Preliminary Results

26 July 2016

Victoria PLC

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

Preliminary Results

for the year ended 2 April 2016

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its preliminary results for the year ended 2 April 2016.

Financial and Operational Highlights

· Group revenue grew by 101% (106% in constant currency terms) from £127.0m to £255.2m

· UK revenue grew by 115% and Australia by 64.6% (80.4% in constant currency terms) during the year. Group annualised like-for-like revenue growth was circa 3.0%

· Successful integration of the acquired businesses in the year - Quest Carpets and Interfloor Group. Both acquisitions have been materially earnings-enhancing

· Group operating profit increased more than 8 times from £2.1m to £17.7m. Underlying operating profit (before the deduction of exceptional and non-underlying items) more than doubled from £9.4m to £21.9m

· Free cash flow3 from continuing operations before exceptional items of £17.2m (2015: £10.0m)

· Group net debt of £61.1m, with adjusted net debt / EBITDA4 having reduced from circa 2.25x at the half-year to 1.85x at the year-end

· Disposed of a non-core yarn spinning operation during the first half of the year

· Risk to the Group of the UK's exit from the European Union is mitigated by the UK Division not being heavily reliant on imports or exports, and the Australia Division being operationally and commercially independent

· Current outlook for both the UK and Australia is positive, with the Group having enjoyed a strong start to the current financial year.

1. Underlying performance is stated before the impact of exceptional items, amortization of acquired intangibles and asset impairment within operating profit. Underlying profit before tax and adjusted EPS are also stated before non-underlying items within finance costs (comprising mark-to-market adjustments, BGF redemption premium charge, release of prepaid finance costs and deferred consideration fair value adjustments within finance costs)

2. Basic and basic adjusted earnings per share calculations set out in Note 4

3. Free cash flow represents cash flow before financing activities and acquisition related items

4. As measured in relation to the Group's bank facility covenants

Geoff Wilding, Executive Chairman of Victoria PLC commented:

"The year was a very successful one for Victoria. The Board's commitment to creating wealth for shareholders delivered further scale both through the earnings-enhancing acquisitions of Quest and Interfloor, and organic growth by achieving operational efficiencies throughout the Group.

"The strong revenue performance achieved in the UK and Australia has continued post-period end. The Group have seen no drop off in demand for their products since the EU referendum in June and Victoria has enjoyed a strong start to the current financial year."

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Chairman's Statement

"A good plan violently executed today, is better than a perfect plan next week"

- General George Patton

All - or at least most - management teams have a written business plan. Most seem to run to many pages complete with indexes, appendices, lots of colourful charts, flow diagrams, and financial projections - purporting to be accurate to two decimal places - from now until the end of time. Victoria's business plan isn't anywhere near so grand; it fits on a single piece of A4 paper. I wouldn't want to claim it is the most brilliant business plan ever devised but it is simple, clear - and wholly focussed on the mission: "To create wealth for shareholders". Most importantly, it seems to work and the main reason for this is execution.

The operational management team at Victoria is simply extraordinary at getting on with making things happen. They are already half way around the track when competitors are still putting on their running shoes! Remember, our entire management team consists of successful entrepreneurs who have built their businesses over many years - through all economic cycles - in order to become one of the very few outstanding companies Victoria has acquired. It is difficult to overstate the benefit to Victoria of their experience and commitment. They have strong opinions and do not hesitate to express them. We operate as a 'team of teams', sharing information and co-operating extensively to increase earnings and reduce risk while maintaining a very flat management structure. During the period we continued to seek opportunities to improve operations through better buying terms with suppliers, greater logistic efficiencies and the joining up of manufacturing capabilities.

As a result I am pleased to advise shareholders that Victoria's financial strength continued to improve in FY16:

• Group revenue grew by 100.9% (105.9% in constant currency terms) from £127.0m to £255.2m

• Underlying Group operating profit more than doubled from £9.4m to £21.9m

• Underlying Group profit before tax substantially increased from £7.9m to £18.2m

• After exceptional items, the Group recorded a profit before tax of £9.3m, compared with a £1.6m loss before tax in the prior year

• Group net debt as at year-end was £61.1m, less than two times annualised EBITDA

* before non-underlying and exceptional items

It is important to understand that there is little seasonality between the two halves of our financial year and, obviously, much of the revenue growth has been the result of the two acquisitions we made mid-way through the year - Quest Carpets (in August) and Interfloor Group (in September). However shareholders can be particularly encouraged by the realisation of operational synergies, which can be seen in the improved operating margins, and which have driven significantly enhanced like-for-like performance in the businesses that have been part of Victoria since the start of the year. More remains to be done - the process is on-going and never-ending - but the benefits of the Group's strategy of achieving scale through acquisitions are already becoming clear, with underlying profit before tax up by over 130%.

