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Victoria PLC (VCP)


Monday 29 November, 2021

Victoria PLC

New Flooring Category Acquisition: Rugs

RNS Number : 8499T
Victoria PLC
29 November 2021

For Immediate Release                                                                                  29 November 2021

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.


Victoria PLC

('Victoria' or the 'Group')

· Carve Out & Acquisition of the Rugs & UK Carpet Divisions of Balta Group NV

  Expansion into a Major New & Growing Flooring Category: Rugs


· Koch Equity Development Further £150m Investment on Improved Terms


Victoria PLC, (LSE: VCP) the international designers, manufacturers and distributors of innovative flooring, is delighted to announce it has agreed to acquire the highly profitable and growing rugs division of Balta Group, the Belgium-based flooring company, along with its profitable UK polypropylene carpet and non-woven carpet businesses (collectively "the Divisions"), together with the internationally-known brand, "Balta" (the "Acquisition").


The Acquisition can be funded entirely from the Company's existing financial resources. However, the Board has taken the opportunity to conclude a firm commitment for a further preferred equity investment with KED Victoria Investments LLC ("KED"), an affiliate of Koch Equity Development LLC, on improved terms, as outlined in this announcement, to support further growth in due course.


Key terms of the Acquisition


· For the 12 months ended March 2021, the Divisions generated unaudited total revenues of €307.0 million (c. £260.2m1) (FY2020: €303.5m) and normalised EBITDA of €35.5 million (c. £30.1m1) (FY2020: €29.9m).


· Total consideration to be paid in cash on completion is approximately €138 million (c. £117m1), depending on the working capital movements and cash generation of the Divisions up to completion. In addition, the Divisions have approximately €57 million (c. £48m1) of debt (excluding IFRS 16 leases), which is expected to remain in place following completion.


·   As at 31 December 2020, Balta Group's most recent year end, the Divisions had net assets excluding the above debt of approximately €213 million (c. £180m1).


· Completion of the Acquisition is subject to the conclusion of the carve-out of the Divisions from the rest of the Balta Group and is expected in April 2022.


· The purchase price will be funded entirely from the Group's cash balances along with additional preferred equity to be provided by KED, a substantial shareholder in Victoria. Following recent negotiations, the quantum of this follow-on preferred equity has been increased since the original commitment in November 2020, and the pricing has been reduced (further details below).


· Victoria's leverage will remain in line with its stated financial policy following completion, with a current ratio of net debt to pro-forma EBITDA2, considering the full effect of the Acquisition and the newly committed KED funding, of c. 3.2x.


The Acquisition will be immediately earnings-accretive and is a continued step in Victoria's strategy of growing its business with earnings-enhancing acquisitions, and then using available synergies to drive further increases in margin and revenue. The Board believes that the Acquisition presents an excellent strategic fit with Victoria's existing business and will be additive to the overall strong organic growth prospects of the Group.


Strategic rationale for the Acquisition


Established in 1964 in Belgium, Balta Group has several operating businesses across different sectors of the commercial and residential flooring industry. The Acquisition relates specifically to the operating businesses that will provide the maximum synergistic opportunities with Victoria's existing operations, at an attractive valuation.


The full integration of the Divisions with Victoria's existing manufacturing and distribution operations are expected to drive very material cost synergies, estimated by the Board to be more than €15 million over the next 2-3 years, which will create significant value for shareholders.


Balta have announced that they decided to sell the Divisions to Victoria to refocus their activities on their commercial flooring business.


(A more detailed presentation is available on Victoria's website at


Rugs Division

The rugs division, which had revenues of €182.9 million (£155.0 million) in 2020, manufactures and distributes mechanically woven rugs, which are sold in more than 100 countries across the world. It is the No.1 producer in Europe and No.2 globally behind an Egypt-based rugs manufacturer.


· Rugs are a growing flooring category - particularly in the US, where the division has a strong market presence and generates more than 35% of its revenues.


· Demand is more fashion driven, with consumers replacing rugs much more frequently than other types of flooring. Importantly, rugs are also resistant to competition from products such as LVT, wood, and ceramic tiles as they are often used to complement hard surface materials .


· The rugs division's route to market is via major international retailers and wholesalers, and the business has a blue chip, diversified global customer base and long-standing customer relationships. (For example, the business has been a supplier to each of its six largest customers for more than 20 years).


