TIDMVCP
RNS Number : 3969M
Victoria PLC
14 September 2023
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Audited Results
for the year ended 1 April 2023
Record underlying revenue and EBITDA
Confident FY2024 outlook with a sharp increase in earnings and
free cash flow expected due to completion of major integration
projects
Victoria PLC (LSE: VCP) the international designers,
manufacturers and distributors of innovative floorcoverings,
announces its audited results for the year ended 1 April 2023,
which are unchanged from the key preliminary unaudited data
announced on 15 August and show the Company's tenth consecutive
year of revenue and underlying profit growth.
FY2023 Financial and Operational highlights
Year ended % Change
1 April Year ended
2023 2 April 2022
Underlying revenue GBP1,461.4m GBP1,019.8m +43.3%
Underlying EBITDA(1) GBP196.0m GBP162.8m +20.4%
Underlying operating profit(1) GBP118.8m GBP107.9m +10.1%
Operating (loss) / profit (GBP24.1m) GBP53.6m -145.0%
Underlying profit before tax(1) GBP76.9m GBP73.8m +4.2%
Net loss after tax (GBP91.8m) (GBP12.4m)
Underlying free cash flow(2) GBP71.3m GBP34.2m 108.3%
Net debt(3) GBP658.3m GBP406.6m
Net debt / EBITDA(4) 3.44x 2.66x
Earnings / (loss) per share:
- Basic (79.35p) (10.61p)
- Diluted adjusted(1) 39.06p 40.21p -2.9%
-- For the first time in the Company's history, the total volume
of flooring sold in FY2023 exceed 200 million square metres (more
than 29,500 football fields), generating record revenues of GBP1.46
billion.
-- Solid like-for-like organic revenue growth of 2.8 %, despite
challenging macro-economic conditions and following very strong
like-for-like organic growth of +19.2% in the previous 12
months.
-- Underlying EBITDA grew by + 20.4 % over the prior year to GBP 196.0 million.
-- Year-end net leverage was 3.44 x, 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 in excess of GBP 250 million.
-- FY2023's focus on the successful integration of acquisitions
has resulted in the projects' completion this month. The outcome is
anticipated to conservatively deliver a GBP20+ million per annum
increase in EBITDA.
-- T he Group's integration expenditure (exceptional expenses
and capex) of the last three years is coming to an end.
Consequently, the Board anticipates free cash flow to increase
sharply. For the five-year period FY2015-2019, the Group averaged
cash conversion of EBITDA to Net Free Cash Flow of 55% (5) , which
the Board believes is a sustainable, long-term ratio and one
management is focused on returning to in the near-term.
-- Whilst the Group's FY2024 financial outlook is largely based
on steady-state demand and underpinned by the various integration
projects, each future 5% increase in overall revenue, which is
Victoria's long-run organic growth rate, would be expected to
deliver earnings and cash flow growth of more than GBP25 million
per annum.
-- The "signs of life" in some geographies noted in earlier
market announcements, has continued to be seen - most noticeably in
the UK, where we believe the Group is benefitting from the service
it offers customers and its mid-high end product positioning and
underlying earnings year-to-date are ahead of both budget and the
same period last year.
Commenting on FY2024 Outlook and beyond, Geoff Wilding,
Executive Chairman, said:
"We expect FY2024 to be a year of two halves, with stronger H2
earnings as the productivity gains from completion of the major
integration projects are experienced. Completion of the projects is
also expected to result in Victoria's free cash flow increasing
sharply from H2 FY2024, with management focussed on returning to
our long-run average cash conversion of EBITDA to Net Free Cash
Flow of 55% (5) . Further ahead, FY2025 will see the full
integration benefits with an expected uplift in margins driving an
additional increase in earnings and free cash flow.
Victoria benefits greatly from being in a long-duration, steady
growth industry that will drive compounding organic growth for
decades. After making and integrating two-dozen acquisitions over
the last 10 years we have now achieved a scale that we anticipate
will result in higher productivity, more efficient logistics, wider
distribution, and lower input costs than almost all our
competitors. Coupling this scale advantage with the underlying
sectoral tailwinds will, the Board believes, deliver outsized
returns for our shareholders for a very long time."
(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.
(5) Cash generated after replacement capex, interest, and tax as
a percentage of EBITDA.
For more information contact:
Victoria PLC 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)
Rick Thompson, Phil Davies, James Fischer +44 (0)20 7496 3095
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
Paul McManus, Louis Ashe-Jepson, +44 (0)7980 541 893 / +44 (0)7747 515
Alice Woodings 393 /
+44 (0) 7407 804 654
About Victoria PLC ( 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 7,300 people across more than 30 sites. Victoria is
Europe's largest carpet manufacturer and the second largest in
Australia, as well as the largest manufacturer of underlay in both
regions.
The Company's strategy is designed to create value for its
shareholders and is focused on consistently increasing earnings and
cash flow per share via acquisitions and sustainable organic
growth.
Victoria PLC
Chairman and CEO's Review
INTRODUCTION
Victoria's operational management philosophy during FY2023 is
probably best encapsulated by Winston Churchill's advice, "When you
are going through hell, keep going". Dramatic increases in the cost
of raw materials, unprecedented energy prices, labour cost
inflation, subdued consumer demand, and international shipping
disruption created a testing backdrop against which our management
team nevertheless delivered the 10(th) consecutive year of growth
as set out in the table below.
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
---------------- ----- ----- ------ ------ ------ ------ ------ ---------- ---------- ---------- ----------
Underlying
Revenue
(GBP million) 70.9 71.4 127.0 255.2 330.4 417.5 566.8 621.5 662.3 1,019.8 1,461.4
Underlying 2.3 5.1 15.8 32.3 45.7 64.7 96.3 107.2(2) 112.0(2) 143.5(2) 171.3(2)
EBITDA(1)
(GBP million)
EBITDA margin
% 3.3 7.2 12.4 12.7 13.8 15.5 17.0 17.2 16.9 14.1 11.7(3)
(1) 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.
(2) Underlying EBITDA in FY20 through FY23 is stated before the
impact of IFRS 16 for consistency of comparison with earlier years.
IFRS-reported EBITDA for these years are GBP118m, GBP127m, GBP163m,
and GBP196m respectively.
(3) The decline in reported %margin was entirely due to the
acquisition mix effect; LFL organic margins increased by 0.2%
The objectives of this review are 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.
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. The review
focuses on the underlying operating results of the business, which
delivered underlying EBITDA of GBP196.0 million (FY2022: GBP162.8m)
and underlying EBIT of GBP118.8 million (FY2022: GBP107.9m). The
Financial Review covers non-underlying items in detail, following
which IFRS reported operating loss was GBP24.1 million (FY2022:
profit GBP53.6m), and furthermore covers items in the income
statement below operating profit (financial items and tax).
Shareholders are of course free to accept or disregard any of
this data but we want to ensure that you have access to similar
information Victoria's board and management use in making
decisions.
FY2023 OPERATIONAL REVIEW
Overview
The global flooring market is c. USD 200 billion(1) (GBP 154
billion(2) ), and USD 66 billion (GBP 51 billion) in Victoria's key
markets of Europe and the US, with volume growth over the last 25
years of c. 2.6%(1) per annum. There are fundamental drivers that
sustain this long-term growth and, whilst somewhat subdued demand
was experienced in FY2023, this was due to near-term macroeconomic
conditions and we remain confident that the natural state of the
sector is continued expansion in the regions where Victoria
trades.
Before commenting specifically on each of the different
operating divisions, there were several Group-wide elements in
FY2023 which are worth highlighting.
(1) Freedonia Global Flooring Report 2021
(2) GBP/USD 1.29
Integration Projects
Integrating and reorganising an acquisition is expensive
(especially in Europe where mandated social payments must be made
to redundant workers) but necessary to realise the maximum value
from acquired businesses. Therefore, with the proviso that the
expected return on the investment must exceed our internal hurdle
rate, the Group is willing to invest heavily where required, in
integrating an acquisition in order to optimise future free cash
flow. (To be clear, although the restructuring cash outlay is made
post-completion, the quantum of the investment is scoped out prior
to making the acquisition and is factored into the purchase price
we pay for the business to ensure our targeted return on capital is
achieved).
We have had four major projects underway throughout FY2023, all
of which are now in their final stages and, when completed, are
expected to conservatively result in a GBP20+ million per annum
increase in EBITDA and a significant step down in exceptional
capital expenditures:
(i) Balta's integration consists of three key projects:
a. The relocation of Balta's carpet manufacturing from Belgium
to Victoria's existing UK factories, making full use of the
designed capacity. 80% of Balta's carpet is sold in the UK and this
move will lower production and transport costs whilst enabling
shorter delivery times, thereby improving customer service.
b. The consolidation of the Balta rug manufacturing operation
onto Victoria's large site at Sint-Baafs Vijve, Belgium, alongside
the relocation of some production to Usak, Turkey, where the Group
has two modern rug-making and yarn extrusion factories . These
changes will improve efficiency and lower production costs .
c. The divestment of non-core business and real estate assets
acquired with the Balta transaction where the opportunity for
synergies with the Group's existing businesses are minimal.
(ii) Saloni Ceramica. With the investment Victoria has made in
production technology in Spain over the last three years, we have
been able to close the Saloni factory and consolidate production
onto the very large Keraben and Ibero site. This move occurred
ahead of schedule and was completed during March 2023. The Saloni
brand continues, with the roll-out of high-end showrooms and social
media presence supporting a renewed focus on the Architect &
Design market.
(iii) Graniser, Victoria's low-cost Turkish ceramics producer,
has two integration projects in progress:
a. Reorganisation and integration with Victoria's Spanish and
Italian factories - increasing spare annual production capacity at
Graniser to 8 million sqm.
b. Investment in new printers and packaging lines alongside
integration into Victoria's existing ceramics distribution network
will increase higher-margin export revenue.
(iv) Cali Flooring's integration comprises :
a. Access to Victoria's supply chain lowering Cost of Goods Sold (COGS).
b. Integration into Victoria's US logistics platform, improving
delivery times and reducing costs.
c. Commercial excellence projects focussed on "gross to net"
enhancements, which have lifted gross margin by approximately 5%
since April 2022. These projects have covered restructuring
salesforce incentives to encourage maximising margins rather than
volume, minimising claim and product return related expenses,
renegotiating services contracts, and optimising workforce
productivity.
These projects fall into one or more of three broad categories:
investment in productivity-enhancing technology, rationalisation of
production facilities, and logistics integration - all of which are
only possible due to Victoria's scale and business model. Few of
our competitors have the size to justify the investment in
technology that makes these large efficiency gains possible.
Technology is expensive and without the large production volume of
Victoria, the cost cannot be recovered. For example, an energy
co-generation plant, capable of saving millions in energy costs,
requires annual ceramics production at the factory of c. 10 million
sqm to justify the investment - volume that few of our competitors
manufacture. However, without technology, a manufacturer's
production costs will remain permanently higher than that of
Victoria, putting them at a perpetual disadvantage.
In total, these integration projects have reduced headcount by
1,000 FTE's whilst we have maintained our production
capability.
The full GBP20+ million financial effect of these projects
(detailed in the Capital Allocation section below) will be seen in
FY2025, although the benefits will start flowing from later this
year and the anticipated productivity improvements, cost savings,
and working capital enhancements underpin the current year's
expected increased financial performance.
Cash Generation
It is the Board's view that creating wealth for shareholders is
best achieved by maximising the medium-term free cash flow per
share and every decision is viewed through this prism.
Consequently, we set a target of achieving GBP100 million of
cash generation in H2 FY2023. GBP117.0 million was generated from
operating profits and working capital improvement, although we fell
short of the overall target due to three timing related issues:
1. Delayed completion of the divestment of an unneeded factory
building arising from the reorganisation of Balta. Recent Belgium
legislation requires an environmental report prepared prior to
completion and local consultants have significant backlogs. The
report has been recently received and completion of the agreed
c.GBP27 million sale can now proceed.
2. Surprisingly (and pleasingly) fast progress of the
integration projects led to earlier payment of some large cash
reorganisation-related expenditure (largely redundancies and
expansionary capex) that was not expected until FY2024, totalling
c.GBP28 million. Saloni's reorganisation completed earlier than
anticipated in March and, due to the progress made in the last four
months of FY2023, Balta's integration is now expected to finish
this month although when it was acquired in April 2022 we advised
that integration could take 24-36 months.
3. Working capital (primarily excess ceramics inventory
stockpiled due to energy uncertainty last winter) reduction
proceeded somewhat slower than anticipated due to softer demand,
impacting H2 FY2023 by c GBP20 million although progress is now
well underway with targets and management incentive plans in place
for each business across the Group.
Whilst these factors collectively impacted H2 cash by c.GBP74
million, none represent any fundamental shift in Victoria's
financial position as the cash items paid out in FY2023 are a
saving in FY2024 and the delayed inflows will be received in
FY2024.
4. The Board also decided to invest GBP11.4 million (the equity
component of the purchase) in the acquisition of Florida-based
ceramics distributor, IWT. Similarly, GBP1.6 million was invested
in buying back the Company's shares at prices the Board considered
to represent very good value for shareholders.
Other cash movements were broadly in line with expectations.
