Preliminary Results & Q1 FY2021 Update

RNS Number : 4463U

Victoria PLC

29 July 2020

 

For Immediate Release

29 July 2020

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Victoria PLC

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

Preliminary Results

for the year ended 28 March 2020

Q1 FY2021 Update: Revenue Recovered Strongly

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its preliminary results for the year ended 28 March 2020 and update shareholders on trading over the first three months of the Group's 2021 financial year.

Q1 FY2021 Trading Update

Revenue has recovered strongly following the ending of lockdowns in the various countries in which we operate.

Over the first quarter of the 2021 financial year, Group revenues were as follows:

(£ millions)	April	May	June	Total
UK & Europe Soft Flooring	3.1	6.9	24.5	34.5
UK & Europe Ceramic Tiles	11.8	20.2	28.2	60.3
Australia	5.3	9.4	8.6	23.3
Total	20.2	36.4	61.4	118.0
% of Pre-Covid-19 budget	35%	55%	102%	64%

Encouragingly, trading has continued to be strong since June, with order flow increasing in the UK (non-essential retail in the UK only began trading two weeks before the end of the quarter). Based on feedback from our retailers, it is the Board's view that whilst some of the revenue growth may be due to pent up demand, much of the increase comes from a renewed focus by consumers on renovating their homes following the lockdown. This influence may last for an extended period.

The Group's liquidity position remains strong. Despite the widespread lockdowns, total operating cash flow over Q1 was only c. -£7 million, similar to normal Q1 seasonality, demonstrating the flexibility and low operational gearing of Victoria's business model. The Group's net debt (excluding IFRS-16) at 30 June was c. £385 million, with current cash and undrawn credit lines in excess of £180 million.

Our strong performance through the disruption positions us well as an ongoing consolidator in the sector.

Preliminary Results for the year ended 28 March 2020

Financial and Operational highlights

Continuing operations	Year ended 28 March 2020	Year ended 30 March  2019
Revenue	£621.5m	£566.8m
Underlying EBITDA1	£118.1m	£96.6m
Underlying operating profit1	£77.1m	£70.5m
Operating (loss) / profit	£(6.5)m	£23.9m
Underlying profit before tax1	£50.7m	£57.3m
Loss before tax	£(64.0)m	£(3.7)m
Underlying free cash flow2	£39.2m	£50.4m
Net debt3	£365.9m	£339.9m
Net debt / EBITDA4	3.0x	3.2x
Earnings / (loss) per share:
- Diluted adjusted1	28.42p	35.25p
- Diluted	(55.97)p	(6.44)p

· 2020 was the seventh consecutive record year for Victoria as the Group's competitive strength continued to grow and strategic objectives were achieved.

· Like-for-like organic revenue growth achieved of +0.4% across the Group, despite double-digit revenue declines in March due to Covid-19 lockdowns.

· Achieved a record Gross Margin of 36.4% (FY2019: 35.6%).

· Underlying EBITDA on a pre-IFRS 16 basis of £107.2 million, representing a record margin of 17.3% and organic margin improvement of 70bps (netted against some dilution from lower-margin acquisitions).

· Strong cash generation continues with £39.2 million of underlying free cash flow during 2020, which equated to a 51% conversion from underlying operating profit.

· Year-end leverage was 3.0x (FY2019: 3.2x), highlighting that the Group de-levered (despite the Covid-19 impact in March).

· Due to the impact of Covid-19 the Board has prudently impaired goodwill on the balance sheet by £50 million. It is important to understand that this is a non-cash accounting adjustment and we believe that all of the historical acquisitions represent good value for money for the Group.

· Australian revenues grew by +4% in the second half of FY2020, following a -5% decline in H1 (both at constant currency) - reflecting the turnaround we foreshadowed in the Interim Report in November 2019.

· The Group refinanced its bank debt with long-dated senior secured notes ("bonds"). These bonds are not due before July 2024 and carry no maintenance financial covenants, placing the Group in a strong financial position.

¹ Underlying performance is stated before increase in credit loss provision of £2.8m in FY2020 resulting from Covid-19 (FY2019: £0.3m), and exceptional and non-underlying items, including the amortisation of acquired intangibles within operating profit.  In addition, underlying profit before tax and adjusted EPS are also stated before non-underlying items within finance costs.

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

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

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

Geoff Wilding, Executive Chairman of Victoria PLC commented:

"Victoria continued to grow both organically and by acquisition in FY2020, despite the significant impact of Covid-19 on the business from late-February, which turned what would have been a very good year into a good year.

Revenues, underlying earnings, and operating margins, all continued to grow despite the challenging market conditions.

Importantly, the Group's operational managers have executed flawlessly on their recovery plan following the ending of the various lockdowns and I am delighted to confirm that current revenues are running ahead of our pre-Covid-19 budget for FY2021.

Apart from organic growth and margin expansion from operational synergies, both of which we expect to continue over the next 12 months, there remains an enormous market opportunity for Victoria to expand both in the UK and internationally by acquisition. Events of the last few months have caused some company owners to reassess their priorities and some material acquisitions may become possible over the next few months at very attractive prices. Whilst cautious, given the current economic environment, we remain focused on increasing both earnings and free cash flow per share."

Analyst and investor presentation:

A conference call for analysts will be held at 10.00am BST today. If you would like to join the call, please contact Buchanan for details at [e-mail].

For more information contact:

Victoria PLC ([phone]) Geoff Wilding, Executive Chairman Philippe Hamers, Group Chief Executive Michael Scott, Group Finance Director	Cantor Fitzgerald Europe (Nominated Adviser and Joint Broker) ([phone]) Rick Thompson, Phil Davies, Will Goode (Corporate Finance)
Berenberg (Joint Broker) ([phone]) Ben Wright, Mark Whitmore (Corporate Broking)	Peel Hunt (Joint Broker) ([phone]) Adrian Trimmings, Andrew Clark
Buchanan Communications (Financial PR) ([phone]) Charles Ryland, Chris Lane, Victoria Hayns, Tilly Abraham

The person responsible for arranging the release of this information is Michael Scott, Group Finance Director of the Company.

Victoria PLC

Chairman and CEO Review

OVERVIEW AND COVID-19

There is an old Yiddish adage which, loosely translated, says, "If you want to make God laugh, tell him your plans". It is safe to say that when Victoria developed its business plan for 2020/21 at the start of this year, we did not factor in the complete economic shutdown in most of the various countries in which we operate. So, although most of the resulting financial impact on Victoria occurred post-balance date, due to its materiality we will begin this year's Review with some commentary on the effect of Covid-19 and the ensuing government action has had on our company.

We are pleased to confirm that Victoria is weathering the massive disruption of the last four months in a strong financial and market position, due to a number of prompt and decisive management actions, together with some inherent advantageous characteristics of the Company as a whole. Victoria has more than adequate financial liquidity, and revenues and earnings recovered rapidly once we were able to restart operations. The key reasons for this positive outcome are summarised below:

· The operational management teams in the businesses reacted quickly and decisively when the various lockdowns were announced. Many of our managers have been through a number of recessions over their long careers and although the circumstances were obviously different, their experience mattered as they adapted positively to rapidly changing conditions.

· From the moment the factories were shut down, the operational managers started planning on how they would restart. This advance planning ensured we were able to react instantly to the end of lockdown and rapidly recover revenues and win market share whilst tightly managing costs.

· The benefit of the geographic diversification of both our manufacturing plants and customers was readily apparent, as different countries began and ended their lockdowns at different times, spreading the impact over time.

· Victoria's low operational gearing has been a clear advantage. We have highlighted in previous annual reports that Victoria benefits from low operational gearing, with just c. 10% of our total cost base being fixed. As revenues declined, costs fell simultaneously. Interestingly, many companies in cyclical sectors have coped with the crisis better than businesses more used to - and geared up for - consistent revenues. Although the cyclicality in flooring manufacturing and distribution is less pronounced than what one might expect - especially in the mid-high end refurbishment market that Victoria focuses on - the operational flexibility that management have developed has helped Victoria during the lockdown.

· Victoria's raw material suppliers are diversified and tend to be local to the factories they supply. Therefore, we have experienced no supply or pricing disruption.

· The Group has a highly diversified and credit-worthy customer base, although the Board has conservatively increased the provision for credit losses (i.e. bad debts) by £2.8 million. Together with careful management by the finance team, Victoria's cash position remained robust throughout the crisis and Victoria has not accessed any government credit-line schemes and does not have any need to raise capital for normal operating activities.

· Bond refinancing. As discussed last year, Victoria is comfortable using appropriate levels of debt to improve growth rates and returns to shareholders. However, we are prudent in our approach and last year refinanced our bank debt with long-dated senior secured notes ("bonds"). These bonds are not due before July 2024 and, in themselves, carry no maintenance financial covenants, and provide an expandable capital structure appropriate for our acquisitive strategy.

Nevertheless, in a Group normally generating average monthly revenues of c. £50 million and EBITDA of c. £10 million, and with March usually being one of the best trading months of the year, the impact of the lockdown was to turn what was potentially a very good year into only a good year.

FY2020 OPERATIONAL REVIEW

Turning commentary now to operational matters through FY2020. In summary, we are confident that as a result of our actions the Group has stronger operations, more efficient production facilities, better market positioning and - notwithstanding the short term impact of Covid-19 - higher margins, and greater organic growth than two years ago, when the share price was more than three times what it is today. The impact of some of these gains can be seen in the table below:

	Underlying EBITDA per share1,2	Underlying EBITDA margin1	Diluted adjusted EPS2	Underlying operating cash flow per share2,3	EBITDA by geography1
Year	£	%	pence	£	UK %	Aus %	Eur %
FY15	0.27	12.5%	10.47	0.30	79.5%	20.5%	-
FY16	0.39	12.6%	16.32	0.40	79.3%	20.7%	-
FY17	0.50	13.8%	24.42	0.48	75.1%	23.6%	1.3%
FY18	0.64	15.2%	30.61	0.64	48.3%	22.0%	29.7%
FY19	0.79	16.8%	35.25	0.86	25.8%	9.7%	64.5%
FY20	0.86	17.3%	28.42	0.78	26.9%	7.5%	65.6%

We will set out the good progress that has been made in each division of the Group in the balance of this Review, but firstly we will highlight a few key events during the financial year.

· Successful bond issue. In two steps (July 2019 and January 2020), Victoria issued a total of €500 million Senior Secured Notes ("bonds"), which completely refinanced the Company's previous bank loans with long-dated, flexible bonds. Both issues were heavily oversubscribed, and the January issue was sold at a 5% premium to the face value, reflecting the strength of Victoria's financial position.

· Margin uplift. Following the decision in late 2018 to accept a temporary reduction to operating margins in the UK to drive top-line growth during 2019, we are pleased to confirm that as planned margins increased by 170bps in FY2020 alongside revenues increasing to of £282 million (FY2019: £273m)  against a backdrop of marked general softness in the market and despite the lockdown in March, which severely limited revenues, impacting margins and earnings in what is normally a very good trading month.

· Acquisition. The successful integration of Saloni into our Spanish ceramics business was followed by the acquisition of Ceramica Ibero in August 2019. Work on fully integrating its production facilities, with the resulting synergy benefits, is expected to be completed this year and Victoria's shareholders will benefit from the successful integration.

¹ In this report, underlying EBITDA in FY20 is stated before the impact of IFRS 16 and increase in credit loss provision at the year-end, following the Covid-19 pandemic.

² Number of shares based on diluted, weighted-average calculation consistent with diluted EPS, FY15 adjusted for 5-for-1 share split; FY16 and FY20 figures for continuing operations.

³ Underlying operating cash flow equal to underlying EBITDA less non-cash items plus movement in working capital.

UK & Europe Soft Flooring - 45% of revenue

For much of FY2020, trading conditions in the UK remained challenging with mid-single digit percentage decline in the residential flooring market across both soft and hard flooring product categories. This is not something to be overly concerned about as flooring is a cyclical business and carpet sales increase or decrease each year due to any number of factors. Following the December 2019 UK election, we saw the return of a stronger carpet market (which remains steady at about two-thirds of residential flooring sold) until the Covid-19 lockdown in March.

Nonetheless, we are pleased to advise that, despite the tough market and the dramatic fall in sales in March following the lockdown, Victoria's revenues grew to £282 million (FY2019: £273m) alongside a 170bps margin gain - as anticipated in the report to shareholders last year. All of the UK businesses performed satisfactorily in achieving this outcome, but some are worthy of particular comment.

A core element of our UK growth strategy, made possible due to the scale of our business, is our logistics operation, Alliance Distribution. 18 months ago, we made the decision to invest heavily in logistics, accepting the consequential temporary loss of some margin, in the belief that our customers - flooring retailers - would highly value reliable on-time delivery of carpet, cut precisely to size for a specific consumer order. This has meant that they can hold less inventory, freeing up cash from their working capital, and devote more space in their stores to point of sale rather than using it to warehouse product, and reduce waste, improving their margins. (Carpet is produced in rolls 25m long. However, houses rarely need exactly a full roll and retailers would invariably be left with a typical leftover 2-3m "short end", which would be thrown away. In contrast, given our high volume of orders and sophisticated cutting planning software, our wastage is much lower).

And this is exactly how it has turned out.

In addition to the above like-for-like margin gains this year, we have at the same time materially improved our competitive position as evidenced by our robust organic sales performance in an otherwise declining market in the last two years (at first due to the uncertainty caused by Brexit and latterly Covid-19). Quite simply we have benefitted from a greater share of wallet from existing retailers alongside new retailers deciding to buy from the Victoria Group due to our service proposition.

