Preliminary Results

RNS Number : 1121G

Victoria PLC

26 June 2012

 

International manufacturer & distributor of carpets & floorcoverings, supplying the mid to high end residential and contract markets in the UK and overseas.

Date: Tuesday 26 June 2012                                                                                                                 Embargoed: 7.00am

VICTORIA PLC

("Victoria" or the "Company")

2012 PRELIMINARY RESULTS STATEMENT

"Victoria has remained focused on trading whilst also investing for future growth"

Year ended 31 March 2012

Year ended 2 April 2011

Revenue	£77.13m	£70.50m	+9.4%
Operating profit (pre-exceptionals)*	£2.58m	£2.42m	+6.8%
Pre-tax profit (pre-exceptionals)*	£2.21m	£1.92m	+14.7%
Pre-tax profit	£1.55m	£1.92m	-19.6%
Earnings per share
-Basic -Basic adjusted earnings per share  (see note 2)	15.64p 23.71p	17.41p 18.35p	-10.2% +29.2%
Dividend -Final -Total dividend for the year	7.00p 10.50p	6.00p 9.00p	+16.7% +16.7%

* Exceptional items detailed in note 3

Key points

Ø Australia sales up by 1.5% in local currency - impacted by weakening market and consumer sentiment.

Ø UK sales (excluding Ireland) increased by 15.4%:

o  Strong growth in sales to the John Lewis Partnership - new programme of carpet ranges introduced in April 2011.

o  Further strengthening of Victoria's business in the insurance replacement market.

Ø Group investment programme underway :

o  UK rolling out an extensive luxury vinyl products programme - aim to become a major player within three years.

o  Australia launch major product initiative with INVISTA® under the STAINMASTER® with EverSoft™ brand.

Ø Strategic initiatives in place to build on market position and earnings.

Ø Proposed move from the Main Market to the AIM Market of the London Stock Exchange.

"Victoria has an excellent brand and we are determined to remain a leading quality flooring supplier in both Australasia and the United Kingdom. Plans have now been put in place and investments are being made to ensure we achieve these goals."

"We expect the consumer environment to remain challenging, but we have already demonstrated that we can achieve good progress in these conditions.  Our strong customer relationships, on-going actions to reduce costs and improve working capital utilisation will provide us with a strong platform for medium term growth."

Alan Bullock, Group Managing Director

"As the new financial year progresses, the benefits of the investment in the new products, together with the cost reductions and targeted improvements in working capital, should see stronger sales and profit growth in the second half of 2013 and in the following year."

Katherine Innes Ker, Chairman

Enquiries:
Victoria PLC	Seymour Pierce (Broker to the Company)
Alan Bullock, Group Managing Director: Mobile: [phone]	Corporate Finance
Ian Davies, Group Finance Director: Mobile: [phone]	Jonathan Wright or Tom Sheldon
Today: [phone]   (until 12.30)	Corporate Broking
Office: [phone] (Thereafter)	Richard Redmayne or Jacqui Briscoe
Ticker: VCP.L Premium Listing	Tel: [phone]
www.victoriaplc.com

VICTORIA PLC

("Victoria" or the "Company")

2012 PRELIMINARY RESULTS

STATEMENT BY THE CHAIRMAN, KATHERINE INNES KER

Introduction

The year ended 31 March 2012 was one of significant challenge for Victoria and I am pleased to report that the business has responded well.  The UK economy slipped back into recession in the latter part of 2011 as there continued to be a severe squeeze on real household incomes.  The Australian economy softened in mid-2011 and turned down sharply in the first quarter of 2012.  Despite these difficult trading conditions, the Company returned a positive performance. 

In response to the worsening economic outlook, the Board has overseen cost reductions and is targeting working capital improvements in both the UK and Australia in the new financial period.  At the same time, investments in new products in the UK and Australia have been made and these products have been launched since the 2012 year end.  Further detail is given in the Group Managing Director's Business Review.  As a result, 2013 will be a year of investment with the benefits expected to be seen in the second half of the year. 

Financial Results

Group revenue in the period under review increased by 9.4% from £70.50m to £77.13m and, in constant currency terms, was ahead of the prior year by 4.6%.

Revenue in Australia advanced by 1.5% in local currency after seeing a significant slowdown in the final quarter of the financial year, whilst revenue in the UK was ahead by 9.4%.

Operating profit before exceptional items increased by 6.8 %, from £2.42m to £2.58m, with profit before tax and exceptional items increasing by 14.7% from £1.92m to £2.21m.

Net debt increased in the year from £6.21m to £7.75m, reflecting investment in future growth initiatives.  As stated in the pre-closing trading update, borrowings are forecast to rise in the first half of the new financial year, as the Group invests in stocks and point of sales materials to launch new range initiatives in both the UK and Australia, but should fall again as the year progresses.  The Group continues to be well invested throughout its operations and, with modest capital expenditure plans, is expected to remain cash generative.  Net gearing remains relatively low at 16.1%.

Earnings & Dividends

Basic adjusted earnings per share have risen by 29.2%, from 18.35p to 23.71p per share, and the Board are pleased to declare a final dividend of 7.00p per share, up from 6.00p last year.  This, with the interim dividend of 3.50p already paid, will bring the total dividend for the year to 10.50p, an increase of 16.7% over the prior year.

The proposed dividend, which is subject to shareholder approval at the Annual General Meeting to be held on 31 August 2012, will be paid on 6 September 2012 to all members on the Register at the close of business on 10 August 2012.  The shares will be marked as ex-dividend on 8 August 2012.

Board Changes

There have been a number of changes to the Board during the year; my predecessor Chairman, Nikki Beckett, and Non-executive Director, Peter Jensen, resigned on 5 March 2012. At a General Meeting on 6 March 2012, Alexander Anton, Sir Bryan Nicholson, Geoff Wilding and I were elected as Non-executive Directors, and I was appointed Chairman.  On behalf of the Board and the employees at Victoria, I thank Nikki Beckett and Peter Jensen for their valuable service to the Company.