For the five year period FY2015-2019, the Group averaged cash
conversion of EBITDA to Net Free Cash Flow of 55%(3) and it is our
view that this is a sustainable, long-term ratio and one management
is focused on returning to in the near-term. Nevertheless, during
the last three years Victoria has chosen to invest heavily in three
areas, which the Board's expects to result in higher future free
cash flow conversion:
(i) Reorganisation/integration of acquisitions. The integration
cost is always factored into our purchase price.
(ii) Growth capex. Victoria has been steadily growing market
share for several years and additional plant has been required to
produce the increased volume. However, this investment, together
with productivity gains following completion of the integration
projects and selective outsourcing, means the Group now has
sufficient production capacity to cope with existing and
foreseeable demand and this category of expenditure will fall in
the future.
(iii) Ceramics inventory. During FY2023 the uncertainty about
the reliability of gas supplies during the winter months led
Victoria's ceramics businesses to build up additional inventory to
ensure we could maintain supply to customers and protect our
reputation as a reliable partner even in the event production was
suspended due to lack of gas deliveries for up to two months. Given
our ceramics division sells nearly GBP30 million (at cost) of
product per month, the additional six weeks-worth of inventory held
was a substantial commitment.
Gas remained available and, as noted above, we are now returning
inventory levels to normal, and the cash that was invested in the
excess inventory is being released throughout FY2024.
Consequently, it is the Board's expectation that Victoria's free
cash flow will return sharply back to the long-run average
(additional financial detail is provided in the Capital Allocation
section below), and accompanying this evolution is an increased
emphasis on free cash flow in senior management incentive
plans.
(3) Cash generated after replacement capex, interest, and tax as
a percentage of EBITDA.
Operating Margins
As forecasted to shareholders last year, operating margins
increased slightly (0.2% LFL) but remained below our long-term
expected (and historical) high-teen level. This was due partially
to a management decision to focus on protecting our cash margin
(rather than the percentage margin) and using the difficult
conditions to take further market share from struggling
competitors, but is primarily due to the mathematical effect of
acquisitions (Balta, Ragolle and IWT) - very large businesses with
single-digit margins, which were consequently margin dilutive
(-2.5%) prior to integration and benefitting from synergies with
Victoria. There was also some inevitable temporary impact from the
integration disruption (particularly at Balta where plant
relocation was underway).
However, as set out in this Review, the various integration
projects will be completed during H1 FY2024 and therefore we are
anticipating an uplift in margins beginning in the second half of
this financial year and the full benefit to flow in FY2025.
Inflation
Inflation has continued to be a significant factor throughout
FY2023. Labour costs increased by around 10%, and certain key raw
materials and energy costs increased by more than 100% during the
year. This has had two impacts on the Group during the year:
i. Margin pressure. The Group implemented price increases during
the year in order to protect our cash margin, whilst maintaining a
strong competitive position during a period when some market
participants were finding the operating environment very
challenging. We are confident that completion of our integration
projects alongside other actions, will subsequently deliver an
uplift in the percentage margin back to our historical high-teen
level.
ii. Working capital. Inflation-driven increases in raw material
and production costs means the same quantity of inventory costs
more to make and consequently ties up additional cash and, absent
any mitigating actions, reduces cash flow and lowers the return on
capital. Some of the critical cost inputs have returned to more
normal levels and the consequence of this will be that much of the
cash absorbed in working capital last year will return as stock is
sold and replaced with lower input cost inventory.
In summary the Board and management are alive to the risks
imposed by inflation and are carefully balancing the requirement to
increase prices sufficiently to ensure our cash return on equity
remains acceptable, whilst also maintaining our market share growth
momentum , which will help us drive long-term free cash flow
growth.
Demand
Demand softened in FY2023 following very strong volume growth
over the previous 18 months. We believe this to be a function of
(a) some pull-forward of spending in FY2021 and FY2022 (suggested
by sectoral volume growth of c.4.9% in 2021 versus the long-term
average of c.2.6% per annum) due to Covid lockdowns changing
consumer purchasing priorities; (b) lower consumer confidence
affecting spending levels, and (c) a level of de-stocking during
the year by some very large retailers. Nevertheless, Victoria
achieved 2.8% LFL revenue growth.
As can be seen from the FY2023 financial results, Victoria has
been impacted less by weaker demand than many of our
competitors:
-- As a manufacturer and distributor of typically mid to
high-end flooring, Victoria's core end-customers are less sensitive
to economic uncertainty and inflation.
-- Although de-stocking has been a feature of some larger retail
customers, most of our production is supplied to our customers
(retailers) based on end-consumer orders, not supplied for
inventory, reducing Victoria's exposure to de-stocking.
-- The Group has been deliberately structured with low
operational gearing, reducing the impact on earnings of lower
demand.
Although it is too early to make confident predictions, we have,
in recent months, seen some signs of life in certain markets. It is
our strong view that flooring remains a core consumer product and
any period of subdued demand will pass with little impact on the
long-term value of Victoria.
Whilst the Group's FY2024 financial outlook is largely based on
steady-state demand and underpinned by the various integration
projects, it is worthwhile noting that each future 5% increase in
overall revenue, which is Victoria's long-run organic growth rate,
would be expected to deliver earnings and cash flow growth of more
than GBP25 million per annum.
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.
Everything we do operationally is about increasing productivity
- lowering the cost to manufacture and distribute each square metre
of flooring - and improving the customer (retailers and
distributors) experience, seeking to become an increasingly
valuable part of their business. Both are required in order to
achieve our goal of creating wealth for shareholders by maximising
the free cash flow per share and the purpose of this Divisional
Review is to outline some of the steps we have taken during FY2023
along these two vectors.
UK & Europe Soft Flooring - A year dominated by integration
of recent acquisitions
FY23 FY22 Growth
-------------------------- ------------------ ----------------- ----------
Underlying Revenue GBP 718.8 million GBP423.1 million + 69.9 %
Underlying EBITDA GBP 66.9 million GBP70.3 million -4 .8 %
Underlying EBITDA margin 9.3 % 16.6% -730bps
Underlying EBIT GBP27 .2 million GBP45.4 million -40 .1 %
Underlying EBIT margin 3 .8 % 10.7% - 695 bps
Victoria is now Europe's largest soft flooring manufacturer and
distributor. Following very strong growth in FY2022 (LFL organic
revenue growth of 31%), demand for soft flooring was weaker over
the past 12 months, although Victoria has benefitted from its
mid-high end product positioning with LFL revenue -4.7% for FY2023
.
The operating margin reflected the mathematical effect from the
acquisition of the low-margin Balta business (-4.2%) and higher
input costs - particularly polypropylene fibre (-3.4%). As detailed
below, cost savings achieved with the integration of Balta is
expected to address the acquisition-mix effect and many input costs
are returning to more sustainable levels.
Carpet and Underlay
-- The most significant activity in this division over FY2023
has been the integration of Balta's broadloom carpet business,
which was acquired in April 2022. The plan, relocating
manufacturing to the Group's UK facilities, has required extensive
trade union negotiations arising from the factory closures in
Belgium, re-siting of machinery to the UK, and expansion of one of
our UK factories. Although enormously disruptive in the short term
and resulting in little earnings contribution from Balta in FY2023,
the reorganisation is expected to complete shortly, with the
financial benefits showing almost immediately.
-- Interfloor, the Group's underlay subsidiary, has exceeded
growth expectations in the European market, although labour
shortages in the UK held the business back during the year. This
issue is now resolved and we look forward to another strong result
in FY2024.
-- Prices for polypropylene fibre, a major raw material for soft
flooring products, increased more than 50% due to a global mismatch
between supply and demand. The high prices lasted for most of the
financial year, impacting margins, but have more recently returned
to more normal levels, with a benefit to the Group's production
costs and working capital levels.
Rugs (Balta Home)
-- Rugs is an entirely new flooring category for Victoria,
forming part of the Balta acquisition. With hard flooring growing
as a percentage of the total flooring area in Europe and the USA
(from 53.6 % in 2009 to 57.8 % in 2024), and the tendency for
consumers to then immediately cover their new hard floor with a
rug, we believe this to be a sustainably growing flooring
category.
-- The USA is the key market for the rugs manufactured by
Victoria and, after some softness in FY2023 (largely due to large
retailer de-stocking) we are anticipating modest revenue growth in
FY2024. However, the primary focus of the Balta Home management
team, led by Marc Dessein, continues to be finalising the
reorganisation of the business, which will have a materially
positive impact on earnings due to efficiency gains.
-- The reorganisation, which is on schedule, consists of the
consolidation of production facilities in Belgium alongside
transferring significant production capacity to Turkey, where the
company has two modern, certified and low-cost factories.
Logistics
-- Our logistics capability continues to provide Victoria with
what we believe to be an unassailable competitive advantage that
continues to drive market share gains. Retailers value service and
product availability over the last few pennies in price (no margin
at all is made by a retailer on unavailable product!).
-- The Group's state-of-the-art, carbon-neutral, purpose-built
185,000 ft(2) fulfilment centre in Worcester has been completed and
is fully operational, replacing the Kidderminster warehouse. It
also houses the Victoria Group HQ.
-- Apart from further enhancing Victoria service proposition,
our logistics operation, Alliance Flooring Distribution, is also
now generating third-party logistics income.
UK & Europe Ceramic Tiles - Extraordinary energy costs
successfully managed
FY23 FY22 Growth
-------------------------- ------------------ ----------------- ----------
Underlying Revenue GBP 453.3 million GBP371.6 million + 22.0 %
Underlying EBITDA GBP 105.8 million GBP71.4 million + 48.2 %
Underlying EBITDA margin 23.3 % 19.2% + 414 bps
Underlying EBIT GBP 77.5 million GBP47.5 million + 63.1 %
Underlying EBIT margin 17.1 % 12.8% + 431 bps
Successful ceramics production during FY2023 has been
exceptionally challenging due to the unprecedented energy costs and
generally soft demand. Energy costs normally comprise around 15-20%
of revenues for a ceramics business and dealing with prices that at
times were more than 900% of 'normal' levels was an industry-wide
problem that led to many of our competitors simply suspending
production.
Fortunately, Victoria's policy of hedging or contracting the
supply of key raw materials and other inputs (which is ongoing)
stood our ceramics division in very good stead during this
extraordinary period and the division continued to contribute
favourably to the Group's earnings with LFL revenue growth of 12.4%
and an organic margin improvement of 4.2%.
Italy
-- Demand continued throughout FY2023 (and into FY2024) for our
'Made in Italy' ceramics and we have an ongoing order backlog of
many months despite the significant capacity increase in 2022 .
-- We took advantage of the failure of a neighbouring competitor
to purchase their atomizer plant at a fraction of its replacement
cost. At a purchase cost of EUR5 million, this equipment reduces
the cost of atomized clay by c. EUR1.5 million per annum, alongside
securing its supply - vastly reducing our reliance on third-party
suppliers, which was becoming a potential risk to continued growth.
The Italian operation is now vertically integrated and more
resilient.
Spain
-- The final stage of our Spanish ceramics' integration was
completed during the year with the closure of the Saloni plant and
consolidation of production on the Keraben and Ibero sites. This
action, which maintained production capability, but with 15% fewer
employees, had been much delayed due to Covid-19 restrictions,
which lasted much longer in Spain than in other European countries.
However, the resulting higher productivity will help the business
remain competitive in the US market against ceramic tiles arriving
from India, Mexico, and Brazil.
-- The Saloni brand now focusses exclusively on high-end
commercial applications, with stylish new showrooms for the
Architecture & Design community opened in key locations in
Spain.
Turkey
-- Following the acquisition of Graniser in February 2022, we
have right-sized the business, whilst investing in some key
equipment to improve productivity, remove production bottle-necks,
and allow effective integration with our global ceramics
businesses. The result is an increase in spare capacity to 8
million sqm alongside a 30% reduction in FTEs and we are
anticipating an increased contribution from the business in the
current financial year.
Australia - Ongoing demand, some inflationary margin
pressure
FY23 FY22 Growth
-------------------------- ------------------ ----------------- ----------
Underlying Revenue GBP 120.9 million GBP109.5 million + 10.4 %
Underlying EBITDA GBP 15.3 million GBP16.4 million - 6.4 %
Underlying EBITDA margin 12.7 % 15.0% - 227 bps
Underlying EBIT GBP 10.0 million GBP11.8 million - 15.7 %
Underlying EBIT margin 8.3 % 10.8% - 255 bps
Although inflation had a small temporary impact on margins, the
Australian market continues to see good demand for flooring,
partially driven by ongoing buoyant residential construction due to
inwards migration. Permanent migration (excluding humanitarian
migrants) is consistently around 190,000 people per annum - all of
whom are of high economic value, creating consistent demand for
additional accommodation.
Australian consumers - particularly in the mid-high end of the
market - are paying increasing attention to sustainability when
selecting products and this has resulted in a strong recovery in
demand for wool-based carpet, which is Victoria Australia's core
manufacturing competency and is highly beneficial to the operating
margins of the Group's spinning mill at Bendigo.