However, as discussed in previous shareholder communications, the early stages of this logistics transformation were not, to put it mildly, as flawlessly executed as they might have been. To fix the problems, we promoted one of our existing managers, Phil Yates, into the role of Head of Logistics about 18 months ago. As any tradesman hired to fix a botched DIY job will tell you, it is easier if they had done the job from the beginning. However, Phil set-to with enthusiasm and the effect has been remarkable. The cost of delivering an order has been reduced significantly and on-time deliveries, which fell to less than 50% at one point of the transformation in 2018, have recovered to over 90% - directly, and positively impacting sales. Even our managers, who are invariably more demanding and critical than our customers, are singing Phil's praises.

Furthermore, efficiency gains have meant that despite revenue growth we now have 15-20% spare capacity (depending on the time of year) in our logistics operation, permitting continued organic growth without extra capex or one-off costs. Our logistics turnaround has been a fantastic achievement and yet we are confident Phil will deliver further improvements this year.

Interfloor produces premium quality underlay that improves the longevity, underfoot 'feel', and sound insulation of carpet and LVT. John Cooper has successfully led this business for Victoria since it was acquired in September 2015 but in FY2020, he achieved something quite extraordinary.

While FY2020 revenues were down nearly 7% on last year's £73 million due to the March lockdown, and the business faced some raw material cost headwinds for much of the year, operating profits were up by c. 23% due to John's relentless focus on productivity.

Importantly, this was achieved without any material increase in capital employed in the business, meaning Interfloor has now returned over £45 million of underlying operating profit - two-thirds of its purchase price - to Victoria in four and a half years. It is because of the enthusiasm, knowledge, and execution ability of operational managers like John that Victoria will continue to succeed and out-compete other flooring manufacturers.

Following a record year in FY2019, Dave Droomers led GrassInc to another record - despite the lockdown. Focussing on the rapidly growing domestic and commercial landscaping sector,

GrassInc designs its own unique artificial turf products, imports the necessary raw materials, and contracts the manufacturing to specialist factories in Europe. In the fast-moving artificial turf sector this approach has important advantages in terms of flexibility, speed to market, operational leverage, and technology upgrades.

On the subject of management retention, we are pleased to be able to confirm that, even after the conclusion of their earn-outs, Victoria has lost no managers other than to retirement and, in one sad case, missing following a boating trip. Victoria's culture, where managers still feel - and are - running their own business, enables us to retain the services of some extraordinarily talented individuals.

In summary, the FY2020 gains in our UK & Europe Soft Flooring division (which would have been even greater but for the lockdowns in March, which is usually a good trading month) have been pleasing. However, what is even more pleasing is that - beyond the impact of lockdowns - we can see opportunities to improve further earnings and cash flow during the current financial year, which will be underpinned by UK government actions to improve the housing market, including the recently announced reduction in stamp duty: moving house is a key driver of spending on flooring.

UK & Europe Ceramic Tiles - 39% of revenue

March is typically one of the strongest (and frequently the strongest) months of the year for ceramic tile sales and the early March lockdown of our manufacturing plants alongside nominal government support in Italy and Spain significantly impacted sales and earnings. Nevertheless, excluding the contribution of Ibero, which was acquired in August 2019, EBITDA from our Ceramic Tiles division increased by 9.7% on a constant currency basis in FY2020.

Despite the disappointing finish to the year due to the lockdowns, solid progress was made by our operational management team.

In the interim financial report, we stated that one of our key objectives in the remainder of FY2020 was to find a cost-effective solution to Serra's needs for additional production capacity to avoid constraining its considerable growth opportunities. We are pleased to advise this was achieved in late February using a legal structure unique to Italy, which enabled us to lease the operations of a nearby business, complete with its plant, equipment and brands, from a virtually defunct company called Ceramiche Ascot. This agreement is a 7-year lease with a free option to acquire once the lease rentals are paid.  Since the end of lockdown, revenues at our Italian operation have recovered very quickly (nearly 100% of output is exported globally) and the management team is taking full advantage of the additional capacity this lease arrangement has provided.

In Spain, the integration of Saloni, acquired in 2018 is now complete and the management has turned its attention to integrating Ibero, which was acquired in August 2019. Ibero's low initial EBITDA margin (c. 10%) at acquisition had the effect of reducing our average ceramics margin by about 70bps, although this will normalise as a result of the integration project, which will increase Ibero's earnings.

We are also pleased to advise that, with the exception of Saloni, which has a greater focus on commercial contract work than the rest of our ceramic tile business, revenues have also recovered quickly in this division with the ending of the various European lockdowns.

Finally, we thought it might be helpful for shareholders to understand a little more about the competitive landscape in which our ceramics businesses operate as we are sometimes asked about the threat of product from low-cost countries such as Turkey and China. While we are not complacent about any competition, there are a number of factors that materially mitigate the threat:

· Firstly, the advantage of operating in a typically low-cost region is not as great as one might think. The raw materials used in the production of a ceramic tile are largely international commodities with scale having the greatest impact on the price paid. Furthermore, our factories are extremely well-invested and automated, with the resulting efficiency minimising the price advantage of cheap labour.

· Secondly, whatever small cost advantage that might exist is invariably offset by the cost of transporting the extremely heavy and bulky product to northern and eastern European markets.

· Most importantly, mainstream ceramic tiles retail for €5 to €50 per square metre. This wide price range shows that tiles are not a commodity product, where price is the sole determinant of demand, but rather that key drivers are brand, provenance, style, and quality - where our businesses have a sustainable competitive advantage over those based in low-cost regions.

Australia - 16 % of revenue

Challenging market conditions continued in Australia for much of FY2020. After nearly 20 years of consistent growth, the last two years have seen sub-par performance. Our local management team has taken a number of actions to mitigate the impact on our business, including, introducing new product lines and efficiency initiatives (most notably, the reorganisation of our underlay manufacturing onto a single site in Sydney, as previously disclosed, which was completed in Q3).

As mentioned in the Interim Report, an election in May 2019 saw a refreshed government, which acted to restore consumer confidence and activity in the residential property market. These actions have begun to beneficially impact trading conditions and, with the exception of March and April, which were somewhat subdued to the initial impact of Covid-19, we have seen stronger performance since December 2019. Whilst sales in H1 declined by c. 5% year-on-year, they rebounded in H2 with growth of c. +4% (both on a constant currency basis).

We are fortunate to have a high-quality management team in Australia, overseen by an experienced local board of directors, and notwithstanding the uncertainty brought by Covid-19, we are expecting an improved performance from our Australian business in the current financial year.

ACQUISITIONS

Although some small bolt-on acquisitions were completed in FY2020 to fill a gap in our product range, provide additional capacity, or grow our distribution base, Victoria made no strategic acquisitions, primarily because we were unable to identify opportunities that met our key "value for money" requirement.

However, we have made a considerable and sustained effort over recent years to build relationships with the owners of other flooring companies - especially where there is tangible synergy potential with our existing operations. Many family business owners - even those of size - are intensely private individuals and are very reluctant to run formal sale processes via an investment bank or accounting firm, with the associated disclosure requirements and publicity. The value of these relationships, alongside our strong financial position and reputation for straightforward dealings, is that owners view Victoria as a reliable transaction partner and we often see unique opportunities. However, additionally, the events of the last few months have given rise to new or increased sale imperatives with some business owners, and we expect to see some very interesting and materially value-creating opportunities develop in the future.

We think it is worth highlighting that, apart from the earnings growth that acquisitions deliver to Victoria, our focus on buying well-managed businesses means acquisitions also help us build a high-quality management team. As mentioned earlier in this report Victoria has had no manager resign following the end of their earn-out - despite most managers being financially independent - other than for retirement. Our culture enables us to retain the services of some extraordinarily talented individuals.

FINANCIAL STATEMENTS

We thought it might be helpful to comment briefly on three items in the Financial Statements: Goodwill and Intangible Assets, Non-underlying Costs, and Net Debt. The better shareholders are informed, the greater confidence they can have in the judgements they form about the business.

Goodwill and Intangible Assets

Due to their high return on tangible assets, we have paid significantly more than the net tangible assets for almost all our acquisitions. As required by IFRS, our consolidated balance sheet will show this difference as various categories of intangible assets (brands, customer lists, etc) and goodwill. This amount has become a substantial figure, £191 million. Each year IFRS requires Victoria to amortise a portion of the acquired intangible assets - currently amounting to £25 million per annum - and assess the value of goodwill for impairment using assumptions around future earnings. These non-cash charges appear as a non-underlying 'expense' in the income statement, and are generally not tax deductible.

The various Covid-19 related economic shutdowns across the world this year have impacted the assumptions in assessing goodwill and, although it is very unlikely that the global disruption experienced to date has had any impact on the long term value of the business, the Board has deemed it prudent to reduce the value of goodwill on the consolidated balance sheet by £50 million alongside the annual amortisation of intangible assets. This non-cash accounting adjustment has no impact whatsoever on Victoria's financial strength or our ability to generate strong returns and positive cash flow from the businesses acquired. In fact, provided our managers keep building their businesses, true economic goodwill and the value of our brands and customer relationships will continue to grow - even as accounting value of the latter falls, eventually to zero.

While none of this means that a high proportion of goodwill on a balance sheet is automatically a good thing, Victoria's board does not subscribe to the view of some investors that less goodwill and more tangible assets is better. Here's why:

Business A generates £1m of profit using tangible assets of £4 million. Business B generates the same £1m of profit using tangible assets of £10 million. Both businesses can be bought for 10x profits, or £10 million. Under IFRS, Business A would be recorded on our consolidated balance sheet with £6 million of intangible assets and goodwill. Business B will have no goodwill and instead will show a 'reassuring' value of £10m of 'solid' tangible assets.

But look what happens over time. We'll assume that in both cases the assets wear out over 10 years and need to be replaced. Both businesses will have generated £10m of total profits over that period but Business A needs only £4 million to replace its assets, leaving £6 million to be distributed to its shareholders. Business B, however, requires the full £10 million to replace its assets, leaving nothing for the shareholders or capital for growth.

Furthermore, growth and inflation accentuate the problem. If, over the 10 years, both businesses double in size, Business B will not only need to find the £10 million to replace its worn-out plant, but also an additional £10 million to fund the growth (compared to only £4 million + £4 million for Business A), hence it finishes the decade in debt whereas Business A will generate surplus free cash.

And yet there are, incredibly, still people who will recommend only investing in Company B.

There is one very important qualification to this statement: a high level of goodwill is not automatically a good thing. Overpaying for a business (the overpayment will appear as excessive goodwill) destroys the economic argument set out above. That is why we have walked away from numerous opportunities over the last six years - even where the actual business was an extraordinary one, but the price was excessive. Victoria will only pay an acquisition price that creates wealth for our shareholders.

So, what does this mean in practice for Victoria's shareholders? Below is a table setting out Victoria's Return on Tangible Capital for the last five years. This shows the ability of the company to generate consistent returns in excess of 25% - despite a very substantial increase in the capital base - over the long term, producing cash that we can continue to deploy to grow the value of the company.

In £m	Pro-forma underlying EBIT1		Net tangible operating assets2		Return on tangible operating assets
FY16	28.2		83.4		33.9%
FY17	40.3		102.6		39.3%
FY18	76.7		228.1		33.6%
FY19	76.9		280.3		27.4%
FY20	82.0		294.4		27.9%

¹ EBIT shown pro-forma for acquisitions in the year, before exceptional and non-underlying items, and before the impact of IFRS16

² Net tangible operating assets comprise tangible fixed assets and working capital

Other Exceptional and Non-underlying Costs

Each year we will record some other Exceptional and Non-underlying Costs in our financial statements. Some of these are real cash costs, others are accounting adjustments that have no impact on our current or future cash generation. However, by definition, none of them relate to the underlying trading activities of the business, and many would stop entirely were we to stop making acquisitions.

I have highlighted below a number of key items. (Further detail can be seen in the Financial Review section):

The first three are cash costs;

(i)  In FY2020 a total of £3.5 million (FY2019: £12.7m) was spent across the Group on one-off, exceptional reorganisation costs (e.g. redundancy payments, closure costs, relocation expenses). Unlike some of the other Exceptional and Non-underlying Costs, this is real cash being spent so it is important to understand that these costs and investments have not been driven by technology or structural change; it is purely to optimise performance and realise operational synergies following an acquisition, and the payback period will be less than two years. These costs largely relate to final stages of the large synergy projects detailed in last years' annual report, that were completed early in FY2020

(ii)  Exceptional acquisition-related expenses such as due diligence, fees to advisors, legal costs, etc. were £2.2 million in FY2020 (FY2019: £1.8m). Obviously, these would immediately drop to nil if we stopped our acquisition activity. However, the value creation to the Group by continuing to grow is substantial and, to our minds, the one-off cost incurred in making an acquisition is more than offset by the additional earnings that accrue to the Group in perpetuity as a result. Shareholders can expect to see a similar level of new acquisition-related exceptional costs in the years ahead but, by the same token, shareholders can equally expect the increase in Earnings Per Share and Cash Flow Per Share to exceed organic growth rates. In other words, if the fees are factored in, the additional earnings from acquisitions must also be taken into account.

(iii)  At the time of our successful inaugural bond issue in July 2019, we decided to take no chances and undertook the refinancing on an underwritten basis, with a 'backup' facility provided by the issuing banks at a one-off cost of c. £6m, which could be drawn if the bond process did not go to plan. Thankfully this was not required, and clearly issuing the bonds was the right decision - as the Covid-19 crisis has proven.

The balance of the items had no impact on Victoria's FY20 cash position;

(iv)  The successful bond refinancing replaced existing bank loans, and therefore the up-front fees prepaid on those loans at the time that they were taken were immediately expensed, rather than amortised over their remaining term as originally intended. This largely non-cash accounting charge was a not inconsiderable £4.4 million.