As announced in April, Ian Davies our Group Finance Director, will be standing down from the Board and leaving the business on 8 August 2012, having completed the FY12 financial reporting.  We thank him for the positive contribution he has made to the Company over the last five years and, although we are sorry to see Ian leave the Company, we accept that his move is part of his continuing career progression.

Employees

With several years now of extremely challenging market conditions, the Directors would like to express their personal thanks to all employees in the Group for their loyal and dedicated support of the Company.  Victoria has an excellent reputation for delivering consistently high levels of service to our customers and the quality of our employees is recognised as fundamental to this.

Proposed move to AIM

In response to requests from a large proportion of our shareholders, we intend to put a resolution to shareholders proposing that the listing of the ordinary shares be moved from the Official List to the AIM Market of The London Stock Exchange.  This will confer certain tax advantages to private shareholders and should reduce the cost of any future transactions by the Company.  Full details of this proposed resolution and the differences between AIM and the Official List will be contained in a Circular to be sent to shareholders in due course. 

Outlook

The economic outlook in all of the markets in which we operate remains uncertain, affecting consumer confidence, and we anticipate that we are unlikely to see any significant recovery in market conditions in the current financial year. 

To position the Group for future growth, we are investing heavily in the first half of the financial year in new products in both the UK and Australia; the benefit of the additional sales from these new initiatives is not expected to be seen until the second half of the financial year. We are also incurring the cost of "right sizing" the spinning mills in Australia, whilst improving working capital utilisation and making further cost reductions.

As the year progresses, the benefits of the investment in the new products, together with the improvements in working capital and the cost reductions, should result in stronger sales and profit growth in the second half of the current financial year and into the following year.

Katherine Innes Ker

Chairman

25 June 2012

VICTORIA PLC

("Victoria" or the "Company")

2012 PRELIMINARY RESULTS

BUSINESS REVIEW BY ALAN BULLOCK, GROUP MANAGING DIRECTOR

Introduction

I believe that we have had a reasonably successful year remaining focused on trading, whilst also investing in new initiatives aimed at strengthening the Company's brand to deliver future growth and increased shareholder value.

The economies and the retail climate in both the UK and the Republic of Ireland continue to be challenging and present us with one of the toughest trading periods seen in many years.  A combination of low economic growth and higher taxes has reduced consumers' disposable income, whilst higher raw material and other overhead costs put pressure on our margins.  In Australia, the economy, has become 'two-paced', with the mining sector still performing relatively well, whereas in the wider general economy consumers save more and their weak sentiment towards both the national and global economies has led to a more cautious spending approach than we have seen in recent years.

Despite the tough environment posed by the market conditions, the Group increased revenue in the year by 4.6% in constant currency terms and reported profit before tax and exceptional items increased by 14.7% from £1.92m to £2.21m. There were, however, non-recurring exceptional costs of £0.66m associated with the closure of the Group's Irish entity; the recent General Meeting and the formal sales process incurred during the year, which reduced the pre-tax profit (post exceptional costs) to £1.55m, compared to £1.92m in the prior year.

United Kingdom Operations (including Republic of Ireland)

The economic backdrop in the UK and the Republic of Ireland has been well reported upon in the media. We have certainly seen little improvement in either the economy or retail trading environment during the year and with a housing market, upon which the flooring industry relies for solid growth, remaining stagnant outside the London area, trading conditions have remained tough.

Despite this, the Group has seen revenue from its UK and Irish operations increase by 9.4%. We are pleased with this performance, which is clearly a much better achievement than that seen from most of our competitors in the sector.  This would indicate that we are still gaining market share.  If the detrimental effects of the sales decline we have seen in the Republic of Ireland are removed, the growth in UK sales would have been 15.4% in the year.

Victoria saw strong growth in its sales to the John Lewis Partnership, where a completely new programme of carpet ranges was introduced in April 2011.  We also saw a further strengthening of our business through the insurance replacement market, which we entered for the first time in June 2010.  Export sales were significantly up on the prior year, with several impressive contracts won during the year in the hospitality sector for well-known European hotels, including the Hotel Bristol in Paris.

In September 2011, Victoria announced that it was to enter the Luxury Vinyl Tile ("LVT") market and acquired certain of the assets of a distributor, C & H Distribution Ltd in order to gain some immediate market traction in this new area of flooring for the Group.

In late Autumn, Victoria created a new division called Victoria™Luxury Flooring and recruited both a managing director and marketing manager to build and develop this new venture for the Group.  With their combined LVT experience of over 40 years, I am pleased to report that in the short time frame of less than six months, Victoria has created a significant and impressive programme of LVT products, which is now being rolled out into the UK market. Details of the full product offer can be found on the Victoria™Luxury Flooring's web-site www.victorialuxuryflooring.com.

The first part of the roll-out programme on LVT is through our existing residential sales force to carefully selected independent retailers who will form an exclusive authorised dealer network.  The point of sale units, marketing tools and products are being very well received by our retailers and we are confident that the products will sell well in the market.

The second part of the roll out programme is focused on the contract market where both existing and some newly recruited contract sales specialists will target end user customers both directly and through the Architect/Designer community.

The upfront investment in both stock and point-of-sale display materials has in part been borne in the financial year under review but will also impact profitability and borrowings in the first half of the new financial year before sales build to anticipated levels.  The Board is enthusiastic about the opportunity LVT presents and we intend to become a major player in this market sector in the UK within a three year time frame.

Carpets, of course, will remain an integral part of the Group's offering and we do not intend to lose any focus or commitment in this area.  Early in the new financial year, Victoria launched a major new range of twist pile carpets in a wool blend; this new carpet collection, called 'Options 288', represents a significant investment and will form the backbone of our improved UK carpet offer.  Thirty six colour ways in two widths and four pile weights will make 'Options 288' one of the most comprehensive twist pile carpet ranges available in the UK market today.

