28 November 2017
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Interim Results
Another period of successful trading and 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 30 September 2017.
Financial and Operational Highlights
Continuing operations |
H1 FY18 |
H1 FY17 |
Growth |
|
|
|
|
Revenue |
£189.5m |
£153.4m |
+24% |
Underlying EBITDA1 |
£24.6m |
£20.2m |
+22% |
Underlying operating profit1 |
£18.2m |
£14.4m |
+26% |
Operating profit |
£12.9m |
£12.0m |
+8% |
Underlying profit before tax1 |
£15.5m |
£12.3m |
+26% |
Profit before tax |
£8.8m |
£8.4m |
+5% |
Net debt |
£98.6m |
£67.7m |
+46% |
Adjusted net debt / EBITDA2 |
1.77x |
1.93x |
|
Earnings per share3: |
|
|
|
- Basic adjusted |
13.10p |
10.43p |
+26% |
- Basic |
6.55p |
6.57p |
-0.4% |
· Group revenues for the six months ended 30 September 2017 grew by 24% versus the same period in the prior year, from £153.4m to £189.5m
• 26% increase in underlying profit before tax from £12.3m to £15.5m
• Net debt of £98.6m at 30 September 2017 was a very comfortable 1.77x adjusted EBITDA2 (2016 H1: 1.93x)
• In June, the Company announced a reorganisation of its UK carpet manufacturing and logistics operations to further increase margins across the Group. The manufacturing reorganisation has already been completed and the new logistics operations have been planned and will be fully implemented during FY19
• Since the half year, two hard flooring acquisitions of European ceramics manufacturers, Ceramiche Serra S.p.A. in Italy and Keraben Grupo S.A. in Spain have been announced
1. Underlying performance is stated before the impact of exceptional items and amortisation of acquired intangibles 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, deferred consideration fair value adjustments and exchange rate differences on foreign currency loans).
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
Geoff Wilding, Chairman of Victoria PLC commented:
"Victoria had another successful six months and much was achieved during the period. We strengthened our management team, met all of our objectives, focused on improving efficiencies across the Group and since the period end, have also announced two significant earnings enhancing acquisitions.
Our strong operational management and the solid pipeline of acquisition opportunities gives the Board confidence that we will achieve all of our objectives for the current financial year."
For more information contact:
Victoria PLC Geoff Wilding, Chairman Philippe Hamers, Group Chief Executive Michael Scott, Group Finance Director |
+44 (0) 15 6274 9300 |
Cantor Fitzgerald Europe (Nominated Adviser & Broker) Rick Thompson, Phil Davies, Will Goode (Corporate Finance) Caspar Shand- Kydd, Alex Pollen (Equity Sales) Berenberg (Joint Broker) Ben Wright, Mark Whitmore (Corporate Broking) |
+44 (0) 20 7894 7000 +44 (0) 20 3207 7800 |
Buchanan Communications Charles Ryland, Victoria Hayns, Madeleine Seacombe |
+44 (0) 20 7466 5000 |
About Victoria
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 Group, which is headquartered in Kidderminster, designs, manufactures and distributes a range of carpet, underlay, LVT (luxury vinyl tile), artificial grass and flooring accessories. Victoria has operations in the UK, Belgium, the Netherlands and Australia and employs approximately 1,800 people across 20 sites. Victoria is the UK's largest carpet manufacturer and the second largest in Australia.
The Group's strategy is designed to create value for its shareholders, focused on consistently increasing earnings per share via acquisitions and sustainable organic growth.
The Group's trading subsidiaries include:
UK & Europe: Abingdon Flooring Ltd, Alliance Distribution Ltd, Avalon B.V, Distinctive Flooring Ltd, Ezi Floor Ltd, Grass Inc. B.V, Interfloor Ltd, Keraben Grupo S.A., Victoria Belgium N.V, Victoria Carpets Ltd, View Logistics Ltd, Westex (Carpets) Ltd, Whitestone Weavers Ltd
Australia: Quest Flooring Pty Ltd, Primary Flooring Pty Ltd, The Victoria Carpet Co. Pty Ltd
Chairman's Statement
The first half of this year was another period of successful trading and growth for the Group. The Board is confident that the Group will meet all of its objectives for the year and anticipates that performance will be in line with current market expectations for the year to 31 March 2018, updated for the recently announced acquisitions of Keraben Grupo S.A. and Ceramiche Serra S.p.A.
Operational developments
In line with the rapid growth of the Group, the management team was further strengthened with the appointment of Philippe Hamers as Chief Executive in March and he has already had an important beneficial impact on Victoria. He has full responsibility - and autonomy - for the Group's operations and his deep industry knowledge and management skills are already delivering measurable gains across the business:
Closure of manufacturing at Kidderminster site
In June, we announced the planned closure of the carpet-making factory in Kidderminster. Analysis had showed that output and flexibility could be enhanced by reducing from three UK production sites to two.