North America - Continued profitable expansion
FY23 FY22* Growth*
-------------------------- ------------------ ----------------- --------
Underlying Revenue GBP 168.4 million GBP115.6 million n/a
Underlying EBITDA GBP 9.3 million GBP6.4 million n/a
Underlying EBITDA margin 5.5 % 5.6% n/a
Underlying EBIT GBP 6.0 million GBP5.2 million n/a
Underlying EBIT margin 3.6 % 4.5% n/a
* FY22 data is for 9 months only as Cali Flooring was not a
Victoria subsidiary until 23 June 2021 and growth comparisons are
not applicable
Our North American business continued to grow in FY2023 with the
acquisition of Florida-based ceramics distributor, International
Wholesale Tiles ("IWT"), bringing the Group's North
American-sourced annualised revenues (including exports to the US
from our European factories) to more than USD 400 million (GBP 308
million).
There is strong US-consumer demand for European-branded product
- partially because of the quality and style, and partially because
demand exceeds domestic production capacity by 50%. Ultra-high
quality artificial grass as manufactured by Victoria in Germany and
the Netherlands is a particular high-margin opportunity (as
outlined in last year's Annual Report) but we are also gaining
share in our ceramics business and are exporting increasing
quantities of ceramic tiles from our European factories to North
America. The US remains the single-largest market for our rugs
business.
The effectiveness of our strategy of acquiring US distribution
businesses and then driving higher margin organic growth for our
European factories via logistics and distribution synergies, whilst
massively disrupted by the pandemic during 2020 and 2021, shows
considerable promise - as set out in the table below:
Organic growth of US market exports from Victoria's European factories
2019 2023 Growth
Revenue (GBP thousands)(a) 4,585 45,322 +888%
(a) Excludes revenue from Balta Rugs, Cali Flooring, and IWT,
which were acquired businesses and do not form part of the Group's
US organic growth.
However, we are also continually seeking to profitably expand
our US distribution. One example is the recent soft launch of the
Victoria Home brand on Wayfair.com with Balta rugs and other
flooring products available, although it will be early-2024 before
we plan to scale this effort to ensure the systems are in place to
efficiently manage the expected growth.
The well-publicised West Coast shipping disruption last year
constricted supply of LVT product for several months, impacting
sales. However, this has not continued into the current year and
normal product supply is being experienced.
In Q4 FY2023 the Group finalised the reorganisation of its US
logistics capabilities with four distribution centres across
Georgia (two), South Carolina, and Florida and the US-based
management is continuing to take advantage of revenue and cost
synergies with the wider Group, with opportunities for distribution
of Victoria's European-manufactured product and logistics
efficiencies.
CAPITAL ALLOCATION
Victoria's Board views every investment decision through the
prism of maximising the medium-term free cash flow per share. With
FY2023 being a very significant transformational year due to the
acquisition and integration of Balta, and the integration of Cali
and Graniser, growth/restructuring capex and restructuring costs
totalled GBP98.5 million . It is important to understand that these
costs were factored into the purchase price of the businesses and
are expected to result in higher earnings and free cash flow than
had the investment not been made. Equally significantly, the shift
in allocation of this free cash will be dramatic:
-- Upon completion of the integration projects capex (c.GBP99.6
million in FY2023) will reduce to normal maintenance levels (see
Table A below for details) and exceptional costs (c.GBP 40.8
million in FY2023) associated with reorganisation will be de
minimus (see Table B below for details of the major projects and
their associated costs).
-- With a much lower risk of energy disruption the cash invested
in excess ceramics inventory will flow back out as inventory levels
return to normal.
T able A sets out the breakdown of capex spending for the last
five years to help shareholders better understand normal
maintenance capex levels, with the last major reorganisation
project being in FY2019:
Capex FY19 FY20 FY21 FY22 FY23
GBPm GBPm GBPm GBPm GBPm**
------------------------- ----- ----- ----- ----- -------
Maintenance 23.5 25.4 20.9 40.9 45.5
Growth & Restructuring* 20.9 8.4 7.6 12.4 54.1
------------------------- ----- ----- ----- ----- -------
44.4 33.8 28.5 53.3 99.6
========================= ===== ===== ===== ===== =======
* Includes capital expenditure incurred as part of
reorganizational and synergy projects to drive higher productivity
and lower operating costs.
**The step-up in FY23 is due to the Balta acquisition, which has
both a short-term impact from integration, plus an ongoing increase
in quantum due to the increased size of the Group.
Table B summarises the exceptional expenditure items in FY2023,
which are expected to end as re-organisation/integration projects
complete this financial year.
Redundancy Legal & Asset removal/ Provisions
Exceptional Costs cash costs Professional Impairment /other Total
GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ -------------- --------------- ----------- ------
Balta re-organisation 6.4 0.6 - 24.5 31.5
Saloni re-organisation 2.9 0.4 2.9 1.4 7.6
Graniser integration 0.3 - - - 0.3
Cali integration - - 1.2 0.2 1.4
------------------------ ------------ -------------- --------------- ----------- ------
Total 9.6 1.0 4.1 26.1 40.8
======================== ============ ============== =============== =========== ======
The Board will be prioritising allocation of the Group's free
cash flow to reducing net debt and redeeming preference shares (the
precise mix will depend on several factors). At all times the
allocation decision will be based on prudently optimizing the
Group's balance sheet while analysing what option will maximise the
medium-term free cash flow per share.
DIVIDS
For the reasons detailed in previous years' Annual Reports, it
remains the Board's view (as it has been for the last ten 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 FY2023.
LEVERAGE
Victoria has for the last 10 years maintained its leverage at
around 3-3.5x EBITDA - a policy that made sense to us given the
stable nature of our business, the terms of our debt
(covenant-lite, fixed-rate, long-dated bonds), and ultra-low
interest rates.
However, capital markets conditions have changed and, with the
higher interest rates that are likely to be experienced for the
foreseeable future, it is the Board's objective to (a) reduce the
Group's net debt/EBITDA ratio ahead of refinancing the current bond
issues; and (b) redeem preference shares .
These goals will be met by both reducing the numerator - the
absolute quantum of debt - from operating cash flow and the sale of
non-core assets and by increasing the denominator - the Group's
earnings - due to completion of the various integration projects
and other actions discussed elsewhere in this Review.
Shareholders will recall that the terms of the preference share
issue incorporated a call option that can be exercised by the
Company from November 2023, giving Victoria the right to repurchase
the preference shares in blocks of GBP25 million at par i.e. their
issue price.
OUTLOOK
Charlie Munger, the other half of the Berkshire Hathaway duo,
once observed that whilst some corporate problems seem large in the
moment, in time they will seem trivial. That is why he believes
long-term investing pays off and why Victoria's management focusses
on creating long-term value rather than reacting to short-term
market noise, which can distort issues out of all proportion to
their real effect on future prosperity. We are confident that all
our businesses benefit from strong economic fundamentals, and
skilled and dedicated management.
Operations
Completion of the various integration projects discussed in this
Review alongside tight cost management and productivity
improvements underpin the expected continued growth in earnings and
cash flow this year, notwithstanding ongoing challenging
macro-economic conditions.
The Board is therefore expecting FY2024 to be a year of two
halves, with the Group's financial performance in H2 being stronger
due to the synergy gains from the projects described in this Review
alongside limited recovery in demand in some markets.
Acquisitions
Although our focus is firmly on the integration projects,
acquisitions remain a core part of Victoria's long-term growth
strategy. Victoria has become a permanent home of choice for
flooring companies in Europe and the US - particularly family-owned
businesses - and the Group's potential pipeline of accretive
acquisitions continues to be compelling.
The worth of a business (or indeed any other investment asset)
is the present value of future cash flows and, with our firm belief
in Benjamin Graham's 'Margin of Safety', we are mindful of the
impact of higher interest rates and inflation on valuations and the
cost of capital.
Private company owners typically take time to adjust their
valuation expectations, but the same selling imperatives remain
(retirement being the most common) and so asking prices will, in
time, reflect the new reality . Consequently, at lower free cash
flow multiples, Victoria's acquisitions will continue to provide
the same Return on Capital as previously, notwithstanding a higher
cost of capital. Therefore, at the right time and within our
leverage policy, we will continue deploy capital to build scale,
expand distribution, broaden our product range, and widen the
economic moat around our business as we have successfully done over
the previous 10 years.
CONCLUSION
Victoria benefits greatly from being in a long-duration, steady
growth industry that will drive compounding organic growth for
decades. After making two-dozen careful acquisitions over the last
10 years we have now achieved a scale that, once we have completed
the current integration projects, will result in higher
productivity, more efficient logistics, wider distribution, and
lower input costs than almost all our competitors. Coupling this
scale advantage with the underlying sectoral tailwinds will, the
Board believes, deliver outsized returns for our shareholders for a
very long time.
Geoffrey Wilding Philippe Hamers
Executive Chairman Chief Executive Officer
13 September 2023
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, Belgium, the
Netherlands, Germany, Turkey, the USA, and Australia, employing
approximately 7,300 people at more than 30 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 promotes 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 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.
Although acquisitions remain a core part of Victoria's growth
strategy, current focus involves completing integration projects to
strengthen cost management and improve productivity to support the
Group's overall strategy.
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.
2023 2022
GBP'm GBP'm
--------------------------------------------------- -------- --------
Underlying revenue 1,461.4 1,019.8
% growth at constant currency 42.9% 57.5%
--------------------------------------------------- -------- --------
Underlying EBITDA 196.0 162.8
% margin 13.4% 16.0%
--------------------------------------------------- -------- --------
Underlying operating profit 118.8 107.9
% margin 8.1% 10.6%
--------------------------------------------------- -------- --------
Operating cash flow(1) 157.8 111.8
% conversion against underlying EBITDA 92% 78%
--------------------------------------------------- -------- --------
Free cash flow(2) 71.3 34.2
% conversion against underlying operating profit 60% 32%
--------------------------------------------------- -------- --------
Underlying pre-IFRS 16 EBITDA per share (diluted) 112.29p 103.68p
Earnings per share (diluted, adjusted) 39.06p 40.21p
Operating cash flow per share(3) 136.38p 95.65p
--------------------------------------------------- -------- --------
Adjusted net debt / EBITDA(4) 3.44x 2.66x
--------------------------------------------------- -------- --------
(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 financial
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 1 April 2023 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 implemented
price increases during the year ended 1 April 2023 to protect our
cash margin, whilst maintaining a strong competitive position
during a period some market participants found the operating
environment very challenging ;
2. Management is focussed on completing a number of integration
projects (set out in the Chairman and CEO's Review) that will
increase operating margins, mitigating some inflationary
pressures.
3. 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;
4. The main component of the Group's debt (EUR750m) is Senior
Secured Notes ("bonds") and carry a fixed coupon, of which EUR500m
falls due in August 2026 and EUR250m falls due in March 2028.
Therefore, the key finance cost base of the Group is protected from
any short-term increases in interest rates.
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 91.0% 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 GBP250 million. Furthermore, the Group's senior debt
consists entirely of long-duration, fixed interest rate,
covenant-lite bonds.
(1) Cash flow before financing and investing items (including
capex), exceptional items and tax; Conversion from pre-IFRS 16
EBITDA
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, North America and Australia. Economic risks in
any one region are mitigated by the independence of the Group's
four 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.
On behalf of the Board
Geoffrey Wilding
Executive Chairman
13 September 2023
Financial Review
HIGHLIGHTS
With underlying revenue approaching GBP1.5bn this financial year
has been another record year for Victoria PLC with the Group
continuing to deliver organic revenue growth. In tough economic
conditions the Group has been focussed on maintaining margins,
integrating our latest acquisitions, managing the cost base and
reducing working capital.
Underlying revenue growth of GBP441.5 million (43%) was driven
by the acquisitions completed over the last two years along with
some organic growth. Underlying EBITDA growth of GBP33.1 million
(20%) was predominately organic with the Balta acquisition, as
expected, not contributing significantly in its first year as we
integrate and restructure it.
As inflation continued to drive raw material prices higher
during the year we implemented a number of actions which mitigated
the impact on margins. The actions included prices increases,
forward contracting of energy supplies in key markets and managing
the cost base in all of our divisions.
This Financial Review is structured into several sections. The
first parts focus on the underlying performance of the Group,
analysing the trends in underlying revenue and 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 GBP118.8 million) to the IFRS statutory
performance of GBP24.1 million operating loss and, ultimately,
GBP91.8 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. Underlying results exclude significant costs (such a
significant legal, major restructuring and transaction items), they
should not be regarded as a complete picture of the Group's
financial performance, which is presented in its Total results. The
exclusion of other Adjusting items may result in Adjusting earnings
being materially higher or lower than Total earnings. In
particular, when significant impairments, restructuring changes and
legal costs are excluded, Adjusted earnings will be higher than
Total earnings.
A summary of the underlying and reported performance of the
Group is set out below.