(v)  Due to exchange rate movements, there was a Sterling translation difference in the period on foreign currency debt (essentially the bonds) of £13.0 million.

(vi)  The cancellation this year of an old LTIP scheme for certain individuals resulted in a bizarre one-off charge of £5.9 million even though no-one received any benefit, the company incurred no liability or wrote-off any asset, no cash changed hands, and no tax benefit was received.

Furthermore, the business made a small disposal in FY2020, the effect of which is shown as a discontinued operation in the accounts. One of our UK businesses included a sub-scale distribution operation which had little long-term potential for Victoria and so we decided to sell it. Although we were able to sell it for real cash (proceeds of £0.9 million for a business that was break-even at the PBT level), a loss from discontinued operations of £2.0 million was recorded reflecting the difference between the sale price and its accounting net asset value.

Leverage - Perception versus Reality

Victoria finished the year with £365.9 million of net financial debt (before IFRS 16), with leverage reducing to a very comfortable 3.0x underlying EBITDA (albeit the company's bond financing no longer has mandatory maintenance covenants) and we note that, following recent reviews, all three rating agencies maintained Victoria's pre-Covid-19 credit ratings (albeit with a 'negative outlook' due to the economic environment). The Net Debt/EBITDA ratio will, of course, spike higher during FY2021 due to the inclusion of the June quarter, but is expected to then immediately reduce once that quarter is excluded (this time next year).

In the last Annual Report, I commented on the simplistic approach of some investors and commentators with respect to leverage. Rather than analysing the financial characteristics of the business carrying the debt, a lazy 'rule of thumb' is deployed, where a generic multiple of X times EBITDA is "too high" for a business, Y times, is "ok". Earnings consistency, operational leverage, cash conversion, capex requirements, the terms of the debt (e.g. covenant headroom and duration) are all overlooked in favour of applying the rule of thumb.

The essential flaw in this thinking has become abundantly clear in the last four months. More than 50 LSE-listed companies previously regarded as having prudent debt levels (at least, according to the 'rule of thumb') of less than 2x or 2.5x EBITDA have needed to seek debt covenant waivers and raise large amounts of equity at distressed prices. This has done permanent and significant damage to the future returns of all their shareholders, but it has been particularly catastrophic for those shareholders unable or unwilling to invest further capital.

In contrast, Victoria has faced no liquidity pressures whatsoever. In the most severe, deep, unpredicted, and sudden economic downturn in history, we did not need to seek covenant waivers, renegotiate loan terms, seek government loans, or raise additional capital.

In the very firm opinion of the Board, Victoria's debt is appropriate for its business.

DIVIDEND POLICY

We have previously pointed out that well run flooring manufacturers generate significant cash - even when growing - due to attractive supplier terms, quality debtors, long life expectancy of key plant, low technological change and other factors.

In FY2020, Victoria's underlying pre-tax operating cash flow was £97.6 million, representing 92% of underlying EBITDA, and underlying free cash flow (i.e. after interest, tax, replacement capex, and asset disposals) was £39.2 million, representing 51% of underlying EBIT. Over the last seven years we have consistently converted operating profits into cash (after paying tax), and then reinvested this cash into further acquisitive and organic growth opportunities.

The Board has consistently stated Victoria has no intention of paying a dividend for the foreseeable future as we remain of the view that the most wealth will be created for shareholders by deploying the free cash-flow generated by the Group businesses within the Group. The reasons for this were set out in some detail in last year's Annual Report.

Therefore, as in previous years, we have resolved not to pay a final dividend for FY2020.

OUTLOOK

Notwithstanding Sam Goldwyn's admonition, "Forecasts are dangerous - particularly those about the future", we thought we would share our views of the outlook for Victoria.

Most importantly, Victoria has proven its resilience in the last few months: financial liquidity has remained strong, operational management has reacted superbly - both in the lockdown and the re-start phases - and revenues and earnings have recovered very quickly following the end of lockdown. This has placed the company in a strong position to capitalise on the increasing number of opportunities over the balance of the year.

And what do these opportunities look like?

Firstly, government spending stimuli focussed on construction and increasing housing transactions, plus the natural desire of consumers to redecorate their living space after spending three or four months locked down inside it, will, we believe, generate demand for flooring. Certainly, current signs are very encouraging - even in those geographies that have now been out of lockdown for three or more months.

Secondly, the events of the last few months have caused some private company owners to reassess their priorities and we are seeing some interesting, value-creating opportunities to acquire high quality businesses on attractive terms.

It is therefore our view that Victoria will finish this year as a stronger, more competitive business

SUMMARY FROM THE CHAIRMAN

The executive board of Victoria collectively owns approximately one-fifth of the company. Our reward comes from being owners maximising long term value, not as salaried managers or fee-earning directors.

From time to time this leads to decisions which may or may not find short term favour with the share market but which we are confident will create greater business value in the future. I am certain we are building a stronger business by steadily and consistently increasing cash flow per share and earnings per share. Our return on tangible capital employed - the best measure of our ability to generate cash on the capital invested in the business over a sustained period - is a very good 25%. Furthermore, in a sector with annual revenues in Europe of more than €23 billion, the opportunity to continue to create transformational value by selectively acquiring high quality businesses at fair prices and delivering synergies in what remains a highly fragmented, industry is undiminished. In time, we are confident this value will again be reflected in the company's market capitalisation, although the translation will be erratic and the precise timing cannot be predicted.

Geoffrey Wilding  Philippe Hamers

Executive Chairman  Chief Executive Officer

29 July 2020

 

Victoria PLC

Strategic Report

BUSINESS OVERVIEW

Victoria PLC is a designer, manufacturer and distributor of innovative flooring products.  The Group is headquartered in the UK, with operations across the UK, Spain, Italy, the Netherlands, Belgium and Australia, employing approximately 3,400 people at more than 20 sites.

The Group designs and manufactures a wide range of wool and synthetic broadloom carpets, ceramic tiles, flooring underlay, LVT (luxury vinyl tile) and hardwood flooring products, artificial grass, carpet tiles and flooring accessories.

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 or specialist products, as well as providing market-leading customer service.

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 and transparent management structure, with income statement 'ownership' and linked incentivisation, operating within a framework that promoted close links with each other and with the PLC Board to plan and implement the short and 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 is maintained.

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 and further commented upon in the Chairman and CEO Review and the Financial Review.

	2020 £'m	2019 £'m
Revenue	621.5	574.4
% growth at constant currency	10.2%	36.9%
Underlying EBITDA post IFRS 161	118.1	n/a
Underlying EBITDA pre-IFRS 161	107.2	96.6
% margin1	17.3%	16.8%
Underlying operating profit	77.1	70.5
% margin	12.4%	12.3%
Operating cash flow2	97.6	105.7
% conversion against underlying EBITDA1	92%	109%
Free cash flow3	39.2	50.4
% conversion against underlying operating profit	51%	72%
Underlying EBITDA per share1	85.52p	78.67p
Earnings per share (diluted, adjusted)	28.42p	35.25p
Operating cash flow per share2	77.85p	86.10p
Adjusted net debt / EBITDA4	3.0x	3.2x

¹ EBITDA is stated before the increase in credit loss provision

² Operating cash flow shown before interest, tax and exceptional items

³ Before investment in growth capex, acquisitions and exceptional items

⁴ Applying our banks' adjusted measure of financial leverage

SECTION 172(1) STATEMENT

Section 172 of the Companies Act 2006 requires a Director of a company to act in the way they consider, in good faith would be most likely to promote the success of the company for the benefit of the members as a whole.  In doing this, section 172 requires a Director to have regard, among other matters, to:

· The likely consequences of any decisions in the long term;

· The interests of the company's employees;

· The need to foster the company's business relationships with suppliers, customers and others;

· The impact of the company's operations on the community and the environment;

· The desirability of the company maintaining a reputation for high standards of business and conduct; and

· The need to act fairly between shareholders of the company.

During the year ended 28 March 2020 the Directors consider they have, individually and collectively, acted in a way that is most likely to promote the success of the Company for the benefit of its shareholders as a whole and have given due consideration to each of the above matters in discharging their duties under section 172. The stakeholders we consider in this regard are our employees, our shareholders, bondholders and other investors, and our customers and suppliers.  The board recognises the importance of the relationships with our stakeholders in supporting the delivery of our strategy and operating the business in a sustainable manner.

Directors are briefed on their duties as part of their induction and they can access professional advice on these from an independent advisor throughout the period a director holds office.  The directors fulfil their duties partly through a governance framework; the Board has adopted the Quoted Companies Alliance ("QCA") Code and the Group's application of this code is detailed on the Group's website.

The Board recognises the importance of building and maintaining relationships with all of its key stakeholders in order to achieve long-term success.

Further details of our stakeholder engagement are set out below:

Employees

Our employees are integral to the successful delivery on the Group's strategy. Employees knowledge, skills and experience are key to maintaining our strong customer and supplier relationships.  As such, the Group is focused on the recruitment, development, retention, and reward of its employees.

Employees are encouraged to attend training courses and there is regular consultation with employee representatives to ensure that employees are informed of all matters affecting them.

Within the bounds of law, regulation and commercial confidentiality, information is shared to all levels of staff about matters that affect the progress of the Group and are of interest and concern to them as employees.

Shareholders and bondholders

The company engages with its shareholders and bondholders principally via a Regulatory Information Service, its investor website, formal company meetings and investor roadshows. The Company's contact details, telephone, email and correspondence address, are listed on its website for investors' use. The Company also provides an email alert service on its website to which investors and other interested parties can subscribe, to receive company announcements when they are released.

The Directors actively seek to build a relationship with institutional shareholders and bondholders. The Chairman, Chief Executive Officer and Chief Financial Officer make presentations to institutional investors and analysts each year immediately following the release of the full-year and half-year results.

The AGM is the main forum for dialogue between retail shareholders and the Board. The Board are available to answer questions raised by shareholders.

The Board as a whole is kept informed of the views and concerns of major shareholders by briefings from the Chairman. Any significant investment reports from analysts are also circulated to the Board. The Chairman and Chief Financial Officer are available to meet with major shareholders and bondholders if required to discuss issues of importance to them.

Customers

Our customers are of paramount importance and the Group seeks to retain customers and establish long and lasting relationships with them, built on mutual respect and trust. The Group is focused on producing quality flooring products at competitive prices for our customers.

We meet with our customers regularly to ensure we are offering the right products and level of service and responding to customer feedback to ensure we meet their expectations. Our customer relationships and manufacturing flexibility also aid diversification of our product portfolio. Our close relationships with our customers provide us with valuable feedback, enabling us to adapt quickly to changes in end-consumer preferences.

Suppliers

Victoria endeavours to forge strong relationships with suppliers built on honesty, fairness, and mutual respect. We meet with key suppliers on a regular basis and take reasonable steps to ensure our suppliers comply with our standards, such as those relating to environmental responsibility, modern slavery, data protection, human rights, and ethics.

Community and the environment

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 Group businesses are committed to full compliance with all relevant health and safety and environmental regulations.

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:

Covid-19 - The issues surrounding Covid-19 have the capacity to impact companies' earnings by interrupting supply chains, workforce sustainability, and demand. Unquestionably a decline in demand is on the most relevant risk to Victoria.

The Group is well positioned to manage this short-term risk and uncertainty; the key reasons being:

1.  Victoria enjoys comparatively low operational gearing across its businesses;

2.  The Group's supply chain is highly diversified and invariably localised to the key manufacturing plants. Our access to raw materials remains secure and we will be able to meet demand as it arises;

3.  The Group have a highly experienced and motivated operational management team with a track record of successfully navigating through deep economic downturns;

4.  The wide geographic spread of both our manufacturing operations and, more importantly, our customers means that the virus's impact on Group revenue (and its subsequent recovery) is likely to occur at varying times and not simultaneously;

5.  In FY20 Victoria issued a total of €500 million of Senior Secured Notes ("bonds"). These bonds are not due before July 2024 and, in themselves, carry no maintenance financial covenants;

6.  Victoria has a strong balance sheet with sufficient cash on hand to support the business in even the most severe scenarios we have modelled.  Victoria has not accessed any government credit-line schemes and does not foresee any current need to raise capital for normal operating activities.

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 specific economic conditions within the geographic areas within which it operates, in particular the Eurozone, the UK and Australia.  Economic risks in any one region is mitigated by the independence of the Group's three divisions.  The Group remains focused on driving efficiency improvements, cost reductions and ongoing product development to adapt to the current market conditions.

Key input prices - material adverse changes in certain raw material prices - in particular wool and synthetic yarn, polyurethane foam, and clay - could affect the Group's profitability.  A proportion of these costs are denominated in US Dollars, a currency in which the Group has no income.  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.  Whilst there is some foreign exchange risk beyond the short-term hedging arrangements that are put in place, the Group experiences a natural hedge from multi-currency income as the vast majority of the Group's cost base remains in domestic currency (Euros, Sterling and Australian Dollars).

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, cyber security breaches 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.

A Company statement regarding the Modern Slavery Act 2015 is available on the Company's website at www.victoriaplc.com.

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.

On behalf of the Board

Geoffrey Wilding

Executive Chairman

29 July 2020

 

Victoria PLC

Financial Review

HIGHLIGHTS

During the year ended 28 March 2020, the Group was largely focused on its organic and financial position, following two previous financial years with significant investment in both the ceramic tile segment and operational restructuring to deliver synergies.  Previous operational changes - discussed at length in last year's annual report - were embedded, and the Group's refinancing was completed.

Four corporate acquisitions were made in the year, albeit significantly smaller than in previous years and with operationally driven rationale rather than strategic growth driven (discussed in more detail later).  Two were made into the UK & Europe Soft Flooring division and two into the UK & Europe Ceramic Tiles division (one - in Italy - being a business and assets lease arrangement with an option to acquire, which meets the criteria for full consolidation under IFRS 3).  In addition, the Group made a small disposal within the UK & Europe Soft Flooring division, of a regional wholesale operation with total revenues of c. £7 million.

