TIDMVCP
RNS Number : 9431S
Victoria PLC
19 July 2022
For Immediate Release 19 July 2022
Victoria PLC
('Victoria', the 'Company', or the 'Group')
Preliminary Results
for the year ended 2 April 2022
and
Q1 FY2023 Trading Update
Record FY2022 Revenues and Operating Profits
Victoria PLC (LSE: VCP) the international designers,
manufacturers and distributors of innovative floorcoverings, is
pleased to announce its preliminary results for the year ended 2
April 2022.
FY2022 Financial and Operational highlights
Year ended Change on
2 April Year ended prior year
Continuing operations 2022 3 April 2021
Revenue GBP1,019.8m GBP662.3m +54.0%
Underlying EBITDA(1) GBP162.8m GBP127.4m +27.8%
Underlying operating profit(1) GBP107.9m GBP79.8m +35.2%
Operating profit GBP53.6m GBP45.9m +16.8%
Underlying profit before tax(1) GBP73.8m GBP50.1m +47.3%
Net profit / (loss) after (GBP12.4m) GBP2.8m -
tax
Underlying free cash flow(2) GBP34.2m GBP38.8m -
Net debt(3) GBP406.6m GBP345.7m -
Net debt / EBITDA(4) 2.66x 3.10x -
Earnings / (loss) per share:
- Basic (10.61p) 2.30p -
- Diluted adjusted(1) 40.21p 28.66p +40.3%
-- FY2022 was the ninth consecutive record year for Victoria in
terms of revenue and underlying operating profit, despite
challenging operational conditions due to supply chain constraints
and significant inflationary pressures.
-- Five value-adding acquisitions completed during the year -
one in the UK & Europe Soft Flooring division, three in the UK
& Europe Ceramic Tiles division, and one in the US forming a
new North America division.
-- Strong trading continued, achieving record annual revenue of
GBP1,020 million, including like-for-like organic growth of
+19.2%.
-- Underlying EBITDA grew by +27.8% over the prior year to GBP162.8 million.
-- Notwithstanding the significant increase in EBITDA on an
absolute basis, the underlying EBITDA margin % was 16.0% due to two
key mathematical factors:
(1) acquisition mix effect of c. -190bps - our acquisition
targets generally had significantly lower margins than the
incumbent group on acquisition; and
(2) cost inflation pass-through effect of c. -180bps -
unprecedented cost inflation during the year was, to the extent not
mitigated by operational measures, passed onto customers but
without any mark-up, thereby protecting absolute profits but not %
margins.
After accounting for these factors, the residual organic
movement in margin was c. +50bps.
-- Strong cash generation with GBP34.2 million of underlying
free cash flow, which equated to a 32% conversion from underlying
operating profit. The group increased capex following Covid-19
related reductions in the prior year, and also increased investment
into raw materials as a precautionary measure to protect our
production schedules in the face of possible supply chain
disruption. The resulting uplift in inventory is expected to unwind
in the future. B
-- Successful GBP150 million incremental issue of preferred
equity to Koch Equity Development, with beneficial changes in terms
including a 100bps reduction in coupon.
-- Year-end net leverage was 2.66x, 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, even after adjusting for the post year-end
acquisition of Balta, in excess of GBP200 million.
Q1 FY2023 Trading Update
Overall revenue and earnings during the first quarter of
Victoria's financial year were in line with the Board's original
budget expectations. The value of the geographic diversity that the
Group has carefully built over the last nine years is again to the
fore as outperformance in some markets supports softer demand
elsewhere.
Whilst the Board remains very mindful of the economic headwinds
in the world and is taking numerous actions to mitigate their
impact, with Victoria's track record of resilience and strong
management, it is confident that the business is well positioned to
meet these challenges and capitalise upon them.
Geoff Wilding, Executive Chairman of Victoria PLC commented:
"Victoria continues to be in an enviable operational position
thanks t o the achievements of our management team, who have
successfully managed a year that has seen the highest inflation in
a generation alongside massive disruption to global supply chains.
This year they remain laser-focussed on integration of recent
acquisitions and execution of detailed synergy plans that will
drive higher productivity, lower costs, and better customer
service. I remain confident Victoria will continue to create wealth
for shareholders. "
(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
For more information contact:
Victoria PLC
Geoff Wilding, Executive Chairman
Philippe Hamers, Group Chief Executive
Michael Scott, Group Finance Director +44 (0) 1562 749 610
Singer Capital Markets (Nominated Adviser
and Joint Broker)
Rick Thompson, Phil Davies, Alex Bond +44 (0) 207 496 3095
Berenberg (Joint Broker)
Ben Wright, Richard Bootle +44 (0) 203 207 7800
Peel Hunt (Joint Broker)
Adrian Trimmings, Andrew Clark +44 (0) 207 418 8900
Buchanan Communications (Financial PR)
Charles Ryland, Chris Lane, Jack Devoy +44 (0) 20 7466 5000
Chairman and CEO's Review
INTRODUCTION
FY2022 has not been without its challenges. However, we are
pleased to report that, thanks to the remarkable efforts of our
management team, Victoria has again produced record operating
profits and operating cash generation. As set out in previous
Annual Reports, the historical progression of some KPIs has been
summarised in the table below:
Underlying Underlying Diluted Underlying EBITDA by geography(1)
EBITDA EBITDA adjusted operating
per share(1,2) margin(1) EPS(2) cash flow
per share(2,3)
Year GBP % Pence GBP UK Australia Europe North America(4)
---------------- ---------- --------- ---------------- ------ ---------- ------ -----------------
FY15 0.27 12.5% 10.47 0.30 79.5% 20.5% - -
FY16 0.39 12.6% 16.32 0.40 79.3% 20.7% - -
FY17 0.50 13.8% 24.42 0.48 75.1% 23.6% 1.3% -
FY18 0.64 15.2% 30.61 0.64 48.3% 22.0% 29.7% -
FY19 0.78 16.8% 35.25 0.86 25.8% 9.7% 64.5% -
FY20 0.86 17.3% 28.42 0.78 26.9% 7.5% 65.6% -
FY21 0.87 16.9% 30.21 0.77 33.6% 13.0% 53.4% -
FY22 1.04 14.1% 40.21 0.96 42.1% 10.0% 43.9% 3.9%
---------------- ---------- --------- ---------------- ------ ---------- ------ -----------------
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.
This review focuses on the underlying operating results of the
business, which delivered underlying EBITDA of GBP162.8 million
(FY21: GBP127.4m) and underlying EBIT of GBP107.9 million (FY21:
GBP79.8m). The Financial Review covers non-underlying items in
detail, following which IFRS reported operating profit was GBP53.6
million (FY21: GBP45.9m), and furthermore covers items in the
income statement below operating profit (financial items and
tax).
One of the objectives of this review, along with the Financial
Review, is 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. We also hope
that investors will better appreciate some of Victoria's unique
characteristics that the Board believes makes it an attractive
investment.
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. Shareholders are
of course free to accept or discard any of this data, but we want
to ensure that you have access to similar information used by
Victoria's board and management in making decisions.
[1] In this review, underlying EBITDA in FY20, FY21 and FY22 is
stated before the impact of IFRS 16 for consistency of comparison
with earlier years.
2 FY15 adjusted for 5-for-1 share split; FY16 and FY20 figures
for continuing operations.
(3) Number of shares based on basic, weighted-average
calculation consistent with basic EPS.
(4) Victoria's North American business, Cali, was acquired on 23
June 2021 and therefore contributed 9 months of trading in FY2022.
On an annualised basis, the contribution is c. 5% of Group
EBITDA.
FY2022 OPERATIONAL REVIEW
Overview
Anyone hoping for an easier year in FY2022 following the
previous two challenging years was disappointed. However, the work
achieved by our operational management during FY2020 and FY2021 -
improving our market position, sustainably improving productivity,
and taking advantage of some weaker competition - ensured the
business prospered, in spite of the wider operating
environment.
Before commenting specifically on each of the different
operating divisions, there were several Group-wide items in FY2022
that we think are worth highlighting.
Inflation
We are not macro-economists and therefore express no opinion on
whether the inflation we have experienced over the last 18 months
is "transitory", "enduring", or "systemic". What we are doing is
managing the business to ensure our return on equity remains
acceptable for equity investors, taking into account the effects of
inflation. Management reacted with alacrity to protect the business
and we would like to draw shareholders' attention to some of
Victoria's qualities that underpin our business model:
-- Victoria has a long-proven ability to increase prices and
successfully did so up to four times across each product area
during FY2022 to protect earnings.
-- Management is laser-focussed on delivering a number of
carefully planned synergy projects that will increase operating
margins, mitigating some inflationary pressures.
-- The Group's industry-leading operating margins provide room
for manoeuvre against struggling competitors.
-- 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.
Notwithstanding the above, Victoria is fortunate to have an
operational management team who have personal experience of running
a business in a high inflationary environment (it is one of the few
advantages of age) and who recognises that high inflation is an
invidious force whose effects are far more wide-ranging than the
simple margin impact described in the preceding paragraph. These
less obvious factors, which include the level of investment
required in tangible assets, must also be successfully negotiated
by management in order for wealth to continue to be built.
For example, whilst margins are protected through price
increases, the consequential increase of purchases and sales in
nominal Sterling (or Euros or Dollars) generates a one-off
reduction in free cash flow and results in a proportionally greater
amount of cash absorbed in receivables and inventories (partially
offset by an increase in creditors). Options to address this
include additional price increases to ensure an adequate investment
return on the increased working capital, negotiating better payment
terms from suppliers, improving inventory turn to offset the
capital being absorbed, as well as faster debtor collection.
Furthermore, if inflation endures for an extended period, the
money invested in fixed assets (plant and machinery) will also
increase over time, absorbing cash. When the time comes - and it
always does - to replace those assets, the purchase price of the
new machinery is dramatically higher due to inflation and the
amount put aside by depreciating the old equipment is inadequate.
This impact is exacerbated by the fact that fixed assets are
depreciated at their historical cost, which means the tax shelter
legitimately generated is also insufficient.
The risk, if these often-overlooked effects aren't addressed, is
that the business may barely generate sufficient cash to fund the
inflationary needs of the existing business, with nothing left over
for real growth, for distribution to owners, or for the acquisition
of new businesses.
However, Victoria benefits from having a much higher return on
tangible assets (consistently in excess of 25%) than many of its
competitors. Furthermore, and because we have only acquired high
quality businesses, much of our historical investment is tied to
intangible assets. In contrast with tangible assets, during periods
of inflation, intangible assets (goodwill, brands, customer
relationships) that genuinely generate income are wonderful. The
income they generate continues to increase (in nominal
EUR/GBP/USD/AUD) and yet none of this cash is required to maintain
the assets - almost all of it is available for investment
purposes.
Demand
Sam Goldwyn famously said "Forecasts are difficult to make -
particularly those about the future." With that caveat, there are
some reasons to be cautiously positive about demand for Victoria's
products.
Firstly, as a manufacturer and distributor of typically mid to
high-end flooring, Victoria's core customers are less sensitive to
economic uncertainty and inflation. A (relatively) recent example
of this was demonstrated during the 2007-9 global financial crisis
during which Victoria's organic revenues continued to grow:
-- 2007 GBP55.4 million
-- 2008 GBP61.7 million
-- 2009 GBP62.2 million
And over the last 25 years, revenues have grown organically by
more than 3% CAGR.
Secondly, since late last (calendar) year, we have seen
commercial demand returning. After two years of very substantially
reduced spending on flooring, hospitality, healthcare, cruise
ships, offices, etc. are all again investing in maintaining and
upgrading their facilities and driving demand for flooring
products. This renewed commercial demand (40.5% of the flooring
market by volume in the US; 54.6% in Europe, including the UK(4) )
is additive to consumer spending and is still early in the
cycle.
(4) Source: Freedonia Global Flooring Report 2021
Nonetheless lower demand for a period of time cannot be ruled
out. However, it is our view that Victoria is uniquely placed
within the flooring sector to weather such an event:
-- The Group has been deliberately structured with low
operational gearing. (In other words, a high proportion of costs
vary with revenue). The benefit was clearly demonstrated during the
pandemic when the Group remained EBITDA positive every quarter
despite lockdowns driving down revenues by as much as 80%. This was
not just an accounting benefit - shareholders will recall that,
despite the lockdown in all of Victoria's geographies in the June
2020 quarter, negative cash flow was just GBP7 million for the
three months.
-- Victoria has averaged 90.5% pre-tax operating cash
conversion(5) over the last five years. The Group is highly
effective at managing its working capital. High cash conversion
ensures the Group continues to generate cash, even during periods
of lower demand.
