Victoria : Half-year report for the 26 weeks ended 2 October 2021

2021 Half-year report for the 26 weeks ended 2 October 2021

www.victoriaplc.com stock code: VCP 2

OUR MISSION STATEMENT

To create wealth for our

Shareholders

Contents

1. Financial and Operational Highlights
2. Chairman and Chief Executive's Letter to Shareholders

1. Condensed Consolidated Income Statement
2. Condensed Consolidated Statement of Comprehensive Income
3. Condensed Consolidated Balance Sheet
4. Condensed Consolidated Statement of Changes in Equity
5. Condensed Consolidated Statement of Cash Flows
6. Notes to the Condensed Half-Year Financial Statements

	www.victoriaplc.com	stock code: VCP	3
FINANCIAL AND OPERATIONAL HIGHLIGHTS
	H1 FY22	H1 FY21
Continuing operations
Revenue	£489.0m	£305.5m
Underlying EBITDA1	£84.5m	£52.4m
Underlying operating profit1	£58.6m	£28.2m
Operating profit	£27.7m	£10.7m
Underlying profit before tax1	£41.1m	£13.7m
Profit / (loss) before tax	£2.9m	£(4.7)m
Underlying free cash flow2	£18.0m	£18.3m
Net debt3	£519.3m	£364.6m
Net debt / EBITDA4	3.3x	3.3x
Earnings / (loss) per share:
- Diluted adjusted1	24.32p	8.09p
- Diluted	(2.68)p	(3.11)p

• Unprecedented 30% like-for-like organic revenue growth led to all-time record operating results
• Continued like-for-like expansion of operating margins, with 130bps organic uplift offset by mix-effect of acquisition of lower margin businesses
• Inflationary pressures and supply chain constraints successfully mitigated with proactive management of raw materials and energy costs
• Four value-enhancing acquisitions completed in Italy, the Netherlands and the USA; providing meaningful earnings and cash flow enhancement along with material operational synergy opportunities
• Despite these significant investments, leverage maintained at a consistent level with the prior year end, in-line with the Group's financial policy
• Outlook remains very positive, along with a healthy pipeline of acquisition opportunities

1Underlying performance is stated before exceptional and non-underlying items. In addition, underlying profit before tax and adjusted EPS are also stated before non-underlying items within finance costs

2Underlying free cash flow represents cash flow after interest, tax and replacement capital expenditure, but before investment in growth, financing activities and exceptional items

3Net debt shown before right-of-use lease liabilities, preferred equity, bond issue premia and the deduction of prepaid finance costs

4Leverage shown consistent with the measure used by our lending banks

www.victoriaplc.com stock code: VCP 4

CHAIRMAN & CHIEF EXECUTIVE'S LETTER TO SHAREHOLDERS

One of our US-based shareholders recently shared a letter from legendary investor, Bill Miller of Miller Value Partners. Although clearly not directly related to the flooring industry, he shares some wisdom we think is worth remembering whilst there seems to be some extraordinary things happening in global economies.

"Since no one has privileged access to the future, forecasting the market is a waste of time...

In the post-war period the US stock market has gone up in around 70% of the years because the US economy grows most of the time. Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is key to building wealth in the stock market."

Certainly, when executing our acquisition strategy, Victoria's Board spends little time trying to predict precisely where we are in the economic cycle, but rather focuses on ensuring we are buying high quality, resilient businesses at valuations that provide a margin of safety for our shareholders. This has stood us in good stead over the last nine years and we are therefore pleased to report that the operating results for the six months to 2 October were an all-time record for Victoria, as can be seen in the below table.

H1, Financial Year	2022	2021	2020	2019	2018	2017
Revenue	£489.0m	£305.5m	£312.9m	£273.4m	£189.5m	£153.4m
Pre IFRS 16	£75.1m	£44.9m	£53.8m	£45.4m	£24.6m	£20.2m
Underlying EBITDA
Post IFRS 16	£84.5m	£52.4m	£58.5m
Underlying EBITDA

Unsurprisingly, given H1 FY21 was affected by various national lockdowns in Victoria's primary markets, revenues increased by 60% in H1 FY22. Additionally, Victoria completed four acquisitions during the period, which also contributed to the financial performance of the Group. On a LFL basis, revenues increased by 29.8% over H1 FY21 and, perhaps more relevantly, 9.2% over H1 FY20, demonstrating the strong organic growth the operational strategy is delivering for shareholders.

Although Victoria saw significant inflation in raw material prices during the period, the impact was largely mitigated by management actions, with the result that the underlying EBITDA margin grew by +130bps on a LFL basis5. (The reported margin of 17.3% was the result of the optical margin dilutive effects of acquisitions made during the period - dilution that will, as achieved with previous acquisitions, be offset by synergy benefits as the businesses are integrated into Victoria).

5 LFL margin variance calculated by normalising the impact of acquisitions

www.victoriaplc.com stock code: VCP 5

OPERATIONAL REPORT BY DIVISION

UK & Europe Soft Flooring - operating margin +190bps

	H1 FY22	H1 FY21
Revenue	£214.0 million	£126.0 million
Absolute growth %	69.8%
LFL growth %	48.4%
Underlying EBITDA margin	18.0%	15.2%
LFL margin variance %	+190bps

The UK & Europe Soft Flooring division again delivered an extremely strong result.

There were two prime reasons for this very pleasing outcome:

1. Inflationary pressures seen in raw materials and energy costs were quickly addressed by our operational management with more than one selling price increase in the year to date. Mitigating actions will continue whilst input prices remain under pressure, balancing as always between margin and growth. Victoria's level of service, which is highly valued by retailers, has ensured a significant degree of acceptance of these increases and demand for our product remains strong.
2. The Group's operational management anticipated the possibility of supply chain disruption and consequently increased raw material inventory ahead of many of our competitors. These higher-than-normal holdings of raw materials safe-guarded service levels and further contributed to Victoria's reputation as a reliable supplier of product, which leads to increased wallet share.

Specific initiatives during the period included:

Carpet Manufacturing

• Broadloom carpet has maintained a remarkably consistent market share over the last 15 years at c.60% of the UK residential flooring market. Different types of hard flooring (such as tiles, laminates, LVT, hardwoods, etc) have been used by consumers in kitchens, entrances, and bathrooms during this period, but carpet predominates in the other areas of the house. Accordingly, we continue to invest in our UK factories to improve both productivity and output.
• The relocation of the Westex operations (plant, offices and showroom) to Dewsbury was completed during the period, which finalised our major production optimisation plan in the UK.