Half Yearly Report

17 November 2014

Victoria PLC

('Victoria', the 'Company', or the 'Group')

Half Year Results

for the 26 weeks ended 27 September 2014

Victoria PLC (AIM: VCP), a manufacturer, supplier and distributor of design-led carpets and other floorcoverings, is pleased to announce its Half Year results for the 26 weeks ended 27 September 2014.

Financial Highlights

· Group revenue increased by 17.3% to £40.51m (23.7% in constant currency terms). The acquisition of Globesign Limited ('Westex') in H2 of the prior year is the key contributor to this like for like improvement.

· The Group reported a record H1 profit before tax from continuing operations (pre exceptional items*) of £2.40m compared to a profit of £0.50m for the same period last year.

· Exceptional items included a £7.55m charge in relation to the Contract for Differences between the Company and Camden Holdings Limited which was terminated in July 2014. Of the £8.12m exceptional charge in the period, £7.87m related to non-cash items.

· Net debt has increased by £18.72m from the year end to £20.20m following the special dividend payment of £20.70m in July 2014.

· The Group remained cash generative from operating activities.

· Post period end, the Group attracted significant long term capital from the Business Growth Fund of £10m.

Operational Highlights:

· The Group continued to focus on generating cash, whilst looking for opportunities to further improve the efficiency of the significantly expanded operations.

· New product ranges successfully launched in the period to address evolving market trends.

· The acquisition of Abingdon Flooring Limited ('Abingdon') was completed three days post period end, broadening the Group's product range and providing the opportunity for significant operational synergies. Abingdon was one of the UK's largest privately owned manufacturers of quality carpets, producing a wide range of products under their market leading brands of Stainfree, Wilton Royal and Distinctive Flooring. For the financial year ended 31 March 2014 Abingdon generated turnover of £75.1m, operating profit of £2.5m and profit before tax of £2.2m.

Geoff Wilding, Chairman of Victoria PLC commented:

"Progress continues at Victoria, with a record H1 profit of £2.4m before exceptional items.

"Although Victoria has grown significantly in the last 12 months, the Group's revenues still represents only a tiny fraction of the markets in which it trades. There is both potential for sales to increase in line with the market and the opportunity to grow market share.

"The board believes it has an appropriate strategy to further improve the Group's performance and is focussed on its execution."

- Ends -

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Chairman's Statement

I am pleased to report to shareholders that progress has continued to be made at Victoria and the Group's trading performance in the first half of the current financial year has been encouraging.

Key financial and operational highlights from the first half include:

· A record H1 profit of £2.4m before exceptional items. Despite significant increase in some raw material prices, particularly wool, a continued focus on operational efficiencies and the full integration of Westex into the Group has resulted in a very satisfactory outcome.

· Payment of a special dividend in July 2014 brought the total dividends received by shareholders in the last 12 months to £3. Camden Holdings Limited subsequently terminated its Contract for Differences with 100% of the proceeds reinvested into the Company by way of a share subscription.

· Net debt increased since the end of the financial year to £20.2m. However, the Group remained cash generative during this period and the increased debt is due solely to the payment of the special dividend in July 2014.

· On 30 September 2014 (three days after the half year end) Victoria completed the acquisition of Abingdon Flooring Limited. Abingdon was one of the UK's largest privately owned manufacturers of quality carpets, producing a wide range of products under their market leading brands of Stainfree, Wilton Royal and Distinctive Flooring. All key senior management will be remaining with the business and it will continue to operate independently, whilst benefiting from the synergies of an enlarged Group, in its ongoing drive for growth. For the financial year ended 31 March 2014 Abingdon generated turnover of £75.1m, operating profit of £2.5m, profit before tax of £2.2m and net assets were £8.2m (Year ended 31 March 2013: turnover £70.3m, operating profit of £1.6m, profit before tax of £1.4m).

