Victoria : Half-year report for the 26 weeks ended 1 October 2022

2022 Half-year report for the 26 weeks ended 1 October 2022

www.victoriaplc.com stock code: VCP 2

OUR MISSION STATEMENT

To create wealth for our

Shareholders

Contents

1. Financial and Operational Highlights
2. Chairman and Chief Executive's Letter to Shareholders

1. Condensed Consolidated Income Statement
2. Condensed Consolidated Statement of Comprehensive Income
3. Condensed Consolidated Balance Sheet
4. Condensed Consolidated Statement of Changes in Equity
5. Condensed Consolidated Statement of Cash Flows
6. Notes to the Condensed Half-Year Financial Statements

	www.victoriaplc.com	stock code: VCP	3
FINANCIAL AND OPERATIONAL HIGHLIGHTS
	H1 FY23	H1 FY22
Revenue	£776.1m	£489.0m
Underlying EBITDA1	£100.1m	£84.5m
Underlying operating profit1	£61.1m	£58.6m
Operating profit	£82.0m	£27.7m
Profit before tax	£53.1m	£2.9m
Net debt2	£651.4m	£519.3m
Net debt / EBITDA3	3.4x	3.3x
Earnings / (loss) per share:
- Diluted	36.69p	(2.68)p
- Diluted adjusted1	17.87p	24.32p

• 7.7% like-for-like organic revenue growth, plus acquisitions, led to Victoria achieving a record operating performance
• Broadly stable like-for-like operating margins, notwithstanding inflationary pressures. Reported margins were impacted as anticipated by the mix-effect from the acquisition of businesses that currently have lower margins. This mix-effect is expected to reduce as integration synergies are realised - as Victoria has successfully achieved with previous acquisitions
• Proactive management of raw materials and energy successfully mitigated both inflationary pressures and supply chain constraints
• Completion of the acquisition of the rugs and UK carpet divisions of Balta to make Victoria Europe's largest manufacturer of soft flooring. Integration is well underway to realise the material potential synergy benefits of this acquisition
• Despite these significant investments, leverage has been maintained in-line with the Group's financial policy
• Although macro-economic conditions are challenging, the Board continues to be confident that synergy gains and proactive management actions will enable Victoria's financial performance for FY2023 to be in line with market consensus expectations

1Underlying performance is stated before exceptional and non-underlying items. In addition, underlying profit before tax and adjusted EPS are also stated before non-underlying items within finance costs

2Net debt shown before right-of-use lease liabilities, preferred equity, bond issue premia and the deduction of prepaid finance costs

3Leverage shown consistent with the measure used by our lending banks

www.victoriaplc.com stock code: VCP 4

CHAIRMAN & CEO'S STATEMENT

There is a supposed curse "May you live in interesting times."

Few would argue that we are presently living in "interesting times". Yet, despite the fact that the current uncertain environment creates a meaningful business risk, it simply isn't possible to predict the future with sufficient precision to effectively manage this risk.

Our response to this conundrum has been to ensure that Victoria's management remains agile and the business flexible, even as it has grown to have an annual revenue exceeding £1.5 billion. We have maintained the highly decentralised and scalable, 'team of teams' management structure that was first put in place at Victoria ten years ago and remains a key competitive advantage.

Being nimble ensures Victoria continues to be well placed to quickly adapt to rapidly changing conditions. Shareholders have seen the benefit of this adaptability in the turmoil that followed the Brexit vote in 2016, Covid lockdowns in 2020, supply chain disruptions in 2021, and inflation and consumer uncertainty in 2022. Over this time, under all conditions, Victoria's earnings and operating cash flow per share continued to increase.

	Diluted adjusted	Underlying operating
	EPS2	cash flow per share2,3
Full	Pence	£
Year
FY15	10.47	0.30
FY16	16.32	0.40
FY17	24.42	0.48
FY18	30.61	0.64

	Diluted adjusted	Underlying operating
	EPS2	cash flow per share2,3
Full	Pence	£
Year
FY19	35.25	0.86
FY20	28.24	0.78
FY21	30.21	0.77
FY22	40.21	0.96

Consequently, the Board is pleased to report that trading for the half year to 1 October 2022 continued to meet the Board's expectations, with like-for-like ("LFL") organic revenue growth of c.7.7% across the Group, and Victoria continuing to win share in some markets. Overall, the Group has achieved revenue of £776.1 million, versus £489.0 million in the comparative period last year (+58.7%), and underlying EBITDA of £100.1 million compared with £84.5 million last year (+18.5%). These operating results were again a record level for Victoria, as can be seen in the below table.

H1, Financial Year	2023	2022	2021	2020	2019	2018
Revenue	£776.1m	£489.0m	£305.5m	£312.9m	£273.4m	£189.5m
Pre IFRS 16 Underlying EBITDA	£88.9m	£75.1m	£44.9m	£53.8m	£45.4m	£24.6m
Post IFRS 16 Underlying EBITDA	£100.1m	£84.5m	£52.4m	£58.5m

Although Victoria experienced continued significant inflation in raw material and energy prices during the period, the earnings impact was largely mitigated by management's actions (detailed in the H1 Overview section). The reported margin of 13.0% was the result of the dilutive effects of acquisitions made during the period. This will be offset by synergy benefits and operational improvements as the businesses are integrated into Victoria, as has been seen in previous years with earlier acquisitions.

www.victoriaplc.com stock code: VCP 5

H1 OVERVIEW

Inflation

The last six months saw a continuation of double-digit inflationary pressures in certain costs

• most notably energy and polypropylene carpet fibre. We chose to support our customers by sharing the impact of higher input costs with them whilst successfully protecting our cash margin through a combination of actions:
• • 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. We continued to increase prices where it proved absolutely necessary in FY2023
  • As noted above, management is laser-focussed on delivering a number of carefully planned synergy projects that will increase operating margins, mitigating some inflationary pressures
  • We actively hedge or otherwise manage key input costs to provide management with time to adapt our business and prices to higher input costs, ensuring margins are protected
  • Product engineering in partnership with our customers has helped us achieve targeted price points, whilst still achieving a satisfactory profit for Victoria.

Our objective remains to manage the business so as to ensure an attractive return on equity for shareholders, after taking into account the effects of inflation.

Demand

Unsurprisingly, some flooring markets (notably the UK) are not as buoyant as last year. Nevertheless, as a result of the acquisition strategy that has been carefully executed over the last eight years, Victoria is now geographically diversified and demand in some countries is mitigating softer demand elsewhere.

Victoria is additionally fortunate with the experience of its senior operational management who have leveraged their decades in the industry by adapting readily to current macroeconomic conditions. Actions such as product engineering, enhanced operational efficiencies, and the acceleration of synergistic projects are being implemented across the Group to drive savings and ensure earnings and cash flow remain satisfactory.

The Group also benefits from structurally low operational gearing with over half of its cost base made up of raw materials, which is, of course, wholly variable with revenue. A further one third of costs (energy, labour, marketing, logistics) are semi-variable. The result is that if sales were ever to decline, the majority of costs 'automatically' fall as well, reducing the impact of lower sales on profits.

The Board remains confident in the future of the business. Consumers have demanded flooring ever since some Palaeolithic cave-dweller decided mud was a sub-optimal surface for