acquisitions
During FY2022 Victoria successfully signed several high-quality acquisitions,
adding (pre-synergies) approximately £65 million of EBITDA (including Balta,
which completed after the year end). Continuing with our policy of being a
highly disciplined acquiror (in what was a very frothy market - unbelievable
as that may seem now), these acquisitions were made at a very attractive
average EV/EBITDA multiple of c. 5.7x, pre-synergies. Our operational
management team are now fully engaged in integrating the acquired companies
into our business and it is expected they will have a meaningful impact on
Victoria's cash flow and operating profits over the coming years.
The current economic environment mandates prudence. Nonetheless, acquisitions
remain a core part of Victoria's growth strategy and we will continue to
invest time this year in visiting flooring businesses and building strong
relationships with their owners. Victoria has become a permanent home of
choice for flooring companies in Europe and the US - particularly for
family-owned businesses - and the Group's potential pipeline of accretive
acquisitions continues to be compelling.
Then, at the right time we will deploy capital thoughtfully and conservatively
to build scale, expand distribution, broaden our product range, and widen the
economic moat around our business.
"No one could have foreseen the huge expansion of the Vietnam War, wage and
price controls, two oil shocks, the resignation of a president… But,
surprise - none of these blockbuster events … render unsound the negotiated
purchases of fine businesses at sensible prices. Imagine the cost to us, then,
if we had let a fear of unknowns cause us to defer or alter the deployment of
capital. Indeed, we have usually made our best purchases when apprehensions
about some macro event were at a peak. Fear is the foe of the faddist, but the
friend of the fundamentalist."
Warren Buffett, 1994
CONCLUSION
The future is uncertain (when isn't it?). Not a single economic forecast we
received at the beginning of 2020 made reference to a global pandemic. And not
one we received at the beginning of 2022 mentioned a Russian invasion of
Ukraine. Therefore, rather than spending an inordinate amount of time studying
tea leaves or reading runes, the Board and management of Victoria seeks to run
the business in a manner that ensures it is resilient. As part of our mission
to create wealth for shareholders, we strive for ways to manage risk - our
financing is long-dated and covenant lite, acquisitions incorporate contingent
earnouts, our focus is on the less cyclical residential repair and
redecorating market, we maintain low operational gearing, our supply-chain is
localised and diversified, our customer base is highly diversified, we are
geographically diversified, managers are empowered to take meaningful
decisions so they can react quickly to changing circumstances, the list is
almost endless.
Key to our success is our operational management team. The commitment,
knowledge, and ability of our management team will prove invaluable in the
months ahead. There is a whole generation of entrepreneurs, managers, and
investors who have built their entire perspective on valuation and operations
during an extraordinary bull market and favourable economic conditions. The
'unlearning' process is likely to be painful, surprising, and unsettling to
many. However, we are fortunate at Victoria to have a senior management team
who have been around long enough to have personal experience of challenging
conditions - inflation, higher interest rates, recession, amongst others - and
will take this new reality in their stride.
There will be opportunities that arise from this "crisis". There always are.
And Victoria is positioned to take advantage of them.
Geoffrey
Wilding
Philippe Hamers
Executive
Chairman
Chief Executive Officer
19 July 2022
Strategic Report
BUSINESS OVERVIEW
Victoria PLC is a designer, manufacturer and distributor of innovative
flooring products. The Group is headquartered in the UK, with operations
across the UK, Spain, Italy, the Netherlands, Turkey, the USA, Belgium and
Australia, employing approximately 4,900 people at more than 27 sites.
The Group designs and manufactures a wide range of wool and synthetic
broadloom carpets, flooring underlay, ceramic tiles, LVT (luxury vinyl tile)
and hardwood flooring products, artificial grass, carpet tiles and flooring
accessories.
A review of the performance of the business is provided within the Financial
Review.
BUSINESS MODEL
Victoria's business model is underpinned by five integrated pillars:
1. Superior customer offering
Offering a range of leading quality and complementary flooring products across
a number of different brands, styles and price points, focused on the
mid-to-upper end of the market or specialist products, as well as providing
market-leading customer service.
2. Sales driven
Highly motivated, independent and appropriately incentivised sales teams
across each brand and product range, ensuring delivery of a premium service
and driving profitable growth.
3. Flexible cost base
Multiple production sites with the flexibility, capacity and cost structure to
vary production levels as appropriate, in order to maintain a low level of
operational gearing and maximise overall efficiency.
4. Focused investment
Appropriate investment to ensure long-term quality and sustainability, whilst
maintaining a focus on cost of capital and return on investment.
5. Entrepreneurial leadership
A flat and transparent management structure, with income statement 'ownership'
and linked incentivisation, operating within a framework that promoted close
links with each other and with the PLC Board to plan and implement the short
and medium-term strategy.
STRATEGY
The Group's successful strategy in creating wealth for its shareholders has
not changed and continues to be to deliver profitable and sustainable growth,
both from acquisitions and organic drivers.
In terms of acquisitions, the Group continues to seek and monitor good
opportunities in key target markets that will complement the overall
commercial offering and help to drive further improvement in our KPIs.
Funding of acquisitions is primarily sought from debt finance to maintain an
efficient capital structure, insofar as a comfortable level of facility and
covenant headroom is maintained.
Organic growth is fundamentally driven by the five pillars of the business
model highlighted above. In addition, the Group continues to seek and
deliver synergies and transfer best operating practice between acquired
businesses, both in terms of commercial upside, and cost and efficiency
benefits to drive like-for-like margin improvement.
KEY PERFORMANCE INDICATORS
The KPIs monitored by the Board and the Group's performance against these are
set out in the table below and further commented upon in the Financial Review.
2022 2021
£'m £'m
Revenue 1,019.8 622.3
% growth at constant currency 57.5% 7.4%
Underlying EBITDA 162.8 127.4
% margin 16.0% 19.2%
Underlying operating profit 107.9 79.8
% margin 10.6% 12.0%
Operating cash flow(1) 111.8 93.9
% conversion against underlying EBITDA(1) 78% 83%
Free cash flow(2) 34.2 38.8
% conversion against underlying operating profit 32% 49%
Underlying pre-IFRS 16 EBITDA per share 103.68p 86.52p
Earnings per share (diluted, adjusted) 40.21p 28.66p
Operating cash flow per share(3) 95.65p 76.90p
Adjusted net debt / EBITDA(4) 2.66x 3.10x
(1) Operating cash flow shown before interest, tax and exceptional items.
(2) Before investment in growth capex, acquisitions and exceptional items
(3) Operating cash flow per share based on current number of shares
outstanding (non-diluted)
(4) Applying our lending banks' measure of leverage.
SECTION 172(1) STATEMENT
Section 172 of the Companies Act 2006 requires a Director of a company to act
in the way they consider, in good faith would be most likely to promote the
success of the company for the benefit of the members as a whole. In doing
this, section 172 requires a Director to have regard, among other matters, to:
· The likely consequences of any decisions in the long-term;
· The interests of the company's employees;
· The need to foster the company's business relationships with
suppliers, customers and others;
· The impact of the company's operations on the community and the
environment;
· The desirability of the company maintaining a reputation for high
standards of business and conduct; and
· The need to act fairly between shareholders of the company.
During the year ended 2 April 2022 the Directors consider they have,
individually and collectively, acted in a way that is most likely to promote
the success of the Company for the benefit of its shareholders as a whole and
have given due consideration to each of the above matters in discharging their
duties under section 172. The stakeholders we consider in this regard are our
employees, our shareholders, bondholders and other investors, and our
customers and suppliers. The Board recognises the importance of the
relationships with our stakeholders in supporting the delivery of our strategy
and operating the business in a sustainable manner.
When considering key corporate decisions, such as material acquisitions or
financing arrangements the Board considers the interests and objectives of the
Company's stakeholders, in particular its shareholders. In doing so, the
potential risk and rewards of these transactions are carefully balanced. A
careful and consistent financial policy is employed, in particular focusing on
maintaining a level of financial leverage that the Board consider to be
sustainable through economic cycles, and long-dated and flexible financing
terms in relation to covenants and restrictions. Where there are potential
material financial costs or redemption requirements within financing
arrangements, for example the make-whole provisions in the Company's senior
notes and preferred equity, or the change in control provisions in the
preferred equity, the Board considers the likelihood of these scenarios and
any potential mitigating actions.
Directors are briefed on their duties as part of their induction and they can
access professional advice on these from an independent advisor throughout the
period a director holds office. The directors fulfil their duties partly
through a governance framework; the Board has adopted the Quoted Companies
Alliance ("QCA") Code and the Group's application of this code is detailed on
the Group's website.
The Board recognises the importance of building and maintaining relationships
with all of its key stakeholders in order to achieve long-term success.
Further details on the Company's strategy and long-term decisions are set out
in the Outlook and Conclusion sections of Chairman and CEO's Review.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board and senior management team of Victoria identifies and monitors
principal risks and uncertainties on an ongoing basis. These include:
Inflation -The issues surrounding inflation have the capacity to impact
companies' earnings by interrupting supply chains, workforce sustainability,
demand and rising interest costs.
The Group is well positioned to manage this risk and uncertainty; the key
reasons being:
1. Victoria has the ability to increase prices and successfully did so
up to four times during the year ended 2 April 2022 to protect earnings;
2. Management is focussed on delivering a number of carefully planned
synergy projects that will increase operating margins, mitigating some
inflationary pressures.
3. The Group's industry-leading operating margins provide room for
manoeuvre against struggling competitors;
4. We actively hedge or otherwise manage key input costs to provide
management with time to adapt our business and prices to higher input costs so
that margins are protected;
5. The main component of the Group's debt (€750m) is Senior Secured
Notes ("bonds") and carry a fixed coupon, of which €500m falls due in August
2026 and €250m falls due in March 2028.
On the demand side specifically, Victoria operates in the mid to high-end of
the flooring market, where customers are less sensitive to economic
uncertainty and inflation. Nonetheless, in the event of lower demand for a
period, Victoria is well placed to manage this for the following reasons:
1. Victoria enjoys comparatively low operational gearing across its
businesses;
2. Victoria has averaged 90.5% pre-tax operating cash conversion in the
last five years, and this high cash conversion(1) ensure the Group continues
to generate cash, even during periods of lower demand;
3. Much of our production output is supplied to order, not supplied for
inventory. This reduces exposure to de-stocking risks.
4. A resilient balance sheet with cash and undrawn credit lines in
excess of £200 million. Furthermore, the Group's senior debt consists
entirely of long-duration, fixed interest rate, covenant-lite bonds.
Competition - the Group operates in mature and highly competitive markets,
resulting in pressure on pricing and margins. Management regularly review
competitor activity to devise strategies to protect the Group's position as
far as possible.
Economic conditions - the operating and financial performance of the Group is
influenced by specific economic conditions within the geographic areas within
which it operates, in particular the Eurozone, the UK and Australia.
Economic risks in any one region is mitigated by the independence of the
Group's three divisions. The Group remains focused on driving efficiency
improvements, cost reductions and ongoing product development to adapt to the
current market conditions.
Key input prices - material adverse changes in energy prices and certain raw
material prices - in particular wool and synthetic yarn, polyurethane foam,
and clay - could affect the Group's profitability. Price increases,
alongside other cost saving measures, have largely mitigated the impact on
operating profit. Key input prices are closely monitored and the Group has a
sufficiently broad base of suppliers to remove arbitrage risk, as well as
being of such a scale that it is able to benefit from certain economies
arising from this. Whilst there is some foreign exchange risk beyond the
short-term hedging arrangements that are put in place, the Group experiences a
natural hedge from multi-currency income as the vast majority of the Group's
cost base remains in domestic currency (Euros, Sterling and Australian
Dollars).