During the past financial year, the Company has also been investing in our e-commerce activities, as we recognise that the business has to be able to offer its customers both an e-commerce platform through which they can attract consumers into their retail shops via a brochure website and to be able to sell on-line through a transactional website to a wider customer base.

Multi-channel selling is likely to become more and more important and Victoria's investment in this area is seen to be key in developing even stronger associations with our core customer base.

Victoria's latest transactional website went live in May 2012 and details of this portal and the products offered can be found at www.beautifulflooringdirect.com.

After over seven years of seeking a change of use and planning consent on the Group's redundant sports ground in Worcestershire, the Company advised shareholders on 1 March 2012, that planning consent had been granted and, with the change of use, the Board was looking to sell the ground, seeking offers in excess of £1m.  Discussions on the disposal of the site are on-going and we will update shareholders in due course when a transaction is agreed.

Australian Operations

The Australian economy, which was showing signs of softening in 2011, turned down sharply in the second half of the financial year, with a consequent adverse effect on full year results.  There had been a general softness in retailing, real estate activity and construction prior to November 2011 but this deteriorated rapidly after that date.  Australia's two speed economy became more pronounced as sectors outside the mining industry struggled with weakening conditions, stubbornly cautious consumers, and uncertainty surrounding the global economic outlook.

Growth in revenue and profit achieved during H1 was reversed in H2 as trading conditions deteriorated.  Pressure on margins and volumes was intensified by an ever increasing volume of carpet imports made more attractive by a strong Australian Dollar.  Many retailers have described the market conditions as the toughest they have experienced in twenty years or more.  Despite this, revenue was up 9.2% in the first half of the year and closed the full year with sales totalling A$71.84m, up a modest 1.5% on the previous year (A$70.80m).  Pre-tax profit for the full year was A$4.43m, down 17.4% on the previous year's A$5.37m, with the second half's pre-tax profit of A$1.50m being 45.6% down on the corresponding period last year.

Within a depressed and intensely competitive market, there has been a continuance of the trend away from wool and wool blend carpets and a strengthening of the market share of synthetic pile carpets.  Wool fibre costs, which peaked in late 2011 after almost doubling over the previous eighteen months, have since eased slightly but wool remains at a competitive disadvantage to synthetic fibres. As a consequence, our spinning mills have been impacted by reduced demand.  Shorter working weeks have been required for much of the second half, and this lower capacity utilisation is one of the major reasons for a diminished level of gross profit during the second half of the year.

Against an otherwise gloomy set of circumstances, it is pleasing to report that, the strategic move to enter the commercial market in 2010 with the introduction of carpet tiles and an extension of our broadloom ranges provided welcome sales growth during the past year.  Sales in this category have grown from 9.4% to 15.0% of total sales despite a somewhat subdued commercial market.

Our Australian business continues to generate a strong operating cash flow.  With tight control of working capital and modest capital expenditure in the past year, it was effectively debt free at the end of the financial year.

The value of inventories increased by A$1.63m (7.6%) to A$22.98m at year end. This is reflective of additional stock holdings required to service the commercial market and an increasing proportion of synthetic stocks which have longer raw material lead times.

Capital expenditure undertaken during the year totalled A$1.66m. The largest items being an in-line latex compounding system costing A$0.78m and a new tufting machine which cost A$0.43m, both at our Dandenong carpet factory.

In response to softer market conditions and the continuing market trend away from wool to synthetic carpets, the Australian management have implemented two major strategic actions:

Ø Declining demand for woollen yarns from the two Australian spinning mills has required a significant restructuring of their operations.  This pro-active measure was undertaken early in the new financial year and substantial non-recurring costs of around A$1.3m will be incurred in "right sizing" and reorganising the mills to meet reduced volume requirements in an efficient and cost effective manner.

Ø To counter the threat of increasing imports of synthetic carpets and to establish a clear point of difference with our product offerings, we have successfully concluded an extended period of product development with INVISTA®, one of the world's major nylon producers, and are currently in the process of launching a series of new solution dyed nylon ranges licensed exclusively to Victoria Carpets under the STAINMASTER® with EverSoft™ brand.

This new generation of carpets, manufactured with soft handle synthetic yarns, is supported by an extensive promotional and marketing campaign conducted jointly with STAINMASTER®, the best        known brand in the Australian carpet market.  The initial response to these new ranges has been extremely positive and we are confident that they will not only reverse the loss of synthetic market share we have experienced during the past year but also help us grow our overall market share of carpet sales.

The outlook for the Australian economy is for modest overall growth of approximately 3% over the coming year but outside the mining segment there will be geographic and sectoral differences.  We do not expect retail or housing activity to improve until at least the second half of the coming year but consider that the aforementioned strategic actions have positioned our Australian business extremely well for the challenges and opportunities that will present themselves in the coming year. 

Canada

Pleasingly, revenue in our Canadian associate company, Colin Campbell, was up by 18.5% from C$6.43 m to C$7.62m, whilst pre-tax profit advanced to C$0.31m, compared to a small pre-tax loss of C$0.09m recorded in the previous financial year.

Whilst sales through the decorative supply showroom to designers and architects were marginally down, we saw good sales growth in rug sales and also to the contract residential market, where several notable high rise residential projects in Vancouver were carpeted.

Summary and Outlook

The past year has been a demanding time for our business and I have been proud of the adaptability and energy shown by the employees that I have the privilege of leading.  I would like to express my personal thanks to my colleagues for their loyalty and hard work in the tough environment in which we operate.

Victoria has an excellent brand and we are determined to remain a leading quality flooring supplier in both Australasia and the United Kingdom. Plans have now been put in place and investments are being made to ensure we achieve these goals.  The past six months and the first six months of the new financial year need to be viewed as a period of investment to position our businesses for future growth, which we believe will deliver future shareholder value.