To illustrate this further I thought it might be useful for shareholders to understand a little more about the scale of the impact Victoria is having on the businesses we have acquired and why over the last three years we have had 12 profit upgrades by equity research analysts.

· The five companies acquired by Victoria, at an average cost of under 6x historical EBITDA, delivered a consolidated operating profit in FY16 that was approximately £3.5m higher than the aggregate of the operating profits achieved in their respective 12 month periods prior to acquisition.

· The underlying operating profit margin across the acquired businesses has increased by approximately 130 basis points, driven by successfully delivered cost synergies.

· There has been a focus on stock management, resulting in an improvement in average stock turn across the acquired businesses from 3.2x in FY15 to 3.7x in FY16, resulting in approximately £7.5m less cash tied up in working capital and a much reduced risk of obsolete stock.

There is no reason we cannot continue to have this - and more - positive effect on businesses as they are acquired to the benefit of Victoria's shareholders.

Dividend

I have previously highlighted that one of the attractions of carpet manufacturers is the amount of cash that they generate.

This year, Victoria's pre-exceptional operating cash flow was £32.8m and free cash flow (i.e. after interest, tax and net capital expenditure) was £17.2m.

As a result, it is the Board's expectation that in the medium term Victoria will be capable of paying an attractive dividend. However, in the short term, we remain of the view that the most wealth will be created for shareholders by deploying the free cash flow generated by Group businesses towards paying down debt quickly and acquiring other high quality flooring manufacturers in the UK and overseas.

Therefore we have resolved not to pay a dividend for FY16.

Appointment of Group Finance Director

Victoria was fortunate in January to secure the appointment of Michael Scott as the Group's Finance Director. Prior to his appointment, Michael spent eight years at Rothschild where, as part of their Global Financial Advisory business, he worked across a wide range of public and private company transactions, M&A and debt and equity-related fund raisings. He qualified as a Chartered Accountant with PricewaterhouseCoopers.

His experience of the PLC-world and corporate finance strengthens the Board and will be invaluable in the continued execution of our business plan.

Outlook

Both markets in which Victoria trades - the UK and Australia - continue to perform well and the Group has enjoyed a strong start to the current financial year.

UK

The ludicrous over-reaction to the outcome of the EU referendum complete with hyper-ventilating commentators and hysterical luvvie wittering has become more balanced recently. Although there will inevitably be further ups and downs over the months ahead, I expect the UK's decision to leave the EU to be positive for the Group's competitiveness in the foreseeable future.

There are several reasons for this:

· More than half the carpet sold in the UK is manufactured in Europe, primarily Belgium and the Netherlands. Therefore although a weaker pound may increase some of our raw material costs slightly, it also makes this imported product materially more expensive and, as a result, offers Victoria the opportunity to grow its market share, particularly with larger retailers and some of the buying groups who currently source a significant portion of their product offering from the Continent.

· General treasury risk for the Group is also limited. We have only a small amount of non-sterling (AUD) denominated debt, which is naturally hedged against the Australian business earnings. We always match our foreign currency liabilities to our income - we are flooring manufacturers, not currency traders.

· The Group exports a negligible amount of product to the EU.

· Approximately 20% of the Group's earnings come from its Australian operations and a weaker pound will result in higher profits when translated into GBP.

More generally, the UK business has seen positive trading since the start of the year. Possibly due to the changes in stamp duty, consumers appear to be choosing to invest more in their existing home rather than moving. There is no quicker or more dramatic way to improve the appearance and style of a home than upgrade the flooring.

Australia

The Australian flooring market is also experiencing good demand from consumers following the recent election. The weakness in the Australian dollar (against Sterling) throughout FY16 impacted the paper translation of earnings but has had no impact on revenues or margins within the Australian trading businesses. This situation has, of course, reversed with the recent weakness in Sterling and assuming it continues will result in materially higher Sterling earnings for the current financial year.

Conclusion

At Victoria we are constantly seeking ways to maximise expense variability while maintaining tight control over costs and inventory to ensure that the group is well positioned should trading conditions change.