Acquisitions - acquisition-led growth is a key part of the Group's ongoing
strategy, and risks exist around the future performance of any potential
acquisitions, unforeseen liabilities, or difficulty in integrating into the
wider Group. The Board carefully reviews all potential acquisitions and,
before completing, carries out appropriate due diligence to mitigate the
financial, tax, operational, legal and regulatory risks. Risks are further
mitigated through the retention and appropriate incentivisation of acquisition
targets' senior management. Where appropriate the consideration is
structured to include deferred and contingent elements which are dependent on
financial performance for a number of years following completion of the
acquisition.
Other operational risks - in common with many businesses, sustainability of
the Group's performance is subject to a number of operational risks, including
Health & Safety, major incidents that may interrupt planned production,
cyber security breaches and the recruitment and retention of key employees.
These risks are monitored by the Board and senior management team and
appropriate mitigating actions taken.
In the year the principal risks have been updated to include inflationary
risks as highlighted above, reflecting the significant price inflation
experienced in 2022 to date, in particular with rising energy prices. We
have also updated our principal risks to remove covid-19 as a specific risk
item given the global response and easing of restrictions experienced in all
of the territories in which we operate.
CORPORATE RESPONSIBILITY
Victoria PLC is committed to being an equal opportunities employer and is
focused on hiring and developing talented people.
The health and safety of our employees, and other individuals impacted by our
business, is taken very seriously and is reviewed by the Board on an ongoing
basis.
A Company statement regarding the Modern Slavery Act 2015 is available on the
Company's website at www.victoriaplc.com (http://www.victoriaplc.com) .
As a manufacturing and distribution business, there is a risk that some of the
Group's activities could have an adverse impact on the local environment.
Policies are in place to mitigate these risks, and all of the businesses
within the Group are committed to full compliance with all relevant health and
safety and environmental regulations.
On behalf of the Board
Geoffrey Wilding
Executive Chairman
19 July 2022
Financial Review
HIGHLIGHTS
The 2021-22 financial year has been another record year for Victoria PLC,
despite numerous economic headwinds. The Group delivered healthy organic
revenue growth across all of its divisions, breaking the £1 billion mark for
the first time. It also managed to preserve operating profits in a severe
cost inflation environment.
This strong operating performance re-enforces management's view that the
residential flooring industry is relatively resilient, being driven by
long-term improvement and repair cycles and being at the low-cost end of
impactful home renovation options for consumers. It is clearly a mature
market overall - everyone has multiple floorcoverings of some description at
home - but also, by definition, a very large market, and one in which
consumers are making a generally long-planned investment into their quality of
life, rather than being driven by shorter-term fashion trends.
As discussed in the previous half-year interim results and annual report, this
performance is as much driven by the capacity and operational flexibility
delivered by the Group's historical synergy and operational restructuring
projects, as it is driven by positive market conditions. Indeed, these
projects enabled the Group to fully leverage the market conditions, as well as
to address any significant month-to-month swings (driven by Covid-19 related
restrictions), which still occurred during the financial year.
This Financial Review is structured over several sections. The first parts
focus on the underlying performance of the Group, analysing the trends in
revenue and underlying operating margin, and providing an overview of
acquisition and financing activities in the year. Thereafter, the
Exceptional & Non-Underlying Items section provides an important, detailed
report on all of the items that bridge from the underlying results (for
example, underlying operating profit of £107.9 million) to the IFRS statutory
performance of £53.6 million operating profit and, ultimately, £12.4 million
loss after tax. The final parts set out the cash flows of the Group on a
basis consistent with past years, and the year-end net debt position.
Underlying measures of performance are classified as 'Alternative Performance
Measures' and should be reviewed in conjunction with comparable IFRS
figures. It is important to note that these APMs may not be comparable to
those reported by other companies. A summary of the underlying and reported
performance of the Group is set out below.
2022 2021
Underlying performance £m Non-underlying items Reported numbers Underlying performance £m Non-underlying items Reported numbers £m
£m £m £m
Revenue 1,019.8 - 1,019.8 662.3 662.3
Gross Profit 362.3 (5.5) 356.8 234.9 234.9
Margin % 35.5% 35.5%
Amortisation of acquired intangibles - (32.4) -
(32.4) (26.8) (26.8)
Other operating expenses (254.4) (16.4) (155.1)
(270.8) (7.1) (162.2)
Operating profit 107.9 (54.3) 53.6 79.8 (33.9) 45.9
Margin % 10.6% 12.0%
Add back depreciation & amortisation 54.9 47.6
Underlying EBITDA 162.8 127.4
Margin % 16.0% 19.2%
Preferred equity items - (33.0) (33.0) - (13.1) (13.1)
Other finance costs (34.1) 1.1 (33.0) (29.7) (10.6) (40.3)
Profit before tax 73.8 (86.2) (12.4) 50.1 (57.6) (7.5)
Profit after tax 55.7 (68.1) (12.4) 37.1 (34.3) 2.8
EPS basic 47.62p (10.61p) 30.34p 2.30p
EPS diluted 40.21p (10.61p) 28.66p 2.29p
Revenue growth was driven by a combination of both increased volume and price
across all divisions. Whilst continuous work was undertaken - in
consultation with our customers - on balancing product ranges and numerous
operating actions taken in order to help protect absolute profits, multiple
sales price increases were necessary during the year in each product category
in reaction to unprecedented levels of cost inflation. Despite these price
increases, the Group also delivered significant volume growth in all
divisions.
Although such actions to increase sales prices successfully protected profits
in absolute terms, inevitably the resultant increase in revenue has had a
detrimental impact on margins when reported as a percentage of revenue. The
chart below shows the impact of this on underlying EBITDA margin %.
Group EBITDA margin bridge
FY21 reported 19.2%
Acquisition mix effect -1.9%
Cost inflation pass-through -1.8%
FY21 adjusted 15.5%
Other organic movement +0.5%
FY22 reported 16.0%
Further details of like-for-like growth and margin performance by division,
are set out later in this Financial Review.
In addition to the active and successful year for the Group organically, a
total of five acquisitions were also completed (with another, the acquisition
of the Rugs and UK Broadloom businesses of Balta, completed shortly after the
year-end). Whilst the overall acquisition opportunity in this industry is
always significant due to its remaining fragmented in nature, this record
number of transactions reflects the huge investment opportunity that existed -
even within the context of Victoria's specific focus areas and criteria - as
business owners reconsidered their ambitions as a result of the Covid-19
pandemic. The acquisitions were in both soft and hard flooring categories,
across two of the three Group divisions, with one - Cali, an LVT and wood
flooring designer and distributor in the US - creating a new management
division and reporting segment in the Group, North America.
The Group incurred £6.9 million of exceptional operating costs during the
year, primarily relating to one-off acquisition costs (origination work, due
diligence and legal services from third-party advisers). In addition, the
Group incurred £32.4 million of amortisation of acquired intangibles
(primarily customer relationships and brand names) and £15.0 million of other
non-underlying costs (primarily the accounting impact of acquisition earn-outs
and acquired balance sheet fair value adjustments). Further details are
provided later in this Financial Review.
LIKE-FOR-LIKE PERFORMANCE
As with previous financial years, it is necessary to analyse the underlying
organic performance of each division of the Group separately from the impact
of acquisitions, both in terms of revenue growth and margin trends.
Basis of analysis
In general, we undertake this assessment by (i) removing from the current-year
data the contribution from acquisitions made during the year, and (ii) adding
into the prior-year data pre-acquisition financial performance (from target
company records and due diligence) for acquisitions made during that year in
order to include a full-year effect. Occasionally for some current-year
acquisitions, where they were made early in the period and significant
integration or synergies have already been delivered by the year-end, thereby
making it harder to disseminate the overall contribution impact from the data,
we go back and add in the pre-acquisition performance to the prior year.
All of these adjustments have the impact of reducing the calculated
year-on-year growth - stripping out the acquisition impact and showing
like-for-like growth only - and presenting a 'normalised' profit margin for
both the current and the prior year, from which the organic movement (as
opposed to acquisition mix effect) can be determined. As part of this
analysis, we also normalise for translational currency differences between the
two years, and any differences in period length (note that whilst the current
reported financial year is 52 weeks in length, the prior financial year was 53
weeks).
LFL revenue performance
Growth
UK & Europe Soft Flooring revenue +30.9%
UK & Europe Ceramics revenue +11.2%
Australia revenue +11.4%
Group revenue +19.2%
The Group delivered a record year in terms of organic revenue growth,
averaging just under 20% overall on a LFL basis, of which approximately half
was volume driven and half price driven.
In general, revenue performance was consistently strong across the year.
Year-on-year LFL growth was particularly high in the first half of the year
given the weaker prior-year comparative (due to the initial, severe Covid-19
lockdowns in April and May 2020). The second half of the year had a stronger
comparative period, nevertheless - subject to the normal seasonality patterns
seen in the Group's different markets - revenues remained equally robust.
Cost inflation impact on LFL analysis
This year, we have added an additional element to the margin part of the
like-for-like analysis, to show separately the impact of cost inflation that
has been passed through on a 1-for-1 basis to sales price inflation. To
explain with a simple example: if a company has £100 million of revenue and
£80 million of costs (excluding depreciation and amortisation), then its
EBITDA is £20 million and its EBITDA margin is 20%. If, in the following
year, it experiences 15% cost inflation (on average) which it passes through
on a precise 1-for-1 basis to customers, and does so whilst managing to
maintain the same sales volume, then its costs increase to £92 million and
revenue increases to £112 million. The EBITDA of £20 million has been
successfully preserved, however the EBITDA margin in this example has now
fallen to 17.9%. Looking at this margin statistic on face value, being a
decrease of 214bps, it looks like the company has performed poorly. But in
fact, in the face of enormous cost inflation, the company has done a fantastic
job of preserving profit levels. It simply did not try to add an additional
mark-up to the cost inflation when it subsequently raised its sales prices to
customers.
Of course, cost inflation occurs every year and the above concept is
technically always relevant, but normally the effect is relatively small and
entirely blends with factors such as volume growth and other operational or
commercial matters impacting margin (none of which are considered in the above
simple example). However, in a year when Victoria's cost inflation indeed
averaged circa 15%, the one-off impact on percentage margins in FY22 is
clearly pronounced.
This period of abnormally high cost inflation in fact started during the prior
year, in late 2020, with polypropylene yarn, which is a key component used in
carpet manufacturing. Natural gas, a key component used in all ceramics
industries' manufacturing, to heat the kilns, saw sustained but gradual
inflation through 2021 before experiencing a significant upward step change in
early December.
Other inputs to the business were also impacted, primarily by the cost of
energy. Notwithstanding longer-term mitigating operational measures against
future inflation, some of which are discussed in the ESG Report within this
Annual Report, the short-term impact on the Group's cost base in FY22 was of
course highly significant.
The vast majority of cost increases that could not be mitigated through
short-term operational actions were passed onto customers - without a mark-up
of course - resulting in a mathematical adverse impact on EBITDA margin % of
circa 180bps overall.
