REG - Victoria PLC - Trading Update, De-leveraging and Share Buy-Back

VictoriaAnnouncement

13/03/2024 07:00

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RNS Number : 6052G  Victoria PLC  13 March 2024

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.

 

Victoria PLC

('Victoria,' the 'Company,' or the 'Group')

 

Trading Update

Initial €25m Senior Secured Notes Repurchase underway

Advice of £25m share buy-back

 

Victoria PLC, (LSE: VCP) the international designers, manufacturers and
distributors of innovative flooring, is providing an update on trading for the
year ending 30 March 2024, together with an update on a recently started
repurchase programme of an initial €25 million of its 2026 Senior Secured
Notes and its intention to invest up to £25 million repurchasing its ordinary
shares of 5 pence each ("Ordinary Shares"), deploying some of the Group's
non-operating cash flow from the sale of non-core and surplus assets.

 

Trading

 

Although the medium-term macro-economic outlook is generally improving as well
as key leading indicators for flooring demand(1), current and near-term
trading conditions remain broadly consistent with previous updates to
shareholders with wider market demand down circa 20%. Consumer demand
continues to be soft in Europe (39% of Group revenue), subdued but stable
conditions in the UK (31%) and Australia (8%), contrasting with recently
improving demand in the US (22%), alongside pressure on earnings coming from
labour inflation and additional current year expenditure from accelerating
reorganisation and integration projects. As a consequence, the Board expects
that revenue for the year ending 30 March 2024 ("FY2024"), whilst less than in
FY2023, will be broadly in line with market expectations. Underlying EBITDA
will also, as anticipated, be below that achieved in FY2023 and the Board now
expects that to be approximately £160 million.

 

Measurable progress has been made with the Group's various reorganisation and
integration projects resulting in substantial permanent overhead reductions
and productivity gains.

 

These projects should materially improve future operational performance whilst
maintaining production capacity and therefore the Board is confident of
Victoria's short to medium term prospects for cash generation, de-leveraging,
and earnings growth - even with current market conditions.

 

Furthermore, although the Board cannot predict precisely when improving
consumer confidence and spending should cause flooring consumption to
normalise, the fundamental requirement for flooring always causes demand to
revert to the mean - rewarding the patient investor. Importantly, as demand
normalises and revenue increases, operating margins are expected to be 250-350
bps higher than previously, due to productivity gains.

 

De-leveraging

 

De-leveraging remains a key target for the Board, notwithstanding the
near-term impact of lower earnings, and the potential £25 million share
buyback is not expected to materially impact upon this objective - deferring
achievement of the Board's leverage goal by less than one calendar quarter.

 

Achievement of the leverage target is underway:

 •    The Company has been steadily repurchasing its 2026 Senior Secured Notes
      ("bonds") and, having bought €11.1 million to date at an average discount of
      21% against par, has a target of buying €25 million, reducing future cash
      interest payments as well as the amount due at maturity or upon redemption.
      The Board remains willing to consider repurchasing further bonds should they
      become available but liquidity has dried up, with few holders prepared to sell
      at current levels.

 •    The sale of non-core and surplus real estate and other assets is progressing
      with net proceeds of €31 million already received and a further €50
      million expected.

 •    Headway continues to be made in sustainably reducing working capital, with an
      additional £30 million cash inflow above normal operating cash flow
      anticipated during FY2025 from improvements in inventory management.

 •    Operating earnings are expected to improve from the anticipated FY2024 levels
      (even with a similar macro environment) due to the actions taken to improve
      productivity and lower overheads.

 

Share Buyback

 

In line with the stated capital allocation policy, it is the Board's intention
to invest up to £25 million in the repurchase of shares, subject to certain
conditions and the ratio of price to intrinsic value remaining highly
attractive, whilst protecting the Group's cash position and liquidity.
Although these share purchases are not the start of a formal and regular
programme to return capital to shareholders, the Board believes the current
share price is materially below the intrinsic value of the Group and, whilst
liquidity for bond repurchases is constrained, deploying some of the Group's
non-operating cash flow, from the sale of non-core and surplus properties,
towards these opportunistic purchases (alongside accumulating cash on the
balance sheet) serves Victoria's mission to create wealth for shareholders.