We continue to identify and explore acquisition opportunities both in the UK, the Continent and further afield. Some happen; some don't. We maintain very strict criteria and strong price discipline to ensure acquisitions will continue to be earnings enhancing and a useful tool to both strengthen the Group and create wealth for shareholders.

In summary, the outcome of the EU referendum has no immediate impact on the Group's growth plans, nor have we seen any change in demand for our products. Therefore I am pleased to say the Board faces the 2017 financial year with considerable confidence that we will continue to deliver increasing levels of earnings for our shareholders.

Geoffrey Wilding

Executive Chairman

Strategic Report

Business overview

Victoria PLC is a leading designer, manufacturer and distributor of innovative flooring products. The Group is headquartered in the UK, with operations across the UK and Australia employing over 1,600 people across 12 sites.

The Group manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of complementary LVT (luxury vinyl tile) and hardwood flooring products produced by third-party manufacturers.

A review of the performance of the business is provided within the Financial Review.

Business model

Victoria's business model is underpinned by five integrated pillars:

1. Superior customer offering

Offering a range of leading quality and complementary flooring products across a number of different brands, styles and price points, focused on the mid-to-upper end of the market.

2. Sales driven

Highly motivated, independent and appropriately incentivised sales teams across each brand and product range, ensuring delivery of a premium service and driving profitable growth.

3. Flexible cost base

Multiple production sites with the flexibility, capacity and cost structure to vary production levels as appropriate, in order to maintain a low level of operational gearing and maximise overall efficiency.

4. Focused investment

Appropriate investment to ensure long-term quality and sustainability, whilst maintaining a focus on cost of capital and return on investment.

5. Entrepreneurial leadership

A flat structure with a team of eight senior managers running the daily business, with income statement 'ownership' and linked incentivisation, and who work closely with the PLC Board to plan and implement the medium-term strategy.

Strategy

The Group's successful strategy in creating wealth for its shareholders has not changed and continues to be to deliver profitable and sustainable growth, both from acquisitions and organic drivers.

In terms of acquisitions, the Group continues to seek and monitor good opportunities in key target markets that will complement the overall commercial offering and help to drive further improvement in our KPIs. Funding of acquisitions is primarily sought from debt finance to maintain an efficient capital structure, insofar as a comfortable level of facility and covenant headroom can be achieved.

Organic growth is fundamentally driven by the five pillars of the business model highlighted above. In addition, the Group continues to seek and deliver synergies and transfer best operating practice between acquired businesses, both in terms of commercial upside, and cost and efficiency benefits to drive like-for-like margin improvement.

Key performance indicators

The KPIs monitored by the Board and the Group's performance against these are set out in the table below.

1 Underlying return on operating assets = underlying operating profit (earnings before interest, taxation and non-underlying items) for the year / (year-end total equity + net debt)

2 As measured in line with our bank facility covenants

All of these KPIs have improved during the year, other than adjusted net debt / EBITDA which has remained broadly flat. Underlying return on operating assets has seen a 63 basis point improvement, driven by the impact of acquisitions in the year as well as cost synergies which were successfully delivered.

Further commentary on these KPIs is provided in the Financial Review.

Principal risks and uncertainties

The Board and senior management team of Victoria identifies and monitors principal risks and uncertainties on an ongoing basis. These include:

Competition - the Group operates in mature and highly competitive markets, resulting in pressure on pricing and margins. Management regularly review competitor activity to devise strategies to protect the Group's position as far as possible.

Economic conditions - the operating and financial performance of the Group is influenced by economic conditions within the geographic areas within which it operates, in particular the UK, Australia and the Eurozone. Currently, a key uncertainty around the UK and Eurozone economic outlook is driven by the proposed exit of the UK from the European Union ('Brexit'). The risk of Brexit for the Group is mitigated by the UK Division not being heavily reliant on imports or exports, and the Australia Division being operationally entirely independent. The Group remains focused on driving efficiency improvements, cost reductions and ongoing product development to adapt to the current market conditions.

Key input prices - a material adverse changes in certain raw material prices, in particular wool and synthetic polymer or yarn, could affect the Group's profitability. A proportion of these costs are denominated in US Dollars and Euros which gives rise to foreign exchange risk, which is currently impacted in the UK by the uncertainty in medium-to-long term exchange rates against Sterling in light of Brexit. Key input prices are closely monitored and the Group has a sufficiently broad base of suppliers to remove arbitrage risk, as well as being of such a scale that it is able to benefit from certain economies arising from this. Furthermore, whilst there is some foreign exchange risk beyond the short-term hedging arrangements that are put in place, the vast majority of the Group's cost base remains in domestic currency (Sterling and Australian Dollars for the two Divisions, respectively) and in the UK this could ultimately result in a competitive advantage versus companies exporting to the UK from Continental Europe.