2023 2022
Non- Non-
Underlying underlying Reported Underlying underlying Reported
performance items numbers performance items numbers
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------ --------- ------------- ------------ ---------
Revenue 1,461.4 18.8 1,480.2 1,019.8 - 1,019.8
------------- ------------ --------- ------------- ------------ ---------
Gross Profit 474.8 (40.1) 434.7 362.3 (5.5) 356.8
Margin % 32.5% 35.5%
Amortisation of
acquired intangibles - (41.5) (41.5) - (32.4) (32.4)
Other operating
expenses (356.0) (61.3) (417.3) (254.4) (16.4) (270.8)
Operating profit
/ (loss) 118.8 (142.9) (24.1) 107.9 (54.3) 53.6
Margin % 8.1% 10.6%
Add back depreciation
& amortisation 77.2 54.9
Underlying EBITDA 196.0 162.8
Margin % 13.4% 16.0%
----------------------- ------------- ------------ --------- ------------- ------------ ---------
Preferred equity
items - (26.9) (26.9) - (33.0) (33.0)
Other finance costs (41.9) (17.7) (59.6) (34.1) 1.1 (32.9)
Profit / (loss)
before tax 76.9 (187.5) (110.6) 73.8 (86.3) (12.4)
------------- ------------ --------- ------------- ------------ ---------
Profit / (loss)
after tax 59.6 (151.4) (91.8) 55.7 (68.1) (12.4)
------------- ------------ --------- ------------- ------------ ---------
EPS basic 51.47p (79.35p) 47.62p (10.61p)
EPS diluted 39.06p (79.35p) 40.21p (10.61p)
Group EBITDA margin bridge
FY22 16.0%
Acquisition mix effect -2.8%
------
Organic impact +0.2%
------
FY23 13.4%
------
Victoria acquired three companies during the year. The largest
acquisition, the rugs and UK broadloom businesses of Balta,
completed at the start of the year. On 6(th) June we acquired
Ragolle, a rugs business in Belgium to complement Balta and on
17(th) October we acquired IWT, a ceramics distribution business in
Florida. Management has been focused on integrating these
businesses and those acquired in recent years to maximise the
synergies identified when the businesses were purchased.
As has been noted in prior years acquisitions tend to have lower
initial EBITDA margins at the point of acquisition and this is the
key driver of the margin decline in the year. This was partly
offset by an increase in organic margin despite operating in
challenging conditions.
The Group incurred GBP85.4 million of exceptional operating
costs during the year, primarily relating to the reorganisation of
the Balta which we planned as part of the acquisition, along with
other income and costs associated with acquisitions including the
write down of certain assets and negative goodwill arising on
acquisition. Whilst the charge for the restructuring was recognised
in FY23 the majority of the cash will be spent in FY24 and FY25. In
addition, the Group incurred GBP41.5 million of amortisation of
acquired intangibles (primarily customer relationships and brand
names) and GBP16.0 million of other non-underlying costs (primarily
the accounting impact of acquisition earn-outs, acquired balance
sheet fair value adjustments and hyperinflation accounting).
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.
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 the current
and prior reported financial years were both 52 weeks in
length).
LFL revenue performance
Growth
------------------------------ -------
UK & Europe Soft Flooring
revenue -4.7%
UK & Europe Ceramics revenue +12.4%
Australia revenue +6.8%
North America revenue -4.4%
------------------------------ -------
Group revenue 2.8%
------------------------------ -------
Victoria continued to show organic revenue growth despite
challenging economic conditions in the second half of the year
which impacted all of our markets. Our UK & Europe Ceramics and
Australia divisions continued to show strong organic revenue growth
while our UK & Europe Soft Flooring and North America divisions
were impacted by lower footfall in UK carpet retailers and
destocking in North American customers.
We saw a decline in demand in all markets in the second half the
year and the business mitigated this by maintaining prices in an
environment where raw material prices were declining.
Divisional performance
UK & Europe Soft Flooring FY23 FY22 Growth
--------------------------- ---------- ---------- ---------
Underlying Revenue GBP718.8m GBP423.1m +69.9%
--------------------------- ---------- ---------- ---------
Underlying EBITDA GBP66.9m GBP70.3m -4.8%
Margin % 9.3% 16.6% -730 bps
--------------------------- ---------- ---------- ---------
Underlying EBIT GBP27.2m GBP45.4m -40.1%
Margin % 3.8% 10.7% -695 bps
--------------------------- ---------- ---------- ---------
UK & Europe Ceramics FY23 FY22 Growth
--------------------------- ---------- ---------- ---------
Underlying Revenue GBP453.3m GBP371.6m +22.0%
--------------------------- ---------- ---------- ---------
Underlying EBITDA GBP105.8m GBP71.4m +48.2%
Margin % 23.3% 19.2% +414 bps
--------------------------- ---------- ---------- ---------
Underlying EBIT GBP77.5m GBP47.5m +63.1%
Margin % 17.1% 12.8% +431 bps
--------------------------- ---------- ---------- ---------
Australia FY23 FY22 Growth
--------------------------- ---------- ---------- ---------
Underlying Revenue GBP120.9m GBP109.5m +10.4%
--------------------------- ---------- ---------- ---------
Underlying EBITDA GBP15.3m GBP16.4m -6.4%
Margin % 12.7% 15.0% -227 bps
--------------------------- ---------- ---------- ---------
Underlying EBIT GBP10.0m GBP11.8m -15.7%
Margin % 8.3% 10.8% -255 bps
--------------------------- ---------- ---------- ---------
North America FY23 FY22 Growth
--------------------------- ---------- ---------- ---------
Underlying Revenue GBP168.4m GBP115.6m +45.7%
--------------------------- ---------- ---------- ---------
Underlying EBITDA GBP9.3m GBP6.4m +44.7%
Margin % 5.5% 5.6% -4 bps
--------------------------- ---------- ---------- ---------
Underlying EBIT GBP6.0m GBP5.2m +16.9%
Margin % 3.6% 4.5% -88 bps
--------------------------- ---------- ---------- ---------
As noted above, actions taken by management in relation to the
organic business resulted in an increase in EBITDA margin for the
Group as a whole with the biggest impact being in UK & Europe
Ceramics. This was more than offset by the acquisition mix effect -
discussed earlier. This was particularly pronounced in UK &
Europe Soft Flooring given the scale of the Balta acquisition.
The underlying EBITDA margin charts below, which bridge from the
prior-year to the current year reported margin, strip out the
impact of acquisitions to show the underlying margin trend in
each.
UK & Europe Soft Flooring EBITDA margin bridge
FY22 16.6%
Acquisition mix effect -3.9%
------
Organic impact -3.4%
------
FY23 9.3%
------
UK & Europe Ceramic Tiles EBITDA margin bridge
FY22 19.2%
Acquisition mix effect -0.1%
------
Organic impact +4.2%
------
FY23 23.3%
------
Australia EBITDA margin bridge
FY22 15.0%
Acquisition mix effect 0.0%
------
Organic impact -2.3%
------
FY23 12.7%
------
North America EBITDA margin bridge
FY22 5.6%
Acquisition mix effect +1.7%
------
Organic impact -1.7%
------
FY23 5.5%
------
ACQUISITIONS AND INTEGRATION
Using the cash that we had built up in prior years, including
the issue of additional preferred equity, we completed three
acquisitions in FY23. The most significant acquisition was the rugs
and UK broadloom business of Balta in Belgium in April 2022 for
total consideration of circa EUR114.8m million (c. GBP95.7m). When
we acquired Balta we immediately began the process of restructuring
the business and integrating it into Victoria. This work consists
of three projects:
-- The relocation of Balta's carpet manufacturing from Belgium
to Victoria's UK factories, with a net reduction of 295
employees.
-- The consolidation of the Balta rug manufacturing operation
onto Victoria's large site at Sint-Baafs Vijve, Belgium, together
with the relocation of some production to Usak, Turkey, where the
Group has two very modern rug-making and yarn extrusion factories .
These changes will improve efficiency and lower production costs,
with the same output possible with 220 fewer employees.
-- The sale of non-core assets acquired with the Balta
transaction where the opportunity for synergies with the Group's
existing businesses are minimal.
The second acquisition, in June 2022, was of a rugs business
based in Belgium, Ragolle, for total consideration of circa EUR21.4
million (c. GBP18.2m). This business is highly complementary to
Balta's rugs business.
The third acquisition, in October 2022, was of a ceramic
distributor IWT, based in Florida in the US for total consideration
of circa $22.8 million (c. GBP20.4m). This adds to the Group's US
footprint, along with Cali which we acquired in FY22 and the rugs
business of Balta, with revenues over $400 million.
We also continued to integrate the businesses we acquired in
FY22 with projects in Graniser and Cali Flooring.
-- Graniser has integrated production into Victoria's Spanish
and Italian factories increasing spare production capacity to 38%
with 292 fewer FTE's and made investments in new printers &
packaging lines to allow more higher-margin exports.
-- Cali Flooring has been given access to Victoria's supply
chain lowering COGS and integrated into Victoria's US logistics
platform, improving delivery times and reducing costs.
Further details of these acquisitions are provided in Note 8 to
the Accounts.
FINANCING
Debt financing and facilities
Victoria has attractively priced, long dated facilities and
liquidity headroom in excess of GBP250m.
The Group's senior debt comprises EUR500 million (c. GBP440m) of
notes with a fixed coupon of 3.625% and maturity of August 2026,
and EUR250 million (c. GBP220m) of notes with a fixed coupon of
3.75% and maturity of March 2028 along with a GBP150m Revolving
Credit Facility which matures in 2026. The Revolving Credit
Facility was increased from GBP120m to GBP150m to provide
additional liquidity headroom after the acquisition of Balta.
Other debt facilities in the Group represent small, local
working capital facilities at the subsidiary level, which are
renewed or amended as appropriate from time to time. The total
outstanding amount drawn from these facilities at the year-end was
GBP32 million, as shown below in the Net Debt section of this
Financial Review.
Preferred equity
There have been no changes to the preferred equity arrangements
in the year. In FY22, 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 GBP150 million were issued, bringing the
total in issue to GBP225 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).
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 GBP85.4 million of exceptional costs during
the year (FY22: GBP6.9m). 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.
2023 2022
Exceptional items GBP'm GBP'm
--------------------------------------------- ------- -------
Acquisition related costs (4.0) (10.7)
Reorganisation costs (44.4) (5.3)
Fixed asset impairment (47.5) -
Negative goodwill arising on acquisition 90.5 6.9
Exceptional goodwill impairment (80.0) -
Contingent consideration linked to positive
tax ruling - (0.6)
Profit on disposal of fixed assets - 2.9
--------------------------------------------- ------- -------
Total exceptional items (85.4) (6.9)
--------------------------------------------- ------- -------
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 - These costs relate to third-party
advisory fees for due diligence and legal services., three
acquisitions were completed during the year, compared to five
acquisitions in the prior year A significant proportion of the
costs of acquiring Balta were charged in FY22.
-- Reorganisation costs - As described earlier the Group made a
significant investment in restructuring the rugs and UK broadloom
businesses of Balta. The scale of the restructuring was known ahead
of the acquisition and consists of reducing the footprint of the
businesses in Belgium and relocating some production to Turkey and
the UK. We also incurred costs in relation to the restructuring of
the Saloni Ceramics business in Spain as we mothballed one of our
sites. In the prior year 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 costs are either redundancy
costs or fees from external service providers.
-- Fixed asset impairment - The assets of the Balta acquisition
have been impaired. Certain assets acquired within Balta, due to
the requirements of IFRS of valuing assets in accordance with
highest and best use at the point of acquisition, were subsequently
impaired to reflect the market value or actual value in use to the
company.
-- 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. This
was the case with all the acquisitions during the year. In the
prior year this relates to the acquisitions of Santa Maria in Italy
and Graniser in Turkey.
-- Exceptional goodwill impairment - Productivity investments at
Keraben, subdued demand, and a refocussing of the Saloni brand
towards the high-end architect and design market to drive margin
rather than volume contributed to the decision of the Spanish
business to temporarily shut-off the use of its production
facilities at Saloni in Castellon, to avoid production
inefficiencies.
The other prior year items are described in more detail in Note
2 to the Accounts.
Adjustment in respect of hyperinflation
During FY23 inflation in Turkey, where Victoria has two
businesses, Graniser (UK & Europe Soft Flooring) and Balta Rugs
(UK & Europe Ceramics), passed the threshold of inflation
exceeding 100% over a three year cumulative period in March 2022.
Under IAS29 this is one of the key indicators for hyperinflation
needing to be adopted. This resulted in the revaluation of the 2
April 2022 opening balance sheet for these businesses as well as
indexing the FY23 numbers. As required by the accounting standard
there is no restatement of the prior year performance and we have
treated these adjustments as non-underlying to ensure comparability
of results year on year.
The impact of hyperinflation on the income statement is:
2023
GBP'm
----------------------- -------
Revenue 18.9
Cost of sales (38.1)
Operating costs 35.8
----------------------- -------
EBIT 16.6
EBITDA 22.0
----------------------- -------
Finance costs (1.8)
----------------------- -------
Profit before tax 14.8
----------------------- -------
Deferred tax 0.2
----------------------- -------
Profit for the period 15.0
----------------------- -------
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.
2023 2022
Non-underlying operating items GBP'm GBP'm
---------------------------------------------------- ------- -------
Acquisition-related performance plan charge (10.3) (7.1)
Non-cash share incentive plan charge (3.6) (2.3)
Amortisation of acquired intangibles (excluding
hyperinflation) (40.3) (32.4)
Unwind of fair value uplift to acquisition opening
inventory (10.9) (5.3)
Depreciation of fair value uplift to acquisition
property, plant and machinery (9.1) (0.2)
Hyperinflation monetary gain 38.9 -
Hyperinflation amortisation adjustment (1.1) -
Hyperinflation depreciation adjustment (4.2) -
Other hyperinflation adjustments (excluding
depreciation and monetary gain) (16.9) -
---------------------------------------------------- ------- -------
(57.6) (47.4)
---------------------------------------------------- ------- -------
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). The primary reason for the increase is
the acquisition of IWT in the year which was acquired with an
element of the consideration being contingent on performance.
