Trading Update, De-leveraging and Share Buy-Back
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.
Victoria PLC
('Victoria,' the 'Company,' or the 'Group')
Trading Update
Initial €25m Senior Secured Notes Repurchase underway
Advice of £25m share buy-back
Victoria PLC, (LSE: VCP) the international designers, manufacturers and distributors of innovative flooring, is providing an update on trading for the year ending 30 March 2024, together with an update on a recently started repurchase programme of an initial €25 million of its 2026 Senior Secured Notes and its intention to invest up to £25 million repurchasing its ordinary shares of 5 pence each ("Ordinary Shares"), deploying some of the Group's non-operating cash flow from the sale of non-core and surplus assets.
Trading
Although the medium-term macro-economic outlook is generally improving as well as key leading indicators for flooring demand1, current and near-term trading conditions remain broadly consistent with previous updates to shareholders with wider market demand down circa 20%. Consumer demand continues to be soft in Europe (39% of Group revenue), subdued but stable conditions in the UK (31%) and Australia (8%), contrasting with recently improving demand in the US (22%), alongside pressure on earnings coming from labour inflation and additional current year expenditure from accelerating reorganisation and integration projects. As a consequence, the Board expects that revenue for the year ending 30 March 2024 ("FY2024"), whilst less than in FY2023, will be broadly in line with market expectations. Underlying EBITDA will also, as anticipated, be below that achieved in FY2023 and the Board now expects that to be approximately £160 million.
Measurable progress has been made with the Group's various reorganisation and integration projects resulting in substantial permanent overhead reductions and productivity gains.
These projects should materially improve future operational performance whilst maintaining production capacity and therefore the Board is confident of Victoria's short to medium term prospects for cash generation, de-leveraging, and earnings growth - even with current market conditions.
Furthermore, although the Board cannot predict precisely when improving consumer confidence and spending should cause flooring consumption to normalise, the fundamental requirement for flooring always causes demand to revert to the mean - rewarding the patient investor. Importantly, as demand normalises and revenue increases, operating margins are expected to be 250-350 bps higher than previously, due to productivity gains.
De-leveraging
De-leveraging remains a key target for the Board, notwithstanding the near-term impact of lower earnings, and the potential £25 million share buyback is not expected to materially impact upon this objective - deferring achievement of the Board's leverage goal by less than one calendar quarter.
Achievement of the leverage target is underway:
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The Company has been steadily repurchasing its 2026 Senior Secured Notes ("bonds") and, having bought €11.1 million to date at an average discount of 21% against par, has a target of buying €25 million, reducing future cash interest payments as well as the amount due at maturity or upon redemption. The Board remains willing to consider repurchasing further bonds should they become available but liquidity has dried up, with few holders prepared to sell at current levels.
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The sale of non-core and surplus real estate and other assets is progressing with net proceeds of €31 million already received and a further €50 million expected.
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Headway continues to be made in sustainably reducing working capital, with an additional £30 million cash inflow above normal operating cash flow anticipated during FY2025 from improvements in inventory management.
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Operating earnings are expected to improve from the anticipated FY2024 levels (even with a similar macro environment) due to the actions taken to improve productivity and lower overheads.
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Share Buyback
In line with the stated capital allocation policy, it is the Board's intention to invest up to £25 million in the repurchase of shares, subject to certain conditions and the ratio of price to intrinsic value remaining highly attractive, whilst protecting the Group's cash position and liquidity. Although these share purchases are not the start of a formal and regular programme to return capital to shareholders, the Board believes the current share price is materially below the intrinsic value of the Group and, whilst liquidity for bond repurchases is constrained, deploying some of the Group's non-operating cash flow, from the sale of non-core and surplus properties, towards these opportunistic purchases (alongside accumulating cash on the balance sheet) serves Victoria's mission to create wealth for shareholders.
Executive Chairman, Geoff Wilding, said:
"There has been a lot of noise around Victoria in the last six months. To their enormous credit, operational management simply put their heads down and forged ahead with the integration projects designed to maximise the available synergies within the Group and optimise cash generation in a challenging macro-environment.
"The pace and rigour of this work has accelerated in the last 90 days, with a larger cost incurred in the current year but a clear impact on future earnings and cash flow. We emphasise that we are not expecting some immediate improvement in flooring demand. However, we are confident of the impact on earnings and cashflow of management's actions and are certain demand will inevitability revert to the long-term mean."
Group Chief Executive, Philippe Hamers, commented:
"It has been a busy 18 months for the operational management teams with execution of various synergy projects. These include the relocation of Balta's carpet manufacturing and logistics to the Group's existing UK facilities, relocating much of Balta's rug production to a newly expanded factory in lower-cost Turkey, and introducing new IT systems to improve operational decision-making and financial reporting. We have also initiated a project for the full integration of ceramics production to optimise productivity, and acquired new warehouse and distribution facilities in the US to improve customer service, improving inventory management, and consolidation of raw material procurement.
"These actions, some of which have been extended and remain ongoing, have allowed production capacity to be maintained with 1,170 fewer employees (a circa 16% reduction). Therefore, as volume demand normalises with improving consumer confidence, the synergies are anticipated to increase Group EBITDA margins by 250-350 bps, alongside lower capex, and a more competitive market position due to better customer service levels, lower pricing, and wider distribution. I am confident, therefore, that Victoria will experience faster growth than the wider market as demand returns."
Notes
1Housing transactions, mortgage rates, consumer confidence, employment, consumer savings, real wage growth, construction are seen as leading indicators of flooring demand
The person responsible for arranging the release of this announcement on behalf of the Company is Brian Morgan, Chief Financial Officer.
For more information contact:
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Victoria PLC Geoff Wilding, Executive Chairman Philippe Hamers, Group Chief Executive Brian Morgan, Chief Financial Officer
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www.victoriaplc.com/investors-welcome Via Walbrook PR |
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Singer Capital Markets (Nominated Adviser and Joint Broker) Rick Thompson, Phil Davies, James Fischer
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+44 (0)20 7496 3095
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Berenberg (Joint Broker) Ben Wright, Richard Bootle
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+44 (0)20 3207 7800
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Peel Hunt (Joint Broker) Adrian Trimmings, Andrew Clark
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+44 (0)20 7418 8900
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Walbrook PR (Media & Investor Relations) Paul McManus / Louis Ashe-Jepson Alice Woodings / Charlotte Edgar |
+44 (0)20 7933 8780 or victoria@walbrookpr.com +44 (0)7980 541 893 / +44 (0)7747 515 393 +44 (0)7407 804 654 / +44 (0)7884 664 686 |
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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 6,750 people across 30 sites. Victoria is Europe's largest carpet manufacturer and the second largest in Australia, as well as the largest manufacturer of underlay in both regions.
The Company's strategy is designed to create value for its shareholders and is focused on consistently increasing earnings and cash flow per share via acquisitions and sustainable organic growth. (Further information about Victoria can be found on its website, www.victoriaplc.com)
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