-- Much of our production output is supplied to our customers
based on end-consumer orders, not supplied to our customers
(retailers) for inventory. This reduces exposure to de-stocking
risks.
-- A resilient balance sheet with cash and undrawn credit lines
at the year-end, even after adjusting for the post year-end
acquisition of Balta, in excess of GBP200 million. Furthermore, the
Group's senior debt consists entirely of long-duration, fixed
interest rate, covenant-lite bonds.
(5) Based on underlying cash flow before interest, tax and
exceptional items; Conversion from pre-IFRS 16 EBITDA
Finally, it is our strong view that in the event of one or two
years of subdued demand, after which the business returns to growth
(we think it is a reasonable assumption that people will continue
to need to walk on floors), there will be little impact on the
long-term value of Victoria. Remember, Victoria's revenue has grown
organically at more than 3% CAGR for the last 25 years - which
includes the recession of 2001-2, the global financial crisis of
2007-8, Brexit in 2016, and the Covid-19 pandemic in 2020-21. For
127 years Victoria has been a remarkably resilient business.
Koch Equity Investment
Following the success of their initial investment in November
2020, Koch Equity Development agreed to increase their preferred
equity investment in Victoria in January of this year to a total of
GBP225 million, alongside a holding of 12.5 million ordinary shares
that they acquired in 2020 in the secondary market. The purpose of
this capital has been, and will continue to be, investment in both
expansion capex and acquisitions to accelerate the growth of
Victoria's earnings and free cash flow per share. It is the current
intention of the Board to be in a position to fully redeem the
preferred equity shares with cash on hand prior to their
conversion.
The commercial terms of this investment are detailed in Note 6
to the accounts and we do not propose to repeat them here. However,
part of Koch's investment return on their preferred equity is
expected to come from attached ordinary share warrants and we
thought it would be helpful for shareholders to update the table
provided in the Interim Report illustrating the maximum number of
ordinary shares that can be issued, if the warrants are
exercised:
Number of ordinary shares issued on exercise of
warrants
Share Price at GBP8.00 GBP10.00 GBP12.00 GBP14.00 GBP16.00 GBP18.00
exercise date
-------- --------- --------- --------- --------- ---------
Number of shares* 4.21m 3.37m 2.81m 2.41m 2.11m 1.87m
-------- --------- --------- --------- --------- ---------
% of shares in
issue** 3.6% 2.9% 2.4% 2.1% 1.8% 1.6%
-------- --------- --------- --------- --------- ---------
*Assuming the warrants are exercised 36 months after the initial
funds were received and net settled. Note that no new warrants were
issued as part of the follow-on preferred equity issuance in
January 2022, but the number of ordinary shares to be issued on
exercise has changed slightly as a result of the mathematical
impact on the warrants mechanism.
**Based on number of shares in issue at the year-end
(116,843,232).
Koch continue to be excellent partners, actively supporting
Victoria's growth both financially and practically. We are
delighted to have them as shareholders.
Operating Margins
Price increases, alongside other cost saving measures during the
year, successfully mitigated the impact of significant inflation in
raw material and energy prices on operating profit - albeit %age
margins experienced an impact from the resultant increase in
revenue, as we chose to focus on achieving earnings and not to add
a mark-up when covering cost inflation. Details of this
mathematical impact are provided in the Financial Review
section.
It is essential to understand the impact on reported margins
from acquisitions. Given Victoria's operational management team's
extraordinary skill in optimising the productivity and
profitability of our subsidiaries and consequently achieving truly
industry-leading operating margins, it is an inevitable corollary
that most new acquisitions will be margin dilutive - at least until
they too are fully integrated. This is why, in a year when Victoria
completed no major acquisitions, a record underlying EBITDA margin
of 19.2% was achieved in FY2021.
It is important shareholders appreciate that, unlike the last
three financial years, there will be some exceptional and
reorganizational costs in FY2023 as our management integrate the
recent acquisitions. Omelettes cannot be made without eggs being
broken. However, the track record of Victoria's management
delivering synergy projects on time and on budget with the planned
outcome achieved is exemplary and the uplift in earnings and cash
flow on completion of these projects will be material.
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.
UK & Europe Soft Flooring - record revenues and profits
FY22 FY21 Growth
Revenue GBP423.1 million GBP280.4 million +50.9%
----------------- ----------------- -------
Underlying EBITDA GBP70.3 million GBP49.0 million +43.4%
----------------- ----------------- -------
Underlying EBITDA
margin 16.6% 17.5%
----------------- ----------------- -------
Underlying EBIT GBP45.4 million GBP28.7 million +58.5%
----------------- ----------------- -------
Underlying EBIT
margin 10.7% 10.2%
----------------- ----------------- -------
The UK & Europe Soft Flooring division delivered an
extraordinarily strong performance, with true LFL revenues(6)
having increased organically by 31% whilst maintaining operating
margins, despite inflationary pressures. Managing director, Jan
Debrouwere, has, together with his management team, completed an
incredible job in optimising operations (it was only a few years
ago this was a mid-single-digit margin business). He and his team
are now focussed on integrating Balta's carpet business where
similar margin expansion is expected over time.
(6) Revenue growth normalised for the one-off impact of
acquisitions, the extra week in the prior financial year, and
translational exchange rate differences.
Historically, revenues in this division were slightly weighted
towards H2. This is no longer the case as our artificial grass
business, which contributes almost GBP100 million of annual
revenue, is very heavily weighted towards H1 with people buying
grass for the summer season.
Carpet and underlay
-- The Group completed the relocation of its prestigious Westex
brand manufacturing to new production facilities in Dewsbury,
Yorkshire. The significantly improved productivity at the new site
has lifted operating margins, and a full payback on the capital
cost is expected in less than three years.
-- High-speed tufters and a beaming facility were installed in
the Abingdon plant in Wales to enhance productivity, enabling
smaller production runs to be efficient, enhancing productivity and
reducing working capital.
-- We created an extra layer of inventory, being 'mother-rolls',
to further improve service levels above our competitors and reduce
the conversion time of yarn (fibre) into finished product.
Logistics
-- The investment in our logistics capacity provides Victoria
with an unassailable competitive advantage that continues to drive
market share gains. Retailers value service over the last few
pennies in price. It is one of the key reasons for our 31%+ LFL
revenue growth over FY2022.
-- On-Time-Delivery for available stock across the country
within three days further increased to 94.4%, resulting in
retailers favouring Victoria Group products over those from
competitors with slower and less certain delivery.
-- During FY2022 we completed the construction of a new
warehouse on the Abingdon site in Wales. This provides storage for
roll-stock deliveries and takes pressure off the fulfilment
centres, which can remain focussed on delivering higher-margin cut
length carpet.
-- The Group committed to a state-of-the-art, carbon neutral,
purpose-built 185 000 ft(2) warehouse in Worcester. This fulfilment
centre will replace the Kidderminster warehouse (the former
Victoria carpet factory) and will house the Victoria Group HQ. This
project is under construction and will be ready for occupancy by
December 2022.
UK & Europe Ceramic Tiles - record revenues and profits
FY22 FY21 Growth
Revenue GBP371.6 million GBP282.4 million +31.6%
----------------- ----------------- -------
Underlying EBITDA GBP71.4million GBP63.1 million +13.2%
----------------- ----------------- -------
Underlying EBITDA
margin 19.2% 22.3%
----------------- ----------------- -------
Underlying EBIT GBP47.5million GBP40.4 million +17.5%
----------------- ----------------- -------
Underlying EBIT
margin 12.8% 14.3%
----------------- ----------------- -------
There is typically a revenue and earnings bias towards H1 in the
ceramics division. Nonetheless, against very strong comparatives,
the Group's ceramic tile division delivered record revenues and
profits in FY2022.
With regard to margin performance, it is important to understand
that the main reason for the difference between FY2021 and FY2022
is the pro-forma effect of acquisitions. Victoria acquired three
ceramic tile businesses during 2022 - all of which were producing
lower margins than the incumbent businesses in this division.
However, the margins of these new acquisitions will grow as
integration continues.
Furthermore, the management team had to contend with
extraordinarily high energy prices for part of H1 and the entirety
of H2. Energy costs comprise approximately 10% of revenues for our
ceramic business and therefore, the continued gains achieved in H2
is a credit to the management and the material synergies they are
delivering from integrating the acquisitions made in early
(calendar) 2021. (Given 12 months have now elapsed since energy
prices started to increase substantially, shareholders should note
that the pricing mechanisms and operational changes implemented to
deal with them are now baked into our business).
Finally, it is worth highlighting the advantage that Victoria's
scale provides in flexing costs with demand. We have 20 kilns
instead of the usual 2 or 3 kilns of smaller ceramics
manufacturers. This means that if revenue declines by 5% we can
turn off one kiln - saving energy, labour, maintenance, etc. and
keep the balance in full production. A smaller operator has to wait
until revenue has declined 33% (if they have three kilns) before
being able to do the same. Until they reach this point, the cost of
keeping three kilns operating with, say, 20% less revenue is very
expensive. Alternatively, they can shut their kiln down early,
which results in them losing the revenue that the kiln was making.
Either way, smaller operators have much higher operating leverage
than Victoria.
Italy
-- Despite adding a very material amount of capacity, all the
additional production output was sold, and we have an order backlog
of many months.
-- Our EUR10 million investment program, streamlining the
production activities of the Italian plants, was finalised. This
comprised:
o bringing the Santa Maria plant (acquired in April 2021) up to
standard and certification as well as activation of the 2(nd)
atomiser available at the plant. The atomising capacity can now
serve 3 kilns for the Group;
o at the Serra plant, replacing one of three lines (a 24
year-old line) with a new, more efficient, and multi-purpose line
capable of making both red body and porcelain tiles; and
o at the Dom plant (acquired in February 2020), replacing an old
line and installation of a new large-size line, along with a new
polishing line that allows us to insource a high-cost process that
until recently we paid a third party to do.
-- All logistics and administration activities were consolidated
into a building immediately adjacent to our factories that was
acquired during the year.
Spain
-- With no new acquisitions in Spain this year, focus on organic
performance resulted in significant LFL revenue growth despite
continued and substantial disruption from government-mandated
actions related to Covid-19 that lasted much longer than in other
European countries.
Turkey
-- Victoria completed the acquisition of Turkish ceramic tile
manufacturer, Graniser, in February this year. This is a profitable
and growing business, primarily exporting to Europe and delivers a
good-quality, low-cost manufacturing platform to the Group. With
the vast majority of Graniser's revenue in Euros or Dollars whilst
most costs are in Lira, the business provides us with a meaningful
competitive advantage for certain product lines and end
markets.
Australia - strong LFL revenue growth +11.4%
FY22 FY21 Growth
Revenue GBP109.5 million GBP99.6 million +10.0%
----------------- ---------------- -------
Underlying EBITDA GBP16.4 million GBP16.6 million -1.4%
----------------- ---------------- -------
Underlying EBITDA
margin 15.0% 16.7%
----------------- ---------------- -------
Underlying EBIT GBP11.8 million GBP11.9 million -0.8%
----------------- ---------------- -------
Underlying EBIT
margin 10.8% 12.0%
----------------- ---------------- -------
FY2022 saw another very strong result from our Australian
management team. Incredibly they managed to achieve LFL revenue
growth of 11.4%, despite rolling lock-downs that impacted both the
Group's production facilities and its customers, and which lasted
until October.
The Victoria brand is particularly strong in Australia and the
company is seen as a trusted partner by retailers. Material
inflationary pressures alongside higher operating costs due to
Covid-19 measures had a small impact on margins, albeit cash
profits remained constant. It is also worth mentioning that this
was against an especially strong comparative - margins increased by
590bps last year.
North America - a new division with strong organic growth
+22%(7)
FY22*
Revenue GBP115.6 million
-----------------
Underlying EBITDA GBP6.4 million
-----------------
Underlying EBITDA
margin 5.6%
-----------------
Underlying EBIT GBP5.2 million
-----------------
Underlying EBIT
margin 4.5%
-----------------
*Data for 9 months only; Cali was not a Victoria subsidiary
until 23 June 2021.
(7) Organic growth based on unaudited USD revenues for 12 months
ended March 2022 versus March 2021.
On 23 June 2021, we acquired Cali Bamboo Holdings Inc. ("Cali").
Cali already had a long track record of good organic growth (17.6%
CAGR for 2016-2020), but this has accelerated under Victoria's
ownership to 22% for the 12 months ended March 2022. Even more
could have been achieved but significant constraints (primarily
shipping) limited product availability until post-acquisition
operational changes by Victoria flowed through to deliver much
better supply of product in H2.
