Trading Update

RNS Number : 4678H

Victoria PLC

25 March 2020

 

For Immediate Release

25 March 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' or the 'Group')

Trading Update

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative flooring, is pleased to announce that despite the ongoing Covid-19 pandemic, which has impacted recent trading conditions, the Group expects that performance for the financial year ending 28 March 2020 will be broadly in line with market expectations.

Earnings Outlook for 2020/21

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 likely to have the most significant impact on Victoria. Together with the general loss of consumer confidence following the emergence of the virus, in some countries potential customers cannot buy flooring - even if they wish to do so - due to the closure of all non-essential retail businesses.

Looking ahead, given the uncertainty around both the duration and severity of government actions in the different countries in which we manufacture and distribute flooring, it is not possible at this point to provide meaningful earnings guidance for FY2021.

Not an Existential Threat

The Board, however, is clear that the situation does not present an existential threat to Victoria. Whilst short term trading will be affected, the long-term outlook for the Group remains positive.

There are a number of key reasons that underpin the Board's assertion in making this statement:

1.  Victoria enjoys comparatively low operational gearing across its business. Of our annual operating cost base, approximately;

· 54% of such costs are wholly variable with revenue. This includes raw materials, energy, and freight.

· 36% is semi-variable (which the Board defines as being capable of being significantly changed within 60 days) such as direct labour, logistics, and marketing expenditure.

· 10% is fixed.

2.  The Group's supply chain is highly diversified and invariably localised to the key manufacturing plants. Our access to raw materials is secure.

3.  Victoria is fortunate to have a highly experienced and motivated operational management team who have a track record of successfully navigating through deep economic downturns. Many of our managers have been in the industry for 30 years or more and the value of this experience is enormous.

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. This is important.

5.  Shareholders will recall that in July 2019 and again in January 2020 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. That said, we are taking every precaution to protect the liquidity of the Group. In addition to direct internal actions, we are in the process of accessing various Government schemes in our different countries of operation to help increase our cost base flexibility and mitigate adverse cash flow impacts.

7.  The output of our internal stress-testing of the business (discussed in more detail below).

As a result, the Group goes into the uncertainty of the next few months from a position of considerable strength. However, as Darwin stated, those who survive "are not the strongest or the most intelligent, but the most adaptable to change." Therefore, our managers have been willing to think the unthinkable and act decisively and promptly to protect their business - particularly its cash position - as the impact will, in the short term, be significant. 

Group Stress-Test

The Board has modelled potential scenarios of different duration and severity - including periods of nil revenues and an extended period of 50% revenue loss - for their impact on earnings and cash over the next 12 months. Our conclusion is that within the Group's current financial resources, Victoria can withstand all likely outcomes.

The modelling exercise has been undertaken in three steps. Beginning with the base case position (i.e. our 2021 forecast prior to the impact of coronavirus), we applied different levels of significant sales decline over varying periods, examining the effect on the manufacturing and logistics operations of each business within the Group, assessing the impact on earnings and, more importantly, the working capital and cash position of each business, incorporating certain assumptions around receipts and bad debts.

Each subsidiary then developed its own operational contingency plan (clearly many actions are common for all businesses, but some businesses have unique opportunities to reduce expenses and cash outgoings).

We then re-ran the numbers incorporating the impact of these mitigating actions - the intensity of which changed with the potential scenarios of varying depth and duration.

Finally, we must point out that this conclusion is caveated with the observation that our modelling is just that, it is not divine revelation. However, we will continue to update our contingency planning and mitigating actions as new information comes to hand to help ensure Victoria's strong future.

Employee Welfare

There is no reasonable scenario where there will be no impact on employment. However, fully consistent with maintaining Victoria's financial security, we will endeavour to minimise the impact of this pandemic on our employees. To assist with this, and to share the financial burden, all middle and senior management have voluntarily reduced their salaries by 20% for the time being.

We have already taken many measures across the Group to protect people whilst preserving employment, including home working where roles allow (in Spain, for example, over 250 employees are working from home with full IT access), changes to shift arrangements to aid social distancing, continuous cleaning and disinfection, provision of safety equipment, etc.

Summary

Victoria is well positioned to weather this storm and the likely outcomes. All that can be done, is being done. We have a strong balance sheet, motivated and talented operational management, fully-developed contingency plans covering scenarios of varying severity and duration, and geographic diversity of end markets and manufacturing facilities. Operational management are acutely aware of the absolute need for cash preservation and to stay "ahead of the curve" in terms of reducing costs ahead of any revenue declines. This requirement will be balanced with the need to retain the goodwill of, and access to, our skilled labour force who will be needed to take advantage of the eventual upturn in demand.

Finally, although the coronavirus is presently dominating the news cycle, we remain mindful of the longer term. Once the storm has passed, people will again want flooring and revenues and profits will recover quickly for businesses in a position to respond to renewed demand. There is no doubt in our minds that Victoria will survive the Covid-19-induced disruption we presently face and, whether it lasts three months, six months, or even longer, we do not want to lose that time in executing our business plan. Like the many other severe events Victoria has faced in its 125 year history - two world wars, previous viral pandemics, and several financial recessions - this period will pass and although our focus over the last month has been to ensure Victoria survives, we have not lost sight of our mission, To create wealth for shareholders.

For further information contact:

Victoria PLC ([phone]) Geoff Wilding Philippe Hamers Michael Scott	Cantor Fitzgerald Europe (Nominated Adviser and Joint Broker) ([phone]) Rick Thompson, Phil Davies, Will Goode (Corporate Finance) Caspar Shand Kydd, Andrew Keith (Equity Sales)
Berenberg (Joint Broker) ([phone]) Ben Wright, Mark Whitmore, Laure Fine (Corporate Broking)	Peel Hunt (Joint Broker) ([phone]) Adrian Trimmings George Sellar Andrew Clark
Buchanan Communications (Financial PR) ([phone]) Charles Ryland Victoria Hayns Tilly Abraham

 

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