TIDMVCP
RNS Number : 4678H
Victoria PLC
25 March 2020
For Immediate Release 25 March 2020
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Victoria PLC
('Victoria' or the 'Group')
Trading Update
Victoria PLC (LSE: VCP) the international designers,
manufacturers and distributors of innovative flooring, is pleased
to announce that despite the ongoing Covid-19 pandemic, which has
impacted recent trading conditions, the Group expects that
performance for the financial year ending 28 March 2020 will be
broadly in line with market expectations.
Earnings Outlook for 2020/21
The issues surrounding Covid-19 have the capacity to impact
companies' earnings by interrupting supply chains, workforce
sustainability, and demand. Unquestionably a decline in demand is
likely to have the most significant impact on Victoria. Together
with the general loss of consumer confidence following the
emergence of the virus, in some countries potential customers
cannot buy flooring - even if they wish to do so - due to the
closure of all non-essential retail businesses.
Looking ahead, given the uncertainty around both the duration
and severity of government actions in the different countries in
which we manufacture and distribute flooring, it is not possible at
this point to provide meaningful earnings guidance for FY2021.
Not an Existential Threat
The Board, however, is clear that the situation does not present
an existential threat to Victoria. Whilst short term trading will
be affected, the long-term outlook for the Group remains
positive.
There are a number of key reasons that underpin the Board's
assertion in making this statement:
1. Victoria enjoys comparatively low operational gearing across
its business. Of our annual operating cost base, approximately;
-- 54% of such costs are wholly variable with revenue. This
includes raw materials, energy, and freight.
-- 36% is semi-variable (which the Board defines as being
capable of being significantly changed within 60 days) such as
direct labour, logistics, and marketing expenditure.
-- 10% is fixed.
2. The Group's supply chain is highly diversified and invariably
localised to the key manufacturing plants. Our access to raw
materials is secure.
3. Victoria is fortunate to have a highly experienced and
motivated operational management team who have a track record of
successfully navigating through deep economic downturns. Many of
our managers have been in the industry for 30 years or more and the
value of this experience is enormous.
4. The wide geographic spread of both our manufacturing
operations and, more importantly, our customers means that the
virus's impact on Group revenue (and its subsequent recovery) is
likely to occur at varying times and not simultaneously. This is
important.
5. Shareholders will recall that in July 2019 and again in
January 2020 Victoria issued a total of EUR500 million of Senior
Secured Notes ("bonds"). These bonds are not due before July 2024
and, in themselves, carry no maintenance financial covenants.
6. Victoria has a strong balance sheet with sufficient cash on
hand to support the business in even the most severe scenarios we
have modelled. That said, we are taking every precaution to protect
the liquidity of the Group. In addition to direct internal actions,
we are in the process of accessing various Government schemes in
our different countries of operation to help increase our cost base
flexibility and mitigate adverse cash flow impacts.
7. The output of our internal stress-testing of the business (discussed in more detail below).
As a result, the Group goes into the uncertainty of the next few
months from a position of considerable strength. However, as Darwin
stated, those who survive "are not the strongest or the most
intelligent, but the most adaptable to change." Therefore, our
managers have been willing to think the unthinkable and act
decisively and promptly to protect their business - particularly
its cash position - as the impact will, in the short term, be
significant.
Group Stress-Test
The Board has modelled potential scenarios of different duration
and severity - including periods of nil revenues and an extended
period of 50% revenue loss - for their impact on earnings and cash
over the next 12 months. Our conclusion is that within the Group's
current financial resources, Victoria can withstand all likely
outcomes.
The modelling exercise has been undertaken in three steps.
Beginning with the base case position (i.e. our 2021 forecast prior
to the impact of coronavirus), we applied different levels of
significant sales decline over varying periods, examining the
effect on the manufacturing and logistics operations of each
business within the Group, assessing the impact on earnings and,
more importantly, the working capital and cash position of each
business, incorporating certain assumptions around receipts and bad
debts.
Each subsidiary then developed its own operational contingency
plan (clearly many actions are common for all businesses, but some
businesses have unique opportunities to reduce expenses and cash
outgoings).
We then re-ran the numbers incorporating the impact of these
mitigating actions - the intensity of which changed with the
potential scenarios of varying depth and duration.
Finally, we must point out that this conclusion is caveated with
the observation that our modelling is just that, it is not divine
revelation. However, we will continue to update our contingency
planning and mitigating actions as new information comes to hand to
help ensure Victoria's strong future.
Employee Welfare
There is no reasonable scenario where there will be no impact on
employment. However, fully consistent with maintaining Victoria's
financial security, we will endeavour to minimise the impact of
this pandemic on our employees. To assist with this, and to share
the financial burden, all middle and senior management have
voluntarily reduced their salaries by 20% for the time being.
We have already taken many measures across the Group to protect
people whilst preserving employment, including home working where
roles allow (in Spain, for example, over 250 employees are working
from home with full IT access), changes to shift arrangements to
aid social distancing, continuous cleaning and disinfection,
provision of safety equipment, etc.
Summary
Victoria is well positioned to weather this storm and the likely
outcomes. All that can be done, is being done. We have a strong
balance sheet, motivated and talented operational management,
fully-developed contingency plans covering scenarios of varying
severity and duration, and geographic diversity of end markets and
manufacturing facilities. Operational management are acutely aware
of the absolute need for cash preservation and to stay "ahead of
the curve" in terms of reducing costs ahead of any revenue
declines. This requirement will be balanced with the need to retain
the goodwill of, and access to, our skilled labour force who will
be needed to take advantage of the eventual upturn in demand.
Finally, although the coronavirus is presently dominating the
news cycle, we remain mindful of the longer term. Once the storm
has passed, people will again want flooring and revenues and
profits will recover quickly for businesses in a position to
respond to renewed demand. There is no doubt in our minds that
Victoria will survive the Covid-19-induced disruption we presently
face and, whether it lasts three months, six months, or even
longer, we do not want to lose that time in executing our business
plan. Like the many other severe events Victoria has faced in its
125 year history - two world wars, previous viral pandemics, and
several financial recessions - this period will pass and although
our focus over the last month has been to ensure Victoria survives,
we have not lost sight of our mission, To create wealth for
shareholders.
For further information contact:
Victoria PLC Cantor Fitzgerald Europe (Nominated
(+44 (0) 1562 749 610) Adviser and Joint Broker)
Geoff Wilding (+44 (0) 20 7894 7000)
Philippe Hamers Rick Thompson, Phil Davies, Will
Michael Scott Goode (Corporate Finance)
Caspar Shand Kydd, Andrew Keith
(Equity Sales)
Berenberg (Joint Broker) Peel Hunt (Joint Broker)
(+44 (0) 203 207 7800) (+44 (0) 20 7418 8900)
Ben Wright, Mark Whitmore, Laure Adrian Trimmings
Fine (Corporate Broking) George Sellar
Andrew Clark
------------------------------------
Buchanan Communications (Financial
PR)
(+44 (0) 20 7466 5000)
Charles Ryland
Victoria Hayns
Tilly Abraham
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END
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