LFL margin performance
UK & Europe Soft Flooring
FY22 FY21 Growth
Revenue £423.1m £280.4m +50.9%
Underlying EBITDA £70.3m £49.0m +43.4%
Margin % 16.6% 17.5% -87bps
Underlying EBIT £45.4m £28.7m +58.5%
Margin % 10.7% 10.2% +51bps
UK & Europe Ceramics
FY22 FY21 Growth
Revenue £371.6m £282.4m +31.6%
Underlying EBITDA £71.4m £63.1m +13.2%
Margin % 19.2% 22.3% -312bps
Underlying EBIT £47.5m £40.4m +17.5%
Margin % 12.8% 14.3% -153bps
Australia
FY22 FY21 Growth
Revenue £109.5m £99.6m +10.0%
Underlying EBITDA £16.4m £16.6m -1.4%
Margin % 15.0% 16.7% -174bps
Underlying EBIT £11.8m £11.9m -0.8%
Margin % 10.8% 12.0% -118bps
As noted above, the one-off impact this year of abnormal cost inflation
pass-through has had a significant adverse mathematical impact on reported
margins. This is in addition to the acquisition mix effect - whereby, in
general, newly acquired businesses have a lower underlying EBITDA margin at
the point of acquisition than the divisional or Group average, thereby
mathematically lowering the average reported margin as their results are
consolidated. The underlying EBITDA margin charts below, which bridge from
the prior-year to the current year reported margin, strip out the impact of
these two phenomenon to show the underlying margin trend in each division
(other than North America, which was only created this year).
UK & Europe - Soft Flooring EBITDA margin bridge
FY21 reported 17.5%
Acquisition mix effect +0.2%
Cost inflation pass-through -2.4%
FY21 adjusted 15.2%
Other organic movement +1.4%
FY22 reported 16.6%
UK & Europe - Ceramic Tiles EBITDA margin bridge
FY21 reported 22.3%
Acquisition mix effect -1.8%
Cost inflation pass-through -1.4%
FY21 adjusted 19.1%
Other organic movement +0.1%
FY22 reported 19.2%
Australia EBITDA margin bridge
FY21 reported 16.7%
Acquisition mix effect -
Cost inflation pass-through -1.0%
FY21 adjusted 15.7%
Other organic movement -0.7%
FY22 reported 15.0%
* Calculation of cost inflation pass-through within LFL margin analysis based
on average cost and price inflation, using volume growth for key product
categories (as adjusted for the 53-week period in the prior year). Overall
cost inflation is assessed using an average operating leverage of 70%
variable, which is assessed based on previously disclosed ratios of fixed
costs, fully variable costs and semi-variable costs (assumed 50:50).
With these impacts removed, the remaining organic movement in underlying
EBITDA margin in the year was circa +140bps in UK & Europe Soft Flooring,
+10bps in UK & Europe Ceramic Tiles, and -70bps in Australia. The
Australian market was more challenging than others this year as Covid-19
lockdowns remained in place for much longer (until October 2021) when compared
to European countries (generally started to relax restrictions in March 2021
and completely removed, other than for international travel, by July 2021).
Overall, this illustrates that the Group successfully protected profits and
delivered robust margins in the context of the current global economic
environment.
ACQUISITIONS
Following the successful pre-emptive capital raise activities during the prior
year - the £75 million preferred equity issue (including £100 million
follow-on commitment) in November 2020 and the bond refinancing (including
€250 million new issue for future investment) in March 2021 - the Group
scoped a very large number of potential acquisition targets over the last 18
months. Due diligence was also undertaken on many, some of which were
completed and some not.
The first two acquisitions were of Italian ceramic tile businesses in April
2021 for total consideration of circa €24 million (c. £21m) - (i) the Colli
& Vallelunga brands, being commercial design and sales operations without
their own manufacturing, and (ii) Santa Maria, which - in addition to two
additional brands - includes a low-cost manufacturing operation. These
businesses collectively generated very little EBITDA at the point of
acquisition, but have since been fully integrated into our incumbent Italian
operations, with significant cost synergies.
The third acquisition, in May 2021, was of an artificial grass designer and
manufacturer based in the Netherlands, Edel Group, for total consideration of
circa €56 million (c. £48m). This business is highly complementary to the
Group's existing artificial grass businesses (both of which are also based in
the Netherlands) as they historically outsource their manufacturing whereas
Edel has large and well invested extrusion and tufting operations, in Germany
and the Netherlands, respectively. This acquisition also brought two new
commercial artificial grass brands to the Group.
The fourth acquisition, in June 2021, was of a hard (LVT and wood) flooring
designer and distributor based in the US, Cali, for total consideration of
circa $83 million (c.£59m). Whilst the Group already exports products to
North America from Europe, this was the Group's first acquisition in North
America. Cali has a strong brand and omni-channel distribution model, and
the Group is working on a number of potential sourcing and revenue synergies.
The final acquisition completed in the year, in February 2022, was of a
ceramic tile designer and manufacturer based in Turkey, Graniser, for total
consideration of circa €47 million (c.£39m). Graniser is a low-cost
manufacturer that is focused on export sales (c. 70% of revenues), primarily
to Europe. It brings further diversification of manufacturing base to our UK
& Europe Ceramic Tiles division, and significant potential for commercial
synergies and capex-related capacity and margin improvement, which is being
implemented currently.
In November 2021, the Group also announced signing of the acquisition of the
Rugs and UK Broadloom Carpet businesses of Balta. Completion of this
acquisition was subject to various carve-out related conditions on the seller
(carving out from the rest of their group which was not subject to the
transaction) and ultimately took place following the year-end. There were no
provisions within the contract that amount to 'power over the investee' under
IFRS 10 in relation to the period between signing and completion, hence
consolidation of the target's results will not occur until FY23.
FINANCING
Debt financing and facilities
Following the major refinancing of the Group's senior secured bonds in the
prior year as noted above, there was no new issue of senior debt during the
financial year. The Group's senior debt therefore comprises €500 million
(c. £421m) of notes with a coupon of 3.625% and maturity of August 2026, and
€250 million (c. £211m) of notes with a coupon of 3.75% and maturity of
March 2028.
It is important to note that these coupons are fixed until maturity and not
subject to changes in base rates or any other metric.
Separately, in December 2021 the Group's Revolving Credit Facility was
increased in size from £75 million to £120 million to keep it proportional
to the overall size of the Group following the various acquisitions. This
RCF was undrawn at the year-end. Following the year-end the RCF increased
further in size as a result of the acquisition of Balta, to £150 million.
Other debt facilities in the Group represent small, local working capital
facilities at the subsidiary level, which are insignificant in size compared
to the group senior debt and are renewed or amended as appropriate from time
to time. The total outstanding amount drawn from these facilities at the
year-end was £32 million, as shown below in the Net Debt section of this
Financial Review.
Preferred equity
In order to comply with the Board's own financial policy and internal leverage
limits, the acquisition of Balta was partially funded by the issue of
additional preferred equity to Koch Equity Development in January 2022.
Additional preferred shares totalling £150 million were issued, bringing the
total in issue to £225 million (plus those issued for the 'Payment In Kind'
of the fixed coupon, whereby new preferred shares are issued as opposed to
cash payment, at the Group's option). No new discount or fee was deductible
or payable on the issue of the new preferred shares.
In addition to issuing new notes, various terms of the notes were changed.
The material changes were as follows:
· Coupon across both existing and new notes lowered by 100bps (to 8.85%
if PIK'ed or 8.35% if cash paid, payable quarterly).
· Whilst no further equity warrants were issued, the £225 million of
preferred equity is now split between £125 million of 'Pref A's (being the
original issue plus £50 million of the new issue) and £100 million of 'Pref
B's. The 20% IRR cap applying to the warrants is based on the total returns
of the warrants and the 'Pref A's only.
These changes were such that, from an accounting perspective, they were
treated as a substantial modification resulting in derecognition and
recognition of a new financial instrument. Further details of the preferred
equity and their accounting treatment are provided in Note 6 to the Accounts.
EXCEPTIONAL AND NON-UNDERLYING ITEMS
This section of the Financial Review runs through all of items classified as
exceptional or non-underlying in the financial statements. The nature of
these items is, in many cases, the same as the prior year as the financial
policy around these items has remain unchanged, for consistency.
Exceptional costs relate entirely to third-party expenditure. Victoria does
not treat any recurring internal costs (such as employee time spent on
restructuring or acquisition projects) as exceptional, given these resources
are recurring.
The Group incurred £6.9 million of exceptional costs during the year (FY21:
£7.8m). Exceptional items are one-offs that will not continue or repeat in
the future, for example the legal and due diligence costs for a business
acquisition, as whilst further such costs might arise if new acquisitions are
undertaken, they will not arise again on the same business and would disappear
if the Group adopted a purely organic strategy.
2022 2021
Exceptional items £'m £'m
Acquisition and disposal related costs (10.7) (3.0)
Reorganisation costs (5.3) (5.5)
Negative goodwill arising on acquisition 6.9 6.5
Contingent consideration linked to positive tax ruling (0.6) (5.7)
Profit on disposal of fixed assets 2.9 -
Total exceptional items (6.9) (7.8)
This total exceptional cost figure is made up of numerous components, both
income and costs. Description of the specific items is provided below:
· Acquisition related costs - the largest exceptional item was
acquisition related costs, which totalled £10.7 million (FY22: £3.0m),
resulting from the raised level of acquisition-related activity in the year in
light of positive market conditions driving greater opportunity. As a
result, five acquisitions were completed during the year, compared to two
small acquisitions in the prior year, and many more were investigated. These
costs relate to third-party advisory fees for due diligence and legal
services.
· Reorganisation costs - a similar level of one-off restructuring costs
was incurred in the year versus the prior year, however the specific items
were entirely separate. In the prior year, this figure included primarily
the cost of closure of the Westex factory and precautionary health &
safety measures in reaction to Covid-19. In the current year there were no
such Covid-19 related costs, instead this figure relates to post-acquisition
integration costs in Italy and at Edel Group, plus small incremental
restructuring of activities in the UK (primarily in underlay manufacturing)
and Spain (further manufacturing rationalisation). The majority of these are
either redundancy costs or fees from external service providers; we do not
class any ongoing employee costs as exceptional (for example, where an
employee works on a reorganisation or synergy project).
· Negative goodwill arising on acquisition - when an acquisition is
completed, under IFRS the opening balance sheet of the target must be
consolidated reflecting the fair value (as opposed to book value) of all
assets and liabilities, including any intangible assets such as brands or
customer relationships. The fair value is effectively the net realisable
value if those assets or liabilities were to be sold or transferred on the
open market at the time. Any excess of purchase price over the fair value of
the balance sheet is then shown in the consolidated accounts as goodwill.
However, if the assessed fair value exceeds the purchase price paid, then the
resulting 'negative goodwill' is income. In FY22, this was the case with the
acquisitions of Santa Maria in Italy and Graniser in Turkey.
· Contingent consideration linked to positive tax ruling - in the case
of two historical specific acquisitions - Keraben and Saloni, both in Spain -
part of the deal included an element of deferred consideration linked to
obtaining a positive tax ruling over the use of historical tax losses to
offset current or future tax liabilities. In both cases a positive tax
ruling was achieved, hence additional consideration had to be paid to the
sellers. The figure in the prior year related to Keraben, and in the current
year to Saloni. No other acquisitions to date have this feature.
· Profit on disposal of fixed assets - following the closure of the
Westex factory in the prior year (see above regarding reorganisation costs),
the factory land and buildings were sold for a profit of £2.9 million to the
book value previously held. This income, whilst operational, has been
classed as exceptional due to being one-off in nature and linked to
reorganisation.
