Shareholders in flooring group Victoria reacted to a profits warning by sending shares close to 52-week low, before a late rally.
The group says it expects underlying EBITDA to be £160m for the year to 30 March, down £36m. It also warned that sales for the year would be lower than 2022/2023’s record £1.46bn but ‘broadly in line with market expectations.’
It says costs are higher because of wage inflation and accelerating reorganisations across the group. Demand in the UK, which makes up 31% of sales is described as ‘subdued but stable.’
Investors sent the shares just over 5% lower, ending the day at £2.3165 after a late surge just before the market closed – they had been as low as £2.205 during the day – meaning in the past year they have fallen 58.7%. The group’s valuation has fallen from £662.7m to £267.27m in that period.
The group says it expects margin to recover by 250bps-300bps when ‘demand normalises,’ as a result of the reorganisations.
The group’s efforts to buy back €25m of its bonds have hit problems, with bondholders unwilling to sell at the price Victoria had been paying (an average discount of 21% against par). It has been able to buy back €11.1m of bonds.
Instead it will now spend £25m on buying back its shares. ‘Although these share purchases are not the start of a formal and regular programme to return capital to shareholders, the board believes the current share price is materially below the intrinsic value of the group and, whilst liquidity for bond repurchases is constrained, deploying some of the group’s non-operating cash flow, from the sale of non-core and surplus properties, towards these opportunistic purchases (alongside accumulating cash on the balance sheet) serves Victoria’s mission to create wealth for shareholders.’
‘There has been a lot of noise around Victoria in the past 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,’ says Geoff Wilding, Victoria executive chairman.
‘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,’ says Philippe Hamers, Victoria group chief executive.
‘These actions, some of which have been extended and remain ongoing, have allowed production capacity to be maintained with 1,170 fewer employees (a c16% reduction). Therefore, as volume demand normalises with improving consumer confidence, the synergies are anticipated to increase group EBITDA margins by 250bps-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.’