Continuing operations	FY17	FY18	FY19	FY20
Group revenue	£325.7m	£417.5m	£566.8m	£621.5m
Group underlying EBIT	£34.3m	£48.8m	£70.5m	£77.1m

Note: EBIT figures shown before movement in credit loss provision

The Group's continuing operations delivered consolidated revenues of £621.5 million (FY19: £566.8m) and underlying operating profit of £77.1 million (FY19: £70.5m) (this profit figure is after a Covid-19 related increase in credit loss provision at the year-end of £2.8 million; see further details below).  The implied lower underlying operating margin is not reflective of organic performance, rather it is largely due to the full-year effect of the prior-year acquisition of Ceramica Saloni (which was a lower-margin business) and the smaller current-year acquisitions.  The Group posted a net, post-exceptional operating loss of £6.5 million (FY19: profit of £23.9m) reflecting, in particular, a goodwill impairment of £50 million, made following the onset of the Covid-19 pandemic.

During the year, the Group successfully approached the debt capital markets for new financing in the form of secured corporate bonds.  This debt refinancing exercise, a process initiated during the prior year, was completed in two phases in July 2019 and January 2020.  The Board believes that the bond market provides a good fit for Victoria for various reasons, as previously disclosed: (i) providing long-dated money, (ii) with a fixed coupon, and (iii) a covenant-lite instrument with no maintenance financial covenants, all of which to provide flexibility, resilience and greater certainty during an economic downturn.

The year ended with a significant change in global market environments, with the Covid-19 pandemic and ensuing human and economic crisis.  The Group has taken significant steps to protect our people and our businesses.  In hindsight, the previous decision to employ a financial structure that provides the Group with maximum financial flexibility was a certainly fortuitous one.  Aside from the credit loss provision and goodwill impairment mentioned above, the direct impact of Covid-19 on the underlying results for the year ended March 2020 was of course limited due to timing, albeit unfortunately still a significant hit to performance in the final month.

NEW ACCOUNTING STANDARD

This year the Group adopted IFRS 16 regarding accounting for leases, applying the modified retrospective approach in transitioning from the previous standard.  All previously recognised operating leases were fair valued initially as at 31 March 2019.  'Right-of-use' assets and corresponding lease liabilities being recognised on the balance sheet, with no net impact on net assets as at this date.  The previous operating lease expense in the income statement has been replaced with two costs: depreciation of the right-of-use assets and a finance expense relating to the unwinding of the present value discount on the lease liabilities.

The impact of adoption on the FY20 accounts is summarised below.

	IFRS 16 impact
Initial asset recognised (as at 31 March 19)	+£56.1m
Initial liability recognised (as at 31 March 19)	+£57.3m
EBITDA	+£10.9m
EBIT	+£1.5m
PBT	-£1.0m

Given the previous linear operating lease charge has been replaced in part with a non-linear charge in the form of the finance expense, which for any given lease will reduce over time as the liability is paid down, it is natural that the initial impact on PBT is negative.  The net cash flow impact is of course unchanged, as the commercial lease contracts themselves are unaffected by this accounting adjustment.

DIVISIONAL UNDERLYING PERFORMANCE

Group sales from continuing operations grew in the year by c. +10%, driven in particular by acquisitions.  Underlying organic growth was c. +0.4%, however this was adversely impacted by Covid-19 towards the end of the year, with March sales c. -9% down on the prior year on a like-for-like basis.

The majority of the acquisitive growth was in the UK & Europe Ceramic Tiles division, which has therefore become a larger component of the Group, contributing c. 40% of overall Group revenue in the year (and more on a fully pro-forma basis for the aforementioned acquisitions).

Revenue from continuing operations		2020	2019
UK & Europe Soft Flooring		£282.0m	£272.9m
UK & Europe Ceramic Tiles		£243.9m	£193.9m
Australia		£95.6m	£100.0m
Total		£621.5m	£566.8m

UK & Europe Soft Flooring

Continuing operations	2020	2019	Growth
Revenue	£282.0m	£272.9m	3.3%
Underlying EBITDA	£41.3m	n/a
Margin %	14.6%	n/a
Underlying EBITDA (pre IFRS 16)	£34.8m	£29.5m	17.8%
Margin %	12.3%	10.8%
Underlying EBIT	£21.7m	£17.0m	27.4%
Margin %	7.7%	6.2%
Increase in credit loss provision	£1.7m	£0.1m

 Note: all figures stated before impact of increase in credit loss provision

Sales from continuing operations in the UK & Europe Soft Flooring division increased by £9.1 million (+3.3%) year-on-year.  The majority of this increase relates to contribution from two small acquisitions made in the year, of G Tuft and Estillon.  Overall organic sales performance was flat, as sales in March 2020 were materially adversely impacted by Covid-19, seeing a c. -12% like-for-like decline in the month.

G Tuft is a small carpet commission manufacturing business, which was acquired in May 2019 as an operational and defensive move.  Its manufacturing capacity is only approximately one third of our South Wales site following the investments made to the latter in 2018, but nevertheless it has a very well-invested factory.  It was an existing and growing supplier to the Group for the outsourced tufting of certain outsourced carpet products, and by the time of acquisition approximately 70% of G Tuft's sales were to Victoria group companies.  Hence the Board decided that it was important to acquire the operation as a protective measure.  Furthermore, its acquisition has created some further opportunities for synergies with our other carpet factories.

Estillon is a small underlay and flooring accessories distributor based in the Netherlands with annual revenues of c. €10m.  It was acquired in November 2019 and has been combined with our UK-based underlay business to leverage cross-selling opportunities for our existing products in Continental Europe.

During the year there was a discontinued operation, relating to the disposal of a small UK distribution busines, A&A Carpets, which was no longer a strategic fit for the division.  This business previously formed the UK business' North West carpet wholesale operation, with the division now focused on its branded offering in the region.  A&A had total annual revenues in FY19 of £7.6 million and PBT of £0.1 million.  It was sold in January 2020 for total consideration of £0.9 million.  This consideration was at a discount to book value, and the Group recognised a one-off loss from discontinued operations in the year of £2.0 million.

Both G Tuft and Estillon were lower margin businesses than the UK & Europe Soft Flooring division, hence their acquisition has naturally had a relative margin-diluting effect.  Furthermore, as a result of Covid-19, there has been an increase in the division's credit-loss provision of £1.7 million, as a prudent measure to account for potential future bad debts in the current economic environment.  The impact of this provision and the acquisitions together was a c. 80bps margin dilution.

UK & Europe Soft Flooring EBITDA margin bridge
FY19 underlying EBITDA margin		10.8%
Organic		+1.7%
IFRS 16 impact		+2.3%
Acquisitions		-0.2%
FY20 pre-CLP		14.6%
Credit loss provision		-0.6%
FY20 underlying EBITDA margin		14.0%

In like-for-like terms, the division has delivered a 170bps increase in margin over the prior year.  This has been driven by the operational efficiency benefits arising from prior year synergy projects, in particular the consolidation and investment in our South Wales carpet factory and new UK distribution network with hubs in the South, Midlands and North.  Notwithstanding Covid-19, the Board would expect some further annualised margin improvement to come.

UK & Europe Ceramic Tiles

Continuing operations	2020	2019	Growth
Revenue	£243.9m	£193.9m	25.7%
Underlying EBITDA	£68.3m	n/a
Margin %	28.0%	n/a
Underlying EBITDA (pre IFRS 16)	£66.2m	£59.5m	11.3%
Margin %	27.1%	30.7%
Underlying EBIT	£51.5m	£48.3m	6.5%
Margin %	21.1%	24.9%
Increase in credit loss provision	£1.0m	£0.1m

 Note: all figures stated before impact of increase in credit loss provision

Sales in the UK & Europe Ceramic Tiles division increased by £50.0 million (+25.7%) year-on-year.  The majority of this increase relates to the full-year effect of Ceramica Saloni, which was acquired in August 2018 and so only contributed eight months in the prior year.  Furthermore, there has been a smaller contribution from two new acquisitions, of Ibero and Ascot.  Organic sales growth in the year, excluding the above acquisitions, has been c. +2.3% (at constant currency).  This is despite the month of March seeing a c. -9% decline year-on-year due to Covid-19.  This growth has been due in particular to strong performance in the European DIY retail segment, which has continued to see very high demand for our products and has also remained more resilient to Covid-19.

Ibero is a high-end ceramic tile manufacturer and distributor located close to the Group's incumbent Spanish businesses, Keraben and Saloni, with annual revenues of c. €30 million.  Its product range includes more specialist designs and its addition to our Spanish business helped to fill a small product portfolio gap in a complementary area.  Since completion of the acquisition in August 2019, a synergy programme has been developed to integrate the operations of Keraben and Ibero to maximise utilisation of the respective factories.  However this plan, originally due to start during Q4 FY20, has been delayed due to Covid-19.

Ascot is a medium-to-high end ceramic tile manufacturer and distributor located close to the Group's incumbent Italian business, Serra.  In an arrangement unique to Italian Law, the business and factory of Ascot were leased (by a new, wholly-owned shell company) in February 2020 for seven years at a total cost of €11.5 million, but with a free option to acquire.  This arrangement was entered into to help resolve the capacity issues that Serra has been facing, with the business experiencing strong sales growth and higher demand for its products than it is able to satisfy with its own manufacturing facilities.  As it is expected that the option to fully acquire the business and assets of Ascot will be exercised, it has been accounted for as a business combination under IFRS 3.

Saloni, Ibero and Ascot are all historically lower margin businesses than the Group's original ceramic tile businesses, Keraben and Serra, hence these acquisitions have had a relative margin-diluting effect on the division.  Furthermore, the UK & Europe Ceramic Tile division has also seen an increase in credit loss provision of £1.0 million following the Covid-19 pandemic.  Removing the impact of these three businesses, as well as the credit loss provision, shows a stable underlying margin performance in the incumbent ceramic tile businesses.

UK & Europe Ceramic Tiles EBITDA margin bridge
FY19 underlying EBITDA margin		30.7%
Organic		+0.3%
IFRS 16 impact		+0.9%
Acquisitions		-3.9%
FY20 pre-CLP		28.0%
Credit loss provision		-0.4%
FY20 underlying EBITDA margin		27.6%

Note: Acquisitions impact relates to margin dilution of Saloni, Ibero and Ascot

Notwithstanding Covid-19, the Group's various ceramic tile brands continue to see strong positions in their core markets within Europe, which is bolstered by accelerated growth in DIY.  Furthermore, additional organic margin improvements are expected as the operational integrations of Ibero and Ascot are completed.

Australia

Continuing operations	2020	2019	Growth
Revenue	£95.6m	£100.0m	-4.4%
Underlying EBITDA	£10.3m	n/a
Margin %	10.8%	n/a
Underlying EBITDA (pre IFRS 16)	£8.1m	£9.6m	-15.1%
Margin %	8.5%	9.6%
Underlying EBIT	£5.8m	£6.8m	-15.1%
Margin %	6.1%	6.8%
Increase in credit loss provision	£0.1m	£0.1m

Note: all figures stated before impact of increase in credit loss provision

 The Australia division continued to see challenging market conditions during the first half of FY20, continuing from the prior year, as shown in our interim results with a c. -5% year-on-year decline in revenue at that point.  However, this trend reversed during H2 and for the full year the overall decline reduced to c. -1% (at constant currency), with revenue growth of c. +4% in H2.

The revenue decline also in H1 had an adverse impact on margins for the division, resulting from operational leverage effects and a decision to avoid cutting further costs, given our anticipation of a return to growth in H2.

The outlook for the Australia market continues to be positive, with the division having seen the least impact from Covid-19.

GROUP UNDERLYING PERFORMANCE SUMMARY

Continuing operations	2020	2019	Growth
Revenue	£621.5m	£566.8m	9.7%
Underlying EBITDA	£118.1m	n/a
Margin %	19.0%	n/a
Underlying EBITDA (pre IFRS 16)	£107.2m	£96.6m	11.1%
Margin %	17.3%	17.0%
Underlying EBIT	£77.1m	£70.5m	9.4%
Margin %	12.4%	12.4%
Underlying PBT	£50.7m	£57.3m	-11.5%
Margin %	8.2%	10.1%
Note: all figures stated before impact of increase in credit loss provision
Increase in credit loss provision	(£2.8m)	(£0.3m)
Underlying PBT after credit loss provision	£48.0m	£57.1m

In FY20, the consolidated Group delivered underlying EBITDA of £118.1 million (before an increase in credit loss provision of £2.8 million following the onset of the Covid-19 pandemic), albeit on a pre-IFRS 16 basis this equates to £107.2 million (FY19: £96.6m).  On the same basis, underlying EBIT was £77.1 million (FY19: £70.5m).  This represents an average organic improvement in operating margin of c. 70bps.

Total underlying interest cost on loans and notes (bonds) in the year was £21.5 million (FY19: £11.5m), increasing as a result of both debt-funded growth (including a full-year of interest costs on funding for the acquisition of Saloni, as well as the smaller acquisitions this year) and the Group's change in capital structure from bank debt to bonds.  The new bonds, issued in two tranches, have a coupon of 5.25%, but including the effect of issue premia have a weighted average cost of c. 4.5%.  This compares to previous bank debt with an average cost of c. 3%.  This is, in effect, the cost of the flexibility and certainty (i.e. lack of maintenance financial covenants) that the new capital structure brings to the Group.

After taking into account the amortisation of prepaid finance costs and the interest cost associated with the IFRS 16 right-of-use lease liability, the Group's underlying PBT was £50.7 million before the increase in credit loss provision, and £48.0 million after.