· Abingdon is a very well run business that both broadens the product range of the Group and provides the opportunity for significant operational synergies. Victoria has now made two acquisitions aimed at delivering a comprehensive product offering to our retailers. Although we have identified - and are executing - a number of earnings-enhancing synergies, each business will continue to retain management autonomy. It is our view that this provides flexibility, ensures accountability, and keeps management closer to the customer where needs are more readily identified and met.

· Also on 30 September 2014 the Business Growth Fund invested £10m in the form of a fully subordinated Growth Bond. This long term capital provides the Company with considerable flexibility in terms of its financing arrangements.

Outlook

We are increasingly encouraged by market conditions.

· Although consumer confidence in the markets in which Victoria operates (Australia and the UK) is not high, there are signs that it is improving.

· The single most critical driver of carpet sales are housing transactions - the number of houses bought/sold in a market. Although there is a time delay between the two events (typically around 18 months) housing sales are higher in both Australia and the UK than they have been for a number of years.

· Shareholders should be encouraged to hear that many employees have in recent months become shareholders - bought with their personal cash - and the motivation, commitment, and belief in the business this engenders should not be underestimated.

· Although Victoria has grown significantly in the last 12 months, the Group's revenues still represents only a tiny fraction of the markets in which it trades. This means that not only is there potential for sales to grow as the market grows, but there is also the opportunity to grow market share.

This is not to say we will have it all our own way. Competition remains intense and raw material prices are increasing, both of which keep margins under pressure. We are therefore constantly exploring ways to operate more efficiently. Our increased scale is helping materially with this task.

The Board believes it has an appropriate strategy to further improve the Group's performance and is focussed on its execution.

Risks

It is a key function of the board to identify and manage, where possible, material risks to the business. These risks include market demand, competitive pressures, IT and key plant failure, raw material prices, loss of key staff, and regulatory or legislative changes.

Half-year dividend

As indicated at the time of the Annual Report, the Board has decided it will not declare an interim dividend this year given the very substantial special dividend paid in July 2014.

Geoff Wilding

Chairman

Condensed Consolidated Income Statement

For the 26 weeks ended 27 September 2014 (unaudited)

The Consolidated Income Statement for the 26 weeks ended 28 September 2013 has been re-stated due to the sale of Colin Campbell & Sons Limited on 28 March 2014, which is now shown separately under discontinued operations.

Condensed Consolidated Statement of Comprehensive Income

For the 26 weeks ended 27 September 2014 (unaudited)

Condensed Consolidated Balance Sheet

As at 27 September 2014 (unaudited)

Condensed Consolidated Statement of Changes in Equity

For the 26 weeks ended 27 September 2014 (unaudited)

Condensed Consolidated Statement of Cash Flows

For the 26 weeks ended 27 September 2014 (unaudited)

Notes to the Condensed Half-year Financial Statements

1. General information

These condensed consolidated financial statements for the 26 weeks ended 27 September 2014 have not been audited or reviewed by the Auditor. They were approved by the Board of Directors on 14 November 2014.

The information for the 52 weeks ended 29 March 2014 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The Auditor's report on those accounts was unqualified and did not include a reference to any matter to which the Auditor drew attention by way of emphasis without qualifying the report and did not contain statements under Section 498(2) or 498(3) of the Companies Act 2006.

2. Basis of preparation and accounting policies

These condensed consolidated financial statements should be read in conjunction with the Group's financial statements for the 52 weeks ended 29 March 2014, which were prepared in accordance with IFRSs as adopted by the European Union.

The accounting policies and basis of consolidation of these condensed financial statements are consistent with those applied and set out on pages 20 to 25 of the Group's audited financial statements for the 52 weeks ended 29 March 2014. 

Having reviewed the Group's projections, and taking account of reasonably possible changes in trading performance, the Directors believe they have reasonable grounds for stating that the Group has adequate resources to continue in operational existence for the foreseeable future.

The Directors are of the view that the Group is well placed to manage its business risks despite the current challenging economic and market conditions. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements of the Group.

3. Segmental information

The Group is organised into two operating divisions: The UK and Australia. 

