Soft demand weakens expectations at flooring group

Victoria PLC, the international designers, manufacturers and distributors of innovative flooring, has reported lower expectations due to a softness in demand.

According to its latest trading update for the year ending 30 March 2024, the group said that although the medium-term macro-economic outlook is “generally improving”, current and near-term trading conditions remain broadly consistent with previous updates with wider market demand down circa 20%.

“Consumer demand continues to be soft in Europe (39% of Group revenue), subdued but stable conditions in the UK (31%) and Australia (8%), contrasting with recently improving demand in the US (22%), alongside pressure on earnings coming from labour inflation and additional current year expenditure from accelerating reorganisation and integration projects.

“As a consequence, the Board expects that revenue for the year ending 30 March 2024 (“FY2024”), whilst less than in FY2023, will be broadly in line with market expectations. Underlying EBITDA will also, as anticipated, be below that achieved in FY2023 and the Board now expects that to be approximately £160 million.”

Furthermore, Victoria recently started a repurchase programme of an initial €25 million of its 2026 Senior Secured Notes and its intention to invest up to £25 million repurchasing its ordinary shares of 5 pence each, deploying some of the Group’s non-operating cash flow from the sale of non-core and surplus assets.

Executive Chairman, Geoff Wilding, said: “There has been a lot of noise around Victoria in the last six months. To their enormous credit, operational management simply put their heads down and forged ahead with the integration projects designed to maximise the available synergies within the Group and optimise cash generation in a challenging macro-environment.

“The pace and rigour of this work has accelerated in the last 90 days, with a larger cost incurred in the current year but a clear impact on future earnings and cash flow. We emphasise that we are not expecting some immediate improvement in flooring demand. However, we are confident of the impact on earnings and cashflow of management’s actions and are certain demand will inevitability revert to the long-term mean.”

Group Chief Executive, Philippe Hamers, commented: “It has been a busy 18 months for the operational management teams with execution of various synergy projects. These include the relocation of Balta’s carpet manufacturing and logistics to the Group’s existing UK facilities, relocating much of Balta’s rug production to a newly expanded factory in lower-cost Turkey, and introducing new IT systems to improve operational decision-making and financial reporting. We have also initiated a project for the full integration of ceramics production to optimise productivity, and acquired new warehouse and distribution facilities in the US to improve customer service, improving inventory management, and consolidation of raw material procurement.

“These actions, some of which have been extended and remain ongoing, have allowed production capacity to be maintained with 1,170 fewer employees (a circa 16% reduction). Therefore, as volume demand normalises with improving consumer confidence, the synergies are anticipated to increase Group EBITDA margins by 250-350 bps, alongside lower capex, and a more competitive market position due to better customer service levels, lower pricing, and wider distribution. I am confident, therefore, that Victoria will experience faster growth than the wider market as demand returns.”

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