Flooring group Victoria saw profits rise by more than £50m in the past six months as sales jumped.
Sales rose by 58.7% to £776.1m in the six months to 1 October, helped by price rises and acquisitions. Like for like growth sales rose by 7.7%. Pre-tax profits jumped from £2.9m to £53.1m. The UK and Europe soft flooring division saw operating profits increase from £18.6m to £55.1m.
However, group net debt rose from £519m to £651m. The debt to EBITDA rose climbed from x3.3 to x3.4.
‘The shape of our UK and European soft flooring business altered dramatically in April with the completion of the purchase of the rugs and UK carpet divisions of Balta Group, together with the Balta brand. This acquisition catapulted Victoria to the position of Europe’s largest carpet and rug manufacturer with revenue for the six months of £372m,’ says Geoff Wilding, Victoria executive chairman.
‘Integration of Balta is proceeding apace in order to realise the full benefit this scale advantage offers. As expected, there will be some exceptional costs associated with the reorganisation – largely redundancy and factory closure costs- but the cash impact is expected to be zero due to the disposal of assets that will become surplus, primarily real estate, once the integration is completed. The board anticipates the synergy gains to be no less than €15m per annum (+2% margin for the division) in 24 months from now.
‘The UK flooring market has softened this year from the extraordinarily strong demand of 2021/22, although Victoria continues to benefit from predominantly serving mid-high price points where demand has been noticeably more resilient.
‘Significantly higher input costs, primarily raw materials, were experienced in H1 and, as it has done in the past, Victoria shared the impact with its customers to protect market share. The outcome has been a temporary margin compression to 10% – an effect accentuated by the inclusion of Balta’s contribution for the first time. Balta’s historically lower margin of 4.5% has depressed the division’s margin by 3.6%, although this is expected to change as integration takes effect. However, as the lower inflation of raw materials experienced in more recent months feeds though into the cost of finished goods and the reorganisation of Balta takes effect, margin growth will resume, which together with our larger market share, ensures the medium-term outcome will be a continuation of Victoria’s ten-year trend of becoming a larger, more profitable and more stable business.
‘The board believes cash flow, after exceptional costs relating to the integration projects, will be in excess of £100m in H2. In the near term it is likely that disposable incomes in some markets will come under further pressure, from higher interest rates and inflation and the resulting weakening consumer demand may make additional price increases to offset higher input costs more difficult for the company to implement. Nevertheless, whilst acknowledging these challenges, I am pleased to say that the board continues to be confident that synergy gains and pro-active management actions will enable Victoria’s financial performance for FY2023 to be in line with market consensus expectations and the outlook for the business remains positive.’