New product categories are being introduced into Cali's
omnichannel distribution system this year - primarily outdoor rugs
and artificial grass manufactured by Victoria's European
subsidiaries. February 2022 saw the successful debut of Cali at the
US flooring exhibition, Surfaces 2022, introducing "Your Floor
Outdoor"(TM) with product category expansion into Rugs, Turf, and
Laminate Tile categories. Our strategy continues to be to diversify
the Cali product mix while leveraging Victoria's sourcing,
manufacturing, and logistics competencies to capture additional
share in the US marketplace.
As a pure distribution business, Cali requires nominal capex
required to maintain its income. Therefore we are, of course,
entirely comfortable with a lower EBITDA margin as free cash flow
generation is strong. Nonetheless there are specifically identified
opportunities to increase the current operating margins and
management are expected to deliver materially improved margins this
year alongside continued revenue growth.
CAPITAL ALLOCATION
It is the firmly held view of Victoria's Board that the greatest
wealth will be created for shareholders by maximising medium-term
free cash flow per share. It is free cash flow - which is cash flow
from underlying operations, after interest and tax, but before
specific growth investments - that enables us to pay down debt,
fund growth (whether acquisitions or organic), and in due course
progressively return capital to shareholders through dividends or
share buybacks. Consequently, every decision is viewed through this
prism.
In FY2022 our businesses generated GBP101.4 million of cash from
underlying operations before investing GBP26.3 million into working
capital and GBP40.9 million on replacing and upgrading plant and
machinery:
-- The large investment into working capital was partially the
result of inflation, and partially the result of a deliberate
decision to increase our raw materials inventory to protect our
production output during a year of supply chain disruption and
uncertainty. (Shareholders may recall we began this action in
late-FY2021). As supply chains continue to normalise (and we are
seeing a trend in that direction), we will allow our inventory
levels to return to normal, which will release cash for other
investment purposes.
-- This 'maintenance capex' was significantly higher than normal
- 61% higher than in FY2020 - due to reduced capex during the
pandemic the previous year, and is expected to normalise going
forwards.
From the free cash flow of the Group, GBP12.4 million was
invested into discrete growth projects we expect to deliver a high
return on capital, (which we measure cash-on-cash). The table below
sets out the breakdown of capex spending for the last five
years:
2018 2019 2020 2021 2022
GBPm GBPm GBPm GBPm GBPm
Capex
Maintenance 14.1 23.5 25.4 20.9 40.9
Growth* 15.2 20.9 8.4 7.6 12.4
----- ----- ----- ----- -----
29.3 44.4 33.8 28.5 53.3
* Includes capital expenditure incurred as part of
reorganizational and synergy projects to drive higher productivity
and lower operating costs.
A full description of the Group's cash flows is provided in the
Financial Review.
It is worthwhile noting that whilst businesses in some sectors
consume vast amounts of cash in working capital as they grow, a
well-run flooring group like Victoria does not due to high cash
conversion ratios, which is one of the attractions Berkshire
Hathaway referenced in making the decision to acquire the world's
second-largest flooring company, Shaw Industries.
Return on Tangible Assets
Finally, whilst on the subject of capital allocation, it is
worth highlighting that, because we focus on buying high quality
flooring businesses, the return on tangible assets (such as working
capital and plant and machinery) is invariably excellent. The
'trade-off' is that a significant proportion of the purchase price
is customarily goodwill or other intangible assets.
As explained in previous years, this is of more than academic
interest. It is important to understand that the higher the return
achieved on tangible assets, the better it is for long-term wealth
creation. This is for two related reasons: firstly, the intangible
'cost' never needs to be replaced whereas plant and machinery wears
out and needs to be replaced, consuming cash; and, secondly, as
revenues grow, less cash needs to be invested into working capital
and less cash is consumed in adding new fixed assets to manufacture
the increased sales. (This advantage is accentuated in times of
sustained inflation). Consequently, businesses achieving a high
return on tangible assets generate more free cash over time, which
is then available to further grow the value of the business.
Below is a table setting out Victoria's Return on Tangible
Assets for the last five years, which shows the ability of the
company to generate sustainable returns in excess of 25% - despite
a very substantial increase in the capital base - producing cash
that we can continue to deploy to grow the value of the
company.
(GBPmillions) Pro-forma Net tangible assets RoTA
underlying
EBIT
FY 2016 28.2 83.4 33.9%
------------ -------------------- ------
FY 2017 40.3 102.6 39.3%
------------ -------------------- ------
FY 2018 76.7 228.1 33.6%
------------ -------------------- ------
FY 2019 76.9 280.3 27.4%
------------ -------------------- ------
FY 2020 82.0 309.4 26.5%
------------ -------------------- ------
FY 2021 84.9 324.4 26.2%
------------ -------------------- ------
FY 2022 120.5 444.4 27.1%
------------ -------------------- ------
DIVIDS
For the reasons detailed in previous years' Annual Reports, it
remains the Board's view (as it has been for the last nine 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 FY2022.
OUTLOOK
All our businesses have strong economic fundamentals, and
skilled and dedicated management. Nonetheless there are some
important external headwinds we (and all other businesses) must now
face: ongoing inflationary pressures, higher corporate taxes in
some jurisdictions, and falling consumer confidence, amongst
others.
Operations
Victoria has been manufacturing and selling flooring for 127
years. It is a remarkably resilient business: revenues have grown
organically over the last 25 years at more than 3% CAGR. And,
properly managed, flooring manufacturers generate a significant
amount of cash due to the longevity of the assets and high cash
conversion.
As a stress-case exercise, we have given detailed consideration
to, and modelled, a range of scenarios for the current year
including a very substantial double-digit drop in revenues (much
deeper than the sector experienced during the 2008 Global Financial
Crisis) and, as predicted given our operational structure, we would
expect the Group to continue to be both profitable and cash
generative even in such extreme circumstances. We would stress that
this is not our expected outcome for the year, but is illustrative
of Victoria's deep financial resilience.
Additionally, Victoria is in the fortunate position of having a
number of internal projects underway that will drive up underlying
operating margins and earnings. These synergies flow out of our
recent acquisitions and will mitigate the effects of continued
inflation or possible demand weakness.
In most situations a handful of variables drive the majority of
outcomes. We have sought to identify these few things that matter
for each business and ensure our operational plan covers them.
Therefore, we feel confident in the future earnings power of our
businesses.
Acquisitions
During FY2022 Victoria successfully signed several high-quality
acquisitions, adding (pre-synergies) approximately GBP65 million of
EBITDA (including Balta, which completed after the year end).
Continuing with our policy of being a highly disciplined acquiror
(in what was a very frothy market - unbelievable as that may seem
now), these acquisitions were made at a very attractive average
EV/EBITDA multiple of c. 5.7x, pre-synergies. Our operational
management team are now fully engaged in integrating the acquired
companies into our business and it is expected they will have a
meaningful impact on Victoria's cash flow and operating profits
over the coming years.
The current economic environment mandates prudence. Nonetheless,
acquisitions remain a core part of Victoria's growth strategy and
we will continue to invest time this year in visiting flooring
businesses and building strong relationships with their owners.
Victoria has become a permanent home of choice for flooring
companies in Europe and the US - particularly for family-owned
businesses - and the Group's potential pipeline of accretive
acquisitions continues to be compelling.
Then, at the right time we will deploy capital thoughtfully and
conservatively to build scale, expand distribution, broaden our
product range, and widen the economic moat around our business.
"No one could have foreseen the huge expansion of the Vietnam
War, wage and price controls, two oil shocks, the resignation of a
president... But, surprise - none of these blockbuster events ...
render unsound the negotiated purchases of fine businesses at
sensible prices. Imagine the cost to us, then, if we had let a fear
of unknowns cause us to defer or alter the deployment of capital.
Indeed, we have usually made our best purchases when apprehensions
about some macro event were at a peak. Fear is the foe of the
faddist, but the friend of the fundamentalist."
Warren Buffett, 1994
CONCLUSION
The future is uncertain (when isn't it?). Not a single economic
forecast we received at the beginning of 2020 made reference to a
global pandemic. And not one we received at the beginning of 2022
mentioned a Russian invasion of Ukraine. Therefore, rather than
spending an inordinate amount of time studying tea leaves or
reading runes, the Board and management of Victoria seeks to run
the business in a manner that ensures it is resilient. As part of
our mission to create wealth for shareholders, we strive for ways
to manage risk - our financing is long-dated and covenant lite,
acquisitions incorporate contingent earnouts, our focus is on the
less cyclical residential repair and redecorating market, we
maintain low operational gearing, our supply-chain is localised and
diversified, our customer base is highly diversified, we are
geographically diversified, managers are empowered to take
meaningful decisions so they can react quickly to changing
circumstances, the list is almost endless.
Key to our success is our operational management team. The
commitment, knowledge, and ability of our management team will
prove invaluable in the months ahead. There is a whole generation
of entrepreneurs, managers, and investors who have built their
entire perspective on valuation and operations during an
extraordinary bull market and favourable economic conditions. The
'unlearning' process is likely to be painful, surprising, and
unsettling to many. However, we are fortunate at Victoria to have a
senior management team who have been around long enough to have
personal experience of challenging conditions - inflation, higher
interest rates, recession, amongst others - and will take this new
reality in their stride.
There will be opportunities that arise from this "crisis". There
always are. And Victoria is positioned to take advantage of
them.
Geoffrey Wilding Philippe Hamers
Executive Chairman Chief Executive Officer
19 July 2022
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, the Netherlands,
Turkey, the USA, Belgium and Australia, employing approximately
4,900 people at more than 27 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 promoted 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 be 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.
Organic growth is fundamentally driven by the five pillars of
the business model highlighted above. In addition, the Group
continues to seek and deliver synergies and transfer best operating
practice between acquired businesses, both in terms of commercial
upside, and cost and efficiency benefits to drive like-for-like
margin improvement.
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.
2022 2021
GBP'm GBP'm
-------------------------------------------------- -------- -------
Revenue 1,019.8 622.3
% growth at constant currency 57.5% 7.4%
--------------------------------------------------- -------- -------
Underlying EBITDA 162.8 127.4
% margin 16.0% 19.2%
Underlying operating profit 107.9 79.8
% margin 10.6% 12.0%
Operating cash flow(1) 111.8 93.9
% conversion against underlying EBITDA(1) 78% 83%
Free cash flow(2) 34.2 38.8
% conversion against underlying operating profit 32% 49%
-------- -------
Underlying pre-IFRS 16 EBITDA per share 103.68p 86.52p
Earnings per share (diluted, adjusted) 40.21p 28.66p
Operating cash flow per share(3) 95.65p 76.90p
--------------------------------------------------- -------- -------
Adjusted net debt / EBITDA(4) 2.66x 3.10x
--------------------------------------------------- -------- -------
(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 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 2 April 2022 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 successfully
did so up to four times during the year ended 2 April 2022 to
protect earnings ;
2. Management is focussed on delivering a number of carefully
planned synergy projects that will increase operating margins,
mitigating some inflationary pressures.
3. The Group's industry-leading operating margins provide room
for manoeuvre against struggling competitors ;
4. 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 ;
5. 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.
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 90.5% 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 GBP200 million. Furthermore, the Group's senior debt
consists entirely of long-duration, fixed interest rate,
covenant-lite bonds.
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 and Australia. Economic risks in any one region is
mitigated by the independence of the Group's three 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.
In the year the principal risks have been updated to include
inflationary risks as highlighted above, reflecting the significant
price inflation experienced in 2022 to date, in particular with
rising energy prices. We have also updated our principal risks to
remove covid-19 as a specific risk item given the global response
and easing of restrictions experienced in all of the territories in
which we operate.
CORPORATE RESPONSIBILITY
Victoria PLC is committed to being an equal opportunities
employer and is focused on hiring and developing talented
people.
The health and safety of our employees, and other individuals
impacted by our business, is taken very seriously and is reviewed
by the Board on an ongoing basis.
A Company statement regarding the Modern Slavery Act 2015 is
available on the Company's website at www.victoriaplc.com .
As a manufacturing and distribution business, there is a risk
that some of the Group's activities could have an adverse impact on
the local environment. Policies are in place to mitigate these
risks, and all of the businesses within the Group are committed to
full compliance with all relevant health and safety and
environmental regulations.
On behalf of the Board
Geoffrey Wilding
Executive Chairman
19 July 2022
Financial Review
HIGHLIGHTS
The 2021-22 financial year has been another record year for
Victoria PLC, despite numerous economic headwinds. The Group
delivered healthy organic revenue growth across all of its
divisions, breaking the GBP1 billion mark for the first time. It
also managed to preserve operating profits in a severe cost
inflation environment.