-- 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. 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 FY23 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.
-- 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.
As described above there were a number of adjustments made to
the income statement in relation to Hyperinflation. The
hyperinflation adjustments represent the impact of restating the
non-monetary items on the Turkish entities balance sheet based on
the change in the general price index between the acquisition date
and the reporting date, as well as the indexation of the income
statement, with the gain/loss on the monetary position being
included within the income statement.
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.
2023 2022
Non-underlying financial costs GBP'm GBP'm
-------------------------------------------------- ------ ------
Finance items related to preferred equity 26.9 33.0
-------------------------------------------------- ------ ------
Fair value adjustment to notes redemption option 2.0 6.3
Unsecured loan redemption premium charge - 0.4
Mark to market adjustments and gains on foreign
exchange forward contracts 0.4 (2.0)
Translation difference on foreign currency loans 13.3 (5.7)
Other financial expenses (hyperinflation) 1.8 -
Defined benefit pension (law change) 0.2 -
Other non-underlying 17.7 (1.1)
-------------------------------------------------- ------ ------
44.6 31.9
-------------------------------------------------- ------ ------
The significant items are described below:
-- Finance items related to preferred equity - the preferred
equity issued in November 2020 and further in January 2022 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
structured 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.
2023 2022
Finance items related to preferred equity GBPm GBPm
--------------------------------------------------- ------- -------
Amortised cost of host instrument 26.8 14.9
Accounting impact of terms modification in Jan
2022 - 11.5
Fair value movement on associated equity warrants (20.3) 11.3
Fair value movement on embedded redemption option 20.5 (10.7)
Charge associated with previous KED commitment
to additional pref's (now ended) - 6.0
--------------------------------------------------- ------- -------
Total 26.9 33.0
--------------------------------------------------- ------- -------
-- 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 EUR500m 2026
corporate bonds, and EUR250m 2028 corporate bonds.
-- Other financial expense (hyperinflation) - Restated finance
costs within Turkish entities based on the change in the general
price index between the date when the finance costs were initially
recorded and the reporting date.
-- Defined benefit pension (law change) - Turkish government
announced an early retirement law change based on being in
employment back in 1999.
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 2023 2022
GBP'm GBP'm
------------------------------------------------------- -------- -------
Underlying operating profit 118.8 107.9
Reported operating (loss) / profit (after exceptional
items) (24.1) 53.6
------------------------------------------------------- -------- -------
Underlying profit before tax 76.9 73.8
Reported loss before tax (after exceptional
items) (110.6) (12.4)
------------------------------------------------------- -------- -------
Reported operating loss (earnings before interest and taxation)
of 24.1 million (FY22: GBP53.6 million profit). After removing the
exceptional and non-underlying items described above, underlying
operating profit was GBP118.8 million, representing a 10.1%
increase over the prior year.
Reported loss before tax increased to GBP110.6 million (FY22:
loss of GBP12.4 million). After removing the exceptional and
non-underlying items described above, underlying profit before tax
was GBP76.9 million, representing a 4.2% increase over the prior
year.
TAXATION
The reported tax credit in the year of GBP18.8m (2022: GBPnil)
was distorted by the impact of the exceptional and non-underlying
costs, which contributed to a tax credit of GBP36.1 million. On an
underlying basis, the tax charge for the year was GBP17.3 million
(2022: GBP18.1m) against adjusted profit before tax of GBP76.9
million (2022: GBP73.8m), implying an underlying effective tax rate
of 22.4% (2022: 24.6%).
EARNINGS PER SHARE
The Group delivered a basic loss per share of 79.35p (FY22: loss
per share of 10.61p) due to exceptional costs in relation to
acquisitions and restructuring and also the increase in
amortisation of amortisation of acquired intangibles. However,
adjusted earnings per share (before non-underlying and exceptional
items) on a fully-diluted basis was 39.06p (FY22: 40.21p). While
earnings have increased, the decrease in EPS is driven by the
greater dilutive impact of the preference shares.
Basic and diluted earnings / (loss) per share 2023 2022
Basic loss per share (79.35p) (10.61p)
Diluted adjusted earnings per share 39.06p 40.21p
----------------------------------------------- --------- ---------
OPERATING CASH FLOW
Cash flow from operating activities before interest, tax and
exceptional items was GBP157.8 million which represents a
conversion of 92% of underlying EBITDA (pre-IFRS 16).
Operating and free cash flow 2023 2022
GBP'm GBP'm
-------------------------------------------------- ------- -------
Underlying operating profit 118.8 107.9
Add back: underlying depreciation & amortisation 77.2 54.9
-------------------------------------------------- ------- -------
Underlying EBITDA 196.0 162.8
Payments under right-of-use lease obligations (29.3) (18.8)
Non-cash items (15.1) (5.9)
Underlying movement in working capital 6.3 (26.3)
-------------------------------------------------- ------- -------
Operating cash flow before interest, tax and
exceptional items 157.8 111.8
-------------------------------------------------- ------- -------
% conversion against underlying operating profit 133% 104%
% conversion against underlying EBITDA (pre-IFRS
16) 92% 78%
-------------------------------------------------- ------- -------
Interest paid (34.8) (28.4)
Corporation tax paid (11.4) (13.7)
Capital expenditure - replacement / maintenance
of existing capabilities (45.6) (40.9)
Proceeds from fixed asset disposals 5.3 5.3
-------------------------------------------------- ------- -------
Free cash flow before exceptional items 71.3 34.2
-------------------------------------------------- ------- -------
% conversion against underlying operating profit 60% 32%
% conversion against underlying EBITDA (pre-IFRS
16) 42% 23%
-------------------------------------------------- ------- -------
Pre-exceptional free cash flow of the Group - after interest,
tax and net replacement capex - was GBP71.3 million. Compared with
underlying operating profit (i.e. post-depreciation), this
represents a conversion ratio of 60%. Cash conversion was
positively impacted in the year by improvements in working capital
compared with the prior year.
The Group generated a cash inflow from working capital of
GBP53.1m in the second half of the year through reducing inventory
levels as supply chains and raw material prices returned to more
normal levels. Working capital management will continue to be a
focus for us in the coming year.
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 1 April 2023, the Group's net debt position (excluding
IFRS 16 right-of-use leases and preferred equity) was GBP658.3m.
Free cash flow of GBP71.3 million was generated in the year, while
GBP79.4 million was invested in organic growth / synergy
initiatives. Acquisition-related expenditure (including debts
assumed on acquisition) was GBP207.1 million, which was funded from
the cash on balance sheet, and the net cash proceeds from the
additional preferred equity issuance of GBP143 million in previous
financial year.
Applying our banks' adjusted measure of financial leverage, the
Group's year end net debt to EBITDA ratio was 3.44x (FY22:
2.66x).
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. As a result of changing conditions and with
the higher interest rates that are likely to be experienced for the
foreseeable future, it is the Board's objective to reduce the
Group's net debt/EBITDA ratio to around 2.25x ahead of refinancing
the current bond issues.
Free cash flow to movement in net debt 2023 2022
GBP'm GBP'm
-------------------------------------------------- -------- --------
Free cash flow before exceptional items (see
above) 71.3 34.2
-------------------------------------------------- -------- --------
Capital expenditure - growth / synergy (54.1) (12.4)
Exceptional reorganisation cash cost (25.3) (2.5)
-------------------------------------------------- -------- --------
Investment in organic growth / synergy projects (79.4) (14.9)
-------------------------------------------------- -------- --------
Acquisition of subsidiaries (119.7) (127.9)
Total debt acquired or refinanced (87.4) (74.8)
Deferred and contingent consideration payments (4.6) (20.5)
Exceptional M&A costs (4.0) (10.7)
Acquisition-related working capital absorption (17.3) -
-------------------------------------------------- -------- --------
Acquisitions - related (233.1) (233.9)
-------------------------------------------------- -------- --------
Buy back of ordinary shares (7.8) (0.6)
Preferred equity issuance - 143.0
-------------------------------------------------- -------- --------
Net refinancing cash flow (7.8) 142.4
-------------------------------------------------- -------- --------
Other debt items including factoring and prepaid
finance costs 24.4 1.5
Translation differences on foreign currency
cash and loans (27.0) 9.6
-------------------------------------------------- -------- --------
Other exceptional items (2.6) 11.1
-------------------------------------------------- -------- --------
Total movement in net debt (251.7) (61.1)
-------------------------------------------------- -------- --------
Opening net debt (406.6) (345.7)
-------------------------------------------------- -------- --------
Net debt before obligations under right-of-use
leases (658.3) (406.6)
-------------------------------------------------- -------- --------
Net debt 2023 2022
GBP'm GBP'm
---------------------------------------------------- ---------- --------
Net cash and cash equivalents 90.4 258.0
Senior secured debt (at par) (660.2) (631.6)
Unsecured loans (87.5) (32.2)
Finance leases and hire purchase arrangements
(pre IFRS 16) (1.0) (0.8)
---------------------------------------------------- ---------- --------
Net debt before obligations under right-of-use
leases (658.3) (406.6)
---------------------------------------------------- ---------- --------
Adjusted net debt / EBITDA 3.4x 2.7x
---------------------------------------------------- ---------- --------
Bond embedded redemption option - 2.7
Bond issue premium - non-cash (related to initial
value of redemption option) (3.6) (4.3)
Pre-paid finance costs on senior debt 7.9 9.8
Preferred equity, associated warrants and embedded
derivatives (281.2) (254.2)
Factoring and receivables financing facilities (25.1)
Obligations under right-of-use leases (incremental
to above finance leases) (171.3) (104.8)
---------------------------------------------------- ---------- --------
Statutory net debt (net of prepaid finance
costs) (1,131.5) (757.4)
---------------------------------------------------- ---------- --------
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.
LIMITATION OF SCOPE
In the year ended 1 April 2023 UK subsidiary, Hanover Flooring
Limited ("HFL"), a small regional distributor in Yorkshire, had
revenue of GBP18.7m (2022: GBP23.4m), statutory loss before tax of
GBP1.2m (2022: loss GBP0.9m), underlying profit before tax of
GBP3.9m (2022: GBP5.8m) and net liabilities of GBP0.4m (2022: net
assets of GBP0.7m). For reference, the level of materiality set by
our auditor Grant Thornton for work performed on HFL for FY23 is
GBP2.4m and GBP6.0m for the entire Group audit.
Victoria plc acquired the trade, inventory and debtors of
Hanover Carpets ("HCP") from a UK partnership on 26 January 2021,
with one of the partners joining the group as managing director of
HFL.
As is usual in these types of acquisitions, customers, despite
instructions otherwise, continued to remit receipts for sales into
the bank account of the seller (the bank account was not acquired
by HFL and continued to be used by the partnership's other
businesses). These receipts (GBP5.2m since acquisition, more than
70% between January and June 2021 but including GBP0.3m in FY23)
were periodically transferred to HFL. HCP also made payments on
behalf of HFL of GBP0.4m in FY21 from this bank account between
January and June 2021. The opening and activation of a bank account
for HFL was delayed until March 2021 due to Covid-19 lockdowns.
This arrangement was specifically anticipated in the Asset
Purchase Agreement as we were not acquiring the bank account but it
was brought to our attention in June 2023 that a small number of
customers were still remitting payments into it (c.GBP0.002 million
in the previous three months). This matter was reviewed by
executive management and in discussion with the Board it was
decided to appoint an external professional services firm (Big Four
Accounting Firm) to assist in performing a number of procedures to
confirm the completeness of amounts owing to HFL from HCP and the
adequacy of accounting records.
The interim outcome of the work undertaken has confirmed that
since 26 January 2021:
(a) GBP0.4m due to HFL by HCP was offset from the latest
deferred consideration payment;
(b) GBP0.1m of HFL customer receipts in FY23 (and GBP1.2m since
January 2021) cannot be reconciled to individual product invoices
due to a lack of detailed records in relation to those payments.
(It is important to understand Victoria has received the payments,
it is solely that customer receipts were applied to customer
receivable balance without regard for specific invoices being
paid); and
(c) a number of instances of potential non-compliance with High
Value Dealer regulations (MLR 2017) in HFL since the date of
acquisition. Once identified we immediately stopped all cash
handling until appropriate controls could be put in place, have
advised the relevant regulatory authorities and, with the benefit
of appropriate legal advice, have made a provision for the expected
fine.
Under the terms of the Asset Purchase Agreement we have the
legal right to retain any or all of the contingent consideration
(of which GBP8.0 million remains to be paid) to cover any negative
financial effect should there be one. We will continue to perform
procedures on the completeness of amounts owed to HFL from HCP
ahead of the final deferred consideration payment. Therefore, we do
not anticipate any financial impact on Victoria from any of the
above matters.
There have been some deficiencies in the control environment in
this minor subsidiary and it has not maintained adequate and
complete accounting records for the purposes of demonstrating how
individual customer receipts were applied to individual invoices in
the debtors' ledger. Consequently, we allocated additional
experienced finance resources to this subsidiary who are putting
appropriate controls in place to ensure adequate accounting records
will be maintained.
We have reviewed other similar acquisitions in the group and did
not identify these deficiencies in their control environments or
record keeping.