Non-underlying items are ones that do continue or repeat, but which are deemed
not to fairly represent the underlying business. Typically, they are
non-cash in nature and / or will only continue for a finite period of time.
2022 2021
Other non-underlying items £m £m
Acquisition-related performance plan charge (7.1) 1.7
Non-cash share incentive plan charge (2.3) (1.0)
Amortisation of acquired intangibles (32.4) (26.8)
Unwind of fair value uplift to acquisition of opening inventory (5.3) -
Depreciation of fair value uplift to acquisition building valuation (0.2) -
(47.4) (26.1)
There were five non-underlying items in the year:
· Acquisition-related performance plan charge - this represents the
accrual of contingent earn-out liabilities on historical acquisitions where
those earn-outs are linked to the ongoing employment of the seller(s),
resulting from an accounting restatement implemented this year, as described
above.
· Non-cash share incentive plan charge - the charge under IFRS 2
relating to the pre-determined fair value of existing senior management share
incentive schemes, including the share options plan announced on 26 June
2020. This charge is non-cash as these schemes cannot be settled in cash.
· Amortisation of acquired intangibles - the amortisation over a finite
period of time of the fair value attributed to, primarily, brands and customer
relationships on all historical acquisitions under IFRS. It is important to
note that these charges are non-cash items and that the associated intangible
assets do not need to be replaced on the balance sheet once fully
written-down. Therefore, this cost will ultimately disappear from the Group
income statement. The charge has increased in FY22 due to additional
acquisitions having been completed (coupled with the fact that the intangible
assets from the original acquisitions starting in 2013 are not yet fully
written-down).
· Unwind of fair value uplift to acquisition opening inventory - as
noted above (see 'negative goodwill' bullet) under IFRS the opening balance
sheet of each acquisition is fair valued, and this includes inventory. As
such, this opening inventory is no longer held at cost, rather at net
realisable value, which means that for the period of time over which it is
sold (typically 3-4 months) no profit will be recorded in the Group
consolidated accounts despite the fact that the target business itself
generated a profit. Any newly purchased inventory post-acquisition is held
at cost in the ordinary course. Given this is not representative of the
underlying performance of the acquired business, this one-off uplift in cost
of sales is classed as exceptional. In the prior year this effect was
immaterial.
· Depreciation of fair value uplift to acquisition property - this is
the same effect as described above, except relating to property within fixed
assets as opposed to inventory.
Further details of exceptional and non-underlying operating items are provided
in Note 2 to the accounts.
In addition to the above operating items, there were a number of
non-underlying financial items in the year.
2022 2021
Non-underlying financial costs £m £m
Release of prepaid finance costs - 7.3
Net cost of redemption premium on refinancing of previous senior notes - 6.3
One-off refinancing related - 13.6
Finance items related to preferred equity 33.0 13.1
Acquisition related items - 2.1
Interest on short-term draw of Group Revolving credit facility - 1.4
Fair value adjustment to notes redemption option 6.3 (4.6)
Unsecured loan redemption premium charge / (credit) 0.4 0.2
Mark to market adjustments and gains on foreign exchange forward contracts (2.0) 4.2
Translation difference on foreign currency loans (5.7) (6.3)
Other non-underlying (1.1) (5.1)
31.9 23.7
The significant items are described below:
· Finance items related to preferred equity - the preferred equity
issued in November 2020 and further in January 2022 as described above is
treated under IFRS 9 as a financial instrument with a number of associated
embedded derivatives. There are a number of resulting financial items taken
to the income statement in each period, including the cost of the underlying
host contract and the income or expense related to the fair-valuation of the
warrants and embedded derivatives. However, the preferred equity is legally
structed as equity and is also equity-like in nature - it is contractually
subordinated, never has to be serviced in cash, and contains no default or
acceleration rights - hence the resultant finance costs or income are treated
as non-underlying.
2022 2021
Finance Items related to preferred equity £m £m
Amortised cost of host instrument 14.9 3.4
Accounting impact of terms modification in Jan 2022 11.5 -
Fair value movement on associated equity warrants 11.3 1.6
Fair value movement on embedded redemption option (10.7) 5.2
Charge associated with previous KED commitment to additional pref's (now 6.0 2.9
ended)
Total 33.0 13.1
· Fair value adjustment to notes redemption option - the corporate
bonds issued in March 2021 comprise two tranches maturing in August 2026 and
March 2028. However, the company can choose to repay early if it pays a
redemption premium, the level of which varies over time (a very high cost
within the first two to three years, followed by comparatively lower costs,
stepping-down over the remaining term). Under IFRS 9, this 'embedded call
option' must be separately disclosed as a financial asset on the balance sheet
and fair-valued at each reporting date. The income or charge resulting from
this revaluation exercise at each reporting is a non-cash item.
· Mark to market adjustments on foreign exchange forward contracts -
across the group we analyse our upcoming currency requirements (for raw
material purchases) and offset the exchange rate risk via a fixed, diminishing
profile of forward contracts out to 12 months. This non-cash cost represents
the mark-to-market movement in the value of these contracts as exchange rates
fluctuate.
· Translation difference on foreign currency loans - this represents
the impact of exchange rate movements in the translation of non-Sterling
denominated debt into the Group accounts. The key items in this regard are
the Euro-denominated €500m 2026 corporate bonds, and €250m 2028 corporate
bonds.
Further details of non-underlying finance items are provided in Note 3 to the
accounts.
OPERATING PROFIT AND PBT
The table below summarises the underlying and reported profit of the Group,
further to the commentary above on underlying performance and non-underlying
items.
Operating profit and PBT 2022 2021
£m £m
Underlying operating profit 107.9 79.8
Reported operating profit (after exceptional items) 53.6 45.9
Underlying profit before tax 73.8 50.1
Reported loss before tax (after exceptional items) (12.4) (7.5)
Reported operating profit (earnings before interest and taxation) increased to
£53.6 million (FY21: £45.9 million). After removing the exceptional and
non-underlying items described above, underlying operating profit was £107.9
million, representing a 35.2% increase over the prior year.
Reported loss before tax increased to £12.4 million (FY21: loss of £7.5
million). After removing the exceptional and non-underlying items described
above, underlying profit before tax was £73.8 million, representing a 47.3%
increase over the prior year.
TAXATION
The reported tax charge in the year of £nil was distorted by the impact of
the exceptional and non-underlying costs, many of which have been treated as
non-deductible for tax purposes. On an underlying basis, the tax charge for
the year was £18.1 million against adjusted profit before tax of £73.8
million, implying an underlying effective tax rate of 24.5%.
EARNINGS PER SHARE
The Group delivered a basic loss per share of 10.61p (FY21: earnings per share
of 2.30p). However, adjusted earnings per share (before non-underlying and
exceptional items) on a fully-diluted basis was 40.21p (FY21: 28.66p).
Earnings per share 2022 2021
Basic earnings / (loss) per share (10.61p) 2.30p
Diluted adjusted earnings per share 40.21p 28.66p
OPERATING CASH FLOW
Cash flow from operating activities before interest, tax and exceptional items
was £111.8 million which represents a conversion of 78% of underlying EBITDA
(pre-IFRS 16).
Operating and free cash flow 2022 2021
£m £m
Underlying operating profit 107.9 79.8
Add back: underlying depreciation & amortisation 54.9 47.6
Underlying EBITDA 162.8 127.4
Payments under right-of-use lease obligations (18.8) (14.4)
Non-cash items (5.9) (0.8)
Movement in working capital (26.3) (18.3)
Operating cash flow before interest, tax and exceptional items 111.8 93.9
% conversion against underlying operating profit 104% 118%
% conversion against underlying EBITDA (pre-IFRS 16) 78% 83%
Interest paid (28.4) (30.4)
Corporation tax paid (13.7) (5.0)
Capital expenditure - replacement / maintenance of existing capabilities (40.9) (20.9)
Proceeds from fixed asset disposals 5.3 1.2
Free cash flow before exceptional items 34.2 38.8
% conversion against underlying operating profit 32% 49%
% conversion against underlying EBITDA (pre-IFRS 16) 24% 34%
Pre-exceptional free cash flow of the Group - after interest, tax and net
replacement capex - was £34.2 million. Compared with underlying operating
profit (i.e. post-depreciation), this represents a conversion ratio of 32%.
Cash conversion was adversely impacted in the year by higher-than-usual
investment in working capital, which was driven by both cost inflation and
increased purchases of raw materials to mitigate supply chain risk in the
current economic environment, which are expected to unwind in the future.
Furthermore, there was an element of 'catch-up' capital expenditure following
Covid-19.
A full reported statement of cash flows, including exceptional and
non-underlying items, is provided in the Consolidated Statement of Cash Flows.
NET DEBT
As at 2 April 2022, the Group's net debt position (excluding IFRS 16
right-of-use leases and preferred equity) was £406.6 million. Free cash
flow of £34.2 million was generated in the year, of which £14.9 million was
invested in organic growth / synergy initiatives. Acquisition-related
expenditure (including debts assumed on acquisition) was £233.8 million,
which was funded from the remaining free cash flow, cash on balance sheet, and
the net cash proceeds from the additional preferred equity issuance of £143.0
million.
Applying our lending banks' measure of leverage, the Group's year end net debt
to EBITDA ratio was 2.66x (FY21: 3.10x).
Current leverage is consistent with our financial strategy to use a sensible
but cautious level of debt in the overall funding structure of the Group.
Free cash flow to movement in net debt 2022 2021
£m £m
Free cash flow before exceptional items (see above) 34.2 38.8
Capital expenditure - growth (12.4) (7.6)
Exceptional reorganisation cash cost (2.5) (5.5)
Investment in organic growth / synergy projects (14.9) (13.1)
Acquisitions of subsidiaries (127.9) (2.8)
Total debt acquired or refinanced (74.8) (9.9)
Deferred and contingent consideration payments(1) (20.5) (21.3)
Exceptional M&A costs (10.7) (3.0)
Acquisition-related (233.8) (37.0)
Buy back of ordinary shares (0.6) (30.0)
Preferred equity issuance 143.0 65.3
Refinanced bonds - redemption premia - (17.6)
Net refinancing cash flow 142.4 17.7
Other debt items including prepaid finance costs 1.5 (6.8)
Translation differences on foreign currency cash and loans 9.7 20.6
Other exceptional items 11.2 13.8
Total movement in net debt (60.9) 20.2
Opening net debt (345.7) -
Closing net debt (406.6) (345.7)
(1) Includes the repayment of acquisition-related capital investment to
Keraben senior management team
Net debt 2022 2021
£m £m
Net cash and cash equivalents 258.0 344.8
Senior secured debt (at par) (631.6) (637.7)
Unsecured loans (32.2) (51.7)
Finance leases and hire purchase arrangements (pre IFRS 16) (0.8) (1.1)
Net debt before obligations under right-of-use leases (406.6) (345.7)
Adjusted net debt / EBITDA 2.66x 3.10x
Bond embedded redemption option 2.7 9.0
Bond issue premium - non-cash (related to embedded redemption option) (4.3) (4.3)
Pre-paid finance costs on senior debt 9.8 10.9
Preferred equity, associated warrants and embedded derivatives (254.2) (76.2)
Obligations under right-of-use leases (incremental to above finance leases) (104.8) (86.0)
Statutory net debt (net of prepaid finance costs) (757.4) (492.2)
ACCOUNTING STANDARDS
The financial statements have been prepared in accordance with UK-adopted
international accounting standards. There have been no changes to
international accounting standards this year that have a material impact on
the Group's results. No forthcoming new international accounting standards
are expected to have a material impact on the financial statements of the
Group.