This strong operating performance re-enforces management's view
that the residential flooring industry is relatively resilient,
being driven by long-term improvement and repair cycles and being
at the low-cost end of impactful home renovation options for
consumers. It is clearly a mature market overall - everyone has
multiple floorcoverings of some description at home - but also, by
definition, a very large market, and one in which consumers are
making a generally long-planned investment into their quality of
life, rather than being driven by shorter-term fashion trends.
As discussed in the previous half-year interim results and
annual report, this performance is as much driven by the capacity
and operational flexibility delivered by the Group's historical
synergy and operational restructuring projects, as it is driven by
positive market conditions. Indeed, these projects enabled the
Group to fully leverage the market conditions, as well as to
address any significant month-to-month swings (driven by Covid-19
related restrictions), which still occurred during the financial
year.
This Financial Review is structured over several sections. The
first parts focus on the underlying performance of the Group,
analysing the trends in revenue and underlying 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 GBP107.9 million) to the IFRS statutory
performance of GBP53.6 million operating profit and, ultimately,
GBP12.4 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. A summary of the underlying and
reported performance of the Group is set out below.
2022 2021
Underlying Non-underlying Reported Underlying Non-underlying Reported
performance items numbers performance items numbers
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------- --------------- ---------- -------------- --------------- ----------
Revenue 1,019.8 - 1,019.8 662.3 662.3
------------- --------------- ---------- -------------- --------------- ----------
Gross Profit 362.3 (5.5) 356.8 234.9 234.9
Margin
% 35.5% 35.5%
Amortisation
of acquired
intangibles - (32.4) (32.4) - (26.8) (26.8)
Other operating
expenses (254.4) (16.4) (270.8) (155.1) (7.1) (162.2)
Operating
profit 107.9 (54.3) 53.6 79.8 (33.9) 45.9
Margin
% 10.6% 12.0%
Add back
depreciation
& amortisation 54.9 47.6
Underlying
EBITDA 162.8 127.4
Margin
% 16.0% 19.2%
----------------- ------------- --------------- ---------- -------------- --------------- ----------
Preferred
equity items - (33.0) (33.0) - (13.1) (13.1)
Other finance
costs (34.1) 1.1 (33.0) (29.7) (10.6) (40.3)
Profit before
tax 73.8 (86.2) (12.4) 50.1 (57.6) (7.5)
----------------- ------------- --------------- ---------- -------------- --------------- ----------
Profit after
tax 55.7 (68.1) (12.4) 37.1 (34.3) 2.8
----------------- ------------- --------------- ---------- -------------- --------------- ----------
EPS basic 47.62p (10.61p) 30.34p 2.30p
EPS diluted 40.21p (10.61p) 28.66p 2.29p
Revenue growth was driven by a combination of both increased
volume and price across all divisions. Whilst continuous work was
undertaken - in consultation with our customers - on balancing
product ranges and numerous operating actions taken in order to
help protect absolute profits, multiple sales price increases were
necessary during the year in each product category in reaction to
unprecedented levels of cost inflation. Despite these price
increases, the Group also delivered significant volume growth in
all divisions.
Although such actions to increase sales prices successfully
protected profits in absolute terms, inevitably the resultant
increase in revenue has had a detrimental impact on margins when
reported as a percentage of revenue. The chart below shows the
impact of this on underlying EBITDA margin %.
Group EBITDA margin bridge
FY21 reported 19.2%
Acquisition mix effect -1.9%
------
Cost inflation pass-through -1.8%
------
FY21 adjusted 15.5%
------
Other organic movement +0.5%
------
FY22 reported 16.0%
------
Further details of like-for-like growth and margin performance
by division, are set out later in this Financial Review.
In addition to the active and successful year for the Group
organically, a total of five acquisitions were also completed (with
another, the acquisition of the Rugs and UK Broadloom businesses of
Balta, completed shortly after the year-end). Whilst the overall
acquisition opportunity in this industry is always significant due
to its remaining fragmented in nature, this record number of
transactions reflects the huge investment opportunity that existed
- even within the context of Victoria's specific focus areas and
criteria - as business owners reconsidered their ambitions as a
result of the Covid-19 pandemic. The acquisitions were in both soft
and hard flooring categories, across two of the three Group
divisions, with one - Cali, an LVT and wood flooring designer and
distributor in the US - creating a new management division and
reporting segment in the Group, North America.
The Group incurred GBP6.9 million of exceptional operating costs
during the year, primarily relating to one-off acquisition costs
(origination work, due diligence and legal services from
third-party advisers). In addition, the Group incurred GBP32.4
million of amortisation of acquired intangibles (primarily customer
relationships and brand names) and GBP15.0 million of other
non-underlying costs (primarily the accounting impact of
acquisition earn-outs and acquired balance sheet fair value
adjustments). 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. Occasionally for some current-year
acquisitions, where they were made early in the period and
significant integration or synergies have already been delivered by
the year-end, thereby making it harder to disseminate the overall
contribution impact from the data, we go back and add in the
pre-acquisition performance to the prior year.
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 whilst the
current reported financial year is 52 weeks in length, the prior
financial year was 53 weeks).
LFL revenue performance
Growth
----------------------------------- -------
UK & Europe Soft Flooring revenue +30.9%
UK & Europe Ceramics revenue +11.2%
Australia revenue +11.4%
Group revenue +19.2%
----------------------------------- -------
The Group delivered a record year in terms of organic revenue
growth, averaging just under 20% overall on a LFL basis, of which
approximately half was volume driven and half price driven.
In general, revenue performance was consistently strong across
the year. Year-on-year LFL growth was particularly high in the
first half of the year given the weaker prior-year comparative (due
to the initial, severe Covid-19 lockdowns in April and May 2020).
The second half of the year had a stronger comparative period,
nevertheless - subject to the normal seasonality patterns seen in
the Group's different markets - revenues remained equally
robust.
Cost inflation impact on LFL analysis
This year, we have added an additional element to the margin
part of the like-for-like analysis, to show separately the impact
of cost inflation that has been passed through on a 1-for-1 basis
to sales price inflation. To explain with a simple example: if a
company has GBP100 million of revenue and GBP80 million of costs
(excluding depreciation and amortisation), then its EBITDA is GBP20
million and its EBITDA margin is 20%. If, in the following year, it
experiences 15% cost inflation (on average) which it passes through
on a precise 1-for-1 basis to customers, and does so whilst
managing to maintain the same sales volume, then its costs increase
to GBP92 million and revenue increases to GBP112 million. The
EBITDA of GBP20 million has been successfully preserved, however
the EBITDA margin in this example has now fallen to 17.9%. Looking
at this margin statistic on face value, being a decrease of 214bps,
it looks like the company has performed poorly. But in fact, in the
face of enormous cost inflation, the company has done a fantastic
job of preserving profit levels. It simply did not try to add an
additional mark-up to the cost inflation when it subsequently
raised its sales prices to customers.
Of course, cost inflation occurs every year and the above
concept is technically always relevant, but normally the effect is
relatively small and entirely blends with factors such as volume
growth and other operational or commercial matters impacting margin
(none of which are considered in the above simple example).
However, in a year when Victoria's cost inflation indeed averaged
circa 15%, the one-off impact on percentage margins in FY22 is
clearly pronounced.
This period of abnormally high cost inflation in fact started
during the prior year, in late 2020, with polypropylene yarn, which
is a key component used in carpet manufacturing. Natural gas, a key
component used in all ceramics industries' manufacturing, to heat
the kilns, saw sustained but gradual inflation through 2021 before
experiencing a significant upward step change in early
December.
Other inputs to the business were also impacted, primarily by
the cost of energy. Notwithstanding longer-term mitigating
operational measures against future inflation, some of which are
discussed in the ESG Report within this Annual Report, the
short-term impact on the Group's cost base in FY22 was of course
highly significant.
The vast majority of cost increases that could not be mitigated
through short-term operational actions were passed onto customers -
without a mark-up of course - resulting in a mathematical adverse
impact on EBITDA margin % of circa 180bps overall.
LFL margin performance
UK & Europe Soft Flooring
FY22 FY21 Growth
Revenue GBP423.1m GBP280.4m +50.9%
------------------- ---------- ---------- --------
Underlying EBITDA GBP70.3m GBP49.0m +43.4%
Margin % 16.6% 17.5% -87bps
------------------- ---------- ---------- --------
Underlying EBIT GBP45.4m GBP28.7m +58.5%
Margin % 10.7% 10.2% +51bps
------------------- ---------- ---------- --------
UK & Europe Ceramics
FY22 FY21 Growth
Revenue GBP371.6m GBP282.4m +31.6%
------------------- ---------- ---------- ---------
Underlying EBITDA GBP71.4m GBP63.1m +13.2%
Margin % 19.2% 22.3% -312bps
------------------- ---------- ---------- ---------
Underlying EBIT GBP47.5m GBP40.4m +17.5%
Margin % 12.8% 14.3% -153bps
------------------- ---------- ---------- ---------
Australia
FY22 FY21 Growth
Revenue GBP109.5m GBP99.6m +10.0%
------------------- ---------- --------- ---------
Underlying EBITDA GBP16.4m GBP16.6m -1.4%
Margin % 15.0% 16.7% -174bps
------------------- ---------- --------- ---------
Underlying EBIT GBP11.8m GBP11.9m -0.8%
Margin % 10.8% 12.0% -118bps
------------------- ---------- --------- ---------
As noted above, the one-off impact this year of abnormal cost
inflation pass-through has had a significant adverse mathematical
impact on reported margins. This is in addition to the acquisition
mix effect - whereby, in general, newly acquired businesses have a
lower underlying EBITDA margin at the point of acquisition than the
divisional or Group average, thereby mathematically lowering the
average reported margin as their results are consolidated. The
underlying EBITDA margin charts below, which bridge from the
prior-year to the current year reported margin, strip out the
impact of these two phenomenon to show the underlying margin trend
in each division (other than North America, which was only created
this year).
UK & Europe - Soft Flooring EBITDA margin bridge
FY21 reported 17.5%
Acquisition mix effect +0.2%
------
Cost inflation pass-through -2.4%
------
FY21 adjusted 15.2%
------
Other organic movement +1.4%
------
FY22 reported 16.6%
------
UK & Europe - Ceramic Tiles EBITDA margin bridge
FY21 reported 22.3%
Acquisition mix effect -1.8%
------
Cost inflation pass-through -1.4%
------
FY21 adjusted 19.1%
------
Other organic movement +0.1%
------
FY22 reported 19.2%
------
Australia EBITDA margin bridge
FY21 reported 16.7%
Acquisition mix effect -
------
Cost inflation pass-through -1.0%
------
FY21 adjusted 15.7%
------
Other organic movement -0.7%
------
FY22 reported 15.0%
------
* Calculation of cost inflation pass-through within LFL margin
analysis based on average cost and price inflation, using volume
growth for key product categories (as adjusted for the 53-week
period in the prior year). Overall cost inflation is assessed using
an average operating leverage of 70% variable, which is assessed
based on previously disclosed ratios of fixed costs, fully variable
costs and semi-variable costs (assumed 50:50).
With these impacts removed, the remaining organic movement in
underlying EBITDA margin in the year was circa +140bps in UK &
Europe Soft Flooring, +10bps in UK & Europe Ceramic Tiles, and
-70bps in Australia. The Australian market was more challenging
than others this year as Covid-19 lockdowns remained in place for
much longer (until October 2021) when compared to European
countries (generally started to relax restrictions in March 2021
and completely removed, other than for international travel, by
July 2021).
Overall, this illustrates that the Group successfully protected
profits and delivered robust margins in the context of the current
global economic environment.
ACQUISITIONS
Following the successful pre-emptive capital raise activities
during the prior year - the GBP75 million preferred equity issue
(including GBP100 million follow-on commitment) in November 2020
and the bond refinancing (including EUR250 million new issue for
future investment) in March 2021 - the Group scoped a very large
number of potential acquisition targets over the last 18 months.
Due diligence was also undertaken on many, some of which were
completed and some not.
The first two acquisitions were of Italian ceramic tile
businesses in April 2021 for total consideration of circa EUR24
million (c. GBP21m) - (i) the Colli & Vallelunga brands, being
commercial design and sales operations without their own
manufacturing, and (ii) Santa Maria, which - in addition to two
additional brands - includes a low-cost manufacturing operation.
These businesses collectively generated very little EBITDA at the
point of acquisition, but have since been fully integrated into our
incumbent Italian operations, with significant cost synergies.
