Victoria PLC (VCP)

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Tuesday 20 July, 2021

Victoria PLC

Preliminary Results

RNS Number : 7925F

Victoria PLC

20 July 2021

For Immediate Release

20 July 2021

Victoria PLC

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

Preliminary Results

for the year ended 3 April 2021

Record Revenues and Operating Profits

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its preliminary results for the year ended 3 April 2021.

Financial and Operational highlights

Continuing operations	Year ended 3 April 2021	Year ended 28 March 2020	Change on prior year

Revenue	£662.3m	£621.5m	+6.6%
Underlying EBITDA¹	£127.4m	£118.1m	+7.9%
Underlying operating profit¹	£79.8m	£77.1m	+3.5%
Operating profit / (loss)	£45.9m	£(8.5)m	-
Underlying profit before tax¹	£50.1m	£48.0m	+4.4%
Net profit / (loss) after tax	£2.8m	£(71.8)m	-
Underlying free cash flow²	£38.8m	£39.2m	-
Net debt³	£345.7m	£365.9m	-
Net debt / EBITDA⁴	3.10x	3.04x	-
Earnings / (loss) per share:
- Basic	2.30	(57.22)p	-
- Diluted adjusted¹	28.66p	28.42p	+0.8%

· 2021 was the eighth consecutive record year for Victoria - despite challenging operational conditions due to the pandemic.

· Record revenues of £662.3 million were achieved, despite very material (as much as 80%) revenue declines in Q1 due to Covid-19 lockdowns.

· Record underlying EBITDA of £127.4 million (FY2020 £118.1m) and margin of 19.2% (FY2020: 19.0%).

· Strong cash generation continues with £38.8 million of underlying free cash flow, which equated to a 49% conversion from underlying operating profit.

· Year-end leverage was 3.1x, in accordance with the Group's stated financial policy.

· The Group successfully refinanced all of its outstanding debt plus raised additional capital for acquisitions, reducing the coupon by c.150bps and extending the duration so that the earliest of the Group's senior debt does not now fall due until August 2026, and approximately one-third of the total will not be due until March 2028.

· Five further earnings-enhancing acquisitions completed post-year end at very attractive valuations. Victoria continues to have substantial amounts of capital to deploy. We are in active discussions with additional high-quality opportunities to grow our business.

· Formal earnings guidance is today being reinstated.

¹ Underlying performance is stated before exceptional and non-underlying items. In addition, underlying profit before tax and adjusted EPS are stated before non-underlying items within finance costs. FY20 underlying figures are stated before an increase in credit loss provision of £2.8m at the start of the Covid-19 pandemic; FY21 is stated after all credit losses in the ordinary course.

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, preferred equity, bond issue premia and the deduction of prepaid finance costs.

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

Geoff Wilding, Executive Chairman of Victoria PLC commented:

"I want to pay credit to all Victoria's management team, who, when it really mattered, delivered an extraordinary outcome for shareholders in a challenging operational environment. The result of their efforts is that the Group is in an enviable operational and financial position to take advantage of opportunities to continue to create wealth for shareholders."

Sell-side analyst 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 [email protected].

There will be a separate meeting for bond holders at 11.30am. Please contact [email protected] or [email protected]

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, Tejas Padalkar

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

Chairman and CEO's Review

INTRODUCTION

Victoria has been manufacturing and selling flooring for 125 years. It is a remarkably resilient business, having ultimately prospered through two world wars, three global pandemics, and numerous economic recessions. We are delighted to say, thanks to the remarkable efforts of our operational managers, Victoria has not only survived the extraordinary events of this past year, but produced record operating profits and cash generation. As set out in previous Annual Reports, the historical progression of some KPIs has been summarised in the table below:

	Underlying EBITDA per share^1,2	Underlying EBITDA margin¹	Diluted adjusted EPS²	Underlying operatingcash flow per share²	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	0.78	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%
FY21	0.91	16.9%	30.21	0.77	33.6%	13.0%	53.4%

The KPIs in the table above are alternative performance measures used by management along with other figures to measure performance. Full financial commentary is provided in the Financial Review below.

The business is a lot less cyclical than is often thought. Aside from acquisitive growth, revenues have consistently grown organically over the last 15 years - a period which includes the 2008 financial crisis and, of course, the Covid-19 pandemic. Together with the inherent low operational gearing of the business (just 10% of the total cost base is truly fixed) and the high cash conversion of earnings, this has important positive implications for the risk profile of Victoria, which is possibly not always fully appreciated by investors.

One of the objectives of this review is help investors better understand the business and, perhaps, better appreciate some of its unique characteristics that the Board believes makes it an attractive investment.

[1] In this review, underlying EBITDA in FY20 and FY21 is stated before the impact of IFRS 16 for consistency of comparison with earlier years. FY20 is stated before the exceptional increase in credit loss provision at the year-end following the start of the Covid-19 pandemic; all other years including FY21 are shown after any credit loss expense

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. FY21 adjusted to remove dilution impact of unutilised preferred equity funding at the year-end (employed for post-year end acquisitions).