EXCEPTIONAL AND NON-UNDERLYING ITEMS

Being a Group with an acquisition-led growth strategy, it is very common to have a number of exceptional and non-underlying items in the accounts.

Exceptional items are one-offs that will not continue or repeat in the future, for example the legal and due diligence costs for a business acquisition, as whilst further such costs might arise if new acquisitions are undertaken, they will not arise again on the same business and would disappear if the Group adopted a purely organic strategy.

Following the onset of the Covid-19 pandemic, as at the March 2020 year-end, we have written-off £50 million of goodwill, which represents c. 20% of the pre-impairment balance.  This amount is an exceptional cost in the income statement and is clearly a non-cash item.

Other than goodwill impairment, exceptional costs in FY20 were substantially lower than FY19 due to the completion of the 2018-19 operational synergy projects outlined last year.

	2020	2019
	£'m	£'m
Exceptional items
Acquisition and disposal related costs	(2.2)	(1.8)
Reorganisation costs	(3.5)	(12.7)
Bond issue and related structuring costs	-	(7.3)
Negative goodwill arising on acquisition	5.8	-
Pension adjustment	-	(0.4)
Gain on sale of investment property	-	1.8
Total exceptional items before goodwill impairment	0.1	(20.4)
Exceptional goodwill impairment	(50.0)	-
Total exceptional items	(49.9)	(20.4)

Non-underlying items are ones that do continue or repeat, but which are not deemed to fairly represent the underlying business.  Typically, they are non-cash in nature and / or will only continue for a finite period of time.  There were two non-underlying items in the year:

· Non-cash share incentive plan charge - the charge under IFRS 2 relating to the pre-determined fair value of the senior management share incentive scheme put in place on 10 April 2018.  This charge is non-cash as the scheme cannot be settled in cash.  During FY20, the Group has been reviewing its LTIP schemes and a number of senior managers exited the 2018 scheme (subsequently entering a new scheme as announced on 26 June 2020. Participants exiting the 2018 scheme requires the Group to recognise an 'accelerated' accounting charge under IFRS 2, whereby the remaining amount of pre-determined fair value not already charged to the income statement in previous periods must be fully charged in the year.  This is the reason for the much larger figure in FY20 of £5.9 million (FY19: £1.9m).  As a result, going forward the charge in relation to the 2018 scheme will be reduced, albeit replaced with any equivalent charge for new scheme(s).

· Amortisation of acquired intangibles - the amortisation over a finite period of time of the fair value attributed to, primarily, brands and customer relationships on all historical acquisitions under IFRS.  It is important to note that these charges are non-cash items and that the associated intangible assets do not need to be replaced on the balance sheet once fully written-down.  Therefore, this cost will ultimately disappear from the Group income statement.

	2020	2019
	£'m	£'m
Other non-underlying operating items
Acquisition-related performance plan charge	-	(1.5)
Non-cash share incentive plan charge	(5.9)	(1.9)
Amortisation of acquired intangibles	(25.0)	(22.5)
	(30.9)	(25.9)

In addition to the above operating items, there were a number of non-underlying financial items in the year.

	2020	2019
	£'m	£'m
Non-underlying financial costs
Release of prepaid finance costs	4.4	3.1
Underwriting fees and costs relating to previous bank facilities	6.5	-
Write-down of derivative asset representing value of bond embedded call option	7.3	-
Unsecured loan redemption premium credit	(0.2)	-
Deferred consideration liabilities, unwinding of present value and other adjustments	3.4	7.2
Mark to market adjustments on foreign exchange forward contracts	(3.2)	0.7
Non-underlying interest costs before translation difference on foreign currency loans	18.2	11.0
Translation difference on foreign currency loans	13.0	3.6
	31.2	14.6

· Release of prepaid finance costs - when any new debt funding is raised, we account for the attributable one-off, up-front costs (e.g. bank or bookrunner fees, legal costs, accounting and rating fees) as a prepayment that is amortised over the expected life of the debt.  If that debt is then refinanced earlier than originally expected, any remaining prepayment is 'released' in one go as a financial cost in the income statement.  This 'release' is a non-cash item, as the associated costs were already paid at the time of the new funding.  In FY20, this happened twice - when refinancing the previous bank loan with the inaugural corporate bond issue in July 2019, and subsequently when refinancing the remaining bank loan with additional bonds in January 2020.

· Underwriting fees and costs relating to previous bank facilities - as part of the July 2019 refinancing, an underwritten bank facility was obtained to provide certainty around that process, but ultimately was never used.  This item relates to the one-off bank fees associated with the underwrite, plus deferred costs relating to the previous bank facilities.  As these fees were not directly attributable to the new corporate bonds, they were taken straight to the income statement as non-underlying finance costs as opposed to being treated as a prepayment (as explained above).

· Fair value adjustment to notes redemption option - the corporate bonds issued in FY20 mature in FY25.  However, the company can repay early if it pays a redemption premium, the level of which varies over time (a very high cost within the first two years, then comparatively lower and stepping-down for the remaining term).  Under IFRS 9, this 'embedded call option' must be separately valued as an asset on the balance sheet.  However, due to the significant capital markets downturn following the onset of the Covid-19 pandemic, the effective value of this call option at the year-end was £nil (as the theoretical cost of refinancing the Group's debt at that time had significantly increased), hence the asset was written-off in the income statement as a non-underlying finance cost.

· Unsecured loan redemption premium credit - Non-cash credit relating to the £2.1 million redemption premium on the BGF loan and option.  During the year it was agreed with the BGF to defer payment from December 2019 to December 2021, resulting in a credit to the income statement.

· Deferred consideration liabilities, unwinding of present value and other adjustments - these non-cash costs relate to the revaluation of deferred consideration and contingent earn-outs, either due to the unwinding of the applicable present value discount (on both), or changes in forecast business performance (on contingent earn-outs).

· Mark to market adjustments on foreign exchange forward contracts - across the group we analyse our upcoming currency requirements (for raw material purchases) and offset the exchange rate risk via a fixed, diminishing profile of forward contracts out to 12 months.  This non-cash cost represents the mark-to-market movement in the value of these contracts as exchange rates fluctuate.

· Translation difference on foreign currency loans - this represents the impact of exchange rate movements in the translation of non-Sterling denominated debt into the Group accounts.  The key item in this regard is the Euro denominated €500m 2024 corporate bonds.

OPERATING PROFIT AND PBT

The table below summarises the underlying and reported profit of the Group, further to the commentary above on underlying performance and non-underlying items.

	2020	2020	2019	2019
Operating profit and PBT	£'m	Margin %	£'m	Margin %
Underlying operating profit (before credit loss provision)	77.1	12.4%	70.5	12.4%
Reported operating (loss) / profit (after exceptional items)	(6.5)	(1.0)%	23.9	4.2%
Underlying profit before tax (before credit loss provision)	50.7	8.2%	57.3	10.1%
Reported loss before tax (after exceptional items)	(64.0)	(10.3)%	(3.8)	(0.7)%

Reported operating profit (earnings before interest and taxation, before movement credit loss provision) declined to a loss of £6.5 million, having been impacted by higher exceptional and non-underlying items during the year, in particular the £50 million impairment of goodwill, material one-off refinancing costs and significant FX movements on foreign currency loans. After removing these items, underlying operating profit (before movement in credit loss provision) was £77.1 million, representing a 9% increase over the prior year.

TAXATION

The reported tax charge in the year of £4.2 million was distorted by the impact of the exceptional and non-underlying costs, many of which have been treated as non-deductible for tax purposes. On an underlying basis, the tax charge for the year was £12.4 million against adjusted profit before tax of £48.0 million, implying an underlying effective tax rate of 25.8%.

EARNINGS PER SHARE

As a result of the material exceptional and non-underlying costs in the year as detailed above, the Group delivered a basic loss per share of 55.97p (2019: 6.44p). However, adjusted earnings per share (before non-underlying and exceptional items) on a fully-diluted basis was 28.42p (2019: 35.25p).  The decline compared with the prior year mirrors the decline in underlying PBT noted above, being primarily due to an increase in financing costs and Covid-19 related credit loss provision more than offsetting the 9% increase in underlying operating profit.

Earnings per share	2020	2019
Basic loss per share	(55.97p)	(6.44p)
Diluted adjusted earnings per share	28.42p	35.25p

OPERATING CASH FLOW

Cash flow from operating activities before interest, tax and exceptional items was £97.6 million which represents a conversion of 92% of underlying EBITDA (pre-IFRS 16).

Operating and free cash flow	2020	2019
	£'m	£'m
Underlying operating profit	77.1	70.5
Add back: underlying depreciation & amortisation	41.0	26.1
Underlying EBITDA before credit loss provision	118.1	96.6
Payments under right-of-use lease obligations	(11.6)	-
Non-cash items	(0.8)	(0.8)
Underlying movement in working capital	(8.0)	9.9
Operating cash flow before interest, tax and exceptional items	97.6	105.7
% conversion against underlying operating profit	127%	150%
% conversion against underlying EBITDA (pre-IFRS 16)	92%	109%
Interest paid	(25.0)	(16.5)
Corporation tax paid	(8.6)	(16.2)
Capital expenditure - replacement / maintenance of existing capabilities	(25.4)	(23.5)
Proceeds from fixed asset disposals	0.7	0.9
Free cash flow before exceptional items	39.2	50.4
% conversion against underlying operating profit	51%	72%
% conversion against underlying EBITDA (pre-IFRS 16)	37%	52%

Pre-exceptional free cash flow of the Group - after interest, tax and net replacement capex - was £39.2 million. Compared with underlying operating profit (i.e. post-depreciation), this represents a conversion ratio of 51%.  The difference in free cash flow conversion versus the prior year is due to timing differences in working capital movements.

A full reported statement of cash flows, including exceptional and non-underlying items, is provided in the Consolidated Statement of Cash Flows.

NET DEBT

As at 28 March 2020, the Group's net debt position was broadly flat compared with the prior year-end on a constant currency basis.  Free cash flow of £39.2 million was generated in the year, of which £11.8 million was invested in organic growth / synergy initiatives and £26.8 million in acquisition-related expenditure (including the four small aforementioned acquisitions).  However, there was an adverse translational impact of £24.8 million due to the significant strengthening of the Euro versus Sterling during the final month of the financial year.  As a result, as reported in Sterling, year-end net debt was £365.9 million (2019: £339.9m).

Free cash flow to movement in net debt	2020	2019
	£'m	£'m
Free cash flow before exceptional items (see above)	39.2	50.4
Capital expenditure - growth	(8.4)	(20.9)
Exceptional reorganisation cash cost	(3.5)	(11.5)
Investment in organic growth / synergy projects	(11.8)	(32.5)
Acquisitions of subsidiaries	(11.0)	(82.6)
Net proceeds of equity raise	-	59.3
Total debt acquired or refinanced	(1.5)	(68.0)
Deferred and contingent consideration payments	(12.1)	(8.9)
Exceptional M&A costs	(2.2)	(1.8)
Acquisitions related expenditure	(26.8)	(102.0)
Exceptional bond issue & structuring costs	-	(7.3)
Proceeds from discontinued operations	1.0	-
Proceeds from disposal on investment property	-	2.0
Other exceptional cash items	1.0	(5.3)
Other debt items	(2.8)	(0.6)
Translation differences on foreign currency cash and loans	(24.8)	8.7
Other exceptional items	(27.6)	8.2
Total movement in net debt	(26.0)	(81.2)
Opening net debt	(339.9)	(258.7)
Closing net debt	(365.9)	(339.9)

Applying our banks' adjusted measure of financial leverage, the Group's year end net debt to EBITDA ratio was 3.0x (2019: 3.2x).  This deleveraging reflects the growth of the business during the year with net debt remaining broadly flat on a constant currency basis.

Current leverage is consistent with our financial strategy to use a sensible but cautious level of debt in the overall funding structure of the Group.

Net debt	2020	2019
	£'m	£'m
Net cash and cash equivalents	174.7	60.2
Senior secured debt (at par)	(523.4)	(386.9)
Unsecured loans	(15.6)	(11.6)
Finance leases and hire purchase arrangements (pre IFRS 16)	(1.6)	(1.6)
Net debt before obligations under right-of-use leases	(365.9)	(339.9)
Adjusted net debt / EBITDA	3.0x	3.2x
Bond issue premium - cash	(7.5)	-
Bond issue premium - non-cash (related to embedded redemption option)	(6.8)	-
Prepaid finance costs	9.9	3.6
Obligations under right-of-use leases (incremental)	(78.2)	-
Statutory net debt (net of prepaid finance costs)	(448.5)	(336.3)

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.  With the exception of IFRS 16, as described in this Financial Review, there have been no changes to IFRS standards this year that have a material impact on the Group's results.  No forthcoming new IFRS standards are expected to have a material impact on the financial statements of the Group.

GOING CONCERN

The consolidated financial statements for the Group have been prepared on a going concern basis. 