The third acquisition, in May 2021, was of an artificial grass
designer and manufacturer based in the Netherlands, Edel Group, for
total consideration of circa EUR56 million (c. GBP48m). This
business is highly complementary to the Group's existing artificial
grass businesses (both of which are also based in the Netherlands)
as they historically outsource their manufacturing whereas Edel has
large and well invested extrusion and tufting operations, in
Germany and the Netherlands, respectively. This acquisition also
brought two new commercial artificial grass brands to the
Group.
The fourth acquisition, in June 2021, was of a hard (LVT and
wood) flooring designer and distributor based in the US, Cali, for
total consideration of circa $83 million (c.GBP59m). Whilst the
Group already exports products to North America from Europe, this
was the Group's first acquisition in North America. Cali has a
strong brand and omni-channel distribution model, and the Group is
working on a number of potential sourcing and revenue
synergies.
The final acquisition completed in the year, in February 2022,
was of a ceramic tile designer and manufacturer based in Turkey,
Graniser, for total consideration of circa EUR47 million
(c.GBP39m). Graniser is a low-cost manufacturer that is focused on
export sales (c. 70% of revenues), primarily to Europe. It brings
further diversification of manufacturing base to our UK &
Europe Ceramic Tiles division, and significant potential for
commercial synergies and capex-related capacity and margin
improvement, which is being implemented currently.
In November 2021, the Group also announced signing of the
acquisition of the Rugs and UK Broadloom Carpet businesses of
Balta. Completion of this acquisition was subject to various
carve-out related conditions on the seller (carving out from the
rest of their group which was not subject to the transaction) and
ultimately took place following the year-end. There were no
provisions within the contract that amount to 'power over the
investee' under IFRS 10 in relation to the period between signing
and completion, hence consolidation of the target's results will
not occur until FY23.
FINANCING
Debt financing and facilities
Following the major refinancing of the Group's senior secured
bonds in the prior year as noted above, there was no new issue of
senior debt during the financial year. The Group's senior debt
therefore comprises EUR500 million (c. GBP421m) of notes with a
coupon of 3.625% and maturity of August 2026, and EUR250 million
(c. GBP211m) of notes with a coupon of 3.75% and maturity of March
2028.
It is important to note that these coupons are fixed until
maturity and not subject to changes in base rates or any other
metric.
Separately, in December 2021 the Group's Revolving Credit
Facility was increased in size from GBP75 million to GBP120 million
to keep it proportional to the overall size of the Group following
the various acquisitions. This RCF was undrawn at the year-end.
Following the year-end the RCF increased further in size as a
result of the acquisition of Balta, to GBP150 million.
Other debt facilities in the Group represent small, local
working capital facilities at the subsidiary level, which are
insignificant in size compared to the group senior debt and 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
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). No new discount or fee was
deductible or payable on the issue of the new preferred shares.
In addition to issuing new notes, various terms of the notes
were changed. The material changes were as follows:
-- Coupon across both existing and new notes lowered by 100bps
(to 8.85% if PIK'ed or 8.35% if cash paid, payable quarterly).
-- Whilst no further equity warrants were issued, the GBP225
million of preferred equity is now split between GBP125 million of
'Pref A's (being the original issue plus GBP50 million of the new
issue) and GBP100 million of 'Pref B's. The 20% IRR cap applying to
the warrants is based on the total returns of the warrants and the
'Pref A's only.
These changes were such that, from an accounting perspective,
they were treated as a substantial modification resulting in
derecognition and recognition of a new financial instrument.
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 GBP6.9 million of exceptional costs during
the year (FY21: GBP7.8m). 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.
2022 2021
Exceptional items GBP'm GBP'm
-------------------------------------------------------- ------- ------
Acquisition and disposal related costs (10.7) (3.0)
Reorganisation costs (5.3) (5.5)
Negative goodwill arising on acquisition 6.9 6.5
Contingent consideration linked to positive tax ruling (0.6) (5.7)
Profit on disposal of fixed assets 2.9 -
Total exceptional items (6.9) (7.8)
--------------------------------------------------------- ------- ------
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 - the largest exceptional item was
acquisition related costs, which totalled GBP10.7 million (FY22:
GBP3.0m), resulting from the raised level of acquisition-related
activity in the year in light of positive market conditions driving
greater opportunity. As a result, five acquisitions were completed
during the year, compared to two small acquisitions in the prior
year, and many more were investigated. These costs relate to
third-party advisory fees for due diligence and legal services.
-- Reorganisation costs - a similar level of one-off
restructuring costs was incurred in the year versus the prior year,
however the specific items were entirely separate. In the prior
year, this figure included primarily the cost of closure of the
Westex factory and precautionary health & safety measures in
reaction to Covid-19. In the current year there were no such
Covid-19 related costs, instead 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 are either redundancy costs
or fees from external service providers; we do not class any
ongoing employee costs as exceptional (for example, where an
employee works on a reorganisation or synergy project).
-- 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. In
FY22, this was the case with the acquisitions of Santa Maria in
Italy and Graniser in Turkey.
-- Contingent consideration linked to positive tax ruling - in
the case of two historical specific acquisitions - Keraben and
Saloni, both in Spain - part of the deal included an element of
deferred consideration linked to obtaining a positive tax ruling
over the use of historical tax losses to offset current or future
tax liabilities. In both cases a positive tax ruling was achieved,
hence additional consideration had to be paid to the sellers. The
figure in the prior year related to Keraben, and in the current
year to Saloni. No other acquisitions to date have this
feature.
-- Profit on disposal of fixed assets - following the closure of
the Westex factory in the prior year (see above regarding
reorganisation costs), the factory land and buildings were sold for
a profit of GBP2.9 million to the book value previously held. This
income, whilst operational, has been classed as exceptional due to
being one-off in nature and linked to reorganisation.
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.
2022 2021
Other non-underlying items GBPm GBPm
--------------------------------------------------------------------- ------- -------
Acquisition-related performance plan charge (7.1) 1.7
Non-cash share incentive plan charge (2.3) (1.0)
Amortisation of acquired intangibles (32.4) (26.8)
Unwind of fair value uplift to acquisition of opening inventory (5.3) -
Depreciation of fair value uplift to acquisition building valuation (0.2) -
(47.4) (26.1)
--------------------------------------------------------------------- ------- -------
There were five 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), resulting from an accounting
restatement implemented this year, as described above.
-- 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, including the share options
plan announced on 26 June 2020. 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 FY22 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.
In the prior year this effect was immaterial.
-- 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.
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.
2022 2021
Non-underlying financial costs GBPm GBPm
---------------------------------------------------------------------------- ------ ------
Release of prepaid finance costs - 7.3
Net cost of redemption premium on refinancing of previous senior notes - 6.3
One-off refinancing related - 13.6
----------------------------------------------------------------------------- ------ ------
Finance items related to preferred equity 33.0 13.1
----------------------------------------------------------------------------- ------ ------
Acquisition related items - 2.1
----------------------------------------------------------------------------- ------ ------
Interest on short-term draw of Group Revolving credit facility - 1.4
Fair value adjustment to notes redemption option 6.3 (4.6)
Unsecured loan redemption premium charge / (credit) 0.4 0.2
Mark to market adjustments and gains on foreign exchange forward contracts (2.0) 4.2
Translation difference on foreign currency loans (5.7) (6.3)
----------------------------------------------------------------------------- ------ ------
Other non-underlying (1.1) (5.1)
31.9 23.7
---------------------------------------------------------------------------- ------ ------
The significant items are described below:
-- Finance items related to preferred equity - the preferred
equity issued in November 2020 and further in January 2022 as
described above 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 structed 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.
2022 2021
Finance Items related to preferred equity GBPm GBPm
--------------------------------------------------------------------------------- ------- -----
Amortised cost of host instrument 14.9 3.4
Accounting impact of terms modification in Jan 2022 11.5 -
Fair value movement on associated equity warrants 11.3 1.6
Fair value movement on embedded redemption option (10.7) 5.2
Charge associated with previous KED commitment to additional pref's (now ended) 6.0 2.9
Total 33.0 13.1
---------------------------------------------------------------------------------- ------- -----
-- 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.
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 2022 2021
GBPm GBPm
----------------------------------------------------- ------- ------
Underlying operating profit 107.9 79.8
Reported operating profit (after exceptional items) 53.6 45.9
Underlying profit before tax 73.8 50.1
Reported loss before tax (after exceptional items) (12.4) (7.5)
Reported operating profit (earnings before interest and
taxation) increased to GBP53.6 million (FY21: GBP45.9 million).
After removing the exceptional and non-underlying items described
above, underlying operating profit was GBP107.9 million,
representing a 35.2% increase over the prior year.
Reported loss before tax increased to GBP12.4 million (FY21:
loss of GBP7.5 million). After removing the exceptional and
non-underlying items described above, underlying profit before tax
was GBP73.8 million, representing a 47.3% increase over the prior
year.
TAXATION
The reported tax charge in the year of GBPnil was distorted by
the impact of the exceptional and non-underlying costs, many of
which have been treated as non-deductible for tax purposes. On an
underlying basis, the tax charge for the year was GBP18.1 million
against adjusted profit before tax of GBP73.8 million, implying an
underlying effective tax rate of 24.5%.
EARNINGS PER SHARE
The Group delivered a basic loss per share of 10.61p (FY21:
earnings per share of 2.30p). However, adjusted earnings per share
(before non-underlying and exceptional items) on a fully-diluted
basis was 40.21p (FY21: 28.66p).
Earnings per share 2022 2021
Basic earnings / (loss) per share (10.61p) 2.30p
Diluted adjusted earnings per share 40.21p 28.66p
OPERATING CASH FLOW
Cash flow from operating activities before interest, tax and
exceptional items was GBP111.8 million which represents a
conversion of 78% of underlying EBITDA (pre-IFRS 16).
Operating and free cash flow 2022 2021
GBPm GBPm
Underlying operating profit 107.9 79.8
Add back: underlying depreciation & amortisation 54.9 47.6
Underlying EBITDA 162.8 127.4
Payments under right-of-use lease obligations (18.8) (14.4)
Non-cash items (5.9) (0.8)
Movement in working capital (26.3) (18.3)
Operating cash flow before interest, tax and exceptional items 111.8 93.9
% conversion against underlying operating profit 104% 118%
% conversion against underlying EBITDA (pre-IFRS 16) 78% 83%
Interest paid (28.4) (30.4)
Corporation tax paid (13.7) (5.0)
Capital expenditure - replacement / maintenance of existing capabilities (40.9) (20.9)
Proceeds from fixed asset disposals 5.3 1.2
Free cash flow before exceptional items 34.2 38.8
% conversion against underlying operating profit 32% 49%
% conversion against underlying EBITDA (pre-IFRS 16) 24% 34%
Pre-exceptional free cash flow of the Group - after interest,
tax and net replacement capex - was GBP34.2 million. Compared with
underlying operating profit (i.e. post-depreciation), this
represents a conversion ratio of 32%. Cash conversion was adversely
impacted in the year by higher-than-usual investment in working
capital, which was driven by both cost inflation and increased
purchases of raw materials to mitigate supply chain risk in the
current economic environment, which are expected to unwind in the
future. Furthermore, there was an element of 'catch-up' capital
expenditure following Covid-19.
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 2 April 2022, the Group's net debt position (excluding
IFRS 16 right-of-use leases and preferred equity) was GBP406.6
million. Free cash flow of GBP34.2 million was generated in the
year, of which GBP14.9 million was invested in organic growth /
synergy initiatives. Acquisition-related expenditure (including
debts assumed on acquisition) was GBP233.8 million, which was
funded from the remaining free cash flow, cash on balance sheet,
and the net cash proceeds from the additional preferred equity
issuance of GBP143.0 million.
Applying our lending banks' measure of leverage, the Group's
year end net debt to EBITDA ratio was 2.66x (FY21: 3.10x).
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.