We expect the consumer environment to remain challenging, but we have already demonstrated that we can achieve good progress in these conditions.  Our strong customer relationships and the on-going actions to reduce costs and improve working capital utilisation will provide us with a strong platform for medium term growth through the core strategic growth areas the Company has embarked upon.

Through a focus on creating great value products for our customers to buy and an active management of the business, the Board believes the Group is being well positioned for the year ahead.

Alan R Bullock

Group Managing Director

25 June 2012

VICTORIA PLC

("Victoria" or the "Company")

2012 PRELIMINARY RESULTS

FINANCIAL REVIEW BY IAN DAVIES, GROUP FINANCE DIRECTOR

Group Financial Highlights

	2012 £'m	2011 £'m	% Change
Revenue	77.13	70.50	+9.4%
Operating profit before exceptional items	2.58	2.42	+6.8%
Finance Costs	(0.46)	(0.47)	-2.3%
Share of associate result	0.09	(0.02)	+486.4%
Profit before tax and exceptional items	2.21	1.92	+14.7%
Exceptional items (see Note 3)	(0.66)	----
Profit before tax	1.55	1.92	-19.6%
Net debt	7.75	6.21	+24.7%
Earnings per share -basic adjusted (pence)*	23.71	18.35	+29.2%
Earnings per share - basic	15.64	17.41	-10.2%

*as defined in the Earnings per share section covered later in this review

As described in detail within the Group Managing Director's Business Review, economic and market conditions remained difficult throughout the year in all of our core markets.  Australasia, in particular, experienced a marked softening in the economy in H2 for the first time in recent years.

Against this backdrop, the Group has delivered growth in revenue of 9.4% to £77.13m and on underlying pre tax profit (before exceptional items) of 14.7% to £2.21m.  Net debt has increased from prior year level by £1.54m to £7.75m, reflecting investment in new carpet and LVT ranges in advance of product launches early in the new financial period.

Operating profit and profit before tax ('PBT'), before exceptional items, improved by 6.8% and 14.7% respectively year on year.  As a result of the £0.66m of non-recurring exceptional costs, PBT decreased by 19.6%.

Revenue

The Group achieved revenue growth of 9.4% to £77.13m (2011: £70.50m), in part benefitting from a 7.2% strengthening in the Australian Dollar relative to Sterling.  In constant currency terms, revenue was ahead of the prior year by 4.6%.

Exchange rates
	2012	2011	% change
Average rates
Australian Dollar	1.5270	1.6460	-7.2%
Euro	1.1559	1.1688	-1.1%
Canadian Dollar	1.5870	1.5831	+0.2%

Australia represented 61.0% (2011:61.0%) and UK & Ireland 39.0% (2011: 39.0%) of Group revenue.

The movement in average exchange rates in the period benefitted Group revenue by £3.41m, with £3.40m of the benefit from the strengthening of the Australian dollar.

Gross margin

The overall gross margin for the Group was 26.4% (2011:28.2%).

Australia experienced a reduction in margin of 260bps, impacted by lower utilisation of the spinning mills due to reduced demand in wool, and increased volumes of carpet imports due to the relative strength of the Australian Dollar. 

UK margin was 70bps below prior year impacted by rising wool prices. A price increase was implemented in the UK in May 2012 which should facilitate a recovery in margin, and as sales of relatively high margin LVT product start to build in the new financial year, a further positive effect on overall margin is expected

Operating profit

Group operating profit before exceptional items, increased by 6.8% to £2.58m (2011: £2.42m).

Operating profit in Australia decreased by 17.5% in local currency terms, primarily as a result of reduced margins as noted above.

The UK operation reported an operating profit before exceptional items of £0.31m compared to an operating loss of £0.28m in the prior year.  The improvement in the UK operating profit is driven by the prior year Irish operating loss of £0.68m not recurring in the current period as a result of the restructuring measures undertaken.

Exceptional items

Exceptional costs in the period under review totalled £0.66m, and relate to the restructuring of the Group's Irish businesses (£0.37m), the costs associated with the General Meeting and formal sales process earlier this year (£0.29m).  As reported at the half-year, our Irish brands are now marketed and traded under a distribution model and reported within the UK operation.

Finance costs

Finance costs reduced slightly to £0.46m (2011: £0.47m).  The average interest rate on borrowings was marginally lower at 5.3% (2011: 5.6%).

Interest was covered 12.1 times by EBITDA before exceptional items (2011: 11.4 times) and 5.6 times by operating profit before exceptional items (2011: 5.1 times). 

Profit before taxation

Group PBT and exceptional items increased by 14.7% to £2.21m (2011: £1.92m).  In constant currency terms, PBT before exceptional items was 3.8% up on prior year.

Taxation

The tax charge for the year was £0.46m (2011: £0.72m), equivalent to an effective tax rate of 29.8% (2011: 37.2%). 

The effective tax rate is above the UK standard rate of 26%, impacted by a 30% standard rate of tax in Australia where the majority of the Group's profit in the period was generated, and Irish restructuring costs of £0.37m which could not be utilised for tax purposes.  These impacts are partly offset by a deferred tax credit in the period as a result of a reduction in the future UK tax rate from 26% to 24% which was substantively enacted in the period.

Earnings per share ('EPS')

Basic adjusted earnings per share were 23.71p, 29.2% above prior year (2011: 18.35p).   In the year under review, adjusted earnings per share excludes the impact of the Irish restructuring and the General Meeting and formal sales process (£0.66m), whilst the prior year comparatives exclude the impact of a goodwill impairment charge (£0.07m).

Basic earnings per share were 15.64p (2011: 17.41p).

The diluted adjusted earnings per share were 21.40p (2011: 16.61p). 

Dividends

The Board is proposing a total dividend for the year of 10.50p, representing a 16.7% increase on the prior year total dividend of 9.00p. This includes a proposed final dividend of 7.00p (2011: 6.00p).  An interim dividend of 3.50p was paid in December 2011 (2011: 3.00p).

