Flooring group responds to fraud reports following auditor comments

Flooring group Victoria PLC has responded to reports suggesting fraudulent activity within its recently published accounts.

Victoria PLC’s auditor, Grant Thornton, identified “risk factors of fraud” on its Hanover Flooring division, which was acquired in January 2021. Victoria handed down a limitation of scope due to matters involving Hanover. A limitation of scope is a restriction on an audit.

The auditor said: “After the acquisition of trade and assets which form Hanover in January 2021 customers continued to pay into the seller’s (pre-acquisition) bank account and the seller made a number of payments on behalf of Hanover. Management identified GBP5.2 million of receipts and GBP400,000 of payments relating to Hanover since January 2021. One of the sellers of the trade and assets acquired by Hanover is the managing director of Hanover. Management have explained to us that this account is used for various activities and includes a significant number of transactions not relating to Hanover.”

Grant Thornton added that “inadequate accounting records were retained” and it spotted “instances of non-compliance with high value dealer regulations”, while seeking “further evidence” and the removal of the limitation of scope.

Following the reports, Executive Chairman, Geoff Wilding commented: “Our audited results for the year ended 1 April 2023 showed the Company’s tenth consecutive year of revenue and underlying profit growth. We sold in excess of 200 million square metres of flooring products and for the first time in the Company’s history we recorded annual revenues of over £1.45 billion. As a result, we have achieved a scale that, once current integration projects complete, will result in higher productivity, more efficient logistics, wider distribution, and lower input costs than almost all our competitors.

“However, over this last week the strong outlook for Victoria has been overshadowed by the considerable reaction to our auditor’s qualified opinion deriving from incomplete accounting records at a small subsidiary, Hanover Flooring Limited – a business which as a whole represents less than 1.25% of Group turnover. The Board wishes to stress that there was no wrong-doing whatsoever at Hanover that impacts the Group’s financial statements and nor are the auditors alleging this. Hanover’s issue was predominantly one of having heightened financial risk due to inadequate accounting records associated with no more than £400,000 of customer receipts.

“I would like to assure our stakeholders that we had identified the issues at this small subsidiary and allocated additional experienced finance resources who have put appropriate controls in place to ensure adequate accounting records and internal controls will be maintained to the high levels we have solidly embedded across the rest of the Group. From the extensive work undertaken by ourselves and a ‘Big-Four’ accounting advisor, we are very clear that all payments due have been received, no money is unaccounted for and Victoria has suffered no loss. We are also very clear that there are no other such concerns across the rest of the Group and our auditors have confirmed that these accounts give a true and fair view of the Company. All of this has sadly detracted from the fact that Victoria continues to trade solidly, and we expect to see a material step-up in earnings and free cash flow, delivering deleveraging and shareholder value creation.

“Therefore, turning to our future outlook, I would like to remind our stakeholders that FY2024 is expected to be a year of two halves, with stronger H2 earnings as the productivity gains from completion of the major integration projects come to fruition. As outlined in our full year results, once completed these projects are expected to conservatively result in a £20+ million per annum increase in EBITDA and we expect our free cash flow to increase sharply from H2 FY2024, and further in FY2025 as we receive the full annual benefits of the integration.

“As already confirmed, Q1 trading was in line with the Board’s forecast and consistent with consensus expectations for FY2024. Demand remains generally stable across the Group’s markets and margins are improving in line with a fall in input costs. Our objective in FY2024 is not to chase volumes but to protect and improve margins and we have right-sized production capacity to promote this whilst anticipating modest volume growth in the coming quarters. Our ability to create ‘design to cost’ products allows us to maintain margins while continuing to meet customer demand at given price points.

“Given the anticipated productivity improvements, cost savings, and working capital enhancements expected later this year and the increase in financial performance these bring, the Board remains confident that Victoria PLC will continue to deliver outsized returns for its shareholders.”

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