When I spoke to chief executive Geoff Wilding following Victoria’s latest H1, his first comment was that Victoria is now a £1.5bn revenue run rate company. He adds that his main goal for the next 12 months is not further acquisitions; instead his plan is to optimise free cash flow generation and focus on operational efficiencies, synergies and working capital.
As it was, H1 23 was strong. Revenue rose 59% to £776m including 7.7% like-for-like organic growth and EBITDA increased 18.5% to £100.1m.
Clearly the flooring market has become more challenging recently but Victoria has benefited from portfolio diversification - both by product and geographically. While some areas - notably the UK - are seeing relatively weak demand, Wilding says this is mostly at the low end where consumers are hit by rising mortgage and energy costs and its mid-high price point carpet brands (eg. Westex and Victoria) are resilient. Meanwhile overseas it continues to trade well; Australia is strong and European ceramics (Italy and Spain) is also going well as it sells much of its output into Eastern Europe and the Middle East.
Other challenges are, of course, its rising costs with gas in particular the biggest concern for ceramics manufacture in Spain and Italy as it runs big ovens (150-200m long and heated to 1400 degrees and described by Wilding as being literally a volcano). But he says that its energy costs are fixed for the near term and consequently ceramics achieved the same margin as in H1 22 and so there has not been much impact. In fact, group EBITDA margins moved to 13% from 16% in FY22, reflecting an acquisition mix effect and cost inflation pass-through.
However, being mindful of potential gas rationing shutting down plants, Wilding has lifted inventory of finished goods by £60m in the July - September period, which was responsible for the jump in net debt from £407m to £651m. All Victoria’s debt is funded by bonds and the Koch preference shares (pre-Koch preference share net debt of 3.4x EBITDA) but neither carries covenants. Some listed bonds redeemable in 2026-8 carry an interest rate of 3.6%, says Wilding but as they are trading at 80% of face value, he will be looking to buy them back. Victoria has >£250m in cash and undrawn credit lines.
Finally, Wilding says the relocation of four rug/carpet factories acquired with Balta to Wales and Turkey is underway. The first factory closed last month and the big bits of equipment have been hulked over. The redundancy of 260 workers will save £1m a month. All four sites will have gone by December 2023.
Peel Hunt forecasts eps of 48.9p for the current year to end March, lifting to 54.7p next year. I suspect that with decent scale, the business will end up being acquired by Koch sometime in the next 18 months. Strong hold.