GOING CONCERN
The consolidated financial statements for the Group have been prepared on a
going concern basis. For further details, see Note 10 of the Accounts.
Michael Scott
Group Finance Director
19 July 2022
Consolidated Income Statement
For the 52 weeks ended 2 April 2022
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
Underlying Non- Reported Underlying Non- Reported
performance
underlying
numbers
performance
underlying
numbers
items
items
Notes £m £m £m £m £m £m
Continuing Operations
Revenue 1 1,019.8 - 1,019.8 662.3 - 662.3
Cost of Sales (657.5) (5.5) (663.0) (427.4) - (427.4)
Gross profit 362.3 (5.5) 356.8 234.9 - 234.9
Distribution costs (108.2) - (108.2) (74.8) - (74.8)
Administrative expenses (148.3) (51.7) (200.0) (84.2) (33.9) (118.1)
Other operating income 2.1 2.9 5.0 3.9 - 3.9
Operating profit 107.9 (54.3) 53.6 79.8 (33.9) 45.9
Comprising:
Operating profit before non-underlying and exceptional items 107.9 - 107.9 79.8 - 79.8
Amortisation of acquired intangibles 1,2 - (32.4) (32.4) - (26.8) (26.8)
Other non-underlying items 1,2 - (15.0) (15.0) - 0.7 0.7
Exceptional items 1,2 - (6.9) (6.9) - (7.8) (7.8)
Finance costs 3 (34.1) (31.9) (66.0) (29.7) (23.7) (53.4)
Comprising:
Interest on loans and notes 3 (27.9) - (27.9) (23.9) (1.4) (25.3)
Amortisation of prepaid finance costs and accrued interest 3 (2.3) - (2.3) (2.6) (7.3) (9.9)
Unwinding of discount on right-of-use lease liabilities 3 (3.8) - (3.8) (3.0) - (3.0)
Preferred equity items 3 - (33.0) (33.0) - (13.1) (13.1)
Other finance items 3 (0.1) 1.1 1.0 (0.2) (1.9) (2.1)
Profit / (loss) before tax 73.8 (86.2) (12.4) 50.1 (57.6) (7.5)
Taxation (charge) / credit (18.1) 18.1 - (13.0) 23.3 10.3
Profit / (loss) for the period from continuing operations 55.7 (68.1) (12.4) 37.1 (34.3) 2.8
(Loss) / earnings per share - pence basic 4 (10.61) 2.30
diluted 4 (10.61) 2.29
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 2 April 2022
52 weeks ended 53 weeks ended
2 April 2022
3 April 2021
30 March 2019
Note £m £m
(Loss) / profit for the period (12.4) 2.8
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on defined benefit pension scheme 7 1.6 (0.1)
Items that will not be reclassified to profit or loss 1.6 (0.1)
Items that may be reclassified subsequently to profit or loss:
Retranslation of overseas subsidiaries 3.5 (6.1)
Items that may be reclassified subsequently to profit or loss 3.5 (6.1)
Other comprehensive income / (expense) 5.1 (6.2)
Total comprehensive (expense) / income for the period attributable to the (7.3) (3.4)
owners of the parent
Consolidated Balance Sheet
As at 2 April 2022
2 April 2022 3 April 2021
Note £m £m
Non-current assets
Goodwill 244.6 164.8
Intangible assets other than goodwill 259.7 224.2
Property, plant and equipment 256.0 202.1
Right-of-use lease assets 99.6 82.6
Investment property 0.2 0.2
Deferred tax assets 27.2 17.2
Total non-current assets 887.3 691.1
Current assets
Inventories 280.7 164.4
Trade and other receivables 223.8 150.1
Cash and cash equivalents 273.6 348.8
Total current assets 778.1 663.3
Total assets 1,665.4 1,354.4
Current liabilities
Trade and other current payables 337.2 213.8
Current tax liabilities 0.7 5.1
Obligations under right-of-use leases - current 16.9 13.0
Other financial liabilities 25.2 30.2
Total current liabilities 380.0 262.1
Non-current liabilities
Trade and other non-current payables 7.5 17.0
Obligations under right-of-use leases - non-current 88.7 74.0
Other non-current financial liabilities 646.0 647.5
Preferred equity 207.9 70.1
Preferred equity - contractually-linked warrants 46.4 6.1
Deferred tax liabilities 81.4 62.9
Retirement benefit obligations 7 4.9 6.5
Total non-current liabilities 1,082.8 884.1
Total liabilities 1,462.8 1,146.2
Net Assets 202.6 208.2
Equity
Share capital 6.3 6.3
Retained earnings 187.3 198.7
Foreign exchange reserve 3.1 (0.4)
Other reserves 5.9 3.6
Total equity 202.6 208.2
Consolidated Statement of Changes in Equity
For the 52 weeks ended 2 April 2022
Share Share Retained Foreign exchange reserve Other Total
capital
premium
earnings
reserves
equity
£m £m £m £m £m £m
At 28 March 2020 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 April 2022 - - (12.4) - - (12.4)
Other comprehensive income for the period - - 1.6 - - 1.6
Retranslation of overseas subsidiaries - - - 3.5 - 3.5
Total comprehensive loss - - (10.8) 3.5 - (7.3)
Buy back of ordinary shares - - (0.6) - - (0.6)
Share-based payment charge - - - - 2.3 2.3
Transactions with owners - - (0.6) - 2.3 1.7
At 2 April 2022 6.3 - 187.3 3.1 5.9 202.6
Consolidated Statements of Cash Flows
For the 52 weeks ended 2 April 2022
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
£m £m
Cash flows from operating activities
Operating profit 53.6 45.9
Adjustments For:
Depreciation and amortisation of IT software 55.2 47.7
Amortisation of acquired intangibles 32.4 26.8
Negative goodwill arising on acquisition (6.9) (6.5)
Acquisition-related performance plan charge 7.1 -
Amortisation of government grants (0.5) (0.5)
Profit on disposal of property, plant and equipment (2.9) (0.1)
Share incentive plan charge 2.3 1.0
Defined benefit pension (0.1) (0.1)
Net cash flow from operating activities before movements in working capital, 140.2 114.2
tax and interest payments
Change in inventories (51.8) 7.6
Change in trade and other receivables (29.9) (0.3)
Change in trade and other payables 55.5 (25.6)
Cash generated by continuing operations before tax and interest payments 114.0 95.9
Interest paid on loans and notes (28.4) (30.4)
Interest relating to right-of-use lease assets (3.8) (3.0)
Income taxes paid (13.7) (5.0)
Net cash inflow from operating activities 68.1 57.5
Investing activities
Purchases of property, plant and equipment (51.3) (27.6)
Purchases of intangible assets (2.0) (0.9)
Proceeds on disposal of property, plant and equipment 5.3 1.2
Deferred consideration and acquisition-related performance plan payments (12.7) (15.6)
Acquisition of subsidiaries net of cash acquired (127.9) (2.8)
Net cash used in investing activities (188.6) (45.7)
Financing activities
Repayment of borrowings (89.8) (164.7)
Issue of preferred equity 150.0 65.3
Preferred equity ticking fee (7.0) -
Buy back of ordinary shares (0.6) (30.0)
Payments under right-of-use lease obligations (15.0) (11.3)
Repayments of acquisition-related capital investment to Keraben senior (7.2)
management team
Net cash (used) / generated in financing activities 30.4 163.0
Net (decrease) / increase in cash and cash equivalents (90.1) 174.8
Cash and cash equivalents at beginning of period 344.8 174.7
Effect of foreign exchange rate changes 3.3 (4.7)
Cash and cash equivalents at end of period 258.0 344.8
Comprising:
Cash and cash equivalents 273.6 348.8
Bank overdrafts (15.6) (4.0)
258.0 344.8
1. Segmental
information
The Group is organised into four operating segments: soft flooring products in
UK & Europe; ceramic tiles in UK & Europe; flooring products in
Australia; and flooring products in North America. The Executive Board (which
is collectively the Chief Operating Decision Maker) regularly reviews
financial information for each of these operating segments in order to assess
their performance and make decisions around strategy and resource allocation
at this
level.
The UK & Europe Soft Flooring segment comprises legal entities 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, 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 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
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK & UK & Australia North Unallocated Total UK & UK & Australia Unallocated Total 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 £m
Income statement
Revenue 423.1 371.6 109.5 115.6 - 1,019.8 280.4 282.5 99.6 - 662.3 662.3
Underlying operating profit 45.4 47.5 11.8 5.2 (2.0) 107.9 28.7 40.4 11.9 (1.3) 79.8
79.8
Non-underlying operating items (9.9) (27.5) (1.7) (5.1) (3.2) (47.4) (5.0) (18.9) (1.7) (0.5) (26.1)
(26.1)
Exceptional operating items (4.0) 2.2 (0.1) (1.8) (3.2) (6.9) 0.1 (4.3) - (3.6) (7.8)
(7.8)
Operating profit 31.5 22.2 10.0 (1.7) (8.4) 53.6 23.8 17.2 10.2 (5.3) 45.9
45.9
Underlying net finance costs (34.1) (29.7)
(29.7)
Non-underlying finance costs (31.9) (23.7)
(23.7)
Loss before tax (12.4) (7.5)
(7.5)
Tax credit - 10.3
10.3
(Loss) / profit for the period (12.4) 2.8
2.8
Management information is reviewed on a segmental basis to operating
profit.
During the year, no single customer accounted for 10% or more of the Group's
revenue. Inter-segment sales in the year and in the prior year were
immaterial.
All revenue generated across each operating segment was from the sale of
flooring products recognised at a point in time in accordance with IFRS 15.
The flooring products sold across each operating segment have similar
production processes, classes of customers and economic characteristics such
as similar rates of profitability, similar degrees of risk, and similar
opportunities for growth.