This was completed during September with our UK carpet production now shared between our two factories, located in Yorkshire and South Wales. Inevitably there was some short-term disruption to supply, which has now been totally put behind us.
The resulting increase in productivity will contribute noticeably to our continued growth in operating margins across the Group.
Logistics
Logistics, the physical distribution of products from our factories and warehouses to retailers, is an expensive component of the business, costing approximately 10% of revenues.
Therefore, we initiated a project which has now been running for about 12 months to carefully analyse our network and cost structure to find an optimal solution that both improves service levels, whilst reducing operational costs. The team responsible for this project, made up of senior management together with specialist consultants, delivered their proposals during the period under review and their plan is now being executed, with a material beneficial impact anticipated over the next 12-15 months.
Acquisitions
Increasing Victoria's revenues and profits from outside the UK has been a firm objective for the Group. Clearly Europe represents a very large and growing market, while diversifying the sources of our income reduces economic risk.
Shareholders will recall that last year the Company flagged that it would be developing its presence in the hard-flooring sector. Hard flooring categories includes products such as ceramic tiles, LVT (Luxury Vinyl Tiles), wood, stone, etc. and is typically used in kitchens, bathrooms, and entrances in residential applications and throughout commercial projects.
The reasons for doing so were simple: Hard flooring constitutes over half the flooring market and accessing it opens up a substantial opportunity for further growth. Furthermore, Victoria has developed a very broad and deep distribution network in the UK and Australia, with many of the retailers selling hard flooring alongside carpet. We have been very successful at cross-selling our underlay products and are confident that we will be able to achieve a similar outcome with hard flooring. Additionally, for structural reasons, some categories of hard flooring are able to maintain higher margins than traditional carpet manufacturing.
As a result, we established and recruited a director-level appointment for hard flooring in May, and have spent months visiting dozens of hard flooring manufacturers in Europe to understand the market and identify the best opportunities for Victoria.
Although after the period end covered by the interim results, due to their size and potential impact on the business, I will comment briefly on Victoria's two recent acquisitions, both of which were in hard flooring:
Ceramiche Serra S.p.A.
Serra, operating from sites in Serramazzoni, Sassuolo (near Bologna), the heart of the Italian ceramics industry, manufactures ceramic flooring, which is sold domestically and exported internationally. It sells to a combination of wholesalers, retail groups, and independent stores throughout Continental Europe, North America, and the Far East.
In line with Victoria's acquisition criteria, the management team at Serra has committed to running the business as part of Victoria for a minimum period of four years and continuing to develop its growth. This acquisition is due to complete very shortly.
For the year ended 31 December 2016, Serra generated audited revenues of €28.2 million (£25.2 million), EBITDA of €10.5 million (£9.4 million), and EBIT of €10.0 million (£8.9 million).
Keraben Grupo S.A.
Keraben, is based in Castellon, (near Valencia), where it has more than four million square feet of facilities. The company manufactures mid to high-end ceramic flooring and wall tiles, which are sold via a combination of wholesalers, retail groups, independent speciality stores, and DIY chains throughout Continental Europe, North America, and the Far East.
Keraben is a large, well-invested business with a strong market reputation. It is led by a proven, established management team which has successfully and consistently grown the business over recent years. They are financially incentivised to remain with, and continue to grow, the business for a minimum of three years.
For the year ended 31 December 2016, Keraben generated audited revenues of €118.3 million (£106.4 million), adjusted EBITDA of €36.4 million (£32.7 million), and adjusted EBIT of €27.5 million (£24.7 million). The Board expects that normalised earnings should be about 10% higher for the year to 31 December 2017.
Borrowings
Net debt at 30 September was £98.6m, which represents a very comfortable 1.77x adjusted EBITDA.
Flooring manufacturers structured like Victoria can generate large amounts of cash. Favourable supplier arrangements, rapid manufacturing matched to demand, customer payment terms, and longevity of key items of plant all contribute to a very high percentage of reported earnings turning to net cash. This was reportedly one of the key reasons legendary investor, Warren Buffett, acquired the world's second largest flooring manufacturer, Shaw Industries.
Victoria has consistently demonstrated over the last five years that, while there is a significant seasonal profile in its 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.
However, as a Board, we always seek to maintain a balance between debt and equity and shareholders will note that the company placed 23 million new ordinary shares recently (post the interim results period) with institutions to raise £180 million to part fund the purchase of Keraben. The placing was significantly over-subscribed, which was very encouraging.
Outlook
The markets in which Victoria trades - the UK, Europe, and Australia - continue to experience demand.
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, the Group is very focused on 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 acquisition opportunities, although we remain very selective. 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 that future 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 confidence and a positive outlook.