Free cash flow to movement in net debt 2022 2021
GBPm GBPm
Free cash flow before exceptional items (see above) 34.2 38.8
Capital expenditure - growth (12.4) (7.6)
Exceptional reorganisation cash cost (2.5) (5.5)
Investment in organic growth / synergy projects (14.9) (13.1)
Acquisitions of subsidiaries (127.9) (2.8)
Total debt acquired or refinanced (74.8) (9.9)
Deferred and contingent consideration payments(1) (20.5) (21.3)
Exceptional M&A costs (10.7) (3.0)
Acquisition-related (233.8) (37.0)
Buy back of ordinary shares (0.6) (30.0)
Preferred equity issuance 143.0 65.3
Refinanced bonds - redemption premia - (17.6)
Net refinancing cash flow 142.4 17.7
Other debt items including prepaid finance costs 1.5 (6.8)
Translation differences on foreign currency cash and loans 9.7 20.6
Other exceptional items 11.2 13.8
Total movement in net debt (60.9) 20.2
Opening net debt (345.7) -
Closing net debt (406.6) (345.7)
(1) Includes the repayment of acquisition-related capital
investment to Keraben senior management team
Net debt 2022 2021
GBPm GBPm
----------------------------------------------------------------------------- -------- --------
Net cash and cash equivalents 258.0 344.8
Senior secured debt (at par) (631.6) (637.7)
Unsecured loans (32.2) (51.7)
Finance leases and hire purchase arrangements (pre IFRS 16) (0.8) (1.1)
Net debt before obligations under right-of-use leases (406.6) (345.7)
Adjusted net debt / EBITDA 2.66x 3.10x
Bond embedded redemption option 2.7 9.0
Bond issue premium - non-cash (related to embedded redemption option) (4.3) (4.3)
Pre-paid finance costs on senior debt 9.8 10.9
Preferred equity, associated warrants and embedded derivatives (254.2) (76.2)
Obligations under right-of-use leases (incremental to above finance leases) (104.8) (86.0)
Statutory net debt (net of prepaid finance costs) (757.4) (492.2)
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.
GOING CONCERN
The consolidated financial statements for the Group have been
prepared on a going concern basis. For further details, see Note 10
of the Accounts.
Michael Scott
Group Finance Director
19 July 2022
Consolidated
Income Statement
For the 52 weeks
ended 2
April 2022
52 weeks ended 2 53 weeks ended 3 April
April 2022 2021
Non- Non-
Underlying underlying Reported Underlying underlying Reported
performance items numbers performance items numbers
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ------ ------------- ------------ --------- ------------- ------------ ---------
Continuing
Operations
Revenue 1 1,019.8 - 1,019.8 662.3 - 662.3
Cost of Sales (657.5) (5.5) (663.0) (427.4) - (427.4)
Gross profit 362.3 (5.5) 356.8 234.9 - 234.9
Distribution costs (108.2) - (108.2) (74.8) - (74.8)
Administrative expenses (148.3) (51.7) (200.0) (84.2) (33.9) (118.1)
Other operating income 2.1 2.9 5.0 3.9 - 3.9
Operating profit 107.9 (54.3) 53.6 79.8 (33.9) 45.9
Comprising:
Operating profit before
non-underlying
and exceptional items 107.9 - 107.9 79.8 - 79.8
Amortisation of acquired
intangibles 1,2 - (32.4) (32.4) - (26.8) (26.8)
Other non-underlying items 1,2 - (15.0) (15.0) - 0.7 0.7
Exceptional items 1,2 - (6.9) (6.9) - (7.8) (7.8)
---------------------------- ------ ------------- ------------ --------- ------------- ------------ ---------
Finance costs 3 (34.1) (31.9) (66.0) (29.7) (23.7) (53.4)
Comprising:
Interest on loans and notes 3 (27.9) - (27.9) (23.9) (1.4) (25.3)
Amortisation of prepaid
finance
costs and accrued interest 3 (2.3) - (2.3) (2.6) (7.3) (9.9)
Unwinding of discount on
right-of-use
lease liabilities 3 (3.8) - (3.8) (3.0) - (3.0)
Preferred equity items 3 - (33.0) (33.0) - (13.1) (13.1)
Other finance items 3 (0.1) 1.1 1.0 (0.2) (1.9) (2.1)
---------------------------- ------ ------------- ------------ --------- ------------- ------------ ---------
Profit / (loss) before tax 73.8 (86.2) (12.4) 50.1 (57.6) (7.5)
Taxation (charge) / credit (18.1) 18.1 - (13.0) 23.3 10.3
Profit / (loss) for the
period
from continuing operations 55.7 (68.1) (12.4) 37.1 (34.3) 2.8
(Loss) /
earnings per
share
- pence basic 4 (10.61) 2.30
diluted 4 (10.61) 2.29
--------------------------- ------ ------------- ------------ --------- ------------- ------------ ---------
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 2 April 2022
53 weeks ended
52 weeks ended 3 April 2021
2 April 2022 30 March 2019
Note GBPm GBPm
----------------------------------------------------------- ----- ---------------- --- ----------------
(Loss) / profit for the period (12.4) 2.8
----------------------------------------------------------- ----- ---------------- --- ----------------
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on defined benefit pension scheme 7 1.6 (0.1)
Items that will not be reclassified to profit or loss 1.6 (0.1)
----------------------------------------------------------- ----- ---------------- --- ----------------
Items that may be reclassified subsequently to profit
or loss:
Retranslation of overseas subsidiaries 3.5 (6.1)
Items that may be reclassified subsequently to profit
or loss 3.5 (6.1)
----------------------------------------------------------- ----- ---------------- --- ----------------
Other comprehensive income / (expense) 5.1 (6.2)
----------------------------------------------------------- ----- ---------------- --- ----------------
Total comprehensive (expense) / income for the period
attributable to the owners of the parent (7.3) (3.4)
----------------------------------------------------------- ----- ---------------- --- ----------------
Consolidated Balance Sheet
As at 2 April 2022
2 April 2022 3 April 2021
Note GBPm GBPm
----------------------------------------- ----- ------------- -------------
Non-current assets
Goodwill 244.6 164.8
Intangible assets other than goodwill 259.7 224.2
Property, plant and equipment 256.0 202.1
Right-of-use lease assets 99.6 82.6
Investment property 0.2 0.2
Deferred tax assets 27.2 17.2
Total non-current assets 887.3 691.1
----------------------------------------- ----- ------------- -------------
Current assets
Inventories 280.7 164.4
Trade and other receivables 223.8 150.1
Cash and cash equivalents 273.6 348.8
Total current assets 778.1 663.3
------------- -------------
Total assets 1,665.4 1,354.4
----------------------------------------- ----- ------------- -------------
Current liabilities
Trade and other current payables 337.2 213.8
Current tax liabilities 0.7 5.1
Obligations under right-of-use leases -
current 16.9 13.0
Other financial liabilities 25.2 30.2
Total current liabilities 380.0 262.1
----------------------------------------- ----- ------------- -------------
Non-current liabilities
Trade and other non-current payables 7.5 17.0
Obligations under right-of-use leases -
non-current 88.7 74.0
Other non-current financial liabilities 646.0 647.5
Preferred equity 207.9 70.1
Preferred equity - contractually-linked
warrants 46.4 6.1
Deferred tax liabilities 81.4 62.9
Retirement benefit obligations 7 4.9 6.5
Total non-current liabilities 1,082.8 884.1
----------------------------------------- ----- ------------- -------------
Total liabilities 1,462.8 1,146.2
------------- -------------
Net Assets 202.6 208.2
----------------------------------------- ----- ------------- -------------
Equity
Share capital 6.3 6.3
Retained earnings 187.3 198.7
Foreign exchange reserve 3.1 (0.4)
Other reserves 5.9 3.6
Total equity 202.6 208.2
----------------------------------------- ----- ------------- -------------
Consolidated Statement of Changes in Equity
For the 52 weeks ended 2 April
2022
Foreign
Share Share Retained exchange Other Total
capital premium earnings reserve reserves equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 28 March 2020 6.3 288.7 (62.7) 5.7 2.6 240.6
------------------------------------------ --------- --------- ---------- ---------- ---------- --------
Profit for the period to 3 April
2021 - - 2.8 - - 2.8
Other comprehensive loss for
the period - - (0.1) - - (0.1)
Retranslation of overseas subsidiaries - - - (6.1) - (6.1)
Total comprehensive loss - - 2.7 (6.1) - (3.4)
------------------------------------------ --------- --------- ---------- ---------- ---------- --------
Cancellation of share premium
account - (288.7) 288.7 - - -
Buy back of ordinary shares - - (30.0) - - (30.0)
Share-based payment charge - - - - 1.0 1.0
Transactions with owners - (288.7) 258.7 - 1.0 (29.0)
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 income 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
------------------------------------------ --------- --------- ---------- ---------- ---------- --------
Consolidated Statements of Cash Flows
For the 52 weeks ended 2 April 2022
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
GBPm GBPm
----------------------------------------------------------------- --------------- ---------------
Cash flows from operating activities
Operating profit 53.6 45.9
Adjustments For:
Depreciation and amortisation of IT software 55.2 47.7
Amortisation of acquired intangibles 32.4 26.8
Negative goodwill arising on acquisition (6.9) (6.5)
Acquisition-related performance plan charge 7.1 -
Amortisation of government grants (0.5) (0.5)
Profit on disposal of property, plant and equipment (2.9) (0.1)
Share incentive plan charge 2.3 1.0
Defined benefit pension (0.1) (0.1)
Net cash flow from operating activities before movements
in working capital, tax and interest payments 140.2 114.2
Change in inventories (51.8) 7.6
Change in trade and other receivables (29.9) (0.3)
Change in trade and other payables 55.5 (25.6)
Cash generated by continuing operations before tax and interest
payments 114.0 95.9
Interest paid on loans and notes (28.4) (30.4)
Interest relating to right-of-use lease assets (3.8) (3.0)
Income taxes paid (13.7) (5.0)
Net cash inflow from operating activities 68.1 57.5
------------------------------------------------------------------- --------------- ---------------
Investing activities
Purchases of property, plant and equipment (51.3) (27.6)
Purchases of intangible assets (2.0) (0.9)
Proceeds on disposal of property, plant and equipment 5.3 1.2
Deferred consideration and acquisition-related performance
plan payments (12.7) (15.6)
Acquisition of subsidiaries net of cash acquired (127.9) (2.8)
Net cash used in investing activities (188.6) (45.7)
------------------------------------------------------------------- --------------- ---------------
Financing activities
Repayment of borrowings (89.8) (164.7)
Issue of preferred equity 150.0 65.3
Preferred equity ticking fee (7.0) -
Buy back of ordinary shares (0.6) (30.0)
Payments under right-of-use lease obligations (15.0) (11.3)
Repayments of acquisition-related capital investment to Keraben
senior management team (7.2)
Net cash (used) / generated in financing activities 30.4 163.0
------------------------------------------------------------------- --------------- ---------------
Net (decrease) / increase in cash and cash equivalents (90.1) 174.8
Cash and cash equivalents at beginning of period 344.8 174.7
Effect of foreign exchange rate changes 3.3 (4.7)
Cash and cash equivalents at end of period 258.0 344.8
------------------------------------------------------------------- --------------- ---------------
Comprising:
Cash and cash equivalents 273.6 348.8
Bank overdrafts (15.6) (4.0)
258.0 344.8
----------------------------------------------------------------- --------------- ---------------
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 in the UK, Republic of Ireland, the Netherlands and
Belgium, whose operations involve the manufacture and distribution
of carpets, 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 and LVT.