The value of the interim dividend was £0.24m and the value of the proposed final dividend is £0.49m.  (Total:  £0.73m).  The value of the total dividend paid in the year ended 31 March 2012, was £0.66m (2011: £0.58m).

Capital expenditure

Capital expenditure in the year was £1.46m (2011: £0.95m).  This represents 49.9% of the annual depreciation charge (2011: 33.1%).  The main items of capital expenditure were an in-line latex compounding system (£0.51m), which will provide on-going future cost savings and enhanced quality, and a new tufting machine (£0.28m), which provides additional capacity.  Both of these items were installed in our Australian operations.

The Group remains very well invested with 'state of the art' equipment. Capital expenditure is expected to remain relatively modest in the new financial period and is likely to remain below the normal depreciation levels.

Net assets

The Group's overall net assets value increased in the financial period by £0.56m to £40.32m (2011: £39.76m).  The increase represents profit for the period of £1.09m less dividends paid of £0.66m, an increase of £0.07m due to exchange differences on overseas operations and other movements of £0.06m.

Acquisition of C&H Distribution

The Group acquired the brand and certain trade assets of C&H Distribution Limited, a distributor of LVT, for consideration of £0.40m, which was funded from the Group's existing cash resources.  Inventory and other fixed assets were also acquired for £0.08m and £0.02m respectively.

Operating cash flow

	2012 £'m	2011 £'m
Operating profit before exceptional items	2.58	2.42
Depreciation and other non-cash items	3.08	3.03
Foreign exchange	0.01	0.12
Working capital	(2.24)	(1.67)
Operating cash flow before exceptional items	3.43	3.90
EBITDA*	5.56	5.38
Operating cash flow conversion % (against EBITDA)	61.7%	72.5%

*Earnings before interest, tax, depreciation amortisation and exceptional items

The Group generated positive operating cash flows (before exceptional items) of £3.43m in the period (2011: £3.90m). The decrease of £0.47m from prior year was primarily due to an increased level of working capital absorption in the period, reflecting a build-up in inventory to support the launch of new LVT and carpet ranges in the UK, and new SDN ranges in Australia. 

Operating cash flow conversion percentage, as measured against EBITDA, was 61.7% (2011: 72.5%), with the lower level of conversion reflecting the investment in inventory.

Free cash flow and net debt

	2012	2011
	£m	£m
Operating cash flow (before exceptional items)	3.43	3.90
Interest paid	(0.48)	(0.50)
Corporation tax paid	(1.41)	(0.89)
Capital expenditure net of sales proceeds	(1.38)	(0.89)
Free cash flow (before exceptional items)	0.16	1.62
Dividends paid	(0.66)	(0.58)
Exceptional costs	(0.66)	----
Acquisition of certain assets of C&H Distribution	(0.40)	----
Other	0.02	(0.11)
Movement in net debt	(1.54)	0.93
Opening net debt	(6.21)	(7.14)
Closing net debt	(7.75)	(6.21)

Operating cash flow less interest, tax and capital expenditure resulted in a free cash inflow of £0.16m (2011: £1.62m cash inflow).  Group net debt increased by £1.54m to £7.75m (2011: £6.21m), whilst the average net debt during the period increased marginally to £8.63m (2011: £8.51m).  The ratio of net debt to EBITDA (before exceptionals) remains at a satisfactory level of 1.39 times (2011: 1.15 times). 

Hedging

The Group reviews currency exposures on a regular basis in respect to trading operations involving the export sale of goods or import of raw materials or capital equipment.  The Group may manage potential currency exposures through the use of forward currency contracts where currency movements may be considered as volatile and the amounts involved significant.

The principal currency exposure of the Group is in respect to the investment in its Australian subsidiary.

Future funding

The Group's annual renewal of banking facilities was completed in September 2011 in the UK and in June 2012 in Australia.  The current facilities across the Group provide sufficient capacity in Australian Dollars, Sterling and Euros to cover all anticipated capital expenditure and working capital requirements in the year ahead.

Going concern

The consolidated financial statements have been prepared on a going concern basis.  The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Group Managing Director's Business Review.  The financial position of the Group is described in this financial review. 

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

The Directors are of the view that the Group is well placed to manage its business risks despite the difficult economic and market conditions.  Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Key performance indicators (KPI's)

The Board of Victoria PLC ('Victoria' or the 'business' or 'Company') and the Divisional Management boards monitor a range of financial and non-financial performance indicators on a monthly basis so as to measure performance against expected targets.  The KPI's monitored by the Group Board are set out in the table below. 

KPI	Description	Performance
Financial KPI's
Sales growth (constant currency)	Overall sales growth achieved year on year after adjusting for the impact from currency movements (Australian Dollar and Euro) in the period.  This is used to assess the underlying trading performance of the Group.	2012: +4.6% 2011: +3.3% 2010: -6.9%
Operating margin	Calculated as total operating profit* divided by revenue.  This is used to assess the underlying trading performance of the Group.	2012: 3.3% 2011: 3.4% 2010: 2.8%
Return on operating assets	ROA demonstrates the effectiveness of our managers in utilising the assets to deliver profits to provide a return to Shareholders.  Calculated as operating profit* (including share of associate company) divided by the operating assets employed.	2012: 5.6% 2011: 5.2% 2010: 3.7%
Earnings per share (basic adjusted)	Calculated as profit for the period divided by the total number of shares in issue and adjusted for any exceptional items in the period.  This is used to assess the underlying financial performance of the Group as a whole.	2012: 23.7p 2011: 18.4p 2010: 9.0p
Net debt to EBITDA	Calculated as net debt divided by EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items).  Used to assess the financial position of the Group and its ability to fund future growth.	2012: 1.4 times 2011: 1.2 times 2010: 1.6 times
Interest cover	Represents the number of times EBITDA* covers net interest payments.  Used to assess the financial position of the Group and its ability to fund future growth.	2012: 12.1 times 2011: 11.4 times 2010: 8.0 times
Non-Financial KPI's	Description
Voluntary employee turnover	Number of permanent employee resignations as a percentage of total permanent employees.  This is used to monitor our objective to be recognised as an 'employer of choice'.	2012: 4.7% 2011: 4.7% 2010: 5.3%
Absenteeism	Calculated as unauthorised leave expressed as a percentage of total available work days.  Our aim is to keep this to a minimum to ensure operational effectiveness.	2012: 4.3% 2011: 4.3% 2010: 3.1%
Kwh per square metre of carpet	Represents the energy consumption (in kilowatt-hours) for every square metre of carpet manufactured.  Measured as part of the Group's objective to improve energy efficiency and reduce carbon emissions.	2012: 1.36 kWh/m2 2011: 1.50 kWh/m2 2010: 1.53 kWh/m2
Kwh per Kg of yarn spun	Represents the energy consumption (in kilowatt-hours) for every Kilogram of yarn produced.  Measured as part of the Group's objective to improve energy efficiency and reduce carbon emissions.	2012: 5.41 kWh/kg 2011: 5.74 kWh/kg 2010: 5.16 kWh/kg