Geographical segment information for revenue, operating profit and a reconciliation to Group net profit is presented below:

* Profit from discontinued operations relates to the Canadian operation Colin Campbell & Sons Limited, which was sold on 28 March 2014. The result is shown net of tax.

Intersegment sales between the Group's subsidiaries were immaterial in the current and comparative periods.

4. Exceptional items

All exceptional items are classified within administrative expenses.

(a) Relates to the Contract for Differences between the Company and Camden Holdings Limited. The contract was terminated on 28 July 2014 and resulted in the issue of 7,087,730 new shares on 29 July 2014 to Camden Holdings Limited, a company wholly owned by The Camden Trust of which Mr Wilding, Executive Chairman, is the settlor and a discretionary beneficiary. The value of the contract on termination was £9.0m, of which £1.6m was accounted for in the financial period ended 29 March 2014. The exceptional charge in the period also includes £0.15m of related professional fees.

(b) Relates to the increase in the fair value of the deferred consideration payable to the vendors of Globesign Limited. Under IFRS 3, deferred consideration is measured initially at fair value at acquisition date. Subsequently, IFRS 3 requires deferred consideration to be remeasured at each period end. This takes into account changes in the time value of money and any adjustments to future anticipated profit levels which would impact on the value of the earn-out. At this stage, the increase in fair value purely reflects the fact that we are six months closer to settlement of the potential earn-out liability. This charge is a non-cash item in the period.

(c) Relates to professional fees in connection with the acquisition of Abingdon Flooring Limited, which was acquired after the period end on 30 September 2014.

(d) Relates to costs associated with "right-sizing" and reorganising the two Australian spinning mills to meet reduced volume requirements as a result of declining demand for woollen yarns. The smaller of the two spinning mills was closed during the first half period and production ceased at the end of June 2013. Key items of equipment were relocated to the mill at Bendigo, which has improved efficiencies at this mill.

Of the above £8.12m exceptional charge in the current period, £7.87m relates to non-cash items.

5. Tax

The overall corporation tax is calculated at 24.0% (2013: 26.7%), representing the best estimate of the weighted average corporation tax charge expected for the full financial year. 

6. Earnings per share

The calculation of earnings per ordinary equity share in the parent entity is based on the following earnings and number of shares:

7. Dividends

8. Notes to the cash flow statement

a) Reconciliation of operating (loss)/profit to net cash inflow from operating activities

b) Analysis of net debt

9. Post balance sheet events

(a) Acquisition

The Company acquired Abingdon Flooring Limited and its wholly owned subsidiaries, Alliance Distribution Limited and Distinctive Flooring Limited, on the 30 September 2014 for an initial cash consideration of £7.655m. Additional deferred cash consideration of up to £4.5m will be payable if annual performance targets are achieved over a three year period. For the financial year ended 31 March 2014 the Abingdon Flooring Limited Consolidated Group generated turnover of £75.1m, operating profit of £2.5m, profit before tax of £2.2m and net assets were £8.2m.

(b) 2022 Unsecured Loan Note Facility

The acquisition of Abingdon Flooring Limited and its wholly owned subsidiaries has been funded using facilities provided by the Company's long-standing bankers, Barclays Bank, and a fully subordinated £10m unsecured loan note facility provided by the Business Growth Fund ('BGF'). The Loan Note carries a fixed coupon of 10%, but with no capital repayment for the first five years, and capital then being repaid over the following three years. BGF has also been granted an option over 746,000 new Victoria Plc ordinary shares, representing 5% of the Company's share capital.

10. Rates of Exchange

The result of the Group's overseas subsidiary has been translated into Sterling at the average exchange rates prevailing during the periods. The balance sheets are translated at the exchange rates prevailing at the period ends:

11. Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance and the factors which mitigate these risks have not changed from those set out on page 8 of the Group's 2014 Annual Report, a copy of which is available on the Group's website - www.victoriaplc.com. The Chairman's Statement includes consideration of uncertainties affecting the Group in the remaining six months of the year.