Michael Scott

Group Finance Director

29 July 2020

Consolidated Income Statement
For the 52 weeks ended 28 March 2020
				52 weeks ended 28 March 2020			52 weeks ended 30 March 2019
				Underlying performance	Non- underlying items	Reported numbers	Underlying performance	Non- underlying items	Reported numbers
		Notes		£m	£m	£m	£m	£m	£m
Continuing operations
Revenue		1		621.5	-	621.5	566.8	-	566.8
Cost of sales				(395.1)	-	(395.1)	(364.8)	-	(364.9)
Gross profit				226.4	-	226.4	202.0	-	201.9
Distribution costs				(73.2)	-	(73.2)	(69.2)	-	(69.2)
Administrative expenses				(82.9)	(80.8)	(163.7)	(65.7)	(47.4)	(113.1)
Other operating income				4.0	-	4.0	3.1	1.1	4.2
Operating profit / (loss)				74.3	(80.8)	(6.5)	70.2	(46.3)	23.9
Comprising:
Operating profit before credit loss provision, non-underlying and exceptional items				77.1	-	77.1	70.5	-	70.5
Increase in credit loss provision				(2.8)	-	(2.8)	(0.3)	-	(0.3)
Amortisation of acquired intangibles		1,2		-	(25.0)	(25.0)	(0.0)	(22.5)	(22.5)
Other non-underlying items		1,2		-	(5.9)	(5.9)	-	(3.4)	(3.4)
Exceptional goodwill impairment		1,2		-	(50.0)	(50.0)	-	-	-
Other exceptional items		1,2		-	0.1	0.1	-	(20.4)	(20.4)
Finance costs		3		(26.3)	(31.2)	(57.5)	(13.1)	(14.6)	(27.7)
Comprising:
Interest on loans and notes		3		(21.5)	-	(21.5)	(11.5)	-	(11.5)
Amortisation of prepaid finance costs and accrued interest		3		(2.1)	(4.4)	(6.5)	(1.4)	(3.1)	(4.5)
Unwinding of discount on right-of-use lease liabilities		3		(2.6)	-	(2.6)	-	-	-
Fair value adjustment to notes redemption option		3		-	(7.3)	(7.3)	-	-	-
Translation difference on foreign currency loans		3		-	(13.0)	(13.0)	-	(3.6)	(3.6)
Other finance items		3		(0.1)	(6.5)	(6.6)	(0.2)	(7.9)	(8.1)
Profit / (loss) before tax				48.0	(112.0)	(64.0)	57.1	(60.9)	(3.8)
Taxation (charge) / credit				(12.4)	8.2	(4.2)	(13.9)	9.7	(4.2)
Profit / (loss) for the period from continuing operations				35.6	(103.8)	(68.2)	43.2	(51.2)	(8.0)
(Loss) / profit from discontinued operations		11		-	(2.0)	(2.0)	-	0.1	0.1
Profit / (loss) for the period				35.6	(105.8)	(70.2)	43.2	(51.1)	(7.9)
Earnings / (loss) per share - pence	basic	4		28.42		(55.97)	35.27		(6.44)
	diluted	4		28.42		(55.97)	35.25		(6.44)

Consolidated Statement of Comprehensive Income
For the 52 weeks ended 28 March 2020
			52 weeks ended 28 March 2020		52 weeks ended 30 March 2019
	Note		£m		£m
(Loss) for the period			(70.2)		(7.9)
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial gain on defined benefit pension scheme	9		1.4		1.8
Decrease in deferred tax asset relating to pension scheme liability			(0.1)		(0.3)
Items that will not be reclassified to profit or loss			1.3		1.5
Items that may be reclassified subsequently to profit or loss:
Retranslation of overseas subsidiaries			3.6		(0.6)
Items that may be reclassified subsequently to profit or loss			3.6		(0.6)
Other comprehensive income			4.9		0.9
Total comprehensive (expense) / income for the period attributable to the owners of the parent			(65.3)		(7.0)

Consolidated Balance Sheet
As at 28 March 2020
			Group
			28 March 2020	30 March 2019
	Notes		£m	£m
Non-current assets
Goodwill			191.0	223.7
Intangible assets other than goodwill			248.9	241.4
Property, plant and equipment			211.6	190.6
Right-of-use lease assets			78.5	-
Investment property			0.2	0.2
Deferred tax assets			6.4	5.8
Total non-current assets			736.6	661.7
Current assets
Inventories			165.4	140.5
Trade and other receivables			144.1	116.0
Cash and cash equivalents			176.8	66.4
Total current assets			486.3	322.9
Total assets			1,222.9	984.6
Current liabilities
Trade and other current payables			242.0	168.6
Current tax liabilities			-	-
Obligations under right-of-use leases - current			11.8	-
Other financial liabilities			4.9	10.4
Total current liabilities			258.7	179.0
Non-current liabilities
Trade and other non-current payables			17.5	19.5
Obligations under right-of-use leases - non-current			68.0	-
Other non-current financial liabilities			540.6	392.3
Deferred tax liabilities			71.2	66.1
Retirement benefit obligations	9		6.3	7.8
Total non-current liabilities			703.6	485.7
Total Liabilities			962.3	664.7
Net Assets			260.6	319.9
Equity
Share capital			6.3	6.3
Share premium			288.7	288.7
Retained earnings			(42.9)	20.6
Foreign exchange reserve			5.9	2.3
Other reserves			2.6	2.0
Total equity			260.6	319.9

Consolidated Statement of Changes in Equity
For the 52 weeks ended 28 March 2020
			Share capital	Share premium	Retained earnings	Foreign exchange reserve	Other reserves	Total equity
			£m	£m	£m	£m	£m	£m
At 1 April 2018			5.9	229.8	26.7	2.9	0.3	265.6
Loss for the period to 30 March 2019			-	-	(7.9)	-	-	(7.9)
Other comprehensive income for the period			-	-	1.5	-	-	1.5
Retranslation of overseas subsidiaries			-	-	-	(0.6)	-	(0.6)
Total comprehensive loss			-	-	(6.4)	(0.6)	-	(7.0)
Issue of Share capital			0.4	58.8	-	-	-	59.2
Exercise of share options			-	-	0.3	-	(0.3)	-
Share-based payment charge			-	-	-	-	2.0	2.0
Transactions with owners			0.4	58.8	0.3	-	1.7	61.2
At 30 March 2019			6.3	288.7	20.6	2.3	2.0	319.9
Loss for the period to 28 March 2020			-	-	(70.2)	-	-	(70.2)
Other comprehensive income for the period			-	-	1.3	-	-	1.3
Retranslation of overseas subsidiaries			-	-	-	3.6	-	3.6
Total comprehensive loss			-	-	(68.9)	3.6	-	(65.3)
Transfer between reserves			-	-	5.3	-	(5.3)	-
Share-based payment charge			-	-	-	-	5.9	5.9
Transactions with owners			-	-	5.3	-	0.6	5.9
At 28 March 2020			6.3	288.7	(42.9)	5.9	2.6	260.6

Consolidated Statement of Cash Flows
For the 52 weeks ended 28 March 2020
			Group
			52 weeks ended	52 weeks ended
			28 March 2020	30 March 2019
	Note		£m	£m
Cash flows from operating activities
Operating (loss) / profit			(6.5)	23.9
Adjustments For:
Depreciation and amortisation of IT software			40.9	25.6
Amortisation of acquired intangibles			25.0	22.8
Negative goodwill arising on acquisition			(5.8)	-
Goodwill impairment			50.0	-
Asset impairment			-	0.5
Amortisation of government grants			(0.5)	(0.7)
Profit on disposal of property, plant and equipment			(0.2)	(0.1)
Profit on disposal of investment property			-	(1.8)
Loss on disposal of associates			-	0.7
Share incentive plan charge			5.9	1.9
Acquisition-related performance plan charge			-	1.5
Defined benefit pension			(0.1)	0.3
Net cash flow from operating activities before movements in working capital, tax and interest payments			108.7	74.6
Change in inventories			(4.4)	(13.8)
Change in trade and other receivables			(10.8)	7.1
Change in trade and other payables			10.0	17.0
Cash generated by continuing operations before tax and interest payments			103.5	84.9
Interest paid on loans and notes			(25.0)	(16.5)
Interest relating to right-of-use lease assets			(2.6)	-
Income taxes paid			(8.6)	(16.2)
Net cash flow from discontinued operations			0.1	0.2
Net cash inflow from operating activities			67.4	52.4
Investing activities
Purchases of property, plant and equipment			(32.7)	(43.7)
Purchases of intangible assets			(1.1)	(0.7)
Loan to subsidiary companies			-	-
Proceeds on disposal of property, plant and equipment			0.7	0.9
Deferred consideration and earn-out payments			(12.1)	(8.9)
Acquisition of subsidiaries net of cash acquired			(11.0)	(82.6)
Proceeds from disposal of subsidiaries			0.9	-
Proceeds from disposal of investment property			-	2.0
Net cash used in investing activities			(55.3)	(133.0)
Financing activities
Increase in long-terms loans (net of refinancing costs)			109.0	43.9
Issue of share capital			-	59.3
Repayment of reverse factoring facility acquired with Saloni			-	(13.4)
Repayment of obligations under finance leases / hire purchase			-	(1.0)
Payments under right-of-use lease obligations			(9.0)	-
Net cash generated in financing activities			100.0	88.8
Net increase in cash and cash equivalents			112.1	8.2
Cash and cash equivalents at beginning of period			60.2	53.1
Effect of foreign exchange rate changes			2.4	(1.1)
Cash and cash equivalents at end of period			174.7	60.2
Comprising:
Cash and cash equivalents			176.8	66.4
Bank overdrafts			(2.1)	(6.2)
			174.7	60.2

 

1. Segmental information
The Group is organised into three operating divisions: the sale of soft flooring products in UK & Europe; ceramic tiles in UK & Europe and the sale of soft flooring products in Australia. The entities that comprise each division are combined into one reporting segment on the basis that they share economic characteristics.
Geographical segment information for revenue, operating profit and a reconciliation to entity net profit is presented below.

Income statement
	52 weeks ended 28 March 2020					52 weeks ended 30 March 2019
	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Unallocated central expenses	Total	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Unallocated central expenses	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Revenue	282.0	243.9	95.6	-	621.5	272.9	193.9	100.0	-	566.8
Underlying operating profit before movement in credit loss provision	21.7	51.5	5.8	(1.9)	77.1	17.0	48.3	6.9	(1.7)	70.5
Movement in credit loss provision	(1.7)	(1.0)	(0.1)	-	(2.8)	(0.1)	(0.1)	(0.1)	-	(0.3)
Non-underlying operating items	(3.8)	(18.8)	(1.7)	(6.6)	(30.9)	(5.1)	(17.7)	(2.0)	(1.1)	(25.9)
Exceptional goodwill impairment	-	(50.0)	-	-	(50.0)	-	-	-	-	-
Other exceptional operating items	(1.0)	3.7	(0.7)	(1.9)	0.1	(7.4)	(4.7)	(2.4)	(5.9)	(20.4)
Operating (loss) / profit	15.2	(14.6)	3.3	(10.4)	(6.5)	4.4	25.8	2.4	(8.7)	23.9
Underlying net finance costs					(26.3)					(13.1)
Translation difference on foreign currency loans					(13.0)					(3.6)
Fair value adjustment to notes redemption option					(7.3)					-
Other non-underlying finance costs					(10.9)					(11.0)
Loss before tax					(64.0)					(3.8)
Tax					(4.2)					(4.2)
(Loss) / profit from discontinued operations					(2.0)					0.1
Loss for the period					(70.2)					(7.9)
Management information is reviewed on a segmental basis to operating profit.
During the year, no single customer accounted for 10% or more of the Group's revenue.  Inter-segment sales in the year and in the prior year between the UK & Europe and Australia were immaterial.

The Group's revenue for the period was split geographically as follows:
			52 weeks ended 28 March 2020	52 weeks ended 30 March 2019
			£m	£m
Revenue
UK & other European countries			282.0	272.9
Spain			209.3	167.9
Italy			34.6	26.0
Australia			95.6	100.0
			621.5	566.8
Materially all revenue within 'UK & other European countries' relate to the UK.

Balance sheet
	As at 28 March 2020					As at 30 March 2019
	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Central	Total	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Central	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Total Assets	274.8	717.0	78.2	152.9	1,222.9	233.1	634.6	75.0	41.9	984.6
Total Liabilities	(124.3)	(255.2)	(26.3)	(556.5)	(962.3)	(94.8)	(159.7)	(20.8)	(389.4)	(664.7)
Net Assets	150.5	461.8	51.9	(403.6)	260.6	138.3	474.9	54.2	(347.5)	319.9

The Group's non-current assets as at 28 March 2020 were split geographically as follows:
			As at 28 March 2020	As at 30 March 2019
			£m	£m
Non-current assets
UK & other European countries			178.4	129.7
Spain			432.6	451.7
Italy			86.1	44.7
Australia			39.5	35.6
			736.6	661.7
Materially all non-current assets within 'UK & other European countries' relate to the UK.