The Group's revenue for the period was split geographically (by origin) as
follows:
2022 2021
£m £m
Revenue
United Kingdom 336.6 243.4
Spain 205.8 197.2
Italy 155.2 85.2
Netherlands 86.5 36.9
Turkey 10.7 -
Australia 109.5 99.6
North America 115.6 -
1,019.8 662.3
Balance sheet
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK & UK & Australia North America Central Total UK & Europe Soft Flooring UK & Australia North America Central Total
Europe
Europe
Europe
Soft Flooring
Ceramic Tiles
Ceramic Tiles
£m £m £m £m £m £m £m £m £m £m £m £m
Total assets 380.4 794.0 100.8 96.3 286.5 1,658.0 274.5 692.2 91.7 - 296.0 1,354.4
Total liabilities (194.4) (302.6) (36.5) (37.5) (884.4) (1,455.4) (136.7) (246.4) (32.4) - (730.6) (1,146.2)
Net Assets 186.0 491.4 64.3 58.8 (597.9) 202.6 137.7 445.8 59.3 - (434.6) 208.2
The Group's non-current assets (net of deferred tax) as at 2 April 2022 were
split geographically as follows:
2022 2021
£m £m
Non-current assets (net of deferred tax)
United Kingdom 146.6 171.9
Spain 375.6 389.1
Italy 97.7 72.3
Netherlands 98.8 0.9
Turkey 35.5 -
Australia 40.1 39.7
North America 65.8 -
860.1 673.9
Other segmental information
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK & UK & Australia North Un-allocated Total UK & UK & Australia North Un-allocated 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 13.4 21.8 0.3 0.9 - 36.4 13.0 20.3 0.4 - - 33.8
11.5 2.3 4.2 0.4 0.4 18.8 7.3 2.3 4.3 - - 13.8
Depreciation of right-of-use lease assets
Amortisation of acquired intangibles 7.4 20.8 1.7 2.5 - 32.4 4.9 20.2 1.7 - - 26.8
32.3 44.9 6.2 3.8 0.4 87.6 25.2 42.9 6.4 - - 74.4
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
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) 12.9 30.6 3.1 1.2 0.2 47.9 11.9 13.3 2.2 - - 27.4
2. Exceptional and non-underlying items
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
£m £m
Exceptional items
(a) Acquisition related costs (10.7) (3.0)
(b) Reorganisation costs (5.3) (5.5)
(c) Negative goodwill arising on acquisition 6.9 6.5
(d) Contingent consideration linked to positive tax ruling (0.6) (5.7)
(e) Profit on disposal of fixed assets 2.9 -
(6.9) (7.8)
Non-underlying operating items
(f) Acquisition-related performance plans (7.1) 1.7
(g) Non-cash share incentive plan charge (2.3) (1.0)
(h) Amortisation of acquired intangibles (32.4) (26.8)
(i) Unwind of fair value uplift to acquisition opening inventory (5.3) -
(j) Depreciation of fair value uplift to acquisition property (0.2) -
(47.4) (26.1)
Total (54.3) (33.9)
Representing functional categorisation of:
Cost of sales (i, j) (5.5) -
Administrative expenses (51.7) (33.9)
Other operating income (e) 2.9 -
(54.3) (33.9)
(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 costs in Italy and at Edel Group, plus
small incremental restructuring of activities in the UK (primarily in underlay
manufacturing) and Spain (further manufacturing rationalisation). In the prior
year, this figure included cost of closure of the Westex factory and one-off
precautionary measures in reaction to 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 £4.2m arose on the consolidation of Santa Maria, and
£4.7m on the consolidation of Graniser, both acquired during the period,
achieved through favourable bilateral negotiations. This is offset by a £1.9m
charge relating to Hanover.
Hanover was acquired during the prior year, however 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 was not accounted for at the point of
acquisition, hence is charged to the income statement in the period.
(d) One-off charge in the year reflecting the final instalment of contingent
consideration on the acquisition of Saloni, which was linked to a positive
ruling over the tax deductibility of certain pre-acquisition costs. The
prior year amount was of the same nature but linked to the Keraben
acquisition.
(e) Gain on sale of the Westex property following completion of the synergy
project to consolidate manufacturing into another factory (G Tuft).
(f) Charge relating to the accrual of expected liability under
acquisition-related performance plans.
(g) Non-cash, IFRS2 share-based payment charge in relation to the long-term
management incentive plans.
(h) Amortisation of intangible assets, primarily brands and customer
relationships, recognised on consolidation as a result of business
combinations.
(i) One-off cost of sales charge reflecting the IFRS 3 fair value adjustment
on inventory acquired on new business acquisitions, given this is not
representative of the underlying performance of those businesses (see Note 23
for further details).
(j) Cost of sales depreciation charge reflecting the IFRS 3 fair value
adjustment on buildings acquired on new business acquisitions, given this is
not representative of the underlying performance of those businesses.
3. Finance costs
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
£m £m
Underlying finance items
Interest on bank facilities and notes 27.1 23.1
Interest on unsecured loans 0.8 0.8
Total interest on loans and notes 27.9 23.9
Amortisation of prepaid finance costs on loans and notes 2.3 2.6
Unwinding of discount on right-of-use lease liabilities 3.8 3.0
Net interest expense on defined benefit pensions 0.1 0.2
34.1 29.7
Non-underlying finance items
(a) Release of prepaid finance costs - 7.3
(b) Net cost of redemption premium on refinancing of previous senior notes - 6.3
One-off refinancing related - 13.6
(c) Finance items related to preferred equity 33.0 13.1
Preferred equity related 33.0 13.1
(d) Unwinding of present value of deferred and contingent earn-out liabilities - 0.3
(e) Other adjustments to present value of contingent earn-out liabilities - 0.7
(f) Unwinding of present value of acquisition-related performance plans - 1.1
Acquisitions related - 2.1
(g) Interest on short-term draw of Group revolving credit facility - 1.4
(h) Fair value adjustment to notes redemption option 6.3 (4.6)
(i) Unsecured loan redemption premium charge 0.4 0.2
(j) Mark to market adjustments and gains on foreign exchange forward contracts (2.0) 4.2
(k) Translation difference on foreign currency loans and cash (5.7) (6.3)
Other non-underlying (1.1) (5.1)
31.9 23.7
(a) Prior period non-cash charge relates solely to the release of prepaid
costs on previous bank facilities on refinancing.
(b) Prior period cost of early redemption in relation to the refinancing of
the 2024 senior secured notes, offset in part by the release of the liability
premium relating to the embedded derivatives attached to the host debt.
(c) The net impact of items relating to preferred equity issued to Koch Equity
Development during the current and prior periods (see Note 6).
(d) Prior 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.
(e) Prior period 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.
(f) Prior period non-cash cost relating to the unwind of the present value
discount on acquisition-related performance plans.
(g) Prior period interest cost associated with drawing of the Group's
revolving credit facility as a precautionary measure in response to the
Covid-19 pandemic.
(h) Fair value adjustment to embedded derivative representing the early
redemption option within the terms of the senior secured notes (see Note 6).
(i) Charge relating to the £2.1 million redemption premium on the BGF loan.
The BGF loan, including redemption premium, was fully repaid in the period.
(j) Non-cash fair value adjustments on foreign exchange forward contracts.
(k) Net impact of exchange rate movements on third party and intercompany
loans.
See Financial Review for further details of these items.
4. Earnings per share
The calculation of the basic, adjusted and diluted earnings / loss per share
is based on the following data:
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
Basic Adjusted Basic Adjusted
£m £m £m £m
(Loss) / profit attributable to ordinary equity holders of the parent entity (12.4) (12.4) 2.8 2.8
Exceptional and non-underlying items:
Income statement impact of preferred equity - 33.0 - 13.1
Amortisation of acquired intangibles - 32.4 - 26.8
Other non-underlying items - 15.0 - (0.7)
Other exceptional items - 6.9 - 7.8
Interest on short -term draw of Group revolving credit facility - - - 1.4
Amortisation of prepaid finance costs - - - 7.3
Fair value adjustment to notes redemption option - 6.3 - (4.6)
Translation difference on foreign currency loans - (5.7) - (6.4)
Other non-underlying finance items - (1.6) - 12.9
Tax effect on adjusted items where applicable - (18.1) - (23.3)
(Loss) / earnings for the purpose of basic and adjusted earnings per share (12.4) 55.7 2.8 37.1
Weighted average number of shares
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
Number Number
of shares
of shares
(000's) (000's)
Weighted average number of shares for the purpose of basic and adjusted 116,858 122,257
earnings per share
Effect of dilutive potential ordinary shares:
Share options and warrants 1,759 530
Weighted average number of ordinary shares for the purposes of diluted 118,617 122,787
earnings per share
Preferred equity and contractually-linked warrants 19,774 6,625
Weighted average number of ordinary shares for the purposes of diluted 138,391 129,412
adjusted earnings per share
The potential dilutive effect of the share options has been calculated in
accordance with IAS 33 using the average share price in the period.
The Group's earnings / loss per share are as follows:
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
Pence Pence
Earnings / loss per share
Basic earnings / (loss) per share (10.61) 2.30
Diluted earnings / (loss) per share (10.61) 2.29
Basic adjusted earnings per share 47.62 30.34
Diluted adjusted earnings per share 40.21 28.66
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.
5. Rates of exchange
2022 2021
Average Year end Average Year end
Australia - AUD 1.8269 1.7509 1.8392 1.8172
Europe - EUR 1.1777 1.1874 1.1244 1.1761
United States - USD 1.3627 1.3114 N/A N/A
Turkey - TRY 18.7879 19.2606 N/A N/A
6. Net Debt
Analysis of net debt
Reconciliation of movements in the Group's net debt position:
At 4 April 2021 Cash flow Capital Acquisitions Other non-cash changes Exchange movement At 2 April 2022
expenditure
£m £m £m £m £m £m £m
Cash and cash equivalents 348.8 (85.8) - 7.3 - 3.3 273.6
Bank overdraft (4.0) (10.9) - (0.7) - - (15.6)
Net cash and cash equivalents 344.8 (96.7) - 6.6 - 3.3 258.0
Senior secured debt (gross of prepaid finance costs):
- due in more than one year (633.0) - - - (6.2) 5.9 (633.2)
Unsecured loans:
- due in less than one year (26.2) 88.3 - (58.2) (13.5) 0.1 (9.6)
- due in more than one year (25.5) - - (10.4) 13.0 0.3 (22.6)
Net debt (339.9) (8.4) - (62.0) (6.7) 9.6 (407.4)
Obligations under right-of-use leases:
- due in less than one year (13.0) 15.0 (2.3) (3.0) (13.6) (0.0) (16.9)
- due in more than one year (74.0) - (8.7) (22.1) 15.6 0.5 (88.7)
Preferred equity (gross of prepaid finance costs) (77.1) (150.0) - - (27.1) - (254.2)
Prepaid finance costs:
- In relation to preferred equity 0.9 0.3 - - (1.2) - -
- In relation to senior debt 10.9 1.2 - - (2.3) 0.1 9.8
Financing liabilities (837.0) (45.3) (11.0) (93.7) (35.2) 6.8 (1,015.4)
Net debt including right-of-use lease liabilities, issue premia, preferred (492.2) (142.0) (11.0) (87.1) (35.2) 10.1 (757.4)
equity and prepaid finance costs
The cashflows therein included represent the physical cash inflows received by
the Group as a result of the refinancing exercise in the period, the majority
of which was directly paid by the new debt holders to the existing debt
holders, with the remainder of the cash being held by the Company. The Group
determined that the financial institution that handled the transactions with
bond holders acted in their capacity as principal.
Senior debt
Senior debt as at 2 April 2022 relates to €750m of senior secured notes,
split between two tranches: €500m 3.625% notes maturing in 2026; and €250m
3.75% notes maturing in 2028. The coupon on the notes is paid bi-annually.
These notes were issued in March 2021, at which time the previous €500m
5.25% notes were refinanced. One-off early redemption costs were incurred in
the prior period in relation to the refinanced notes (see Note 3). The fair
value of the liability as at 2 April 2022 was €718.6m (2021: €779.0m),
which has been determined based on a quoted price in an active market.
Attached to both sets of notes are early repayment options, which have been
identified as embedded derivative assets, separately valued from the host
contracts. Changes in the Group's credit rating and market pricing of the
notes would have an impact on the value of the options. The redemption price
of the repayment option on the €500m 2026 notes is the par value of the
notes plus any accrued interest, plus the following premia: within the first
two years 1.813% plus a make-whole of the present value of interest that would
otherwise have been payable in that period; in the third year 1.813%; in the
fourth year 0.906%; in the fifth year 0%. The redemption price of the
repayment option on the €250m 2028 notes is the par value of the notes plus
any accrued interest, plus the following premia: within the first three years
1.875% plus a make-whole of the present value of interest that would otherwise
have been payable in that period; in the fourth year 1.875%; in the fifth year
0.938%; in the final two years 0%.