FY2021 OPERATIONAL REVIEW

Overview

What matters most for business performance - outside of talent - is culture. A strong corporate culture means people know what is expected of them even a completely new situation. It means the company does not have to suffer the inefficiencies of excessive formal rules and procedures, nor management waiting for orders before reacting. A rule book tells people what they can't do; a culture tells people what they should do. Victoria's culture begins with our mission statement, "To create wealth for shareholders", and it meant that during the pandemic crisis of the last year, right across the Group, people knew how to act - that their decisions and actions needed to reflect the outcome required by the mission statement. Accordingly, unlike previous years, where we have commented on specific managers' actions, in this extraordinary year, we want to give credit to all Victoria's management team, who, when it really mattered, delivered an extraordinary outcome for shareholders.

The legendary CEO of Intel, Andy Grove once said, "Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them." The brilliant performance of our operational managers gave us the opportunity to strengthen the business during FY2021, improving its market position, sustainably improving productivity and margins, and taking advantage of some unique acquisition opportunities from motivated sellers.

However, before commenting specifically on each of the different operating divisions, there were three Group-wide events that we think are worth highlighting.

Bond Refinancing

In previous Annual Reports we have observed that not all debt is created equal (shareholders may recall the pastry chef versus rugby forward analogy) and simplistic analysis can be misleading. Whilst Victoria's board is comfortable deploying debt due to the Group's strong cash generation, it has given careful consideration to the structure of that debt to ensure the robust financial stability of the Group.

The advantages of the Group's financing structure were stark in 2021 and ensured shareholders were protected from value-destroying discounted equity issuance. The long duration and covenant-lite features of our debt, coupled with ample cash reserves and committed credit-lines meant the Group maintained more than adequate liquidity throughout the year. (In fact, negative operating cash flow was just £6 million in Q1, during the total lockdown in all our main markets).

Having demonstrated the unquestionable resilience of its business during the year, Victoria took advantage of strong bond markets in early calendar 2021 to refinance all its outstanding debt plus raise additional capital for acquisitions. This action has three significant benefits for Victoria:

(i) We were able to reduce the coupon rate, saving the Group c.£7 million of annual interest cost versus the original 2024 senior notes;

(ii) The earliest of the Group's senior debt does not now fall due until August 2026, and approximately one-third of the total will not be due until March 2028; and

(iii) The additional capital raised, alongside the preferred equity funding from Koch Equity Development (see further below), enables us to move quickly on potential acquisitions in the short-term. Indeed, we have already managed to conclude five acquisitions since the year-end.

The bond offers were heavily oversubscribed, demonstrating the credit market's support of Victoria, and we are pleased to note that the bonds have consistently traded at a premium since their issue (at the time of writing the yield is just 3.3%).

It is the Board's view that these long-dated bonds, in conjunction with the Group's strong cash generation, maintains Victoria's robust financial position.

Koch Equity Investment

One of the significant events of this year was the commitment by Koch Equity Development, a division of US$115 billion (revenues) Koch Industries, to invest £175 million into Victoria via convertible preferred equity, alongside the purchase of 12.5 million ordinary shares from an existing institutional shareholder.

The commercial terms of this October 2020 investment are detailed in Note 6 to the accounts and we do not propose to repeat them here. However, part of Koch's investment return on their preferred equity is expected to come from attached ordinary share warrants and we thought it would be helpful for shareholders to update the table provided in the Interim Report illustrating the maximum number of ordinary shares that can be issued, if the warrants are exercised:

Number of ordinary shares issued on exercise of warrants
Share Price at exercise date	£10.00	£12.00	£14.00	£16.00	£18.00	£20.00
£75m preferred shares*	1.01m	0.84m	0.72m	0.63m	0.56m	0.50m
% of shares on issue	0.9%	0.7%	0.6%	0.5%	0.5%	0.4%

£175m preferred shares*	5.11m	4.26m	3.65m	3.19m	2.84m	2.56m
% of shares on issue	4.4%	3.6%	3.1%	2.7%	2.4%	2.2%

*Assuming the follow-on £100m preferred equity is either cancelled or drawn in July 2021, respectively,

and the warrants are exercised 36 months after the initial funds were received and net settled

Koch have proven to be excellent partners - going far beyond their contractual obligations to help build value at Victoria. For example, they have saved us money by sharing their deep knowledge of the petro-chemical markets, which has allowed us to base our raw material purchases and hedging on their insights alongside hard data. Separately, they have actively helped Victoria source growth opportunities in the US, and then rolled their sleeves up and helped with diligence and negotiations. We are delighted to have them as shareholders.

200bps Margin Growth

FY2021 was a year in which we completed no major acquisitions and therefore the record trading results, including the c.200bps expansion in underlying EBITDA margin following the end of the first national lockdowns in May-June 2020, were driven by organic performance (further details provided in the Financial Review section).