· Victoria has identified material value-creating commercial synergies with its existing business. Very often, the first thing consumers do after installing a hard floor (such as ceramic tiles or LVT sold by Victoria's US-subsidiary, Cali) is buy a rug to put on top of it. Consequently, Victoria's management plan for Cali's online business to offer its own exclusively designed rug collection to drive complementary sales - particularly outdoor rugs, which are a high-growth consumer trend. Balta Rugs also has significant opportunity to expand its commercial activities with home-focused ecommerce retailers in the US and Europe.


· The rugs division has state-of-the-art manufacturing facilities in Belgium (186,000 sqm) and Turkey (86,000 sqm), along with distribution warehouses in Belgium and the United States (60,000 sqm). It is an optimal production platform, with the more labour-intensive rugs produced in lower-cost Turkey and the entirely machine-produced rugs manufactured in Belgium. This unique structure, together with a skilled product design team, maintains the business in a strong competitive position.


· As normal with businesses acquired by Victoria, the rugs division will continue to operate with a significant degree of autonomy. The rugs division has high-quality management, led by Marc Dessein (who joined the business in 1992 and was appointed managing director in 2006), and are well known to Victoria's senior team.


UK Carpet Division

Victoria has been manufacturing carpet in the UK for more than 125 years and holds a Royal Warrant from HM The Queen, having supplied the royal household for many years. It has high-quality and well-invested manufacturing facilities in Wales and Yorkshire, operated by an experienced and committed management team, led by Jan Debrouwere. The acquisition of Balta's UK residential carpet division, which had revenues of €103.3 million (£87.5 million) in 2020, will capitalise on these and other strengths to create further value for Victoria's shareholders:


· The continental carpet business, (c.30% of the total division being acquired) will be further optimised to contribute towards the expected synergies.


· The increased scale of the integrated business is expected to reduce raw material costs and further improve productivity at the factories, with a consequential improvement in operating margin.


· The Balta brand will be carried forward with its unique selling proposition. The Belgian plant will be added to the Victoria Group manufacturing platform. The Acquisition will, consequently, enable Victoria to access a broader range of manufacturing capacity and extend its sales network into new territories.


· Several members of Victoria's senior management know the division exceptionally well, having successfully managed it previously. Their knowledge and experience will be invaluable as the division is swiftly integrated into the Group.


· The UK flooring sector is characterised by strong competition from larger global operations, significant imports, and customers focused on price. The Acquisition will enable Victoria to improve efficiency and better serve its customers. Post-completion, Victoria's Board expects to have a c.16%3 market share of the UK broadloom carpet market and a little under 5% of the UK flooring market as a whole.


· Consumer demand for carpet remains strong in the UK, where it is the dominant category of flooring with a largely unchanged market share of c.58%3 for the last 15 years. Over the last 12 months, the demand for flooring has primarily come from existing home owners redecorating. However, the Board expects demand to continue next year and beyond, due to the record level of housing transactions that has been experienced in the UK this year. Housing sales are a good 12-18 month leading indicator of remodelling-led demand for flooring, which is Victoria's core market for carpets and underlay.


Non-woven Division

The non-woven carpets business, which had 2020 revenues of €17.3 million (£14.7 million), manufactures technical products for a wide variety of applications, including automotive, insulation, and carpet backing. It will continue to be managed by its managing director, Franky Viaene, and will be integrated in one of the existing Divisions.


KED preferred equity investment - key terms


It is 12 months since shareholders approved a number of resolutions that enabled KED, an affiliate of Koch Equity Development LLC and a subsidiary of Koch Industries, Inc., to subscribe for convertible preferred shares, thereby providing capital to accelerate Victoria's acquisition-led growth whilst maintaining the Board's long-expressed leverage policy with a significantly less dilutive effect on existing shareholders than ordinary equity issuance . The Board believe that this partnership with KED has already been very successful for both parties and contributed to the significant wealth creation Victoria's shareholders have experienced .


The Acquisition can be funded entirely from the Company's existing financial resources. However, the Board has today taken the opportunity to agree with KED the terms of an improved preferred equity investment pursuant to a commitment letter (the "Commitment Letter"), which would both increase the amount of capital to be invested whilst materially lowering the cost to Victoria. This additional capital will support the Group's continued growth.