These options have been valued based on the contractual redemption terms and
measuring the Group's forward assessment of the notes' market value based on
an option pricing model. The fair value of the derivative assets at inception
of the first and second tranches of the notes was £4.3m in aggregate. The
value of the senior debt liabilities recognised were increased by a
corresponding amount at initial recognition, which then reduces to par at
maturity using an effective interest rate method. The fair value of the
derivative asset at the year-end was £2.7m (2021: £9.0m), and therefore an
associated non-cash debit was recognised through the income statement for the
period of £6.3m (2021: £4.6m credit).
Prepaid legal and professional fees associated with the issue of the new notes
totalling £12.1m (1.9% of gross debt raised) is offset against the senior
debt liability and is amortised over its life (£2.3m in the year (2021:
£0.1m). The net prepaid value as at 2 April 2022 is £9.8m.
As a result, as at 2 April 2022 there is a total liability recognised of
£623.4m (2021: £622.1m) in relation to notes with a par value of £631.6m
(2021: £637.7m).
Additionally, the Group has a variable rate £120m multi-currency revolving
credit facility maturing in 2026, which at the year-end was undrawn.
Unsecured loans
Unsecured loans comprises of a number of smaller local loans and credit lines
utilised by the Group's operating subsidiaries for working capital purposes.
The Group's fully subordinated £10m loan facility with the Business Growth
Fund ('BGF') reached maturity on 31 December 2021 and was fully repaid at this
time, along with a redemption premium of £2.1m. Interest costs recognised
in the income statement for the period to maturity of £0.95m comprised (i)
cash interest of £0.45m, (ii) £0.25m in relation to the redemption premium
and (iii) £0.25m extension fee for deferring repayment of the redemption
premium from 2019 to 2021.
Preferred equity
Background and key terms
On 16 November 2020 the Company issued £75m of preferred equity to Koch
Equity Development, LLC. (via its affiliate KED Victoria Investments, LLC).
The agreement was subsequently amended on 23 December 2021 and the Company
issued additional preferred shares for a total subscription price of £150m.
The additional preferred shares issued consist of "A" preferred shares for a
subscription price of £50 million and "B" preferred shares for a subscription
price of £100 million. The "A" shares mirror the existing preferred shares
(resulting in a total of £125m "A" shares made up of the £50m new and the
existing £75m were redesignated as "A" shares and the terms amended). The "B"
shares represent a separate tranche with all the same characteristics except
for: i) the process for early redemption (described below); and ii) that the
"B" shares do not contribute to the overall return cap pertaining to the
warrants. No further warrants were issued as part of this amendment and, at
the point of completion, fees in relation to the follow-on commitment ceased
to apply. Additionally, a reduction of 100bp to the dividend rates (both cash
and PIK) was agreed.
The preferred equity attracts a dividend of 8.35% if cash settled, or 8.85% if
Paid In Kind by way of issue of additional preferred shares (such PIK
occurring quarterly). Starting in year five, the dividend moves from a fixed
rate to a spread over three-month LIBOR (or SONIA, if it is not possible to
ascertain LIBOR). The spread starts at 8.35% and 8.85% (for cash and PIK
settlement respectively) and increases by 1% in each subsequent year up to
year nine, after which it remains flat.
The preferred equity is a perpetual instrument, albeit the Company can choose
to redeem it in cash at any time, subject to a redemption premium. The
redemption price of this repayment option is the face value of the preferred
shares plus any accrued dividends, plus the following premia:
For the "A" shares, within the first three years 6.0% plus a make-whole of the
present value of dividends that would otherwise have accrued in that period;
in the fourth year 6.0%; in the fifth year 3.0%; and after the fifth
anniversary 0%. There are two scenarios in which mandatory cash redemption of
the preferred equity can occur outside of the Company's control, both of which
are highly unlikely in management's view: (i) if the Group becomes insolvent
(being bankruptcy, placing into receivership or similar events), or (ii) a
change in control of the Company where the offer for the ordinary shares is
not all-cash and, at the same time, the offeror (on an enlarged pro-forma
basis) is deemed to be sub-investment grade. For the "B" shares, the premia
are applied in the same way except that if redeemed after the 3rd anniversary
no redemption premium is payable. Any redemption for some, but not all, of the
preferred shares must comprise a redemption of the "A" shares and the "B"
shares pro rata to the number of "A" shares and "B" shares in issue at the
applicable time.
After the sixth anniversary, KED can elect to convert the outstanding
preferred equity and PIK'd dividends into ordinary shares, with the conversion
price being the prevailing 30 business day VWAP of the Company's ordinary
shares.
In the event of a change of control of the Company (for example a tender
offer, merger or scheme of arrangement in relation to the ordinary shares of
the Company), the terms of the preferred equity envisage three scenarios: (i)
where an all-cash offer is made and accepted, the preferred equity and any
PIK'd dividends will convert into ordinary shares which are then subject to
the same offer price per share made to other shareholders and acquired by the
offeror; (ii) where an offer is made and accepted that is not all-cash and the
offeror (on an enlarged pro-forma basis) is deemed to be investment grade, the
preferred equity and any PIK'd dividends plus a material penalty fee will
convert into ordinary shares which are then subject to the same offer price
per share made to other shareholders and acquired by the offeror (such penalty
fee having the effect of doubling the number of ordinary shares that KED would
otherwise receive on conversion that would then be subject to the offer price
per share; this being designed to incentivise the offeror to consider agreeing
to fund redemption of the preferred equity rather than conversion); and (iii)
where an offer is made and accepted that is not all-cash and the offeror (on
an enlarged pro-forma basis) is deemed to be sub-investment grade, the
preferred equity will be subject to mandatory redemption as described above.
Attached to the preferred equity are warrants issued to KED over a maximum of
12.402m ordinary shares. These warrants are only exercisable following the
third anniversary (unless the preferred shares have been cash redeemed or
there has been a change in control of the Company) at an exercise price of
£3.50. The terms include a total maximum return for KED, across both across
the "A" preferred equity and the warrants (the "B" shares do not contribute to
this), of the greater of 1.73x money multiple or 20% IRR. If this limit is
exceeded at the point of exercising the warrants (calculated as if the
preferred equity was being redeemed at the same time), then the number of
shares receivable on exercise is reduced until the returns equal the limit.
Additionally, if the IRR achieved by KED on the aggregate subscription price
paid for all of the "A" shares and "B" shares and the warrants is less than
12.0%, the exercise price is reduced from £3.50/share by such minimum amount
as necessary to ensure that the IRR achieved by KED on such aggregate
subscription price would be equal to 12% (but the exercise price cannot be
less than £0.05/share).
Accounting recognition
Whilst the preferred equity is legally structured as an equity instrument
through the Company's articles of association and have many equity-like
features, they must be accounted for as a financial liability under IFRS. This
primarily relates to the fact that the conversion option is based on the
prevailing share price, and therefore it fails the 'fixed-for-fixed' criteria
as prescribed in the standard.
The effect of the amendments, both to the dividend rates and other contractual
terms was such that consideration must be given as to whether the instrument
had been substantially modified as a result. The test carried out, comparing
the present value of expected cashflows using the original EIR to the present
value of the expected remaining cash flows of the original debt host contract,
yielded a difference of greater than 10%, thereby implying a substantial
modification. Consequently, the modification should be accounted for as an
extinguishment of the existing financial liability and recognition of a new
financial liability, based on the amended contractual terms.
Based on the terms of the preferred equity, the underlying host instrument was
identified alongside a number of embedded derivatives and other associated
instruments. Furthermore, the embedded derivatives were assessed to identify
those that are deemed to be closely-related to the host instrument and those
that are not, the latter of which are required to be separately valued in the
balance sheet. The underlying host instrument is held at amortised cost and
valued into perpetuity on the assumption of PIK'd dividends for the first ten
years and then a terminal value assuming cash dividends thereafter. This has
been valued using a binomial option pricing model, which uses standard option
pricing techniques to calculate the optimal time to exercise the respective
options, taking into account the specific contractual details of the
instruments and their interconnectedness. The carrying value of the host debt
at the point of extinguishment was £79.9m, which was net of £0.9m of prepaid
advisory fees. The value of the host debt recognised following the amendment
was £220.8m.
At each reporting date the terminal value is re-assessed based on long-term
LIBOR (or SONIA) curves and a revised accrued value of the instrument is
calculated at that date using an effective interest rate method, with the
increase in value taken to the income statement as a financial charge. The
value as at 2 April 2022 was £228.4m (2021: £72.6m), with the fair value at
2 April 2022 was £218.7m (2021: £67.4m).
Associated costs and advisory fees incurred in relation to the transaction
have been expensed to the income statement in the period.
There is no commitment fee associated with the new instrument therefore with a
value of £nil as at 2 April 2022 (2021: £2.8m asset). At the point of
extinguishment, the commitment fee had a carrying value £0.7m (asset).
Two non closely-related embedded derivatives were identified:
(i) the Victoria option to cash redeem (rather than the instrument running
into perpetuity or conversion, see below) - the asset had a fair value of
£15.4m at the point of extinguishment on 23 December 2021. The asset was
subsequently recognised at a fair value £24.6m following the amendment, and
is to be fair valued at each subsequent reporting date through the income
statement. The fair value of the asset as at 2 April 2022 was £20.5m (2021:
£0.5m). This option has been valued based on the contractual redemption terms
and the Group's forward assessment of the preferred equity value based on an
option pricing model.
(ii) the KED option to convert into ordinary shares - this was valued at £nil
(the same position pre and post amendment). The model uses standard option
pricing techniques to calculate the optimal time to exercise the respective
options. As such, the valuation technique assumes that all interest will be
accrued and rolled into the preference share balance and that there will be no
conversion of the preference shares into ordinary shares due to their coupon
and enhanced liquidity preference. As a result, nil value has been attributed
to this feature.
Finally, the KED ordinary equity warrants have been separately identified.
This financial instrument had a fair value of £34.6m at the point of
extinguishment. The fair value liability was subsequently recognised at
£63.5m following the amendment and is fair valued at each reporting date
through the income statement, with a fair value of £46.4m as at 2 April 2022
(2021: £6.1m). These warrants have been valued using a binomial option
pricing model. The model uses standard option pricing techniques to calculate
the optimal time to exercise the respective options, taking into account the
specific contractual details of the instruments and their interconnectedness.
Details of the significant judgements and estimates in relation to the
valuation of these items are provided in Note 26, and the associated income
statement impact in Note 3. Below is a summary of the Preferred Equity P&L
charge.
Preferred Equity P&L charge
2022 2021
£m £m
Host contract 14.9
3.4
Fair value warrants 11.3
1.6
Fair value redemption asset (10.7)
5.2
Loan commitment 1.3
0.7
Ticking fee 4.7
2.2
Loss on substantial modification 10.3 -
Preferred equity 31.8
13.1
Preferred equity prepaid finance costs 1.2 -
Preferred equity including prepaid finance costs 33.0
13.1
Of the £31.8m preferred equity, all elements are non-cash in nature except
for the ticking fee which was paid in full (£7.0m) in the period and will not
be a cost in future periods.
7. Retirement benefit
obligations
Defined contribution schemes
The Group operates a number of defined contribution pension schemes. The
companies and the employees contribute towards the schemes.
