TIDMVCP
RNS Number : 2883Q
Victoria PLC
18 February 2019
For Immediate Release 18 February 2019
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Trading Update
Victoria PLC (LSE: VCP) the international designers,
manufacturers and distributors of innovative floorcoverings
provides the following update.
In the Group's interim results released in November, Victoria
advised it was taking advantage of difficult market conditions to
actively pursue market share. The Board recognises this approach,
which impacted earnings this year, has unsettled some shareholders
but it believes it to be in the best long-term interests of the
Group and its shareholders. Therefore, the Group has continued with
this strategy and, across markets that the Board believes are down
6-8% in the UK and Australia and flat in Europe, the Group has
continued to grow overall like-for-like revenues and gain
meaningful market share by winning new retailers as customers from
competitors and securing a greater share of expenditure from
existing customers of Victoria.
This growth has, as expected, come at a short-term cost with the
introduction of lower margin, volume products. The Group has also
temporarily absorbed, rather than passed on, substantial increases
in underlay raw material prices in recent months and some large
one-off costs associated with the consolidation of the Group's UK
logistics operations to improve service levels to customers - an
important competitive advantage. Nonetheless, the Group expects
that the current-year to March 2019 EBITDA is likely to be
GBP95m-GBP97 million (2018: GBP64.7m), with the Group's 2019
underlying pre-tax profits being around 35-39% higher than 2018
(2018: GBP40.8m). These numbers, of course, include only 8 months
contribution from Ceramica Saloni.
With the strategy continuing to deliver increasing revenues and
meaningful market share gains, the key now is to ensure margins
continue to increase. In the November announcement the Group
referenced plans to recover some margin gains temporarily foregone
in the drive for top-line growth. Almost all these actions Victoria
planned to take to increase margins have now been successfully
completed and therefore we provide the following update to
shareholders on what has been done, as we expect these actions to
materially enhance earnings in the coming 2020 financial year.
Due to the understandable scrutiny we would expect from
investors we have decided to provide a considerable degree of
granularity about the actions taken in this trading update:
UK & Europe - Hard flooring
1. Integration of Keraben and Saloni production facilities in
Spain. With the completion of the production integration project,
the combined factory is now able to produce the same output of tile
(approximately 23 million sqm per annum) with two fewer kilns and a
reduction in headcount of 25 FTEs
2. Integration of administrative functions and elimination of
duplicated roles, maintaining only one head office
3. Utilisation of surplus capacity at Keraben's clay atomisation
plant to supply Saloni. This was a key attraction of the Saloni
acquisition as Saloni was previously buying atomised clay from
third-party suppliers at considerably higher cost.
4. Combined raw materials procurement
5. A full year of production in the 2020 financial year from the
new, highly successful, porcelain line at Serra in Italy
Together, these actions are expected to add EUR5m-EUR5.5 million
of annual pre-tax earnings to Victoria's hard flooring business for
the coming financial year. Of course, the Group will also have the
benefit of a full year of contribution from Saloni (shareholders
will recall this acquisition completed last August), which will add
a further EUR6 million of earnings.
UK & Europe - Soft flooring
1. Installation of the new carpet backing line at Victoria's
South Wales factory is now finished and it has been in full
production since the end of January. The Board believe that it is
the fastest, most modern backing line in Europe and produces
finished carpet at more than twice the rate of the Group's existing
backing lines, significantly lowering the production cost
2. Consolidation of the Group's carpet manufacturing facilities
at the factory in South Wales has enabled considerable production
efficiencies to be achieved - enabling higher volumes to be
produced with a headcount reduction of more than 100 FTEs, the
majority in December.
3. Combined raw materials procurement
4. Logistics efficiencies. The integration of the Group's UK
logistics operations was not handled as well as it might have been,
resulting in some large (and unnecessary) costs. However, since
this initial phase, the operational costs have fallen dramatically
and will continue to do so, delivering both cost savings and
improved service levels.
These savings, together with some other planned initiatives, are
expected to add an additional GBP10 million of annual pre-tax
earnings over the coming 2020 financial year.
Australia
The consolidation of Victoria's Sydney and Melbourne underlay
factories on to a single site in Sydney has begun and will be
completed mid-way through the calendar year. Once completed the
savings will provide an additional AUS$1.5m of earnings to the
Group.
In addition to the above items, the Group is continuing to
introduce new product ranges and deliver other initiatives, which
are expected to further grow revenues and profits.
Cash generation
As stated in the interim results announcement, the Company is
firmly focused on cash generation following the acquisition of
Saloni in August and will reduce debt levels over the next 12
months (although, with the approach of Brexit, management are being
prudent and carrying a higher quantity of raw materials than normal
for the next quarter or so).
With the focus on integration and productivity over the last 12
months, the 2019 financial year entailed heavy capex and
reorganisation spend, as noted in the interims. New tile production
lines were installed in Serra and Keraben, a new carpet backing
line was commissioned at Abingdon, and new warehouses opened in the
UK to better service customers. This capex spend is now completed
and will result in much higher free cash flow in the next 12
months. Together with the planned reduction in stock levels at
Saloni from 105 days to 70 days (Victoria has always been very
successful at improving the working capital position of the
companies it acquires by improving stock turns), this higher free
cash flow will materially reduce current levels of debt.
Financing
The Board is currently assessing a number of attractive options
with its banks to provide longer duration financing and to support
execution of the Group's strategy. Although Victoria still has 18
months to run on our existing facilities, the Board expects to
update shareholders on the Group's plans with respect to its debt
financing in the near term.
Summary
The actions that have been taken by the Group's operational
management are expected, as stated in November, to significantly
increase EBITDA margins and, together with the upwards momentum of
Victoria's revenues that the strategy has achieved, the Board looks
forward to a successful 2020 financial year.
For more information contact:
Victoria PLC
Geoff Wilding, Executive Chairman
Philippe Hamers, Group Chief Executive
Michael Scott, Group Finance Director +44 (0) 15 6274 9610
Cantor Fitzgerald Europe (Nomad and broker)
Rick Thompson, Phil Davies, Will Goode (Corporate Finance)
Caspar Shand-Kydd (Sales), Andrew Keith (Equity Sales) +44 (0) 20 7894 7000
Berenberg (Joint broker)
Ben Wright, Mark Whitmore, Laura Fine (Corporate Broking) +44 (0) 20 3207 7800
Buchanan Communications
Charles Ryland, Vicky Hayns, Maddie Seacombe, Tilly Abraham +44 (0) 207 466 5000
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END
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