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 2 April 2022 53 weeks ended 3 April 2021
UK & UK & UK & UK & Total
Europe Europe Unallocated Europe Europe Unallocated
Soft Ceramic North central Soft Ceramic central
Flooring Tiles Australia America expenses Total Flooring Tiles Australia expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Income
statement
Revenue 423.1 371.6 109.5 115.6 - 1,019.8 280.4 282.5 99.6 - 662.3 662.3
---------------- --------- -------- ---------- -------- ------------ -------- --------- -------- ---------- ------------ ---------
Underlying
operating
profit 45.4 47.5 11.8 5.2 (2.0) 107.9 28.7 40.4 11.9 (1.3) 79.8 79.8
Non-underlying
operating
items (9.9) (27.5) (1.7) (5.1) (3.2) (47.4) (5.0) (18.9) (1.7) (0.5) (26.1) (26.1)
Exceptional
operating
items (4.0) 2.2 (0.1) (1.8) (3.2) (6.9) 0.1 (4.3) - (3.6) (7.8) (7.8)
---------------- --------- -------- ---------- -------- ------------ -------- --------- -------- ---------- ------------ ---------
Operating
profit 31.5 22.2 10.0 (1.7) (8.4) 53.6 23.8 17.2 10.2 (5.3) 45.9 45.9
Underlying
net finance
costs (34.1) (29.7) (29.7)
Non-underlying
finance costs (31.9) (23.7) (23.7)
---------------- --------- -------- ---------- -------- ------------ -------- --------- -------- ---------- ------------ --------- -------
Loss before
tax (12.4) (7.5) (7.5)
Tax credit - 10.3 10.3
---------------- --------- -------- ---------- -------- ------------ -------- --------- -------- ---------- ------------ ---------
(Loss) / profit
for the period (12.4) 2.8 2.8
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:
2022 2021
GBPm GBPm
---------------- -------- ------
Revenue
United Kingdom 336.6 243.4
Spain 205.8 197.2
Italy 155.2 85.2
Netherlands 86.5 36.9
Turkey 10.7 -
Australia 109.5 99.6
North America 115.6 -
1,019.8 662.3
---------------- -------- ------
Balance
sheet
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK
UK & & UK & UK &
Europe Europe Europe Europe
Soft Ceramic North Soft Ceramic North
Flooring Tiles Australia America Central Total Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- --------- -------- ---------- -------- -------- --------- --------- -------- ---------- -------- -------- ---------
Total assets 380.4 794.0 100.8 96.3 286.5 1,658.0 274.5 692.2 91.7 - 296.0 1,354.4
------------- --------- ---------- -------- --------- ---------- --------
Total
liabilities (194.4) (302.6) (36.5) (37.5) (884.4) (1,455.4) (136.7) (246.4) (32.4) - (730.6) (1,146.2)
------------- --------- ---------- -------- --------- ---------- --------
Net Assets 186.0 491.4 64.3 58.8 (597.9) 202.6 137.7 445.8 59.3 - (434.6) 208.2
The Group's non-current assets (net of deferred tax) as at 2 April
2022 were split geographically as follows:
2022 2021
GBPm GBPm
----- ------
Non-current assets (net of deferred tax)
United Kingdom 146.6 171.9
Spain 375.6 389.1
Italy 97.7 72.3
Netherlands 98.8 0.9
Turkey 35.5 -
Australia 40.1 39.7
North America 65.8 -
860.1 673.9
------
Other segmental
information
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK
& UK & UK &
UK & Europe Un-allocated Europe Europe Un-allocated
Europe Ceramic North central Soft Ceramic North central
Soft Flooring Tiles Australia America expenses Total Flooring Tiles Australia America expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm 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 13.0 20.3 0.4 - - 33.8
Depreciation
of
right-of-use
lease assets 11.5 2.3 4.2 0.4 0.4 18.8 7.3 2.3 4.3 - - 13.8
Amortisation
of acquired
intangibles 7.4 20.8 1.7 2.5 - 32.4 4.9 20.2 1.7 - - 26.8
32.3 44.9 6.2 3.8 0.4 87.6 25.2 42.9 6.4 - - 74.4
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK UK
& & UK & UK &
Europe Europe Europe Europe
Soft Ceramic North Soft Ceramic North
Flooring Tiles Australia America Central Total Flooring Tiles Australia America Central Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total capital
expenditure
(cashflow) 12.9 30.6 3.1 1.2 0.2 47.9 11.9 13.3 2.2 - - 27.4
2. Exceptional and non-underlying items
52 weeks 53 weeks
ended 2 ended 3
April 2022 April 2021
GBPm GBPm
------------ -----------
Exceptional items
(a) Acquisition related costs (10.7) (3.0)
(b) Reorganisation costs (5.3) (5.5)
(c) Negative goodwill arising on acquisition 6.9 6.5
(d) Contingent consideration linked to positive tax ruling (0.6) (5.7)
(e) Profit on disposal of fixed assets 2.9 -
(6.9) (7.8)
Non-underlying operating items
(f) Acquisition-related performance plans (7.1) 1.7
(g) Non-cash share incentive plan charge (2.3) (1.0)
(h) Amortisation of acquired intangibles (32.4) (26.8)
(i) Unwind of fair value uplift to acquisition opening
inventory (5.3) -
(j) Depreciation of fair value uplift to acquisition
property (0.2) -
(47.4) (26.1)
Total (54.3) (33.9)
Representing functional categorisation of:
Cost of sales (i, j) (5.5) -
Administrative expenses (51.7) (33.9)
Other operating income (e) 2.9 -
(54.3) (33.9)
(a) One-off third-party professional fees in connection with prospecting and
completing specific acquisitions during the period.
(b) One-off costs relating to a number of efficiency projects during the year,
including 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). In the prior
year, this figure included cost of closure of the Westex factory and one-off
precautionary measures in reaction to Covid-19. Other than redundancy payments
these items relate entirely to exceptional third-party purchases and fees,
and do not include any allocation of internal resources.
(c) Negative goodwill of GBP4.2m arose on the consolidation of Santa Maria,
and GBP4.7m on the consolidation of Graniser, both acquired during the period,
achieved through favourable bilateral negotiations. This is offset by a GBP1.9m
charge relating to Hanover.
Hanover was acquired during the prior year, however in accordance with the
terms of the contract an adjustment to the cash consideration paid on completion
was subsequently assessed and settled. This payment, of GBP1.9m, was made
following the year-end and was not accounted for at the point of acquisition,
hence is charged to the income statement in the period.
(d) One-off 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. The prior
year amount was of the same nature but linked to the Keraben acquisition.
(e) 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 (see Note 23 for further
details).
(j) Cost of sales depreciation charge reflecting the IFRS 3 fair value adjustment
on buildings acquired on new business acquisitions, given this is not representative
of the underlying performance of those businesses.
3. Finance costs
52 weeks 53 weeks
ended 2 April ended 3 April
2022 2021
GBPm GBPm
Underlying finance items
Interest on bank facilities and notes 27.1 23.1
Interest on unsecured loans 0.8 0.8
Total interest on loans and notes 27.9 23.9
Amortisation of prepaid finance costs on loans and notes 2.3 2.6
Unwinding of discount on right-of-use lease liabilities 3.8 3.0
Net interest expense on defined benefit pensions 0.1 0.2
34.1 29.7
Non-underlying finance items
(a) Release of prepaid finance costs - 7.3
(b) Net cost of redemption premium on refinancing of
previous senior notes - 6.3
One-off refinancing related - 13.6
(c) Finance items related to preferred equity 33.0 13.1
Preferred equity related 33.0 13.1
(d) Unwinding of present value of deferred and contingent
earn-out liabilities - 0.3
(e) Other adjustments to present value of contingent
earn-out liabilities - 0.7
(f) Unwinding of present value of acquisition-related
performance plans - 1.1
Acquisitions related - 2.1
(g) Interest on short-term draw of Group revolving credit
facility - 1.4
(h) Fair value adjustment to notes redemption option 6.3 (4.6)
(i) Unsecured loan redemption premium charge 0.4 0.2
(j) Mark to market adjustments and gains on foreign exchange
forward contracts (2.0) 4.2
(k) Translation difference on foreign currency loans
and cash (5.7) (6.3)
Other non-underlying (1.1) (5.1)
31.9 23.7
(a) Prior period non-cash charge relates solely to the release of prepaid costs
on previous bank facilities on refinancing.
(b) Prior period cost of early redemption in relation to the refinancing of
the 2024 senior secured notes, offset in part by the release of the liability
premium relating to the embedded derivatives attached to the host debt.
(c) The net impact of items relating to preferred equity issued to Koch Equity
Development during the current and prior periods (see Note 6).
(d) Prior 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.
(e) Prior period non-cash items relating to changes in contingent earn-out consideration
arising from the evolution of actual and forecast financial performance of the
relevant acquisitions.
(f) Prior period non-cash cost relating to the unwind of the present value discount
on acquisition-related performance plans.
(g) Prior period interest cost associated with drawing of the Group's revolving
credit facility as a precautionary measure in response to the Covid-19 pandemic.
(h) Fair value adjustment to embedded derivative representing the early redemption
option within the terms of the senior secured notes (see Note 6).
(i) Charge relating to the GBP2.1 million redemption premium on the BGF loan.
The BGF loan, including redemption premium, was fully repaid in the period.
(j) Non-cash fair value adjustments on foreign exchange forward contracts.
(k) Net impact of exchange rate movements on third party
and intercompany loans.
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 2 April 53 weeks ended 3 April
2022 2021
Basic Adjusted Basic Adjusted
GBPm GBPm GBPm GBPm
(Loss) / profit attributable to ordinary equity
holders of the parent entity (12.4) (12.4) 2.8 2.8
Exceptional and non-underlying items:
Income statement impact of preferred equity - 33.0 - 13.1
Amortisation of acquired intangibles - 32.4 - 26.8
Other non-underlying items - 15.0 - (0.7)
Other exceptional items - 6.9 - 7.8
Interest on short -term draw of Group revolving
credit facility - - - 1.4
Amortisation of prepaid finance costs - - - 7.3
Fair value adjustment to notes redemption option - 6.3 - (4.6)
Translation difference on foreign currency loans - (5.7) - (6.4)
Other non-underlying finance items - (1.6) - 12.9
Tax effect on adjusted items where applicable - (18.1) - (23.3)
(Loss) / earnings for the purpose of basic and
adjusted earnings per share (12.4) 55.7 2.8 37.1
Weighted average number of shares
52 weeks 53 weeks
ended 2 ended 3 April
April 2021
2022
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 116,858 122,257
Effect of dilutive potential ordinary shares:
Share options and warrants 1,759 530
Weighted average number of ordinary shares for the purposes of diluted
earnings per share 118,617 122,787
Preferred equity and contractually-linked
warrants 19,774 6,625
Weighted average number of ordinary shares for the purposes of diluted
adjusted earnings per share 138,391 129,412
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 53 weeks
ended 2 ended 3 April
April 2021
2022
Pence Pence
Earnings / loss per share
Basic earnings / (loss) per share (10.61) 2.30
Diluted earnings / (loss) per share (10.61) 2.29
Basic adjusted earnings per share 47.62 30.34
Diluted adjusted earnings per share 40.21 28.66
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.
5. Rates of exchange
2022 2021
Average Year end Average Year end
Australia - AUD 1.8269 1.7509 1.8392 1.8172
Europe - EUR 1.1777 1.1874 1.1244 1.1761
United States - USD 1.3627 1.3114 N/A N/A
Turkey - TRY 18.7879 19.2606 N/A N/A
6. Net Debt
Analysis of net
debt
Reconciliation of
movements in the
Group's net debt
position:
Other
At 4 April Capital non-cash Exchange At 2 April
2021 Cash flow expenditure Acquisitions changes movement 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents 348.8 (85.8) - 7.3 - 3.3 273.6
Bank overdraft (4.0) (10.9) - (0.7) - - (15.6)
Net cash and cash
equivalents 344.8 (96.7) - 6.6 - 3.3 258.0
Senior secured
debt
(gross of prepaid
finance costs):
- due in more than
one year (633.0) - - - (6.2) 5.9 (633.2)
Unsecured loans:
- due in less than
one year (26.2) 88.3 - (58.2) (13.5) 0.1 (9.6)
- due in more than
one year (25.5) - - (10.4) 13.0 0.3 (22.6)
Net debt (339.9) (8.4) - (62.0) (6.7) 9.6 (407.4)
Obligations under
right-of-use
leases:
- due in less than
one year (13.0) 15.0 (2.3) (3.0) (13.6) (0.0) (16.9)
- due in more than
one year (74.0) - (8.7) (22.1) 15.6 0.5 (88.7)
Preferred equity
(gross of prepaid
finance costs) (77.1) (150.0) - - (27.1) - (254.2)
Prepaid finance
costs:
- In relation to
preferred equity 0.9 0.3 - - (1.2) - -
- In relation to
senior debt 10.9 1.2 - - (2.3) 0.1 9.8
Financing liabilities (837.0) (45.3) (11.0) (93.7) (35.2) 6.8 (1,015.4)
Net debt including
right-of-use lease
liabilities, issue
premia, preferred
equity and prepaid
finance costs (492.2) (142.0) (11.0) (87.1) (35.2) 10.1 (757.4)
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 2 April 2022 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. One-off early redemption costs were incurred
in the prior period in relation to the refinanced notes (see Note 3). The
fair value of the liability as at 2 April 2022 was EUR718.6m (2021: EUR779.0m),
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. 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 GBP2.7m (2021: GBP9.0m),
and therefore an associated non-cash debit was recognised through the income
statement for the period of GBP6.3m (2021: GBP4.6m credit).
Prepaid legal and professional fees associated with the issue of the new
notes totalling GBP12.1m (1.9% of gross debt raised) is offset against
the senior debt liability and is amortised over its life (GBP2.3m in the
year (2021: GBP0.1m). The net prepaid value as at 2 April 2022 is GBP9.8m.
As a result, as at 2 April 2022 there is a total liability recognised
of GBP623.4m (2021: GBP622.1m) in relation to notes with a par value of
GBP631.6m (2021: GBP637.7m).
Additionally, the Group has a variable rate GBP120m multi-currency revolving
credit facility maturing in 2026, which at the year-end was undrawn.