We believe, based on the extensive work carried out with the
support of professional advisors, that due to inadequate books and
records in certain areas, any further audit procedures by Grant
Thornton will not provide them with sufficient and appropriate
evidence to satisfy their concerns and therefore we took the
decision to impose a limitation of scope on the auditor's work and
requested them to stop their work in respect of HFL.
As a result, Grant Thornton have not been able to complete their
audit work on HFL in support of the Group audit for the year ended
1 April 2023. Grant Thornton have had to modify their audit opinion
in respect of our decision to impose a limitation of scope in this
area.
GOING CONCERN
The consolidated financial statements for the Group have been
prepared on a going concern basis.
Brian Morgan
Chief Financial Officer
13 September 2023
Consolidated Income Statement
For the 52 weeks ended 1 April 2023
52 weeks ended 1 April 52 weeks ended 2 April
2023 2022
Non- Non-
Underlying underlying Reported Underlying underlying Reported
performance items numbers performance items numbers
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ------ ------------- ------------ ---------- ------------- ------------ ---------
Revenue 1 1,461.4 18.8 1,480.2 1,019.8 - 1,019.8
Cost of Sales (986.6) (58.9) (1,045.5) (657.5) (5.5) (663.0)
Gross profit 474.8 (40.1) 434.7 362.3 (5.5) 356.8
Distribution and
administrative
expenses (360.4) (193.4) (553.8) (256.5) (58.6) (315.1)
Negative goodwill
arising on acquisition - 90.5 90.5 - 6.9 6.9
Other operating
income 4.4 0.1 4.5 2.1 2.9 5.0
Operating profit
/ (loss) 118.8 (142.9) (24.1) 107.9 (54.3) 53.6
Comprising:
Operating profit before
non-underlying and
exceptional items 118.8 - 118.8 107.9 - 107.9
Amortisation of
acquired intangibles 1,2 - (41.5) (41.5) - (32.4) (32.4)
Other non-underlying
items 1,2 - (16.0) (16.0) - (15.0) (15.0)
Exceptional goodwill
impairment - (80.0) (80.0) - - -
Other exceptional
items 1,2 - (5.4) (5.4) - (6.9) (6.9)
----------------------------- ------ ------------- ------------ ---------- ------------- ------------ ---------
Finance costs 3 (41.9) (44.6) (86.5) (34.1) (31.9) (66.0)
Comprising:
Interest on loans
and notes 3 (33.6) - (33.6) (27.9) - (27.9)
Amortisation of prepaid
finance costs and accrued
interest 3 (2.8) - (2.8) (2.3) - (2.3)
Unwinding of discount
on right-of-use lease
liabilities 3 (5.4) - (5.4) (3.8) - (3.8)
Preferred equity
items 3 - (26.9) (26.9) - (33.0) (33.0)
Other finance
items 3 (0.1) (17.7) (17.8) (0.1) 1.1 1.0
----------------------------- ------ ------------- ------------ ---------- ------------- ------------ ---------
Profit / (loss)
before tax 76.9 (187.5) (110.6) 73.8 (86.2) (12.4)
Taxation (charge)
/ credit (17.3) 36.1 18.8 (18.1) 18.1 -
Profit / (loss)
for the period 59.6 (151.4) (91.8) 55.7 (68.1) (12.4)
(Loss) / earnings
per share -
pence basic 4 (79.35) (10.61)
diluted 4 (79.35) (10.61)
---------------------------- ------ ------------- ------------ ---------- ------------- ------------ ---------
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 1 April 2023
52 weeks
ended 52 weeks ended
1 April 2023 2 April 2022
Note GBPm GBPm
--------------------------------------------- ----- -------------- ---------------
Loss for the period (91.8) (12.4)
--------------------------------------------- ----- -------------- ---------------
Other comprehensive (expense) / income
Items that will not be reclassified
to profit or loss:
Actuarial (loss) / gain on defined benefit
pension scheme 7 (2.0) 1.6
Items that will not be reclassified
to profit or loss (2.0) 1.6
--------------------------------------------- ----- -------------- ---------------
Items that may be reclassified subsequently
to profit or loss:
Hyperinflation adjustments 16.5
Retranslation of overseas subsidiaries (2.1) 3.5
Items that may be reclassified subsequently
to profit or loss 14.4 3.5
--------------------------------------------- ----- -------------- ---------------
Other comprehensive income 12.4 5.1
--------------------------------------------- ----- -------------- ---------------
Total comprehensive expense for the
period attributable to the owners of
the parent (79.4) (7.3)
--------------------------------------------- ----- -------------- ---------------
Consolidated Balance Sheet
As at 1 April 2023
1 April 2 April 3 April
2023 2022 (Restated) 2021 (Restated)
Note GBPm GBPm GBPm
----------------------------------------- ----- -------- ----------------- -----------------
Non-current assets
Goodwill 173.6 244.6 164.8
Intangible assets other than goodwill 305.5 259.7 224.2
Property, plant and equipment 462.6 256.0 202.1
Right-of-use lease assets 162.0 99.6 82.6
Investment property 0.2 0.2 0.2
Investments in subsidiaries - - -
Trade and other non-current receivables - - -
Deferred tax assets 1.7 1.0 1.0
----------------------------------------- ----- -------- ----------------- -----------------
Total non-current assets 1,105.6 861.1 674.9
----------------------------------------- ----- -------- ----------------- -----------------
Current assets
Inventories 351.2 280.7 164.4
Trade and other receivables 276.3 223.8 150.1
Current tax assets 14.7 - -
Cash and cash equivalents 93.3 273.6 348.8
Assets classified as held for sale 25.8 - -
----------------------------------------- ----- -------- ----------------- -----------------
Total current assets 761.3 778.1 663.3
----------------------------------------- ----- -------- ----------------- -----------------
Total assets 1,866.9 1,639.2 1,338.2
----------------------------------------- ----- -------- ----------------- -----------------
Current liabilities
Trade and other current payables 369.8 337.2 213.8
Current tax liabilities 6.9 0.7 5.1
Obligations under right-of-use leases
- current 27.6 16.9 13.0
Other financial liabilities 65.2 25.2 30.2
Provisions 19.0 - -
----------------------------------------- ----- -------- ----------------- -----------------
Total current liabilities 488.5 380.0 262.1
----------------------------------------- ----- -------- ----------------- -----------------
Non-current liabilities
Trade and other non-current payables 14.1 7.5 17.0
Obligations under right-of-use leases
- non-current 144.6 88.7 74.0
Other non-current financial liabilities 706.2 646.0 647.5
Preferred equity 255.2 207.9 70.1
Preferred equity - contractually-linked
warrants 26.0 46.4 6.1
Deferred tax liabilities 89.3 55.2 46.7
Retirement benefit obligations 7 8.0 4.9 6.5
Provisions 16.0 - -
----------------------------------------- ----- -------- ----------------- -----------------
Total non-current liabilities 1,259.4 1,056.6 867.9
----------------------------------------- ----- -------- ----------------- -----------------
Total liabilities 1,747.9 1,436.6 1,130.0
----------------------------------------- ----- -------- ----------------- -----------------
Net Assets 119.0 202.6 208.2
----------------------------------------- ----- -------- ----------------- -----------------
Equity
Share capital 6.3 6.3 6.3
Retained earnings 85.7 187.3 198.7
Foreign exchange reserve 1.0 3.1 (0.4)
Hyperinflation reserve 16.5 - -
Other reserves 9.5 5.9 3.6
----------------------------------------- ----- -------- ----------------- -----------------
Total equity 119.0 202.6 208.2
----------------------------------------- ----- -------- ----------------- -----------------
Consolidated Statement of Changes in Equity
For the 52 weeks ended 1 April 2023
Foreign
Share Retained exchange Hyper-inflation Other Total
capital earnings reserve reserve reserves equity
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
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 loss 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
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
Loss for the period to 1 April
2023 - (91.8) - - - (91.8)
Other comprehensive income
for the period - (2.0) - - - (2.0)
Retranslation of overseas
subsidiaries - - (2.1) 16.5 - 14.4
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
Total comprehensive loss - (93.8) (2.1) 16.5 - (79.4)
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
Buy back of ordinary shares
(note 22) - (7.8) - - - (7.8)
Share-based payment charge - - - - 3.6 3.6
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
Transactions with owners - (7.8) - - 3.6 (4.2)
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
At 1 April 2023 6.3 85.7 1.0 16.5 9.5 119.0
-------------------------------- --------- ---------- ---------- ---------------- ---------- --------
Consolidated Statement of Cash Flows
For the 52 weeks ended 1 April 2023
52 weeks 52 weeks
ended ended
1 April
2023 2 April 2022
GBPm GBPm
-------------------------------------------------------- --------- -------------
Cash flows from operating activities
Operating (loss) / profit (24.1) 53.6
Adjustments for:
Depreciation and amortisation of IT software 90.5 55.2
Amortisation of acquired intangibles 41.5 32.4
Hyperinflation impact (22.0) -
Negative goodwill arising on acquisition (90.5) (6.9)
Goodwill impairment 80.0 -
Acquisition-related performance plan charge 10.3 7.1
Amortisation of government grants (1.3) (0.5)
Profit on disposal of property, plant and equipment (1.8) (2.9)
Fixed asset impairment 47.5 -
Loss on disposal of leased assets 1.5 -
Share incentive plan charge 3.6 2.3
Defined benefit pension (2.5) (0.1)
Net cash flow from operating activities before
movements in working capital, tax and interest
payments 132.7 140.2
Change in inventories 62.8 (51.8)
Change in trade and other receivables 40.6 (29.9)
Change in trade and other payables (114.5) 55.5
Change in provisions 19.1 -
Cash generated by continuing operations before
tax and interest payments 140.7 114.0
Interest paid on loans and notes (34.8) (28.4)
Interest relating to right-of-use lease assets (5.4) (3.8)
Income taxes paid (11.4) (13.7)
Net cash inflow from operating activities 89.1 68.1
-------------------------------------------------------- --------- -------------
Investing activities
Purchases of property, plant and equipment (96.4) (51.3)
Purchases of intangible assets (3.2) (2.0)
Loan to subsidiary companies - -
Proceeds on disposal of property, plant and equipment 5.3 5.3
Deferred consideration and acquisition-related
performance plan payments (4.6) (12.7)
Acquisition of subsidiaries net of cash acquired (119.7) (127.9)
Net cash used in investing activities (218.6) (188.6)
-------------------------------------------------------- --------- -------------
Financing activities
Proceeds from debt 66.0 -
Repayment of debt (75.4) (89.8)
Issue of preferred equity - 150.0
Preferred equity ticking fee - (7.0)
Buy back of ordinary shares (7.8) (0.6)
Payments under right-of-use lease obligations (23.9) (15.0)
Repayment of acquisition-related capital investment
to Keraben senior mgmt team - (7.2)
Net cash (used) / generated in financing activities (41.1) 30.4
-------------------------------------------------------- --------- -------------
Net (decrease) / increase in cash and cash equivalents (170.6) (90.1)
Cash and cash equivalents at beginning of period 258.0 344.8
Effect of foreign exchange rate changes 3.0 3.3
Cash and cash equivalents at end of period 90.4 258.0
-------------------------------------------------------- --------- -------------
Comprising:
Cash and cash equivalents 93.3 273.6
Bank overdrafts (2.9) (15.6)
90.4 258.0
-------------------------------------------------------- --------- -------------
NOTES
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 primarily in the UK, Republic of Ireland, the Netherlands
and Belgium (including manufacturing entities in Turkey and a
distribution entity in North America), whose operations involve the
manufacture and distribution of carpets, rugs, 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, LVT and tiles.