Acquisitions - acquisition-led growth is a key part of the Group's ongoing strategy, and risks exist around the future performance of any potential acquisitions, unforeseen liabilities, or difficulty in integrating into the wider Group. The Board carefully reviews all potential acquisitions and, before completing, carries out appropriate due diligence to mitigate the financial, tax, operational, legal and regulatory risks. Risks are further mitigated through the retention and appropriate incentivisation of acquisition targets' senior management. Where appropriate the consideration is structured to include deferred and contingent elements which are dependent on financial performance for a number of years following completion of the acquisition.

Other operational risks - in common with many businesses, sustainability of the Group's performance is subject to a number of operational risks, including major incidents that may interrupt planned production, and the recruitment and retention of key employees. These risks are monitored by the Board and senior management team and appropriate mitigating actions taken.

Corporate responsibility

Victoria PLC is committed to being an equal opportunities employer and is focused on hiring and developing talented people.

The health and safety of our employees, and other individuals impacted by our business, is taken very seriously and is reviewed by the Board on an ongoing basis.

The Board is reviewing the requirements of the Modern Slavery Act 2015 and the Company's statement will be released in due course.

As a manufacturing and distribution business, there is a risk that some of the Group's activities could have an adverse impact on the local environment. Policies are in place to mitigate these risks, and all of the businesses within the Group are committed to full compliance with all relevant health and safety and environmental regulations.

Geoffrey Wilding Michael Scott

Executive Chairman Group Finance Director

Financial Review

The Group continued its significant development during the year to 2 April 2016, in particular as a result of the acquisitions of Interfloor Group in the UK and Quest Carpets in Australia. The integration of both of these businesses has been successfully completed.

Revenue

Group revenue from continuing operations doubled during the year from £127.0m to £255.2m. This comprises 115% annual growth in the UK Division and 80% annual growth in the Australia Division on a constant currency basis.

1 Revenue growth at constant currency is calculated applying the same GBP:AUD exchange rate to both years of 2.0327 (being the average exchange rate during the year ended 2 April 2016).

This growth was primarily a result of the contribution from acquisitions, both in terms of the acquisitions in the year of Quest Carpets and Interfloor Group, and the full-year beneficial impact of Abingdon Flooring and Whitestone Weavers group, which were acquired during the previous financial year.

In addition, the underlying business has continued to perform strongly, delivering average organic revenue growth across the Group of over 3.0%2, driven by increased sales volumes.

2 Organic annual growth is assessed on the basis of including a full year of revenue or sales volumes for all businesses acquired up to 2 April 2016, both in the year ended 2 April 2016 and in the prior year ended 28 March 2015. Figures are adjusted as required for the 53 week period to indicate like-for-like growth. Revenue from Australia is converted at constant currency (GBP:AUD of 2.0327).

Gross profit

Gross margin for the Group noticeably improved by 93 basis points in the year from 32.5% to 33.4%, thereby delivering 107% growth in consolidated gross profit from £41.3m to £85.2m.

1 Annualised gross margin is assessed on the basis of including a full year of contribution for all businesses acquired up to 2 April 2016, both in the year ended 2 April 2016 and in the prior year ended 28 March 2015. Contribution from Australia is converted at constant currency (GBP:AUD of 2.0327).

The underlying profitability of the Group increased by a much greater margin during the year; although this has been offset in the reported figures by the impact of the UK acquisitions on the relative mix of existing high-end UK product categories. As a result, whilst the reported UK numbers show a small 22bps decline in gross margin, annualised figures1 show an underlying year-on-year improvement of 257 basis points. On the same basis at a Group level, the underlying gross margin has improved by 211 basis points.

The uplift in underlying gross margin was driven primarily by operational improvements including the impact of cost synergies which were successfully delivered following acquisitions.

Expenses

Underlying distribution and administration costs increased by 97% from £32.2m to £63.6m, slightly less than the relative percentage increase in revenue.

There were also a number of non-underlying and exceptional operating expenses incurred during the year, totalling £4.2m. Amortisation of acquired intangibles - a non-cash expense - increased from £0.3m in the prior year to £2.3m, of which £1.5m relates to Interfloor Group which was acquired during the year. A further £0.6m of costs in the year relate to the closure of a small non-core part of UK operations and a specific fixed asset impairment; and the remaining £1.3m predominantly relates to exceptional fees in respect of acquisitions and disposals.