Unsecured loans
Unsecured loans comprises of a number of smaller local loans and credit
lines utilised by the Group's operating subsidiaries for working capital
purposes. The Group's fully subordinated GBP10m loan facility with the
Business Growth Fund ('BGF') reached maturity on 31 December 2021 and was
fully repaid at this time, along with a redemption premium of GBP2.1m.
Interest costs recognised in the income statement for the period to maturity
of GBP0.95m comprised (i) cash interest of GBP0.45m, (ii) GBP0.25m in relation
to the redemption premium and (iii) GBP0.25m extension fee for deferring
repayment of the redemption premium from 2019 to 2021.
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, both to the dividend rates and other contractual
terms was such that consideration must be given as to whether the instrument
had been substantially modified as a result. The test carried out, comparing
the present value of expected cashflows using the original EIR to the present
value of the expected remaining cash flows of the original debt host contract,
yielded a difference of greater than 10%, thereby implying a substantial
modification. Consequently, the modification should be accounted for as
an extinguishment of the existing financial liability and recognition of
a new financial liability, based on the amended contractual terms.
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 carrying value of
the host debt at the point of extinguishment was GBP79.9m, which was net
of GBP0.9m of prepaid advisory fees. The value of the host debt recognised
following the amendment 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 2 April 2022 was GBP228.4m (2021: GBP72.6m), with the fair
value at 2 April 2022 was GBP218.7m (2021: GBP67.4m).
Associated costs and advisory fees incurred in relation to the transaction
have been expensed to the income statement in the period.
There is no commitment fee associated with the new instrument therefore
with a value of GBPnil as at 2 April 2022 (2021: GBP2.8m asset). At the
point of extinguishment, the commitment fee had a carrying value GBP0.7m
(asset).
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 asset had a fair value
of GBP15.4m at the point of extinguishment on 23 December 2021. The asset
was subsequently recognised at a fair value GBP24.6m following the amendment,
and is to be fair valued at each subsequent reporting date through the
income statement. The fair value of the asset as at 2 April 2022 was GBP20.5m
(2021: GBP0.5m). 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 - this was valued
at GBPnil (the same position pre and post amendment). 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.
Finally, the KED ordinary equity warrants have been separately identified.
This financial instrument had a fair value of GBP34.6m at the point of
extinguishment. The fair value liability was subsequently recognised at
GBP63.5m following the amendment and is fair valued at each reporting date
through the income statement, with a fair value of GBP46.4m as at 2 April
2022 (2021: GBP6.1m). 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. Details of the significant judgements and estimates
in relation to the valuation of these items are provided in Note 26, and
the associated income statement impact in Note 3. Below is a summary of
the Preferred Equity P&L charge.
Preferred Equity
P&L charge
2022 2021
GBPm GBPm
Host contract 14.9 3.4
Fair value
warrants 11.3 1.6
Fair value
redemption
asset (10.7) 5.2
Loan commitment 1.3 0.7
Ticking fee 4.7 2.2
Loss on substantial
modification 10.3 -
Preferred equity 31.8 13.1
Preferred equity
prepaid finance costs 1.2 -
Preferred equity
including prepaid
finance costs 33.0 13.1
Of the GBP31.8m preferred equity, all elements are non-cash in nature except
for the ticking fee which was paid in full (GBP7.0m) in the period and
will not be a cost in future periods.
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 GBP5,660,000 (2021: GBP4,634,000), of which
GBP2,837,000 (2021: GBP2,350,000) relates to the UK schemes. The
total contributions outstanding at year-end were GBPnil (2021:
GBPnil).
Defined benefit schemes
The Group has two defined benefit schemes, both of which relate
to Interfloor Limited.
Interfloor Limited sponsors the Final Salary Scheme ("the Main
Scheme") and the Interfloor Limited Executive Scheme ("the
Executive Scheme") which are both defined benefit arrangements. The
defined benefit schemes are administered by a separate fund that is
legally separated from the Group. The trustees of the pension fund
are required by law to act in the interest of the fund and of all
relevant stakeholders in the scheme. The trustees of the pension
fund are responsible for the investment policy with regard to the
assets of the fund.
The last full actuarial valuations of these schemes were carried
out by a qualified independent actuary as at 31 July 2021.
The contributions made by the employer over the financial period
were GBP136,000 (2021: GBP136,000) in respect of the Main Scheme
and GBPnil (2021: GBPnil) in respect of the Executive Scheme.
Contributions to the Executive and Main Schemes are made in
accordance with the Schedule of Contributions. Future contributions
are expected to be an annual premium of GBP213,000 in respect of
the Main Scheme and GBPnil contributions payable to the Executive
Scheme. These payments are in line with the certified Schedules of
Contributions until they are reviewed on completion of the
triennial valuations of the schemes as at 1 August 2024.
As both schemes are closed to future accrual there will be no
current service cost in future years.
The defined benefit schemes typically expose the Company to
actuarial risks such as: investment risk, interest rate risk and
longevity risk.
Amounts recognised in the consolidated income statement in
respect of these defined benefit schemes are as follows:
2022 2021
GBPm GBPm
Net interest expense 0.1 0.1
Curtailments / Settlements - -
Past service cost - -
Components of defined benefit costs recognised
in profit or loss 0.1 0.1
The net interest expense has been included within finance costs. The remeasurement of the net defined
benefit liability is included in the statement
of comprehensive income.
Amounts recognised in the Consolidated Statement of
Comprehensive Income are as follows:
2022 2021
GBPm GBPm
The return on plan assets (excluding amounts
included in net interest expense) 0.6 3.6
Actuarial gains arising from changes in
demographic assumptions (0.5) (0.4)
Actuarial (losses) / gains arising from
changes in financial assumptions 1.5 (3.2)
Actuarial gains arising from experience
adjustments - -
Remeasurement of the net defined benefit
liability 1.6 (0.1)
The amount included in the Consolidated Balance Sheet arising from the Group's obligations
in respect of its defined benefit retirement benefit schemes is as follows:
2022 2021
GBPm GBPm
Present value of defined benefit obligations (29.2) (31.2)
Fair value of plan assets 24.3 24.7
Net liability arising from defined benefit
obligation (4.9) (6.5)
Deferred tax applied to net obligation 1.3 1.2
The Group expects to make a contribution of GBP213,000 (2021: GBP136,000) to
the defined benefit schemes during the next financial period.
8. Acquisition of subsidiaries
(a) Colli and Vallelunga
On 16 April 2021 the Group completed the purchase of the business and assets of ceramic
tile distributors, Ceramica Colli and Vallelunga.
The total cash consideration of EUR15.3m (GBP13.2m(1) ) was paid on completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution from Ceramica
Colli and Vallelunga of EUR14.5m (GBP12.3m(2) ) of revenue and EUR1.0m (GBP0.9m(2)
) of profit before tax (before amortisation of acquired intangibles and acqusition
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 EUR2.2m (GBP1.9m(2) )
and EUR0.3m (GBP0.3m(2) ) respectively.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1573
(2) Applying the average exchange rate over the financial year of 1.1777
(b) Santa Maria
On 20 April 2021 the Group acquired 100% of the equity of ceramic tile manufacturer,
Ceramiche Santa Maria.
The total cash consideration of EUR8.5m (GBP7.3m(1) ) was paid on completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution from
Santa Maria of EUR23.6m (GBP20.0m(2) ) of revenue and EUR0.9m (GBP0.8m(2) ) of
loss 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 EUR2.1m (GBP1.8m(2)
) and EUR0.3m (GBP0.3m(2) ) loss respectively.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1573
(2) Applying the average exchange rate over the financial year of 1.1777
(c) Edel Group
On 30 April 2021 the Group acquired 100% of the equity of Edel Group BV ("Edel"),
Netherlands-based designers, manufacturers, and distributors of artificial grass
and carpets.
Established in 1918, Edel primarily supplies artificial grass for domestic and
landscaping purposes across Europe, a market in which Victoria already has a strong
presence following its February 2017 acquisitions of Avalon and GrassInc.
The consideration of EUR49.8m (GBP43.1m(3) ) was paid in cash on
completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution from
Edel of EUR39.0m (GBP33.1m(4) ) of revenue and EUR4.6m (GBP3.9m(4) ) 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 EUR5.5m (GBP4.7m(4)
) and EUR0.7m (GBP0.6m(4) ) respectively.
(3) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1561
(4) Applying the average exchange rate over the financial year of 1.1777
Subsequently, on 18 August 2021 the Group acquired 100% of the equity of Edel
Grass. Edel Grass was already an intended acquisition for the previous Edel Group
owners. Although it was a separate transaction from different owners there was
a distinct link with the Edel Group acquisition
The consideration of EUR6.1m (GBP5.2m(5) ) was paid in cash on
completion.
The Group results for the 53 weeks ended 2 April 2022 include contribution
from Edel Grass of EUR13.0m (GBP11.1m(6) ) of revenue and EUR0.7m
(GBP0.6m(6) ) of loss 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 EUR14.2m (GBP12.0m(2)
) and EUR0.2m (GBP0.1m(2) ) respectively.
(5) Applying the GBP to EUR exchange rate at the date of acquisition of 1.1675
(6) Applying the average exchange rate over the financial year of 1.1777
(d) Cali Bamboo Holdings Inc
On 23 June 2021 the Group acquired 100% of the equity of Cali Bamboo Holdings
Inc. ("Cali").
Cali is a high-growth vinyl and wood flooring distributor based in the US, with
an online B2C customer acquisition model and direct delivery capability, alongside
B2B channels.
Total consideration of Cali was $82.6m (GBP59.2m(7) ). The consideration of $82.1m
(GBP58.8m(7) ) was paid in cash on completion and $0.5mn ($0.4m(7) ) was paid
subsequently in November 2021 as a closing cash adjustment.
The Group results for the 52 weeks ended 2 April 2022 include contribution from
Cali of $156.3m (GBP115.6m(8) ) of revenue and $5.1m (GBP3.7m(8) ) 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 $35.6m (GBP27.1m(8) ) and $0.7m
(GBP0.6m(8) ) respectively.
(7) Applying the GBP to USD$ exchange rate at the date of acquisition of 1.3967
(8) Applying the average exchange rate over the financial year of 1.3627
(e) Graniser
On 9 February 2021 the Group acquired 100% of the equity of Turkish ceramic tile
manufacturer and exporter, B3 Ceramics Danismanlik ("Graniser").
Total consideration of Graniser was TRY 133.7m (GBP7.3m(9) ) was paid in cash
on completion.
The Group results for the 52 weeks ended 2 April 2022 include contribution from
Graniser of TRY 205.4m (GBP10.9m(10) ) of revenue and TRY 25.5m (GBP1.4m(10) )
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 TRY 451.7m
(GBP24.0m(11) ) and TRY 115.9m (GBP6.2(11) ) respectively.
(10) Applying the GBP to TRY exchange rate at the date of acquisition of 18.338
(11) Applying the average exchange rate over the financial year of 18.7879
9. Post balance sheet events
Acquisition of Balta
On 5 April 2022 the Group completed the purchase 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'.
The total consideration paid was EUR164m (GBP139m(1) ), including a small completion adjustment
settled after completion. Acquisition-related costs total GBP3.7m in FY22.
At the time when the financial statements were authorised for issue, the determination
of the fair values of the assets and liabilities acquired had not been finalised because
the individual valuations had not been concluded. It was not possible to provide detailed
information about each class of acquired receivables and any contingent liabilities of
the acquired entity.
(1) Applying the GBP to EUR exchange rate at the date of acquisition of 1.18.
Revolving credit facility
Following the year-end, the Group extended its multi-currency revolving credit facility
to GBP150m. This facility was undrawn at the year-end.
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 3 April 2021 there has
been no period where financial covenant tests applied.
The Group's cash position as at the year ended 3 April 2022 was
GBP273.6m (2021: GBP348.8m). The Group expects to continue to
generate positive operating cash flows in the forecast period to
March 2024.
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; at year end the facility
was GBP120m, which was undrawn. 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 was modelled, with the base case set to the FY23 budget
and moderate growth assumptions thereafter, consistent with the
growth assumptions 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 significant drop in
revenue and margins versus the base case to ensure than even in an
extreme downside scenario, sufficient liquidity was maintained
through the forecast period.
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 2 April 2022. 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 an unqualified audit report. 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.
Statutory accounts for the 53 weeks ended 3 April 2021, 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 Road, Kidderminster, Worcestershire,
DY10 1JR or via the website: www.victoriaplc.com.
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END
FR UKUVRUVUBARR
(END) Dow Jones Newswires
July 19, 2022 02:01 ET (06:01 GMT)
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