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 1 April 2023
UK & UK &
Europe Europe Unallocated
Soft Ceramic North central
Flooring Tiles Australia America expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- --------- ---------- --------- ------------ --------
Income statement
Revenue 722.9 468.0 120.9 168.4 - 1,480.2
Underlying operating profit
/ (loss) 27.2 77.5 10.0 6.0 (1.9) 118.8
Non-underlying operating
items (30.0) (12.0) (1.7) (9.2) (4.6) (57.5)
Exceptional operating
items 5.8 (90.1) (0.1) 2.8 (3.8) (85.4)
Operating profit / (loss) 3.0 (24.6) 8.2 (0.4) (10.3) (24.1)
Underlying net finance
costs (41.9)
Non-underlying finance
costs (44.6)
Loss before tax (110.6)
Tax credit 18.8
----------------------------- ---------- --------- ---------- --------- ------------ --------
Loss for the period (91.8)
----------------------------- ---------- --------- ---------- --------- ------------ --------
52 weeks ended 2 April 2022
UK & UK &
Europe Europe Unallocated
Soft Ceramic North central
Flooring Tiles Australia America expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- --------- ---------- --------- ------------ --------
Income statement
Revenue 423.1 371.6 109.5 115.6 - 1,019.8
Underlying operating profit
/ (loss) 45.4 47.5 11.8 5.2 (2.0) 107.9
Non-underlying operating
items (9.9) (27.5) (1.7) (5.1) (3.2) (47.4)
Exceptional operating
items (4.0) 2.2 (0.1) (1.8) (3.2) (6.9)
Operating profit / (loss) 31.5 22.2 10.0 (1.7) (8.4) 53.6
Underlying net finance
costs (34.1)
Non-underlying finance
costs (31.9)
Loss before tax (12.4)
Tax credit -
----------------------------- ---------- --------- ---------- --------- ------------ --------
Loss for the period (12.4)
----------------------------- ---------- --------- ---------- --------- ------------ --------
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:
2023 2022
GBPm GBPm
---------------- -------- --------
Revenue
United Kingdom 316.5 336.6
Belgium 251.5 -
Spain 204.1 205.8
Italy 184.8 155.2
Netherlands 94.1 86.5
Turkey 105.6 10.7
Australia 120.9 109.5
United States 202.7 115.6
---------------- -------- --------
1,480.2 1,019.8
---------------- -------- --------
Balance sheet
52 weeks ended 1 April 2023
UK & UK &
Europe Europe
Soft Ceramic North
Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ---------- --------- ---------- --------- -------- ----------
Total assets 684.4 719.9 83.6 138.5 240.5 1,866.9
Total liabilities (401.0) (295.6) (26.6) (64.0) (960.7) (1,747.9)
------------------- ---------- --------- ---------- --------- -------- ----------
Net Assets 283.4 424.3 57.0 74.5 (720.2) 119.0
------------------- ---------- --------- ---------- --------- -------- ----------
52 weeks ended 2 April 2022 (restated)
UK & UK &
Europe Europe
Soft Ceramic North
Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ---------- --------- ---------- --------- -------- ----------
Total assets 378.6 769.8 99.7 96.3 294.8 1,639.2
Total liabilities (193.4) (293.7) (34.1) (31.8) (883.6) (1,436.6)
------------------- ---------- --------- ---------- --------- -------- ----------
Net Assets 185.3 476.2 65.5 64.5 (588.9) 202.6
------------------- ---------- --------- ---------- --------- -------- ----------
The Group's non-current assets (net of deferred tax) as at 1
April 2023 were split geographically as follows:
2023 2022
GBPm GBPm
------------------------------------- -------- ------
Non-current assets (net of deferred
tax)
United Kingdom 169.7 146.6
Belgium 179.6 -
Spain 301.0 375.6
Italy 102.5 97.7
Netherlands 101.9 98.8
Turkey 108.7 35.5
Australia 34.8 40.1
United States 105.7 65.8
------------------------------------- -------- ------
1,103.9 860.1
------------------------------------- -------- ------
Other segmental information
52 weeks ended 1 April 2023
UK & UK &
Europe Europe Unallocated
Soft Ceramic North central
Flooring Tiles Australia America expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- --------- ---------- --------- ------------ ------
Depreciation of tangible
fixed assets and IT
software amortisation 35.7 23.8 3.0 1.8 - 64.3
Depreciation of right-of-use
lease assets 16.4 5.6 2.3 1.4 0.5 26.2
Amortisation of acquired
intangibles 11.9 23.4 1.8 4.4 - 41.5
64.0 52.8 7.1 7.6 0.5 132.0
------------------------------ ---------- --------- ---------- --------- ------------ ------
52 weeks ended 1 April 2023
UK & UK &
Europe Europe
Soft Ceramic North
Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- --------- ---------- --------- ------------ ------
Total capital expenditure
(cashflow) 46.1 39.6 3.3 5.2 0.1 94.3
------------------------------ ---------- --------- ---------- --------- ------------ ------
52 weeks ended 2 April 2022
UK & UK &
Europe Europe Unallocated
Soft Ceramic North central
Flooring Tiles Australia America expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- --------- ---------- --------- ------------ ------
Depreciation of tangible
fixed assets and IT
software amortisation 13.4 21.8 0.3 0.9 - 36.4
Depreciation of right-of-use
lease assets 11.5 2.3 4.2 0.4 0.4 18.8
Amortisation of acquired
intangibles 7.4 20.8 1.7 2.5 - 32.4
32.3 44.9 6.2 3.8 0.4 87.6
------------------------------ ---------- --------- ---------- --------- ------------ ------
52 weeks ended 2 April 2022
UK & UK &
Europe Europe
Soft Ceramic North
Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- --------- ---------- --------- ------------ ------
Total capital expenditure
(cashflow) 12.9 30.6 3.1 1.2 0.2 47.9
------------------------------ ---------- --------- ---------- --------- ------------ ------
2. Exceptional and non-underlying items
52 weeks 52 weeks
ended ended
1 April 2 April
2023 2022
GBPm GBPm
------------------------------------------------------ --------- ---------
Exceptional items
(a) Acquisition related costs (4.0) (10.7)
(b i) Reorganisation costs (44.4) (5.3)
(b ii) Fixed asset impairment (47.5) -
(c i) Negative goodwill arising on acquisition 90.5 6.9
(c ii) Exceptional goodwill impairment (80.0) -
(d) Contingent consideration linked to positive
tax ruling - (0.6)
(e) Profit on disposal of fixed assets - 2.9
(85.4) (6.9)
------------------------------------------------------ --------- ---------
Non-underlying operating items
(f) Acquisition-related performance plans (10.3) (7.1)
(g) Non-cash share incentive plan charge (3.6) (2.3)
(h) Amortisation of acquired intangibles (excluding
hyperinflation) (40.3) (32.4)
(i) Unwind of fair value uplift to acquisition
opening inventory (10.9) (5.3)
(j) Depreciation of fair value uplift to acquisition
property, plant and machinery (9.1) (0.2)
(k) Hyperinflation depreciation adjustment (4.2) -
(l) Hyperinflation amortisation adjustment (1.1) -
(m) Hyperinflation monetary gain 38.9 -
(n) Other hyperinflation adjustments (excluding
depreciation and monetary gain) (16.9) -
(57.5) (47.4)
------------------------------------------------------ --------- ---------
Total (142.9) (54.3)
------------------------------------------------------ --------- ---------
Representing functional categorisation of:
Revenue (see notes k,l,m,n) 18.9 -
Cost of sales (see notes i,j,k,l,m,n) (58.9) (5.5)
Distribution and administrative expenses (193.4) (58.6)
Negative goodwill arising on acquisition 90.5 6.9
Other operating income (see notes e,k,l,m,n) 0.1 2.9
(142.9) (54.3)
------------------------------------------------------ --------- ---------
(a) One-off third-party professional fees in connection with
prospecting and completing specific acquisitions during the
period.
(b) One-off reorganisation costs of GBP44.4m relating to a
number of efficiency projects during the year, mainly Balta
restructuring. An asset impairment cost of GBP47.5m also occurred
in the year relating to acquired Balta property, plant &
machinery. One property was revalued on acquisition using a
depreciated replacement cost valuation approach however due to
subsequent restructuring decisions the property was transferred to
assets held for sale and is now held at fair value less costs to
sell. Indicators of impairment have been identified in respect of
certain groups of assets which have been valued at the higher of
value in use and fair value less costs to sell. Prior year included
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).
(c i) Negative goodwill of GBP90.5m arose on the consolidation
of Balta, Ragolle and IWT, all acquired during the period, achieved
through favourable bilateral negotiations on Ragolle and IWT's
negative goodwill is due to the accounting treatment of the accrued
employment costs. Balta's negative goodwill is linked to the fact
further spend is required to restructure the business and due to
fair value uplift of property. See point b.
(c ii) Productivity investments at Keraben, subdued demand, and
a refocussing of the Saloni brand towards the high-end architect
and design market to drive margin rather than volume contributed to
the decision of the Spanish business to temporarily shut-off the
use of its production facilities at Saloni in Castellon, to avoid
production inefficiencies.
Prior period negative goodwill of GBP4.2m arose on the
consolidation of Santa Maria, and GBP4.7m on the consolidation of
Graniser, both acquired during the prior period, achieved through
favourable bilateral negotiations. This was offset by a GBP1.9m
charge relating to Hanover.
(d) One-off prior period 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.
(e) Prior period 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.
(j) Cost of sales depreciation charge reflecting the IFRS 3 fair
value adjustment on buildings and plant and machinery acquired on
new business acquisitions, given this is not representative of the
underlying performance of those businesses.
(k,l,m,n) Impact of hyperinflation indexation in the period, see
accounting policies.
The hyperinflation impact in the period on revenue was GBP18.9m
(income), cost of sales was GBP38.1m (charge), admin expenses was
GBP35.8m (income) and other operating income was GBP0.1m.
3. Finance costs
52 weeks 52 weeks
ended ended
1 April 2 April
2023 2022
GBPm GBPm
-------------------------------------------------- --------- ---------
Underlying finance items
Interest on bank facilities and notes 33.6 27.1
Interest on unsecured loans - 0.8
--------------------------------------------------- --------- ---------
Total interest on loans and notes 33.6 27.9
Amortisation of prepaid finance costs on loans
and notes 2.8 2.3
Unwinding of discount on right-of-use lease
liabilities 5.4 3.8
Net interest expense on defined benefit pensions 0.3 0.1
Retranslation on foreign cash balances (0.2) -
-------------------------------------------------- --------- ---------
41.9 34.1
-------------------------------------------------- --------- ---------
Non-underlying finance items
(a) Finance items related to preferred equity 26.9 33.0
--------------------------------------------------- --------- ---------
Preferred equity related 26.9 33.0
(b) Unwinding of present value of deferred
and contingent earn-out liabilities 0.3 -
(c) Partial waiver of deferred consideration (0.3) -
-------------------------------------------------- --------- ---------
Acquisitions related - -
(d) Fair value adjustment to notes redemption
option 2.0 6.3
(e) Unsecured loan redemption premium charge - 0.4
(f) Mark to market adjustments and gains on
foreign exchange forward contracts 0.4 (2.0)
(g) Translation difference on foreign currency
loans and cash 13.3 (5.7)
(h) Hyperinflation - finance portion 1.8 -
(i) Defined benefit pension (law change) 0.2 -
-------------------------------------------------- --------- ---------
Other non-underlying 17.7 (1.1)
44.6 31.9
-------------------------------------------------- --------- ---------
(a) The net impact of items relating to preferred equity issued
to Koch Equity Development during the current and prior
periods.
(b) Current 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.
(c) Credit arising due to partial waiver of deferred
consideration payable due to formally agreeing a reduction in the
overall liability based on an advanced payment.
(d) Fair value adjustment to embedded derivative representing
the early redemption option within the terms of the senior secured
notes.
(e) Prior period charge relating to the GBP0.4 million
redemption premium on the BGF loan. The BGF loan, including
redemption premium, was fully repaid in the prior period.
(f) Non-cash fair value adjustments on foreign exchange forward
contracts.
(g) Net impact of exchange rate movements on third party and
intercompany loans.
(h) Other finance cost/income impact of hyperinflation.
(i) Defined benefit pension change in year relating to law
change in Turkey.
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 52 weeks ended
1 April 2023 2 April 2022
Basic Adjusted Basic Adjusted
GBPm GBPm GBPm GBPm
----------------------------------------------- ------- --------- ------- ---------
(Loss) / profit attributable to ordinary
equity holders of the parent entity (91.8) (91.8) (12.4) (12.4)
Exceptional and non-underlying items:
Income statement impact of preferred equity - 26.9 - 33.0
Amortisation of acquired intangibles - 40.3 - 32.4
Other non-underlying items - 33.7 - 15.0
Exceptional goodwill impairment - 80.0 - -
Other exceptional items - 5.4 - 6.9
Interest on short -term draw of Group
revolving credit facility - - - -
Amortisation of prepaid finance costs - - - -
Fair value adjustment to notes redemption
option - 2.0 - 6.3
Translation difference on foreign currency
loans - 13.3 - (5.7)
Other non-underlying finance items - 0.7 - (1.6)
Tax effect on adjusted items where applicable - (36.1) - (18.1)
Hyperinflation - (14.8) - -
----------------------------------------------- ------- --------- ------- ---------
(Loss) / earnings for the purpose of basic
and adjusted earnings per share (91.8) 59.6 (12.4) 55.7
----------------------------------------------- ------- --------- ------- ---------
Weighted average number of shares
52 weeks 52 weeks
ended ended
1 April 2 April 2022
2023
Number Number
of shares of shares
(000's) (000's)
---------------------------------------------------- ----------- --------------
Weighted average number of shares for the purpose
of basic and adjusted earnings per share 115,746 116,858
Effect of dilutive potential ordinary shares:
Share options and warrants 1,569 1,759
---------------------------------------------------- ----------- --------------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 117,315 118,617
Preferred equity and contractually-linked warrants 35,213 19,774
---------------------------------------------------- ----------- --------------
Weighted average number of ordinary shares for
the purposes of diluted adjusted earnings per
share 152,528 138,391
---------------------------------------------------- ----------- --------------
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 52 weeks
ended 1 April ended 2 April
2023 2022
Pence Pence
------------------------------------- --------------- ---------------
Earnings / loss per share
Basic earnings / (loss) per share (79.35) (10.61)
Diluted earnings / (loss) per share (79.35) (10.61)
Basic adjusted earnings per share 51.47 47.62
Diluted adjusted earnings per share 39.06 40.21
------------------------------------- --------------- ---------------
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. Due to the loss incurred in
the year, in calculating the diluted loss per share, the share
options, warrants and preferred equity are considered to be
non-dilutive.