Operating profit

Reported operating profit (earnings before interest and taxation) increased during the year by over 8 times, from £2.1m to £17.7m.

After removing the non-underlying and exceptional items listed above, underlying operating profit of £21.9m was delivered during the year, a 133% increase over the prior year. This growth comprised 99% annual growth in the UK Division and 216% annual growth in the Australia Division, plus a small decrease in central expenses.

The Group's underlying operating margin has, of course, been impacted by the same change in UK product mix as a result of acquisitions, as described above in relation to gross margin. Nevertheless, a 117 basis point improvement, from 7.4% to 8.6%, was achieved during the year.

Underlying profit before tax grew 130% in the year to £18.2m.

Taxation

The reported tax charge in the year was £3.3m against a reported pre-tax profit of £9.3m, giving an effective tax rate of 36.0%. This was distorted by the impact of the exceptional and non-underlying costs, the majority of which have been treated as non-deductible for corporation tax purposes. The underlying effective tax rate measured against adjusted profit before tax is 23.6%.

Earnings per share

Basic earnings per share from continuing operations were 36.1p in the year, compared with a reported loss in the prior year of (27.4p). Although the prior year result was distorted by the substantial non-cash settlement of the Contract for Differences, there has, nonetheless, been significant growth in the underlying business, with adjusted earnings per share (before non-underlying and exceptional items) increasing from 52.9p to 84.4p.

Operating cash flow

The Group delivered underlying EBITDA in the year of £32.3m, an increase of 104% on the prior year.

Cash flow from operating activities before interest, tax and exceptional items was £32.8m, which represents a conversion of over 100% of underlying EBITDA. This is an 84% increase on the prior year operating cash flow, with a similar EBITDA conversion ratio.

Pre-exceptional free cash flow of the Group - after interest, tax and net capital expenditure - was £17.2m. Compared with underlying operating profit (i.e. post-depreciation), this represents a conversion ratio of 78%. This was lower than the prior year due to an increase in capital expenditure of £5.1m.

Net debt

As at 2 April 2016 the Group's net debt position was £61.1m. This compares with £35.7m as at the previous year-end, 28 March 2015. Of this £25.4m increase, a net £1.0m was due to translational differences on Australian dollar denominated net debt. The principal reason for the remaining increase in net debt during the year was due to acquisitions.

Applying our banks' adjusted measure of financial leverage, the Group's year-end net debt to EBITDA ratio was 1.85x, almost in line with the equivalent ratio at the previous year-end.

1 As measured in line with our bank facility covenants

Accounting standards

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed and adopted for use in the EU. There have been no changes to IFRS this year that have a material impact on the Group's results.

This year, we have made a change to our accounting policies in relation to the treatment of expenditure on sampling fixed assets. These assets, comprising both flooring samples and display units on which samples are presented, are held by our retail customers to assist in marketing and selling to end consumers. Under the previous accounting treatment, expenditure on these assets was expensed as incurred, despite relating to revenues generated in future periods. In order to correct this and appropriately match the investment to the revenues generated, as well as to recognise the existence of the assets being held in our customers' stores, this expenditure is now capitalised and depreciated over a period of 24 months. Details of the impact of this change on the Groups' current year and prior year results (reflecting the Group's performance had this accounting policy been adopted historically) is set out in Note 11 to the financial statements.

There have been no other material changes in the accounting policies of the Group and its subsidiaries this year.

Funding and going concern

As reported in the last annual report, in April 2015 the Group entered into a new multi-currency revolving credit facility with Barclays and HSBC. This facility was used, in part, to fund the acquisitions of Quest Carpets and Interfloor Group. These banks continue to be supportive of the business and, in May this year, agreed to extend the Accordion facility option to provide further headroom for future growth.

The bank facility is subject to various financial covenants measured against Group results; and all such covenants have been satisfied to date.

The current facilities across the Group provide sufficient capacity in Sterling, Australian Dollars and Euros to cover all anticipated capital expenditure and working capital requirements during the year ahead.

The consolidated financial statements for the Group have been prepared on a going-concern basis. The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's Statement, the Strategic Review and this Financial Review.

Having reviewed the Group's budgets, projections and funding requirements, and taking account of reasonable 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. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Michael Scott

Group Finance Director