22 November 2016
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Interim Results
Strong Performance Continues - Well Positioned For Further Growth
Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its consolidated interim results for the 26 weeks ended 1 October 2016.
Financial and Operational Highlights
Continuing operations |
H1 FY17 |
H1 FY16 |
Growth |
|
|
|
|
Revenue |
£153.4m |
£105.6m |
+45% |
Underlying EBITDA1 |
£20.2m |
£12.6m |
+60% |
Underlying operating profit1 |
£14.4m |
£7.9m |
+82% |
Operating profit |
£12.0m |
£6.4m |
+88% |
Underlying profit before tax1 |
£12.3m |
£6.4m |
+92% |
Profit before tax |
£8.4m |
£3.9m |
+115% |
Net debt |
£67.7m |
£80.5m |
-16% |
Adjusted net debt / EBITDA2 |
1.93x |
2.25x |
|
Earnings per share3: |
|
|
|
- Basic adjusted |
10.43p |
6.59p |
+58% |
- Basic |
6.57p |
0.88p |
+647% |
Victoria's successful growth has continued:
· Group revenues for the six months ending 1 October 2016 grew by 45% from £105.6m to £153.4m
· Like-for-like revenues grew by 8.0% (4.9% on a constant currency basis)4
• Underlying operating profit increased from £7.9m to £14.4m
• Underlying profit before tax substantially increased from £6.4m to £12.3m
• Net debt as at the half year was £67.7m, representing a very comfortable 1.93x annualised EBITDA2 (2015 H1: 2.25x)
• Acquisition of Ezi Floor on 30 September 2016 for initial cash consideration of £6.5m and deferred consideration of £6.5m, plus contingent cash consideration of up to a further £6.5m wholly dependent on improved EBITDA over the next four years
1. Underlying performance is stated before the impact of exceptional items, amortisation of acquired intangibles and asset impairment within operating profit. Underlying profit before tax and adjusted EPS are also stated before non-underlying items within finance costs (comprising mark-to-market adjustments, BGF redemption premium charge and deferred consideration fair value adjustments)
2. Adjusted net debt / EBITDA as measured in relation to the Group's bank facility covenants
3. Basic and basic adjusted earnings per share calculations set out in Note 7
4. Like-for-like revenue growth based on a complete half year of revenue for all businesses acquired excluding Ezi Floor. Figures are adjusted for the 26 week period to 1 October 2016 as compared to the 27 week prior period
Geoff Wilding, Executive Chairman of Victoria PLC commented:
"During the last six months we remained focused on executing our plan, with the acquisition of Ezi Floor extending the Group's underlay offering and earnings. The Board continues its effective cash management whilst at the same time being quick to identify and implement potential commercial and margin enhancing synergies across the Group as we gain market share both in the UK and Australia. With no shortage of acquisition opportunities in the UK and Europe, the Board is confident it can continue to grow Victoria and create more wealth for shareholders."
For more information contact:
Victoria PLC Geoff Wilding, Executive Chairman Michael Scott, Group Finance Director |
+44 (0) 15 6274 9300 |
Cantor Fitzgerald Europe (Nominated Adviser & Broker) Rick Thompson, Phil Davies, Michael Reynolds (Corporate Finance) Mark Westcott, Caspar Shand- Kydd ( Sales) finnCap (Joint Broker) Matt Goode, Grant Bergman (Corporate Finance) Tim Redfern (Corporate Broking) |
+44 (0) 20 7894 7000 +44 (0) 20 7220 0500 |
Buchanan Communications Charles Ryland, Victoria Hayns, Jane Glover |
+44 (0) 20 7466 5000 |
The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Chairman's Statement
The first half of this financial year was another successful trading period of continued growth and performance for Victoria. Despite the prognostications of the doom-sayers, Brexit has had no discernible impact on demand for our products in the UK with like-for-like revenues up 3.5%. Growth in Australia continues apace (up 8.9% AUD like-for-like). We remain confident in achieving all of our objectives for the financial year.
Ezi Floor
Underlay is sold alongside nearly two-thirds of carpet sales in the UK and, as such, some 18 months ago we formed the view that an underlay manufacturer would be an ideal addition for Victoria.
September 2015 saw the initiation of this strategy, with the acquisition of underlay manufacturer Interfloor. Over the last year, in particular with a focus on minimising costs, Interfloor has become a highly valuable contributor to the Group's earnings.
Following the success of Interfloor, we acquired another underlay manufacturer, Ezi Floor, on 30 September this year. This is a very entrepreneurial and successful business and its acquisition means Victoria is now able to provide a full range of underlay products across the market. Whilst, as with previous acquisitions, Interfloor and Ezi Floor will remain largely independent in terms of marketing and sales, we are highly confident operational synergies can be achieved between these two businesses and believe Ezi Floor will also make a material contribution to Victoria's earnings.