*Pre-exceptional items

Risk management

There are a number of potential risks and uncertainties which could have a material impact on the Group.  The Directors continue to develop processes for identifying, understanding and evaluating the risks faced by the organisation.  The Directors recognise that the management of significant risks is necessary in order that the Group achieves its objective of creating long term returns for its shareholders.

At both Group and subsidiary level, it categorises risk across four key areas:  Financial, operational, organisational and external.  For each key risk, each business reviews the likelihood of its occurrence, its potential effect on the company's performance and identifies management responsibility for the risk, control measures in place and any mitigating actions that are required.

Listed in the table below are examples of key risks being managed by the business and mitigating actions or controls:

Business risk

Risk Area	Description	Potential impact	Mitigation
Finance	Interest rates - exposure to market rate Foreign exchange - exposure to market rates Funding - lack of available funds	Increased borrowing costs Unexpected impact on material or investment cost Inability to pursue capital expenditure or provide sufficient working capital	Review of interest cover Use of forward contracts See 'Hedging' above Debt capacity See 'future funding' above
Operational	Customer satisfaction - Insufficient quality or 'on time' delivery Equipment - breakdown of key plant	Failure to retain and grow key customers' accounts Inability to produce carpet in accordance with production plan	Pro-active service and quality management; regular customer meetings; own fleet (UK); third party service provider (Australia) Maintenance programme and reciprocal breakdown agreements
Organisational	People - loss of key staff Health & Safety - personal injury to employees	Failure to retain and develop key management Loss of availability of employees	Service agreements; regular line management reviews; training and development plans Designated health & safety officers, health & safety procedures, first aiders on duty
External	Regulations - breach of applicable rules Loss of major customer Increase in material or energy costs Market - major downturn	Unexpected impact on sales and profit Potential impact on sales and profitability Significant  impact on costs and profit Inability to maintain sales growth	Internal controls; on-going training; insurance No single entity has more than 25% of any individual region's revenue Monitoring of  raw material price; forward pricing agreements; proactive energy efficiency Geographic spread and mix of business, widen channels to market; widen products to market

This review has been prepared to provide a fair review of the business of the Group and to describe the principal risks and uncertainties it faces.  In doing so, it aims to provide a balanced and comprehensive analysis of the development and performance of the business during the past financial year.

The review contains certain forward looking statements which have been made by the Directors in good faith based on the information available to them up to the time of their approving this report.  As such, these statements should be treated with caution due to inherent uncertainties, including both economic and business risk factors underlying any such financial information.

In preparing this review, the Directors have sought to comply with the guidance set out in the Accounting Standards Board's Reporting Statement.

This review has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Victoria PLC and its subsidiary undertakings when viewed as a whole.

Summary

The Group reported growth in underlying profitability in the period after discounting the impact of exceptional costs and against a backdrop of worsening economic and market conditions in our core markets during the period.  This has been facilitated by the Group's on-going focus on cost control and tight working capital management.  Whilst net debt increased in the current period as a result of new product launches and a number of exceptional costs, the Group remains in a strong financial position, with net gearing at a relatively low level.

This has enabled the Group to invest in these new initiatives during the financial period, with new product launches in both the UK and Australia early in the new financial period aimed at delivering future growth and enhanced quality of earnings.

Ian Davies

Group Finance Director

25 June 2012

Consolidated Income Statement

For the 52 weeks ended 31 March 2012

				52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
			Notes	£000	£000
Continuing operations
Revenue			1	77,126	70,503
Cost of sales				(56,787)	(50,611)
Gross profit				20,339	19,892
Distribution costs				(14,070)	(13,615)
Administrative expenses				(4,730)	(4,337)
Other operating income				384	478
Operating profit				1,923	2,418
Analysed between:
Operating profit before exceptional items			1	2,583	2,418
Exceptional items			3	(660)	-
Share of results of associated company				85	(22)
Finance costs				(461)	(472)
Profit before tax			1	1,547	1,924
Taxation				(461)	(715)
Profit for the period				1,086	1,209
Attributable to:
Equity holders of the parent				1,086	1,209
Earnings per share -	pence	basic	2	15.64	17.41
		diluted	2	14.12	15.76

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 31 March 2012

	52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
	£000	£000
Exchange differences on translation of foreign operations	72	1,733
Other comprehensive income for the period	72	1,733
Profit for the period	1,086	1,209
Total comprehensive income for the period	1,158	2,942
Attributable to:
Equity holders of the parent	1,158	2,942

