Victoria will cut costs by almost £35m across the group to drive margins when demand increases but profits in the second half of 2024/2025 will be lower than expectations.
Shareholders were told that it was encouraged by increased mortgage approvals, rising house prices and lower interest rates in its key markets and ‘management is actively working on projects to optimise the business for the anticipated recovery in demand.’
It says that having integrated procurement across the group for the first time will see significant savings. Each 1% of savings across its £500m purchasing will boost profit by £5m. ‘Meaningful savings have already been secured, although the full impact is heavily weighted to FY2026.’
Reorganising ceramics production with investment in its Spanish factories and making tiles in the most efficient factory that will take 18 months to complete. ‘The first stage will be delivered in mid-FY26 and positively impact earnings and cash flow that year, but the full benefit will be seen in the following year and is expected to improve earnings by £16m-£19m, based on current market conditions.’
Synergy gains from the relocation of production capacity from Belgium to Turkey alongside cost-cutting in Belgium will see some benefit in the current financial year, ‘although the first full year impact of the cost savings, expected to be an additional €6.1m per annum, will be seen in FY2026.
‘Victoria’s various UK brands continue to be important in market positioning, but the full integration of Balta’s UK carpet business during H1 allowed the company to merge the brands of Balta and Carpet Line Direct, and Victoria and Hugh Mackay, and separately consolidate our underlay operations with immediate savings in rent, logistics, and personnel totalling £5m per annum.’
The group told shareholders that it expects first half sales to be around £580m and underlying EBITDA of £50m in the six months to 1 October: a continuation of the lower demand environment experienced in H2 FY2024 when underlying EBITDA was £64.9m. The company has generally outperformed the market and continued to improve its competitive position – particularly in the UK. The board expects H2 trading to be stronger as a result of the actions taken by management alongside a small improvement in demand, although earnings are likely to be below consensus expectations,’ it warned.
‘We have focussed on optimising productivity and reducing operational costs whilst maintaining the same potential production capacity. These actions will have a very material positive impact on earnings and cash flow as demand normalises with the anticipated improvement in the macro-economic environment and increase in housing transactions, a key driver of demand. clearly the recovery continues to draw closer, although it is difficult to pinpoint precisely when it will begin. However, we remain prepared for growth when the time arrives, which will be delivered without any significant capex spend,’ says Philippe Hamers, Victoria chief executive.