Other segmental information
	52 weeks ended 28 March 2020					52 weeks ended 30 March 2019
	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Unallocated central expenses	Total	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Unallocated central expenses	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Depreciation and amortisation of IT software (including depreciation of right-of-use lease assets)	19.6	16.8	4.5	-	40.9	12.5	11.1	2.7	-	26.3
Amortisation of acquired intangibles	4.7	18.6	1.7	-	25.0	4.7	16.1	1.7	-	22.5
	24.3	35.4	6.2	-	65.9	17.2	27.2	4.4	-	48.8

	52 weeks ended 28 March 2020					52 weeks ended 30 March 2019
	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Central	Total	UK & Europe Soft Flooring	UK & Europe Ceramic Tiles	Australia	Central	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Capex - PPE (incl. finance lease / HP)	13.1	16.9	2.7	-	32.7	20.1	19.5	4.5	-	44.1
Disposals of property, plant and equipment	(0.5)	(0.1)	(0.1)	-	(0.7)	(0.4)	(0.1)	(0.2)	-	(0.7)
Capex - intangibles (incl. finance lease / HP)	0.3	0.7	-	0.1	1.1	0.2	0.5	-	0.1	0.8
Total capital expenditure (cash-flow)	12.9	17.5	2.6	0.1	33.1	19.9	19.9	4.3	0.1	44.2

2. Exceptional and non-underlying items
		2020	2019
		£m	£m
Exceptional items
(a) Acquisition and disposal related costs		(2.2)	(1.8)
(b) Reorganisation costs		(3.5)	(12.7)
(c) Bond issue and related structuring costs		-	(7.3)
(d) Negative goodwill arising on acquisition		5.8	-
(e) Pension adjustment		-	(0.4)
(f) Gain on sale of investment property		-	1.8
Total exceptional items before goodwill impairment		0.1	(20.4)
(g) Exceptional goodwill impairment		(50.0)	-
Total exceptional items		(49.9)	(20.4)
Non-underlying items
(h) Acquisition-related performance plan charge		-	(1.5)
(i) Non-cash share incentive plan charge		(5.9)	(1.9)
(j) Amortisation of acquired intangibles		(25.0)	(22.5)
		(30.9)	(25.9)

All exceptional items are classified within administrative expenses.
(a) Professional fees in connection with prospecting, completing acquisitions and disposals during the period.
(b) Various fees, redundancy and other one-off costs in relation to synergy projects and performance improvement programmes from the previous period that were completed in the year.
(c) One-off advisory, legal and structuring costs incurred in the prior year.
(d) Negative goodwill arising on consolidation of subsidiaries acquired during the period, achieved through favourable bilateral negotiations.
(e) Guaranteed Minimum Pension one-off equalisation charge on the sole defined benefit pension scheme in the Group (within Interfloor) in the prior year.
(f) Gain on the sale of property held as an investment in the prior year.
(g) One-off goodwill impairment charge, see note 6 for further details.
(h) Charge relating to the accrual of expected liability under the acquisition-linked performance plan with the Keraben senior management team in the prior year.
(i) Non-cash, IFRS2 share-based payment charge in relation to the long-term management incentive plan that was put into place in April 2018. During the year some of the participants exited the scheme, resulting in a one-off accelerated charge.
(j) Amortisation of intangible assets, primarily brands and customer relationships, recognised on consolidation as a result of business combinations.

3. Finance costs
		2020	2019
		£m	£m
Underlying finance items
Interest on bank facilities and notes		20.7	11.0
Interest on unsecured loans		0.8	0.8
Interest payable on Hire Purchase and Finance Leases		-	0.1
Interest income		-	(0.4)
Total interest on loans and notes		21.5	11.5
Amortisation of prepaid finance costs on loans and notes		2.1	1.4
Unwinding of discount on right-of-use lease liabilities		2.6	-
Net interest expense on defined benefit pensions		0.1	0.2
		26.3	13.1
Non-underlying finance items
(a) Release of prepaid finance costs		4.4	3.1
(b) Underwriting fees and costs relating to previous bank facilities		6.5	-
(c) Fair value adjustment to notes redemption option		7.3	-
(d) Unsecured loan redemption premium credit		(0.2)	-
(e) Unwinding of present value of deferred and contingent earn-out liabilities		2.6	2.9
(f) Other adjustments to present value of contingent earn-out liabilities		0.8	4.3
(g) Mark to market adjustments on foreign exchange forward contracts		(3.2)	0.7
Non-underlying interest costs before translation difference on foreign currency loans		18.2	11.0
(h) Translation difference on foreign currency loans		13.0	3.6
		31.2	14.6

(a) Non-cash charge relating to the release of prepaid costs on previous bank facilities.
(b) Fees paid in relation to an underwritten bank facility that was obtained to provide certainty around the recent refinancing process plus deferred costs relating to the previous bank facilities and refinancing process.
(c) Fair value adjustment to embedded derivative representing the early redemption option within the terms of the €500m senior secured notes. See note 7 for further details.
(d) Unsecured loan redemption premium credit - Non-cash credit relating to the £2.1 million redemption premium on the BGF loan and option.  During the year it was agreed with the BGF to defer payment from December 2019 to December 2021, resulting in a credit to the income statement.
(e) Non-cash costs relating to the revaluation of deferred consideration and contingent earn-outs relating to historical business acquisitions. Deferred consideration is measured at amortised cost, while contingent consideration is measured under IFRS 3 at fair value. Both are discounted for the time value of money. The present value is then remeasured at each half year and in relation to the appropriateness of the discount factor and the unwind of this discount.
(f) Non-cash changes to contingent earn-outs arising from actual and forecast business performance are reflected as other adjustments to present value of contingent earn-out liabilities on historical business acquisitions.
(g) Non-cash fair value adjustments on foreign exchange forward contracts.
(h) Net impact of exchange rate movements on third party and intercompany loans.
See financial review for further details of these items.

4. Earnings per share
The calculation of the basic, adjusted and diluted earnings / loss per share is based on the following data:
		Basic	Adjusted	Basic	Adjusted
		52 weeks ended 28 March 2020	52 weeks ended 28 March 2020	52 weeks ended 30 March 2019	52 weeks ended 30 March 2019
		£m	£m	£m	£m
Loss attributable to ordinary equity holders of the parent entity		(68.2)	(68.2)	(8.0)	(8.0)
Exceptional and non-underlying items:
Amortisation of acquired intangibles		-	25.0	-	22.5
Other non-underlying items		-	5.9	-	3.4
Exceptional goodwill impairment		-	50.0	-	-
Other exceptional items		-	(0.1)	-	20.4
Release of prepaid finance costs		-	4.4	-	3.1
Fair value adjustment to notes redemption option		-	7.3	-	-
Translation difference on foreign currency loans		-	13.0	-	3.6
Other non-underlying finance items		-	6.5	-	7.9
Tax effect on adjusted items where applicable		-	(8.2)	-	(9.7)
(Loss) / earnings for the purpose of basic and adjusted earnings per share		(68.2)	35.6	(8.0)	43.2
Loss attributable to ordinary equity holders of the parent entity from discontinued operations		(2.0)	-	0.1	-
(Loss) / earnings for the purpose of basic and adjusted loss / earnings per share		(70.2)	35.6	(7.9)	43.2

Weighted average number of shares
				52 weeks ended 28 March 2020	52 weeks ended 30 March 2019
				Number of shares	Number of shares
				(000's)	(000's)
Weighted average number of shares for the purpose of basic and adjusted earnings per share				125,398	122,739
Effect of dilutive potential ordinary shares:
Share options				-	64
Weighted average number of ordinary shares for the purposes of diluted earnings per share				125,398	122,803
The potential dilutive effect of the share options has been calculated in accordance with IAS 33 using the average share price in the period.
The Group's earnings / loss per share are as follows:
				52 weeks ended 28 March 2020	52 weeks ended 30 March 2019
				Pence	Pence
Earnings / loss per share from continuing operations
Basic loss per share				(54.38)	(6.44)
Diluted loss per share				(54.38)	(6.44)
Basic adjusted earnings per share				28.42	35.27
Diluted adjusted earnings per share				28.42	35.25
Loss per share from discontinued operations
Basic loss per share				(1.60)	-
Diluted loss per share				(1.60)	-
Earnings / loss per share
Basic loss per share				(55.97)	(6.44)
Diluted loss per share				(55.97)	(6.44)
Basic adjusted earnings per share				28.42	35.27
Diluted adjusted earnings per share				28.42	35.25

5. Rates of exchange
		2020		2019
		Average	Year end	Average	Year end
Australia - A$		1.8685	2.0202	1.8049	1.8377
Europe - €		1.1442	1.1152	1.1344	1.1624

6. Goodwill
		£m
Cost
At 1 April 2018		188.1
Arising on acquisition		40.1
Exchange movements		(4.5)
At 30 March 2019		223.7
At 31 March 2019		223.7
Arising on acquisition		11.0
Exchange movements		6.3
At 28 March 2020		241.0
Accumulated impairment
At 30 March 2019		-
Exceptional impairment in the year		(50.0)
At 28 March 2020		(50.0)
Net Book Value
At 28 March 2020		191.0
At 30 March 2019		223.7

Goodwill is attributed to the businesses identified below for the purpose of testing impairment. These businesses are the lowest level at which goodwill is monitored and represent cash generating units ("CGUs"). The CGUs within a reported segment share similar characteristics to each other and to the other businesses within that segment.
Previously CGUs were determined to be individual acquisitions which had been made historically, however in the current year these were reassessed in light of an increasing amount of integration, both in terms of operations and management.  Consequently, the cash flows of each individual business are no longer distinguishable and as a result, the CGUs assessed in 2020 are aligned to the group reporting divisions, with the exception of the 'UK & Europe - Ceramic Tiles division'.  This division is split between a CGU representing the Spanish operations and a CGU representing the Italian operations, which are distinct from one another in terms of geography and, to an extent, management.

The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
			2020	2019
Cash Generating Units			£m	£m
UK & Europe - Soft Flooring			47.0	44.0
UK & Europe - Ceramic Tiles (Spain)			107.4	151.0
UK & Europe - Ceramic Tiles (Italy)			23.7	14.5
Australia			12.9	14.2
			191.0	223.7
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the goodwill have been determined based on value in use calculations.  The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.  These assumptions have been sensitised as part of current year testing procedures.  The discount rates used of: 12.0% for the 'UK & Europe - Soft Flooring' CGU; 13.5% for the Spanish part of the 'UK & Europe - Ceramic Tiles' CGU; 13.25% for the Italian part of the 'UK & Europe - Ceramic Tiles' CGU; and 13.9% for the 'Australia' CGU are estimated using pre-tax weighted-average costs of capital that reflect current market assessments of the time value of money, based on risks specific to the markets in which the businesses operate.  The primary reasons for the difference in rates between the divisions are the differences in underlying risk-free rates and cost of debt across the different geographies. The calculation uses cash flow projections extrapolated from the budget for the year ending March 2021.  At the end of the discrete forecast period, a terminal value is calculated based on terminal growth rate assumptions of: 2.25% for the 'UK & Europe - Soft Flooring' CGU; 1.3% for the Spanish part of the 'UK & Europe - Ceramic Tiles' CGU; 1.75% for the Italian part of the 'UK & Europe - Ceramic Tiles' CGU; and 2.75% for the 'Australia' CGU.

Primarily as a result of the Covid-19 pandemic and the associated uncertainties, we have reduced our forecast assumptions and the recoverable amount of all of the CGUs were reduced.  As a consequence, the 'UK & Europe - Ceramic Tiles (Spain) CGU was assessed to have a recoverable amount of £478.3m, being its value in use.  In calculating the value in use, a discount rate of 13.5% and a terminal growth rate of 1.3% were applied. As the value in use was lower than the carrying value of its assets, an impairment to goodwill of £50.0m was recognised, and charged through the income statement during the period. If a discount rate of 0.5% higher had been used, the resulting impairment implied would have been greater by £19.9m; whereas if a discount rate of 0.5% lower had been used, the resulting impairment implied would have been lower by £21.6m.
No reasonably possible changes in assumptions in the value in use calculations for the other CGUs would generate an impairment.
Goodwill comprises intangible assets that do not qualify for separate recognition, in particular the existing workforce.
None of the goodwill is expected to be tax deductible.

7. Net debt
Analysis of net debt
Reconciliation of movements in the Group's net debt position:
Group		At 31 March 2019	Cash flow	Capital expenditure	Acquisitions	Other non-cash changes	Exchange movement	At 28 March 2020
		£m	£m	£m	£m	£m	£m	£m
Cash and cash equivalents		66.4	106.9	-	1.1	-	2.4	176.8
Bank overdraft		(6.2)	4.1	-	-	-	-	(2.1)
Net cash and cash equivalents		60.2	111.0	-	1.1	-	2.4	174.7
Finance leases and hire purchase agreements:
- due in less than one year		(0.9)	-	-	-	0.9	-	-
- due in more than one year		(0.7)	-	-	-	0.7	-	-
Senior secured debt:
- due in less than one year		(1.2)	-	-	-	1.2	-	-
- due in more than one year		(385.8)	(118.0)	-	-	(6.7)	(27.2)	(537.7)
Unsecured loans:
- due in less than one year		(2.1)	1.1	-	(1.5)	(0.3)	-	(2.8)
- due in more than one year		(9.4)	-	-	-	(3.4)	-	(12.8)
Obligations under right-of-use leases:
- due in less than one year		-	9.0	(1.9)	(1.8)	(17.1)	-	(11.8)
- due in more than one year		-	-	(10.8)	(15.9)	(42.0)	0.7	(68.0)
Prepaid finance costs		3.6	9.0	-	-	(2.7)	-	9.9
Net debt including right-of-use lease liabilities, issue premia and prepaid finance costs		(336.3)	12.1	(12.7)	(18.1)	(69.4)	(24.1)	(448.5)
The cashflows therein included represent the physical cash inflow received by the Group as a result of the refinancing exercises in the period, the majority of which was directly paid by the new debt holders to the existing debt holders and therefore did not represent a cash inflow for the company.
Senior debt as at 28 March 2020 relates to €500m of 2024 senior secured notes, on which a coupon of 5.25% is paid bi-annually.  The notes were issued in two tranches during the year, with the first tranche (€330m) issued at par and the second (€170m) at a 5% premium.  As such, on issuance of the second tranche the Company received incremental proceeds of €8.5m, which was recognised within the opening value of the liability, and is reduced to €nil at maturity when only the par value (€170m) is repayable. As at 28 March 2020 this premium is recognised on the balance sheet at £7.5m. The fair value of the liability as at 28 March was €388.6m, which has been determined based on a quoted price in an active market.
Attached to the notes is an early repayment option, which has been identified as an embedded derivative asset, separately valued from the host contract. Changes in the Group's credit rating and market pricing of the notes would have an impact on the value of the option for early repayment. The redemption price of the repayment option is the par value of the notes plus any accrued interest, plus the following premia: within the first two years 2.625% plus a make-whole of the fair value of interest that would otherwise have been payable in that period; in the third year 2.625%; in the fourth year 1.3125%; in the fifth year 0%. This option has been valued based on the contractual redemption terms and measuring the Group's forward assessment of the notes' market value based on an option pricing model. The value of the derivative asset at inception of the first and second tranches of the notes was £2.0m and £5.0m, respectively.  The value of the liability recognised for the notes was increased by a corresponding amount, which is then reduced to par (€500m) at maturity in 2024 using an effective interest rate method. As a result, as at 28 March 2020 there is a total liability recognised of £452.9m in relation to notes with a par value of £448.4m (€500m) repayable in 2024, which includes an additional liability of £6.8m arising as a result of the embedded derivative recognition and £7.5m relating to the premium on the second tranche. The value of the derivative asset at the year end was £nil, and therefore an associated non-cash charge was recognised through the income statement for the period of £7.3m.
Additionally, the Group has a variable rate £75m multi-currency revolving credit facility maturing in 2024, which at the year end was drawn in full. The prior year €445m term loan provided by Barclays & HSBC was refinanced in the current year with the senior notes.
The unsecured loans relate to a loan of £1.5m owed to the vendors of the G-tuft business, and the debt component of the BGF loan on which the coupon is 6%. During the year, payment of the BGF redemption premium was deferred from December 2019 to December 2021, resulting in a non-underlying financial income of £0.1m (see Note 3).
The Group's net debt position as at 28 March 2020 was £378.6m (2019: £339.9m), before inclusion of right-of-use lease liabilities and netting off prepaid finance costs.  This figure includes the above £6.8m in relation to the early repayment option on the notes and £7.5m relating to the 5% issue premium on the second tranche of the notes.