5. Rates of exchange
2023 2022
Average Year end Average Year end
---------------------
Australia - AUD 1.7679 1.8458 1.8269 1.7509
Europe - EUR 1.1557 1.1360 1.1777 1.1874
United States - USD 1.2065 1.2345 1.3627 1.3114
Turkey - TRY 21.6304 23.6755 18.7879 19.2606
6. Net Debt
Analysis of net debt
Reconciliation of movements in the Group's net debt
position:
Non-cash
movement
on inception
At of leasing Other At
3 April Cash contract non-cash Exchange 1 April
Group 2022 flow expenditure Acquisitions changes movement 2023
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 273.6 (192.5) - 9.3 - 3.0 93.3
Bank overdraft (15.6) 12.6 - - - - (2.9)
Net cash and cash
equivalents 258.0 (179.9) - 9.3 - 3.0 90.4
Senior secured debt
(gross of prepaid
finance costs):
- due in more than
one year (633.2) - - - (2.0) (28.6) (663.8)
Unsecured loans:
- due in less than
one year (9.6) 8.5 - (87.5) 27.9 (1.7) (62.3)
- due in more than
one year (22.6) - - - (27.9) 0.3 (50.3)
Net debt (407.4) (171.4) - (78.2) (2.0) (27.0) (686.0)
--------- ----------
Obligations under
right-of-use leases:
- due in less than
one year (16.9) 23.9 (9.7) (6.0) (17.4) (1.5) (27.6)
- due in more than
one year (88.7) - (32.5) (33.7) 11.1 (0.8) (144.6)
Preferred equity (gross
of prepaid finance
costs) (254.2) - - - (27.0) - (281.2)
Prepaid finance costs:
- In relation to
senior debt 9.8 0.8 - - (2.7) (0.1) 7.9
Financing liabilities (1,015.4) 33.3 (42.2) (127.2) (38.0) (32.3) (1,221.9)
--------- ----------
Net debt including
right-of-use lease
liabilities, issue
premia, preferred
equity and prepaid
finance costs (757.4) (146.6) (42.2) (117.9) (38.0) (29.4) (1,131.5)
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 1 April 2023 relates to EUR750m of senior
secured notes, split between two tranches: EUR500m 3.625% notes
maturing in 2026; and EUR250m 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 EUR500m 5.25% notes were
refinanced. The fair value of the liability as at 1 April 2023 was
EUR603.3m (2022: EUR718.6m), 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 EUR500m 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 EUR250m 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 GBP4.3m in aggregate. Of which GBP0.7m
has been amortised in the period (2022: GBPNil). 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 GBPNil (2022:
GBP2.7m), and therefore an associated non-cash debit was recognised
through the income statement for the period of GBP2.7m (2022:
GBP6.3m).
Prepaid legal and professional fees associated with the issue of
the new notes totalling GBP12.9m (2.0% of gross debt raised) is
offset against the senior debt liability and is amortised over its
life (GBP2.7m in the year (2022: GBP2.3m). The net prepaid value as
at 1 April 2023 is GBP7.9m.
As a result, as at 1 April 2023 there is a total liability
recognised of GBP655.9m (2022: GBP623.4m) in relation to notes with
a par value of GBP660.2m (2022: GBP631.6m).
Additionally, the Group has a variable rate GBP150m
multi-currency revolving credit facility maturing in 2026, which at
the year end was drawn by GBP12.5m.
Preferred equity
Background and key terms
On 16 November 2020 the Company issued GBP75m 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 GBP150m. The additional preferred shares
issued consist of "A" preferred shares for a subscription price of
GBP50 million and "B" preferred shares for a subscription price of
GBP100 million. The "A" shares mirror the existing preferred shares
(resulting in a total of GBP125m "A" shares made up of the GBP50m
new and the existing GBP75m 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 GBP3.50. 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 GBP3.50/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 GBP0.05/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 in the prior period resulted in
substantial modification, resulting in extinguishing the old
financial liability and recognising a new financial liability.
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 value of the host
debt recognised following the amendment in the prior period was
GBP220.8m.
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 1 April
2023 was GBP255.2m (2022: GBP228.4m), with the fair value at 1
April 2023 was GBP160.7m (2022: GBP218.7m).
Associated costs and advisory fees incurred in relation to the
transaction were expensed to the income statement in the prior
period.
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
fair value of the asset as at 1 April 2023 was GBPNil (2022:
GBP20.5m). 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. 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.
The host debt liability and redemption option asset have been
presented as a single instrument under the heading 'Preferred
equity' in the summary of Other Financial Liabilities presented
above.
Finally, the KED ordinary equity warrants have been separately
identified. The warrants are fair valued at each reporting date
through the income statement, with a fair value of GBP26.0m as at 1
April 2023 (2022: GBP46.4m). 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.
Preferred Equity P&L charge 2023 2022
GBPm GBPm
Host contract 26.8 14.9
Fair value warrants (20.3) 11.3
Fair value redemption asset 20.5 (10.7)
Loan commitment - 1.3
Ticking fee - 4.7
Loss on substantial modification - 10.3
Preferred equity 26.9 31.8
Preferred equity prepaid finance costs - 1.2
Preferred equity including prepaid
finance costs 26.9 33.0
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 GBP6,288,000 (2022: GBP5,660,000), of which
GBP2,835,000 (2022: GBP2,837,000) relates to the UK schemes. The
total contributions outstanding at year-end were GBPnil (2022:
GBPnil).
Defined benefit schemes
The Group has four defined benefit schemes:
- two schemes relate to Interfloor Limited;
- one scheme relates to both Balta Services and Balta Industries
(Balta group);
- the final scheme relates to Seramik, Sahika and Ic vd Dis
Ticaret (Graniser group).
Summary of all schemes
Amounts recognised in the consolidated income statement in
respect of all defined benefit schemes are as follows:
2023 2022
GBPm GBPm
Net interest expense 0.3 0.1
Loss on settlements 0.5 -
Current / Past service cost 1.0 -
---- ----
Components of defined benefit costs recognised in
profit or loss 1.8 0.1
Amounts recognised in the Consolidated Statement of
Comprehensive Income are as follows:
2023 2022
GBPm GBPm
The return on plan assets (excluding amounts included
in net interest expense) (9.5) 0.6
Actuarial losses arising from changes in demographic
assumptions (0.1) (0.5)
Actuarial gains arising from changes in financial
assumptions 5.8 1.5
Remeasurement gains on defined benefit obligation 3.6 -
Actuarial losses arising from experience adjustments (1.8) -
Remeasurement of the net defined benefit liability (2.0) 1.6
The amount included in the Consolidated Balance Sheet arising
from the Group's obligations in respect of all schemes is as
follows:
2023 2022
GBPm GBPm
Present value of defined benefit obligations (34.1) (29.2)
Fair value of plan assets 26.1 24.3
Net liability arising from defined benefit obligation (8.0) (4.9)
Deferred tax applied to net obligation 1.9 1.3
8. Acquisition of subsidiaries
(a) Balta
On 5 April 2022, the Group acquired 100% of the equity 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'. Balta consists of distribution entities in the UK and the
United States in addition to manufacturing facilities in Belgium
and Turkey.
The primary reason for the business combination is discussed
within the Chairman and CEO's review.
Total consideration of Balta was EUR114.8m (GBP95.7m(1) ). The
consideration of EUR121.1m (GBP101.0m(1) ) was paid on completion
and EUR6.3m (GBP5.3m(1) ) was received subsequently in July 2022 as
a closing cash adjustment. Upon acquisition Victoria settled
EUR59.0m (GBP49.2m) of debt and therefore is excluded from the
consideration.
The Group results for the 52 weeks ended 1 April 2023 include
contribution from Balta of EUR328.7m (GBP283.9m(2) ) of revenue and
EUR11.0m (GBP9.7m(2) ) of loss before tax (before hyperinflation,
amortisation of acquired intangibles and acquisition costs).
(1) Applying the GBP to EUR exchange rate at the date of
acquisition of 1.1990
(2) Applying the average exchange rate over the financial year
of 1.1582
(b) Ragolle
On 6 June 2022 the Group acquired 100% of the equity of the
Belgium luxury rug manufacturer Ragolle Rugs NV ('Ragolle').
Ragolle is situated close to Balta and will complement the
growing Belgium operations. It is a producer of high quality wool,
viscose, heat set polypropylene and polyester rugs.
The primary reason Ragolle was acquired to complement the Balta
Rugs business.
The total cash consideration of EUR21.4m (GBP18.2m(3) ) was paid
on completion.
The Group results for the 52 weeks ended 1 April 2023 include
contribution from Ragolle of EUR30.6m (GBP26.4m(3) ) of revenue and
EUR2.8m (GBP2.5m(3) ) 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 EUR7.7m
(GBP6.6m(4) ) and EUR0.3m (GBP0.3m(4) ) respectively.
(3) Applying the GBP to EUR exchange rate at the date of
acquisition of 1.1763
(4) Applying the average exchange rate over the financial year
of 1.1582
(c) IWT
On 17 October 2022 the Group acquired 100% of the equity of
Florida-based flooring distributor, International Wholesale Tile
LLC ("IWT").
The total cash consideration of $16.8m (GBP15.0m(5) ) was paid
on completion and contingent consideration with a present value of
$6.0m (GBP5.4m(5) ) and dependant on future EBITDA performance over
a four-year period. Based on the projected EBITDA forecast over the
contingent earnout period, the gross payment would range between
$7.0m to $8.2m (based on a range of base less 10% and base plus
10%).
The primary reason for the business combination is discussed
within the Chairman and CEO's review.
The Group results for the 52 weeks ended 1 April 2023 include
contribution from IWT of $27.2m (GBP22.4m(5) ) of revenue and $3.9m
(GBP3.2m(5) ) 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 $39.5m (GBP32.5m(6) )
and $4.5m (GBP3.7m(6) ) respectively.
(5) Applying the GBP to USD exchange rate at the date of
acquisition of 1.1171
(6) Applying the average exchange rate over the financial year
of 1.2145
9. Restatement of deferred tax assets and liabilities
Deferred tax assets and liabilities in 2022 and 2021 have been
restated to offset, for presentational purposes, deferred tax
liabilities arising on consolidation against deferred tax assets in
the Group's subsidiaries where these relate to income taxes levied
by the same taxation authority within the same taxable entity or
different taxable entities within the Group which intend to settle
current tax assets and liabilities on a net basis.
For the restated Consolidated Balance Sheet presented at 2 April
2022, the deferred tax asset has decreased by GBP26.2m, from
GBP27.2m to GBP1.0m; the deferred tax liability has also decreased
by GBP26.2m, from GBP81.4m to GBP55.2m. This prior period
adjustment changes the balance sheet presentation of deferred tax
only, with the net deferred tax position remaining a liability of
GBP54.2m.
For the restated Consolidated Balance Sheet presented at 3 April
2021, the deferred tax asset has decreased by GBP16.2m, from
GBP17.2m to GBP1.0m; the deferred tax liability has also decreased
by GBP16.2m, from GBP62.9m to GBP46.7m. This prior period
adjustment changes the balance sheet presentation of deferred tax
only, with the net deferred tax position remaining a liability of
GBP45.7m.
The above adjustments have no impact on any other balances
within the Consolidated Balance Sheets at 2 April 2022 or 3 April
2021 nor the reported Consolidated Income Statements for the 52
weeks ended 2 April 2022 or the 53 weeks ended 3 April 2021, nor
any impact on basic or diluted earnings per share measures in prior
year periods.
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 1 April 2023 there has
been no period where financial covenant tests applied.
The Group's cash position as at the year ended 1 April 2023 was
GBP93.3m (2022: GBP273.6m). The Group expects to continue to
generate positive operating cash flows in the forecast period to
March 2025.
The Group has EUR500m of bonds maturing in August 2026 and
EUR250m of bonds with a maturity in March 2028. The bonds, in
themselves, carry no maintenance financial covenants.
The Group also has access to a GBP150m multi-currency revolving
credit facility ('RCF') maturing in 2026; of which GBP12.5m was
drawn at 1 April 2023. 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 to March 2025 was modelled, with the base case set to the
FY24 and FY25 budgets, consistent with the model 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 drop in EBITDA of between 30% to 60% versus
the base case to ensure that even in an extreme downside scenario,
sufficient liquidity was maintained through the forecast period.
The stress- test didn't include any mitigating actions other than a
reduction in capital expenditure (ranging from 20% to 100%) and the
Group does not consider the stress-test, or anything worse than it,
a reasonably possible downside scenario.
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 1 April 2023. 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 a qualified audit report which concludes
that except for the effects of the matter which gave rise to the
qualification, the financial statements give a true and fair view
of the state of the Group's and of the parent company's affairs as
at 1 April 2023 and of the Group's loss for the period then ended.
The qualification notes that due to a management-imposed limitation
of scope in relation to a non-significant component, that the
auditor is unable to conclude on this non-significant component.
Management imposed this limitation due to the Board's view that
procedures proposed by the auditor were unlikely to generate
further or better-quality audit evidence.
The Auditor's report on the financial statements did not draw
attention to any further matters by way of emphasis and, other than
solely in respect of receiving all the information and explanations
from a non-significant component which, to the best of the
Auditor's knowledge and belief, were necessary for the purposes of
the audit, did not contain statements under S498(2) or (3)
Companies Act 2006.
Statutory accounts for the 52 weeks ended 2 April 2022, 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 Six Business Park, Worcester,
Worcestershire, WR4 0AE or via the website: www.victoriaplc.com
.
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END
FR EADNDFLKDEAA
(END) Dow Jones Newswires
September 14, 2023 02:00 ET (06:00 GMT)
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