Acquisitions
Buying a company is easy; making it successful is another matter entirely. Many acquisitions fail to meet expectations and, understandably, many investors are sceptical of a business plan that incorporates acquisitions as part of its strategy. I have completed literally dozens of acquisitions in my business career, making my share of mistakes, but the end product achieved in several sectors over many years has been the creation of significant shareholder wealth.
So, the fact remains that acquisitions can be - and have been - a powerful tool for growing a business and opening new market opportunities.
Having said that, we have made just six acquisitions in four years. This steady pace enables us to ensure each acquired business is properly integrated into Victoria before we proceed with securing the next earnings enhancing deal.
At the risk of boring shareholders with repetition, let me once again set out the key criteria Victoria uses when assessing a potential acquisition opportunity. This list is not exhaustive and sometimes we will not acquire a business that meets all our criteria simply because of some indefinable factor that makes us uncomfortable with proceeding.
1. We never buy struggling businesses or turnarounds. The time and energy expended on a turnaround is rarely worth it;
2. Modern, well-equipped factories. As a company, Victoria is extremely focussed on cash generation. It is free cash that allows us to pay down debt, fund growth, whether acquisitions or organic, and progressively return capital to shareholders through dividends or share buybacks. So, the last thing we want to have to do after buying a business is spend all the cash it generates bringing the factory up to standard.
3. Committed, talented and honest management. Anyone can lease a factory and buy the machinery to make carpet (or other flooring). The difference between the average business and the extraordinary businesses Victoria acquires is the management;
4. Broad distribution channels. Victoria's sales are overwhelmingly made to literally thousands of retailers. We like the security this diversity provides; and pay close attention to customer concentration when considering a potential acquisition.
5. A fair price. To quote Warren Buffet, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. We recognise that quality businesses are rarely 'cheap' but shareholders can take comfort from the fact that we will not overpay. Ever.
Debt
Debt is a business tool like any other. Properly used it can transform growth and shareholder returns and, given the very high levels of cash generation by the business, Victoria makes use of prudent levels of debt to grow the business and improve earnings.
We have consistently demonstrated over the last four years that, while there is a significant seasonal profile in Victoria's net debt (our working capital levels peak in September each year due to the increase in demand during the pre-Christmas rush, plus the timing of our deferred consideration payments are substantially weighted to H1), overall cash generation is aligned to annual earnings. Management across the entire Victoria Group is very focussed on cash generation, which gives the Board the confidence to appropriately deploy debt to fund acquisitions.
Outlook
Both markets in which Victoria trades - the UK and Australia - continue to perform well.
The Australian flooring market is experiencing very good demand from consumers. Although Australia housing stock is about one-third that of the UK, the houses themselves are about three times the size of the average UK house and therefore the addressable market is quite similar in size. I have been delighted by the performance of both our historical business in Australia and Quest, the acquisition we made in August 2015.
The UK, which is about 75% of our business, also continues to trade well. Brexit has had no discernible impact on demand for product and, with some 60% of carpet sold in the UK imported - primarily from Europe - weaker Sterling has benefited us by making our main competitors product materially more expensive whilst less than 20% of our cost base is in Euros or US dollars.
Unlike most other retail purchases, consumers typically only decide to invest in a new carpet for their home once every seven to nine years. As a result, consumers have little awareness as to what a square metre of carpet "should" cost. It is for that reason that the price at which we can sell product is governed moreover by the price point of our competitors than consumers expectations. This, therefore, makes it easier to pass on any production-based inflationary pressures due to all manufacturers broadly being in the same position; all seeking to increase prices at similar inflection points.
In the same regard, as consumer spend for carpet averages at £300-500 per room, any marginal increase in price per square metre will have limited impact on them deciding whether or not to proceed with the purchase.
Nonetheless we continue to maintain tight control over costs and inventory to ensure that the Group is well positioned should selling conditions change. To that end, I thought it might be helpful for shareholders to understand the level of variability in our cost base. Victoria is more lowly geared operationally than I suspect some shareholders appreciate. Over half of Victoria's cost base fluctuates directly with sales (e.g. raw materials and energy) and a further circa 30% is capable of being varied within a few weeks (e.g. labour, logistics and marketing costs), should conditions change.
Growth in earnings per share will continue from both organic improvements and acquisitions. There is no shortage of opportunities both in the UK and Europe - although we take care to only proceed once we are confident the last acquisition has been properly integrated. Our strong positive cash-flow, together with supportive bankers and shareholders ensure further acquisition-based growth can be funded. By maintaining very strict criteria and strong price discipline, I am confident acquisitions will continue to be earnings enhancing and a useful tool to both strengthen the Group and create wealth for shareholders.
Therefore, once again, I am pleased to say the Board faces the balance of the financial year with a positive outlook.