Consolidated and Company Balance Sheets

As at 31 March 2012

	Group		Company
	31 March 2012	2 April 2011	31 March 2012	2 April 2011
	£000	£000	£000	£000
Non-current assets
Intangible assets	742	389	----	----
Property, plant and equipment	24,978	26,537	5,027	5,078
Investment property	180	180	180	180
Investment in subsidiary undertakings	----	----	3,322	3,321
Investment in associated company	558	487	56	56
Deferred tax asset	812	853	----	----
Total non-current assets	27,270	28,446	8,585	8,635
Current assets
Inventories	25,966	22,902	----	----
Trade and other receivables	11,676	11,821	4,812	4,958
Cash at bank and in hand	806	1,626	----	----
Total current assets	38,448	36,349	4,812	4,958
Total assets	65,718	64,795	13,397	13,593
Current liabilities
Trade and other payables	13,467	12,442	1,055	141
Current tax liabilities	31	613	----	----
Other financial liabilities	8,165	6,360	3,078	3,707
Total current liabilities	21,663	19,415	4,133	3,848
Non-current liabilities
Trade and other payables	2,253	2,611	----	----
Other financial liabilities	388	1,497	----	----
Deferred tax liabilities	1,094	1,510	784	978
Total non-current liabilities	3,735	5,618	784	978
Total liabilities	25,398	25,033	4,917	4,826
Net assets	40,320	39,762	8,480	8,767
Equity
Share capital	1,736	1,736	1,736	1,736
Share premium	829	829	829	829
Retained earnings	37,575	37,067	5,802	6,115
Share based payment reserve	180	130	113	87
Total equity	40,320	39,762	8,480	8,767

Consolidated Statement of Changes in Equity

For the 52 weeks ended 31 March 2012

	Share	Share	Retained	Share based	Total
	capital	premium	earnings	payment	equity
				reserve
	£000	£000	£000	£000	£000
At 3 April 2011	1,736	829	37,067	130	39,762
Profit for the period	----	----	1,086	----	1,086
Other comprehensive income for the period	----	----	72	----	72
Dividends paid	----	----	(660)	----	(660)
Movement in share based payment reserve	----	----	----	50	50
Deferred tax on share option scheme	----	----	10	----	10
At 31 March 2012	1,736	829	37,575	180	40,320
At 4 April 2010	1,736	829	34,690	----	37,255
Profit for the period	----	----	1,209	----	1,209
Other comprehensive income for the period	----	----	1,733	----	1,733
Dividends paid	----	----	(583)	----	(583)
Transfer of accruals	----	----	----	73	73
Share based payment charge	----	----	----	57	57
Deferred tax on share option scheme	----	----	18	----	18
At 2 April 2011	1,736	829	37,067	130	39,762

Company Statement of Changes in Equity

For the 52 weeks ended 31 March 2012

	Share	Share	Retained	Share based	Total
	capital	premium	earnings	payment	equity
				reserve
	£000	£000	£000	£000	£000
At 3 April 2011	1,736	829	6,115	87	8,767
Profit for the period	----	----	337	----	337
Dividends paid	----	----	(660)	----	(660)
Share based payment charge	----	----	----	26	26
Deferred tax on share option scheme	----	----	10	----	10
At 31 March 2012	1,736	829	5,802	113	8,480
At 4 April 2010	1,736	829	6,237	----	8,802
Profit for the period	----	----	443	----	443
Dividends paid	----	----	(583)	----	(583)
Transfer from accruals	----	----	----	73	73
Share based payment charge	----	----	----	14	14
Deferred tax on share options scheme	----	----	18	----	18
At 2 April 2011	1,736	829	6,115	87	8,767

Consolidated and Company's Statements of Cash Flows

For the 52 weeks ended 31 March 2012

		Group		Company
		52 weeks ended 31 March 2012	52 weeks ended 2 April 2011	52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
	Notes	£000	£000	£000	£000
Net cash inflow from operating  activities	5	885	2,505	1,285	644
Investing activities
Purchases of property, plant and  equipment		(1,464)	(948)	(13)	---- ----
Acquisition of intangible assets		(400)	----	----	----
Proceeds on disposal of property,  plant and equipment		85	62	-----	----
Investment in subsidiary		----	----	(1)	----
Net cash used in investing activities		(1,779)	(886)	(14)	----
Financing activities
Repayment of loans		(973)	(971)	-----	----
Receipts from financing of assets		321	202	-----	----
Repayment of obligations under  finance leases/HP		(872)	(725)	-----	----
Dividends paid		(660)	(583)	(660)	(583)
Net cash used in financing activities		(2,184)	(2,077)	(660)	(583)
Net (decrease)/ increase in cash  and cash equivalents		(3,078)	(458)	611	61
Cash and cash equivalents at  beginning of period		(3,866)	(3,474)	(3,689)	(3,750)
Effect of foreign exchange  rate changes		24	66	-----	----
Cash and cash equivalents at  end of period	6	(6,920)	(3,866)	(3,078)	(3,689)

NOTES TO THE ACCOUNTS

1              Segmental information

The Irish business was restructured in the first quarter of the period under review, and the trade and assets transferred into the UK operation from July 2011.  Following this change, the UK and Ireland results are now reported as one segment.

The Group is organised into two operating divisions, the UK and Australia.  Our share of the Canadian Associate result is also presented separately.

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

Income statement			For the 52 weeks ended 31 March 2012				For the 52 weeks ended 2 April 2011
	Revenue	Segmental operating profit		Exceptional operating items	Finance costs	Profit before tax*	Revenue	Segmental operating profit	Finance costs	Profitbefore tax*
	£000	£000		£000	£000	£000	£000	£000	£000	£000
UK & Ireland	30,080	308		(369)	(128)	(189)	27,488	(278)	(107)	(385)
Australia	47,046	3,134			(231)	2,903	43,015	3,526	(264)	3,262
	77,126	3,442		(369)	(359)	2,714	70,503	3,248	(371)	2,877
Share of Canadian associate						85				(22)
Unallocated central expenses		(859)		(291)	(102)	(1,252)		(765)	(101)	(866)
Goodwill impairment								(65)		(65)
Total continuing operations	77,126	2,583		(660)	(461)	1,547	70,503	2,418	(472)	1,924
Tax						(461)				(715)
Profit after tax from
continuing activities						1,086				1,209

* The share of results of the Associated company is shown net of tax as required by IAS1.