Subject to the approval of shareholders and the satisfaction of other customary conditions within the Commitment Letter, KED would invest an additional £150 million (the "New Preferred Equity Investment"), bringing the total preferred equity investment to £225 million, by way of convertible preferred shares ("New Preferred Shares"). These New Preferred Shares, which carry no voting rights, have similar features to the existing preferred shares other than the following material differences:


a.  A reduction in the preferred dividend of 100bps (to 8.85% if paid in kind or 8.35% if paid in cash), which will also apply to the existing £75 million of convertible preferred shares with effect from the date of issue of the New Preferred Shares.


b.  No further issue of warrants with the New Preferred Shares (the existing warrants from the original KED investment remain in place).


Related Party Transaction

Shareholders are reminded that an affiliate of KED holds 10.7% of the issued share capital of the Company following KED's on-market purchase last year of 12.5 million ordinary shares, which aligns its interests with those of the ordinary shareholders. It is also a substantial shareholder as defined by the AIM Rules. KED's participation in the New Preferred Equity Investment, and in the Commitment Letter, constitutes a related party transaction under Rule 13 of the AIM Rules. The independent directors (being those directors other than Blake Ressel), having consulted with the Company's Nominated Adviser, Singer Capital Markets, consider that the terms of the related party transaction are fair and reasonable insofar as shareholders of the Company are concerned.


The New Preferred Equity Investment is expected to complete in January 2022 subject to shareholder approval at a general meeting, finalisation of the necessary definitive documents and other customary conditions. A shareholder circular with further details will be issued in due course.


Philippe Hamers, Group Chief Executive, Victoria PLC, commented:

"This selective acquisition of two highly complementary businesses will be significantly value creating for Victoria's shareholders. The rugs division has been hugely successful over many years and there are very material operating synergies between the carpet division and Victoria's existing business. These are both businesses that Victoria already knows extremely well."


Cyrille Ragoucy, Chief Executive Officer, Balta Group NV, commented:

"I am pleased that we have reached this mutually beneficial agreement with Victoria plc. Our Rugs, Residential PP and Non-Woven businesses have found a new owner with a great operational fit. This transaction allows us to focus on our Commercial businesses in Europe and the United States and on our European Residential PA business by investing in sustainability and growth."


Geoff Wilding, Executive Chairman, Victoria PLC, said:

"Victoria has spent time building a high-quality operational management team with depth and commitment. They have been successful at increasing the operating margin of the Group's UK carpet division from 5% to 18% through steady productivity gains and improved customer service. Consequently, Victoria's management team are now laser-focussed on execution of our detailed plans for each of the recently announced acquisitions, and I am certain they will achieve similar gains as the businesses are integrated.


Victoria is a highly disciplined buyer and, upon completion of this acquisition will, this financial year, have invested approximately £370 million to add c. £65 million of EBITDA to the Group."


1 Applying a GBP:EUR exchange rate of 1.18

2 Leverage ratios calculated in-line with the Group's debt facilities

3 Source: Freedonia Global Flooring Report 2021


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


For more information contact:

Victoria PLC

Geoff Wilding, Executive Chairman

Philippe Hamers, Group Chief Executive

Michael Scott, Group Finance Director


+44 (0) 1562 749 610


Singer Capital Markets (Nominated Adviser and Joint Broker)

Rick Thompson, Phil Davies, Alex Bond



+44 (0) 207 496 3095

Berenberg (Joint Broker)

Ben Wright, Mark Whitmore


Peel Hunt (Joint Broker)

Adrian Trimmings, Andrew Clark


Buchanan Communications (Financial PR)

Charles Ryland, Chris Lane, Vicky Hayns, Tilly Abraham

+44 (0) 203 207 7800


+44 (0) 207 418 8900


+44 (0) 20 7466 5000


About Victoria

Established in 1895 and listed since 1963 and on AIM since 2013 (VCP.L), Victoria PLC, is an international manufacturer and distributor of innovative flooring products. The Group, which is headquartered in Kidderminster, UK, designs, manufactures and distributes a range of carpet, flooring underlay, ceramic tiles, LVT (luxury vinyl tile), artificial grass and flooring accessories.


Victoria has operations in the UK, Spain, Italy, Belgium, the Netherlands, the United States and Australia and employs approximately 4,000 people across more than 26 sites. Victoria is the UK's largest carpet manufacturer and the second largest in Australia, as well as the largest manufacturer of underlay in both regions. 


The Group's strategy is designed to create value for its shareholders and is focused on consistently increasing earnings and cash flow per share via acquisitions and sustainable organic growth. (Further information about Victoria can be found on its website,




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