Contributions are charged to the Income Statement as incurred and amounted to
£5,660,000 (2021: £4,634,000), of which £2,837,000 (2021: £2,350,000)
relates to the UK schemes. The total contributions outstanding at year-end
were £nil (2021: £nil).
Defined benefit
schemes
The Group has two defined benefit schemes, both of which relate to Interfloor
Limited.
Interfloor Limited sponsors the Final Salary Scheme ("the Main Scheme") and
the Interfloor Limited Executive Scheme ("the Executive Scheme") which are
both defined benefit arrangements. The defined benefit schemes are
administered by a separate fund that is legally separated from the Group.
The trustees of the pension fund are required by law to act in the interest of
the fund and of all relevant stakeholders in the scheme. The trustees of the
pension fund are responsible for the investment policy with regard to the
assets of the fund.
The last full actuarial valuations of these schemes were carried out by a
qualified independent actuary as at 31 July 2021.
The contributions made by the employer over the financial period were
£136,000 (2021: £136,000) in respect of the Main Scheme and £nil (2021:
£nil) in respect of the Executive
Scheme.
Contributions to the Executive and Main Schemes are made in accordance with
the Schedule of Contributions. Future contributions are expected to be an
annual premium of £213,000 in respect of the Main Scheme and £nil
contributions payable to the Executive Scheme. These payments are in line with
the certified Schedules of Contributions until they are reviewed on completion
of the triennial valuations of the schemes as at 1 August 2024.
As both schemes are closed to future accrual there will be no current service
cost in future
years.
The defined benefit schemes typically expose the Company to actuarial risks
such as: investment risk, interest rate risk and longevity
risk.
Amounts recognised in the consolidated income statement in respect of these
defined benefit schemes are as
follows:
2022 2021
£m £m
Net interest expense 0.1 0.1
Curtailments / Settlements - -
Past service cost - -
Components of defined benefit costs recognised in profit or loss 0.1 0.1
The net interest expense has been included within finance costs. The
remeasurement of the net defined benefit liability is included in the
statement of comprehensive income.
Amounts recognised in the Consolidated Statement of Comprehensive Income are
as follows:
2022 2021
£m £m
The return on plan assets (excluding amounts included in net interest expense) 0.6 3.6
Actuarial gains arising from changes in demographic assumptions (0.5) (0.4)
Actuarial (losses) / gains arising from changes in financial assumptions 1.5 (3.2)
Actuarial gains arising from experience adjustments - -
Remeasurement of the net defined benefit liability 1.6 (0.1)
The amount included in the Consolidated Balance Sheet arising from the Group's
obligations in respect of its defined benefit retirement benefit schemes is as
follows:
2022 2021
£m £m
Present value of defined benefit obligations (29.2) (31.2)
Fair value of plan assets 24.3 24.7
Net liability arising from defined benefit obligation (4.9) (6.5)
Deferred tax applied to net obligation 1.3 1.2
The Group expects to make a contribution of £213,000 (2021: £136,000) to the
defined benefit schemes during the next financial period.
8. Acquisition of subsidiaries
(a) Colli and Vallelunga
On 16 April 2021 the Group completed the purchase of the business and assets
of ceramic tile distributors, Ceramica Colli and Vallelunga.
The total cash consideration of €15.3m (£13.2m(1)) was paid on
completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution
from Ceramica Colli and Vallelunga of €14.5m (£12.3m(2)) of revenue and
€1.0m (£0.9m(2)) of profit before tax (before amortisation of acquired
intangibles and acqusition costs). If the acquisition had been completed on
the first day of the financial year, Group revenue and profit before tax would
have been higher by €2.2m (£1.9m(2)) and €0.3m (£0.3m(2)) respectively.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1573(
2) Applying the average exchange rate over the financial year of 1.1777
(b) Santa Maria
On 20 April 2021 the Group acquired 100% of the equity of ceramic tile
manufacturer, Ceramiche Santa Maria.
The total cash consideration of €8.5m (£7.3m(1)) was paid on completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution
from Santa Maria of €23.6m (£20.0m(2)) of revenue and €0.9m (£0.8m(2))
of loss before tax (before amortisation of acquired intangibles and
acquisition costs). If the acquisition had been completed on the first day of
the financial year, Group revenue and profit before tax would have been higher
by €2.1m (£1.8m(2)) and €0.3m (£0.3m(2)) loss respectively.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1573(
2) Applying the average exchange rate over the financial year of 1.1777
(c) Edel Group
On 30 April 2021 the Group acquired 100% of the equity of Edel Group BV
("Edel"), Netherlands-based designers, manufacturers, and distributors 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.
The consideration of €49.8m (£43.1m(3)) was paid in cash on completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution
from Edel of €39.0m (£33.1m(4)) of revenue and €4.6m (£3.9m(4)) of
profit before tax (before amortisation of acquired intangibles and acquisition
costs). If the acquisition had been completed on the first day of the
financial year, Group revenue and profit before tax would have been higher by
€5.5m (£4.7m(4)) and €0.7m (£0.6m(4)) respectively.
(3)Applying the GBP to EUR exchange rate at the date of acquisition of 1.1561(
4) Applying the average exchange rate over the financial year of 1.1777
Subsequently, on 18 August 2021 the Group acquired 100% of the equity of Edel
Grass. Edel Grass was already an intended acquisition for the previous Edel
Group owners. Although it was a separate transaction from different owners
there was a distinct link with the Edel Group acquisition
The consideration of €6.1m (£5.2m(5)) was paid in cash on completion.
The Group results for the 53 weeks ended 2 April 2022 include contribution
from Edel Grass of €13.0m (£11.1m(6)) of revenue and €0.7m (£0.6m(6)) of
loss before tax (before amortisation of acquired intangibles and acquisition
costs). If the acquisition had been completed on the first day of the
financial year, Group revenue and profit before tax would have been higher by
€14.2m (£12.0m(2)) and €0.2m (£0.1m(2)) respectively.
(5) Applying the GBP to EUR exchange rate at the date of acquisition of
1.1675(
6) Applying the average exchange rate over the financial year of 1.1777
(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 high-growth vinyl and wood flooring distributor based in the US,
with an online B2C customer acquisition model and direct delivery capability,
alongside B2B channels.
Total consideration of Cali was $82.6m (£59.2m(7)). The consideration of
$82.1m (£58.8m(7)) was paid in cash on completion and $0.5mn ($0.4m(7)) was
paid subsequently in November 2021 as a closing cash adjustment.
The Group results for the 52 weeks ended 2 April 2022 include contribution
from Cali of $156.3m (£115.6m(8)) of revenue and $5.1m (£3.7m(8)) of profit
before tax (before amortisation of acquired intangibles and acquisition
costs). If the acquisition had been completed on the first day of the
financial year, Group revenue and profit before tax would have been higher by
$35.6m (£27.1m(8)) and $0.7m (£0.6m(8)) respectively.
(7) Applying the GBP to USD$ exchange rate at the date of acquisition of
1.3967(
8) Applying the average exchange rate over the financial year of 1.3627
(e) Graniser
On 9 February 2021 the Group acquired 100% of the equity of Turkish ceramic
tile manufacturer and exporter, B3 Ceramics Danismanlik ("Graniser").
Total consideration of Graniser was TRY 133.7m (£7.3m(9)) was paid in cash on
completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution
from Graniser of TRY 205.4m (£10.9m(10)) of revenue and TRY 25.5m
(£1.4m(10)) of profit before tax (before amortisation of acquired intangibles
and acquisition costs). If the acquisition had been completed on the first day
of the financial year, Group revenue and profit before tax would have been
higher by TRY 451.7m (£24.0m(11)) and TRY 115.9m (£6.2(11)) respectively.
(10) Applying the GBP to TRY exchange rate at the date of acquisition of
18.338(
11) Applying the average exchange rate over the financial year of 18.7879
9. Post balance sheet events
Acquisition of Balta
On 5 April 2022 the Group completed the purchase of the rugs division of Balta
Group, a Belgium-based flooring company, along with the purchase of its UK
polypropylene carpet and non-woven carpet businesses and the internationally
known brand 'Balta'.
The total consideration paid was €164m (£139m(1)), including a small
completion adjustment settled after completion. Acquisition-related costs
total £3.7m in FY22.
At the time when the financial statements were authorised for issue, the
determination of the fair values of the assets and liabilities acquired had
not been finalised because the individual valuations had not been concluded.
It was not possible to provide detailed information about each class of
acquired receivables and any contingent liabilities of the acquired entity.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of 1.18.
Revolving credit facility
Following the year-end, the Group extended its multi-currency revolving credit
facility to £150m. This facility was undrawn at the year-end.
10. Basis of
Preparation
The consolidated financial statements for the Group have been prepared on a
going-concern basis. The Group's business activities, together with the
factors likely to affect its future development, performance and position, are
set out in the Chairman and CEO's Review, the Strategic Report, and the
Financial
Review.
The Board remains satisfied with the group's funding and liquidity position.
During the year ended 3 April 2021 there has been no period where financial
covenant tests applied.
The Group's cash position as at the year ended 3 April 2022 was £273.6m
(2021: £348.8m). The Group expects to continue to generate positive
operating cash flows in the forecast period to March 2024.
The Group has €500m of bonds maturing in August 2026 and €250m of bonds
with a maturity in March 2028. The bonds, in themselves, carry no
maintenance financial covenants.
The Group also has access to a £150m multi-currency revolving credit facility
('RCF') maturing in 2026; at year end the facility was £120m, which was
undrawn. A single leverage financial covenant applies to the RCF facility if
it is drawn in excess of 40% at our September and March test dates.
Considering the above, the Group expects to maintain a significant level of
liquidity headroom throughout the forecast period such that there is no
relevant period where the covenant test is expected to apply.
In assessing the Group as a going concern, a two-year cashflow forecast was
modelled, with the base case set to the FY23 budget and moderate growth
assumptions thereafter, consistent with the growth assumptions used in the
testing of goodwill impairment. No future, hypothetical, acquisitions were
included in the assumed cashflows, due to there being no certainty over any
acquisitions outside of those already completed to date. Furthermore, a
stress-test case was also modelled, assuming a significant drop in revenue and
margins versus the base case to ensure than even in an extreme downside
scenario, sufficient liquidity was maintained through the forecast
period.
The Directors are therefore of the view that the Group is well placed to
manage its business risks. Accordingly, the Directors continue to adopt the
going concern basis in preparing the Annual Report and
Accounts.
The results have been extracted from the audited financial statements of the
Group for the 52 weeks ended 2 April 2022. The results do not constitute
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Whilst the financial information included in this announcement has
been computed in accordance with the principles of international accounting
standards in conformity with the requirements of the Companies Act 2006, this
announcement does not itself contain sufficient information to comply with
international accounting standards. The Group will publish full financial
statements that comply with international accounting standards. The audited
financial statements incorporate an unqualified audit report. The Auditor's
report on these accounts did not draw attention to any matters by way of
emphasis and did not contain statements under S498(2) or (3) Companies Act
2006.
Statutory accounts for the 53 weeks ended 3 April 2021, which incorporated an
unqualified auditor's report, have been filed with the Registrar of
Companies. The Auditor's report on these accounts did not draw attention to
any matters by way of emphasis and did not contain statements under S498(2) or
(3) Companies Act 2006.
The Annual Report & Accounts will be posted to shareholders in due
course. Further copies will be available from the Company's Registered
Office: Worcester Road, Kidderminster, Worcestershire, DY10 1JR or via the
website:
www.victoriaplc.com.
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