Intersegment sales between the UK & Ireland and Australia were immaterial in the current and comparative periods.

Management information is reviewed on a segmental basis to profit before tax.

Balance Sheet	As at 31 March 2012		As at 2 April 2011
	Segment	Segment	Segment	Segment
	assets	liabilities	assets	liabilities
	£000	£000	£000	£000
UK & Ireland	27,649	10,480	25,750	7,865
Australia	37,255	9,889	38,286	12,259
Investment in Associated company	558	----	487	----
Unallocated central assets/liabilities	256	5,029	272	4,909
	65,718	25,398	64,795	25,033

The investment in the Associated company is held directly by the parent entity and does not relate specifically to any geographic segment.

1                      Segmental information (continued)

Other segmental information	52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
	£000	£000
Depreciation and amortisation
UK & Ireland	821	858
Australia	2,149	2,030
Goodwill impairment	----	65
Unallocated central	4	9
	2,974	2,962

No other significant non-cash expenses were deducted in measuring segment results.

	52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
	£000	£000
Capital expenditure
UK & Ireland	361	182
Australia	1,090	766
Unallocated Central	13	----
	1,464	948

Business Segments

No secondary segmental information is reported as the Directors consider that substantially all of the Group's operations relate to a single activity, that of the manufacture and sale of carpets and other floorcooverings.

2              Earnings per share

The calculation of the basic, adjusted and diluted earnings per share is based on the following data:

	Basic	Adjusted	Basic	Adjusted
	2012	2012	2011	2011
	£'000	£'000	£'000	£'000
Profit attributable to ordinary equity  holders of the parent entity	1,086	1,086	1,209	1,209
Adjustment for goodwill impairment	----	----	----	65
Restructuring of the Group's Irish businesses (net of tax effect)	----	344	----	----
General Meeting and formal sales process costs (net of tax effect)	----	216	----	----
Earnings for the purpose of basic,  adjusted and diluted earnings per share	1,086	1,646	1,209	1,274
Weighted average number of shares:
			2012	2011
			Number of	Number of
			shares ('000)	shares ('000)
Weighted average number of ordinary  shares for the purposes of basic  earnings per share			6,944	6,944
Effect of dilutive potential ordinary shares:
Long Term Incentive Plan and Performance Share Plan			747	728
Weighted average number of ordinary  shares for the purposes of diluted  earnings per share			7,691	7,672
The Group's earnings per share are as follows:
			2012	2011
			Pence	Pence
Basic adjusted			23.71	18.35
Diluted adjusted			21.40	16.61
Basic			15.64	17.41
Diluted			14.12	15.76

3              Exceptional items

	52 weeks ended 31 March 2012	52 weeks ended 2 April 2011
	£000	£000
(a) Restructuring of the Group's Irish businesses	369	----
(b) Costs in connection with the General Meeting and formal sales process	291	----
	660	----

All exceptional items are classified within administrative expenses.

(a) Relate to closure costs associated with the restructuring, with the largest cost relating to redundancies.  The Irish business and brands are now being marketed and traded under a distribution model and reported within the UK operation.

(b) Relate to professional fees in connection with the General Meeting held in March 2012 and the formal sales process.

4              Rates of exchange

The results of overseas subsidiary and associated undertakings have been translated into Sterling at the average exchange rates prevailing during the periods.  The balance sheets are translated at the exchange rates prevailing at the period ends:

	2012		2011
	Average	Year end	Average	Year end
Australia - A$	1.5270	1.5423	1.6460	1.5465
Ireland - €	1.1559	1.1988	1.1688	1.1333
Canada - C$	1.5870	1.5969	1.5831	1.5461

5              Reconciliation of operating profit to net cash inflow from operating activities

	Group		Company
	2012	2011	2012	2011
	£000	£000	£000	£000
Operating profit from continuing operations	1,923	2,418	254	461
Adjustments for:
- Depreciation charges	2,932	2,865	64	69
- Amortisation of intangible assets	42	32	----	----
- Goodwill impairment	----	65	----	----
- Share based payment charge	47	57	26	14
- Loss on disposal of property, plant and equipment	59	13	----	----
- Exchange rate difference on consolidation	4	126	----	----
Operating cash flows before movements in working capital	5,007	5,576	344	544
(Increase)/decrease in working capital	(2,239)	(1,673)	1,061	230
Cash generated by operations	2,768	3,903	1,405	774
Interest paid	(478)	(505)	(120)	(134)
Income taxes (paid)/ received	(1,405)	(893)	----	4
Net cash inflow from operating activities	885	2,505	1,285	644

6              Analysis of net debt

	At 2 April 2011	Cash flow	Other non-cash changes	Exchange movement	At 31 March 2012
	£000	£000	£000	£000	£000
Cash	1,626	(824)	----	4	806
Bank loans payable less than one year and overdrafts	(5,492)	(2,254)	----	20	(7,726)
Cash and cash equivalents	(3,866)	(3,078)	----	24	(6,920)
Secured commercial bills
- Payable more than one year	(970)	973	----	(3)	----
Finance leases and hire purchase agreements
- Payable less than one year	(850)	872	(461)	----	(439)
- Payable more than one year	(527)	(321)	461	(1)	(388)
Net debt	(6,213)	(1,554)	----	20	(7,747)

7              The results have been extracted from the audited financial statements of the Group for the 52 weeks ended 31 March 2012. 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 Preliminary announcement has been computed in accordance with International Financial Reporting Standards ("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.

Statutory accounts for the 52 weeks ended 2 April 2011, 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 or equivalent preceding legislation.

8              The Annual Report & Accounts, Circular in relation to the proposed move to AIM and Notice of Meeting 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.

9              The Annual General Meeting is being held at the Registered Office of the Company, as above, at 11.00am on Friday, 31 August 2012.

 

END

 

 

FR UVRBRUNANUAR