8. Lease arrangements
The Group adopted IFRS 16 on 31 March 2019 and the key effects on the current year's consolidated income statement and balance sheet are summarised as follows: 2020 on a consistent basis with 2019 Effect of IFRS 16 As reported this year £'m £'m £'m Income statement Underlying EBITDA 107.2 10.9 118.1 Underlying depreciation and amortisation of IT software (31.7) (9.3) (41.0) Exceptional and non-underlying items in operating profit (83.6) - (83.6) Operating profit (8.0) 1.5 (6.5) Net finance costs (55.0) (2.5) (57.6) Profit before tax (63.0) (1.0) (64.0) Taxation (4.2) - (4.2) Profit for the period (67.2) (1.0) (68.2) Balance sheet Non-current assets 659.4 77.2 736.6 Current assets 486.3 - 486.3 Total assets 1,145.7 77.2 1,222.9 Current liabilities (249.3) (9.4) (258.7) Non-current liabilities (634.8) (68.8) (703.6) Total liabilities (884.2) (78.1) (962.3) Net assets 261.6 (1.0) 260.6 Translation reserve 6.5 (0.6) 5.9 Share capital and other reserves 255.1 (0.4) 254.6 Total equity 261.6 (1.0) 260.6 Leases with a duration of over 12 months and a total cost of over £5,000 have been included within right-of-use assets in accordance with IFRS 16. The adjustment has been applied from 31 March 2019 using the modified retrospective approach and comparatives have not been restated. The commitment as at 30 March 2019 and the amount capitalised as a lease liability on transition to IFRS 16 can be reconciled as follows:
		Group	Company
Operating lease commitment as at 30th March 2019		56.4	8.1
Effect of discounting using the incremental borrowing rate		(9.8)	(2.1)
Effect of different lease conditions under IFRS 16		10.7	0.4
Right-of-use lease liability recognised on transition		57.3	6.4

9. Retirement benefit obligations

Defined contribution schemes

The Group operates a number of defined contribution pension schemes.  The companies and the employees contribute towards the schemes.

Contributions are charged to the Income Statement as incurred and amounted to £3,712,000 (2019: £3,831,000), of which £2,126,000 (2019: £2,257,000) relates to the UK schemes. The total contributions outstanding at year-end were £nil (2019: £nil).

Defined benefit schemes

The Group has two defined benefit schemes, both of which relate to Interfloor Limited.

Interfloor Limited sponsors the Final Salary Scheme ("the Main Scheme") and the Interfloor Limited Executive Scheme ("the Executive Scheme") which are both defined benefit arrangements. The defined benefit schemes are administered by a separate fund that is legally separated from the Group.  The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The trustees of the pension fund are responsible for the investment policy with regard to the assets of the fund.

The last full actuarial valuations of these schemes were carried out by a qualified independent actuary as at 31 July 2018.

The contributions made by the employer over the financial period were £136,000 (2019: £95,000) in respect of the Main Scheme and £nil (2019: £126,000) in respect of the Executive Scheme.

Contributions to the Executive and Main Schemes are made in accordance with the Schedule of Contributions. Future contributions are expected to be an annual premium of £136,000 in respect of the Main Scheme and £nil contributions payable to the Executive Scheme. These payments are in line with the certified Schedules of Contributions until they are reviewed on completion of the triennial valuations of the schemes as at 1 August 2021.

As both schemes are closed to future accrual there will be no current service cost in future years.

The defined benefit schemes typically expose the Company to actuarial risks such as: investment risk, interest rate risk and longevity risk.

			2020	2019
			£m	£m
Net interest expense			0.1	0.2
Curtailments / Settlements			(0.1)	-
Past service cost			-	0.5
Components of defined benefit costs recognised in profit or loss			-	0.7
The net interest expense has been included within finance costs.  The remeasurement of the net defined benefit liability is included in the statement of comprehensive income.  The past service cost relates to a GMP equalisation charge and has been included within exceptional costs in administrative expenses.
Amounts recognised in the Consolidated Statement of Comprehensive Income are as follows:
			2020	2019
			£m	£m
The return on plan assets (excluding amounts included in net interest expense)			(1.5)	1.1
Actuarial gains arising from changes in demographic assumptions			-	0.2
Actuarial (losses) / gains arising from changes in financial assumptions			2.9	(1.1)
Actuarial gains arising from experience adjustments			-	1.7
Remeasurement of the net defined benefit liability			1.4	1.9
The amount included in the Consolidated Balance Sheet arising from the Group's obligations in respect of its defined benefit retirement benefit schemes is as follows:
			2020	2019
			£m	£m
Present value of defined benefit obligations			(28.4)	(32.5)
Fair value of plan assets			22.1	24.7
Net liability arising from defined benefit obligation			(6.3)	(7.8)
Deferred tax applied to net obligation			1.2	1.3
The Group expects to make a contribution of £136,000 (2019: £136,000) to the defined benefit schemes during the next financial period

10. Acquisition of subsidiaries
(a) Iberoceramica S.L.U.
On 6 August 2019 the Group acquired 100% of the equity of Iberoceramica S.L.U.
Operating from a site in Castellon, (near Valencia), Ibero is strategically close to the Group's existing Spanish ceramics manufacturers, Keraben and Saloni.  Founded in 1958, it manufactures high quality porcelain ceramic flooring, which is sold both domestically and internationally. It sells to a combination of wholesalers, retail groups, and independent stores throughout Continental Europe, North America, and the Middle East.
The Group results for the 52 weeks ended 28 March 2020 include contribution from Ibero of €15.3m (£13.3m1) of revenue and €0.6m (£0.5m1) of profit before tax (before amortisation of acquired intangibles and acquisition costs). If the acquisition had been completed on the first day of the financial year Group revenue and profit before tax would have been higher by €11.8m (£10.3m1) and €0.3m (£0.3m1) respectively.
1 Applying the average exchange rate over the financial year of 1.1442.
Consideration
The consideration for the acquisition comprises: (i) Initial cash consideration of €9.4m (£8.6m2) (ii) Contingent consideration of up to €6.2m (£5.7m2) dependent on sales volumes and other performance criteria
2 Applying the GBP to € exchange rate at the date of acquisition of 1.0864.
After fair value adjustments, negative goodwill of £5.5m is created on the consolidation of Ibero, which was taken to the income statement in the period.
Transaction costs amounting to £0.5m relating to the acquisition have been recognised as an expense and included in exceptional administrative expenses in the Group Income Statement.

(b) Ascot Gruppo Ceramiche S.R.L.
On 1 March 2020, Victoria PLC entered into an arrangement to lease the business and manufacturing facilities of Ascot for seven years, with an associated option to purchase the business.
During the course of FY20, the Group explored opportunities to expand the production capacity for its Italian ceramic tiles operations, where demand consistently exceeded the maximum manufacturing output of the existing business. Ceramiche Serra. Operating in Sassuolo, Italy, Ascot is located close to Serra.  It manufactures high quality porcelain ceramic flooring, which is sold both domestically and internationally. It sells to a combination of wholesalers, retail groups, and independent stores throughout Continental Europe.  With excess capacity and the ability to leverage operational synergies, Ascot provides a solution to the above capacity constraint issue. Despite the arrangement being structured as a lease with option to purchase, as the Group has full control of the business and assets of Ascot and intends to exercise the option to acquire, the transaction meets the criteria for business combination accounting under IFRS3. The total consideration is €11.5m (£9.9m), all of which is deferred on completion, with payments being made over the period of the lease up to the point at which the option to acquire is exercised.  The option is exercisable at any time for no cost, subject to the full remaining balance of the full €11.5m being paid. While there is no initial payment, under the agreement, the vendors have some flexibility over the timings of the deferred consideration payments, albeit an adjustment for cost of capital applies if drawn early.
For the year ended 31 December 2018, Ascot reported revenues of €67.1m (£58.6m1) and operating profit of €2.3m (£2.0m1). This is clearly a period prior to the signing of the lease arrangement and therefore does not include any of the aforementioned capacity benefits for the Group.
The Group results for the 52 weeks ended 28 March 2020 include contribution from Ascot of €4.8m (£4.2m1) of revenue and €0.4m (£0.3m1) of profit before tax (before amortisation of acquired intangibles and acquisition costs).
1 Applying the average exchange rate over the financial year of 1.1442.
Consideration
There was no initial cash consideration paid on the date of the transaction.
After fair value adjustments, goodwill of £8.3m is created on the consolidation of Ascot, which relates to expected future profits of the business.
Transaction costs amounting to £1.0m relating to the acquisition have been recognised as an expense and included in exceptional administrative expenses in the Group Income Statement.

(c) G-tuft Ltd
On 9 May 2019 the Group acquired 100% of the equity of G-tuft (2015) Ltd, a contract carpet manufacturing business based in the UK.  The acquisition was strategically defensive, given at the time of acquisition, approximately 70% of G-tuft sales were already to Group businesses.  On top of this G-tuft provides the Group with additional unutilised manufacturing capacity.
Cash consideration of £0.6m was paid on completion, with a further £1.0m of deferred consideration paid within the same financial year.  Transaction costs amounting to £0.1m have been recognised as an expense and included in exceptional administrative expenses in the Group Income Statement.  No separately identified intangible assets were acquired and negative goodwill of £0.5m was recognised within exceptional income in the Group Income Statement for the period, as a result of the net assets on acquisition exceeding the purchase price.
(d) Estillon BV
On 8 November 2019 the Group acquired 100% of the equity of Estillon BV, a flooring underlay manufacturer and distributer, based in The Netherlands.  The acquisition strengthens the Group's position in the European underlay market.
Cash consideration of €3.2m (£2.8m) was paid on completion, and in addition there is €1.8m (£1.6m) of contingent earn-out, and €0.7m (£0.6m) of deferred consideration.  Transaction costs amounting to £0.1m have been recognised as an expense and included in exceptional administrative expenses in the Group Income Statement.  Goodwill of €3.0m (£2.6m) was recognised on consolidation of Estillon (see Note 6) and no separately identified intangible assets were acquired.

11. Discontinued operations
On 3 February 2020 the Group disposed of its wholly owned subsidiary, A&A Carpets Limited.  The Group received cash consideration of £0.9m, and recognised a loss on disposal of £2.0m (non-cash item).
Income statement of discontinued operations
		52 weeks ended	52 weeks ended
		28 March 2020	30 March 2019
		£m	£m
Revenue		6.3	7.6
Cost of sales		(4.4)	(5.3)
Distribution costs		(1.4)	(1.9)
Administrative expenses		(0.6)	(0.4)
Operating profit		(0.1)	0.1
Finance Costs		-	-
(Loss) / profit before tax		(0.1)	0.1
Taxation		-	-
Loss on disposal		(1.9)	-
Loss for the financial year from discontinued operations		(2.0)	0.1
Net Assets of discontinued operations
			As at 28 March 2020
			£m
Net assets			0.8
Total consideration			0.9
Intercompany write-offs			2.0
Net loss on disposal			1.9

12. Basis of preparation

The results have been extracted from the audited financial statements of the Group for the 52 weeks ended 28 March 2020.  The results do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Whilst the financial information included in this announcement has been computed in accordance with the principles of International Financial Reporting Standards ("IFRS") as adopted by the EU, IFRIC interpretations and Companies Act 2006 that applies to companies reporting under IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group will publish full financial statements that comply with IFRS.  The audited financial statements incorporate an unqualified audit report. The Auditor's report on these accounts did not draw attention to any matters by way of emphasis and did not contain statements under S498(2) or (3) Companies Act 2006.

Statutory accounts for the 52 weeks ended 30 March 2019, which incorporated an unqualified auditor's report, have been filed with the Registrar of Companies.  The Auditor's report on these accounts did not draw attention to any matters by way of emphasis and did not contain statements under S498(2) or (3) Companies Act 2006. With the exception of the adoption of IFRS16 on 31 March 2019, the accounting policies applied are consistent with those described in the Annual Report & Accounts for the 52 weeks ended 30 March 2019.

The Annual Report & Accounts will be posted to shareholders in due course.  Further copies will be available from the Company's Registered Office: Worcester Road, Kidderminster, Worcestershire, DY10 1JR or via the website: www.victoriaplc.com.

 

END

 

 

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