 

Executive Chairman, Geoff Wilding, said:

"There has been a lot of noise around Victoria in the last six months. To
their enormous credit, operational management simply put their heads down and
forged ahead with the integration projects designed to maximise the available
synergies within the Group and optimise cash generation in a challenging
macro-environment.

 

"The pace and rigour of this work has accelerated in the last 90 days, with a
larger cost incurred in the current year but a clear impact on future earnings
and cash flow. We emphasise that we are not expecting some immediate
improvement in flooring demand. However, we are confident of the impact on
earnings and cashflow of management's actions and are certain demand will
inevitability revert to the long-term mean."

 

Group Chief Executive, Philippe Hamers, commented:

"It has been a busy 18 months for the operational management teams with
execution of various synergy projects. These include the relocation of Balta's
carpet manufacturing and logistics to the Group's existing UK facilities,
relocating much of Balta's rug production to a newly expanded factory in
lower-cost Turkey, and introducing new IT systems to improve operational
decision-making and financial reporting. We have also initiated a project for
the full integration of ceramics production to optimise productivity, and
acquired new warehouse and distribution facilities in the US to improve
customer service, improving inventory management, and consolidation of raw
material procurement.

 

"These actions, some of which have been extended and remain ongoing, have
allowed production capacity to be maintained with 1,170 fewer employees (a
circa 16% reduction). Therefore, as volume demand normalises with improving
consumer confidence, the synergies are anticipated to increase Group EBITDA
margins by 250-350 bps, alongside lower capex, and a more competitive market
position due to better customer service levels, lower pricing, and wider
distribution. I am confident, therefore, that Victoria will experience faster
growth than the wider market as demand returns."

 

Notes

(1)Housing transactions, mortgage rates, consumer confidence, employment,
consumer savings, real wage growth, construction are seen as leading
indicators of flooring demand

 

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Brian Morgan, Chief Financial Officer.

 

For more information contact:

 

 Victoria PLC                                                         www.victoriaplc.com/investors-welcome

                                                                    (http://www.victoriaplc.com/investors-welcome)
 Geoff Wilding, Executive Chairman

                                                                    Via Walbrook PR
 Philippe Hamers, Group Chief Executive

 Brian Morgan, Chief Financial Officer

 Singer Capital Markets (Nominated Adviser and Joint Broker)                                    +44 (0)20 7496 3095

 Rick Thompson, Phil Davies, James Fischer

 Berenberg (Joint Broker)                                                                       +44 (0)20 3207 7800

 Ben Wright, Richard Bootle

 Peel Hunt (Joint Broker)                                                                       +44 (0)20 7418 8900

 Adrian Trimmings, Andrew Clark

 Walbrook PR (Media & Investor Relations)      +44 (0)20 7933 8780 or victoria@walbrookpr.com

                                             (mailto:victoria@walbrookpr.com)
 Paul McManus / Louis Ashe-Jepson

                                             +44 (0)7980 541 893 / +44 (0)7747 515 393
 Alice Woodings / Charlotte Edgar

                                               +44 (0)7407 804 654 / +44 (0)7884 664 686

 

About Victoria PLC (www.victoriaplc.com (http://www.victoriaplc.com) )

 

Established in 1895 and listed since 1963 and on AIM since 2013 (VCP.L),
Victoria PLC, is an international manufacturer and distributor of innovative
flooring products. The Company, which is headquartered in Worcester, UK,
designs, manufactures and distributes a range of carpet, flooring underlay,
ceramic tiles, LVT (luxury vinyl tile), artificial grass and flooring
accessories.

 

Victoria has operations in the UK, Spain, Italy, Belgium, the
Netherlands, Germany, Turkey, the USA, and Australia and employs
approximately 6,750 people across 30 sites. Victoria is Europe's largest
carpet manufacturer and the second largest in Australia, as well as the
largest manufacturer of underlay in both regions.

 

The Company's strategy is designed to create value for its shareholders and is
focused on consistently increasing earnings and cash flow per share via
acquisitions and sustainable organic growth. (Further information about
Victoria can be found on its website, www.victoriaplc.com
(http://www.victoriaplc.com) )

 

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