Previous Annual Reports have set out in detail the productivity and operational initiatives we have undertaken to drive our margin. These projects were all completed on time and on budget during FY2020, but the impact was masked by the Covid crisis in the final quarter of that year. However, they have delivered exactly as planned and have driven meaningful and sustainable margin expansion post lockdown. The Group's H2 underlying EBITDA margin exceeded 20%, delivering a full year margin of 19.2%.

The Group's management has firm plans to further grow the operating margin, but shareholders should note that many even well-run businesses that are potential acquisitions have operating margins of less than 20%. Therefore, until the businesses are fully integrated and synergies realised, some acquisitions could be margin dilutive - albeit given the likely difference in size between Victoria and the acquired business, the impact will likely be small.

The second function of the reorganisation and capex projects was to enhance Victoria's service proposition to retailers (our customers) and, by making us a more attractive supplier, grow our share of wallet. This has succeeded beyond the Board's expectations. Despite divisional revenues declining by as much as 80% in the first two months of the financial year due to the lockdowns, the Group grew revenues in FY2021 by more than £40 million (+6.6%).

UK & Europe Soft Flooring - record underlying EBITDA margin of 17.5%

	FY21	FY20	Growth
Revenue	£280.4 million	£282.0 million	-0.6%
Underlying EBITDA	£49.0 million	£41.3 million	+18.7%
Underlying EBITDA margin	17.5%	14.6%	+290bps
Underlying EBIT	£28.7 million	£21.7 million	+32.3%
Underlying EBIT margin	10.2%	7.7%	+250bps

The UK & Europe Soft Flooring division delivered an extraordinarily strong performance, wholly due to organic growth:

· Revenues in the second half were nearly £155 million,

· Despite lockdown for the first 10 weeks of FY2021 during which UK revenues fell by more than 80%, underlying EBITDA for the full year was higher than that of the prior year at £49.0 million,

· Underlying EBITDA margin for the full year was a record 17.5%, 290bps higher than that of the previous year, with post-lockdown EBITDA margin some 470bps higher on a like-for-like basis³.

3 UK & Europe Soft Flooring profits in the period include £6.5 million received under the UK Coronavirus Job Retention Scheme, of which the majority was received during the first national lockdown in April and May 2020, reducing losses in that period and enabling the company to avoid taking more significant cost cutting actions.

There were three reasons for this very pleasing result, which led Victoria's carpet and underlay divisions outperforming all our key competitors - domestic and overseas - in the market:

(i) The successful execution of a thorough capex and reorganisation plan (set out in detail in previous shareholder communications) over the last two years, which have delivered precisely as planned and sustainably improved our logistics efficiency and factory productivity - driving both market share growth and meaningful margin expansion.

(ii) Management actions taken during the pandemic to minimise the impact of lockdowns and ensure rapid recovery once manufacturing was again permitted.

(iii) Strong post-lockdown demand from consumers.

Carpet and underlay Manufacturing

· There was a continued focus on margin and removal of margin dilutive products. Also, strong consumer demand for carpet meant the focus across the business was on production - servicing the existing best-selling SKU's - and we limited the launch of new products during FY2021. We will be catching up in the current financial year to continue to drive profitable growth.

· During Q4 of FY2021, the global market for synthetic yarns experienced meaningful price inflation driven by short-term supply constraints, as well as inflation in global shipping prices. However, Victoria was able to mitigate the impact of this through competitive supplier negotiations and immediate increases in selling prices.

· The Group invested in brand new production facilities in Dewsbury, Yorkshire for its prestigious Westex brand during FY2021 and closed the old factory at nearby Cleckheaton. The significantly improved productivity at the new site has lifted operating margins, and a full payback on the capital cost is expected in less than three years.

· Given our objective of constantly increasing factory productivity and reducing working capital, the Group installed carpet-tufters on beams, which have enabled the efficient manufacture of smaller production runs.

· Over the year we worked to develop "RENU", a sustainable carpet underlay made from 98% recycled materials and is itself 100% recyclable at end-of-life (this includes the use of bio-film made from sugar cane by-product and PU derived from post-consumer waste).

Logistics

· The investment in our logistics capacity has proven to be the perfect strategy to differentiate Victoria from the continental carpet suppliers by meaningfully enhancing our service proposition. On-Time-Delivery for available stock across the country within three days further increased to 94%, resulting in retailers favouring Victoria Group products over those from competitors with slower and less certain delivery.

· The productivity of the three distribution centres also jumped as the impact of our investment in FY19 and FY20 arrived. We are now cutting and delivering 52% more orders with 33% fewer employees.

· We have increased the capacity of the fleet to 270 vehicles to meet demand.

· The reorganisation and productivity enhancements have also delivered more spare capacity - allowing for future growth of more than 15% without further capex investment required.

UK & Europe Ceramic Tiles - revenue growth of 15.8%

	FY21	FY20	Growth
Revenue	£282.4 million	£243.9 million	+15.8%
Underlying EBITDA	£63.1 million	£68.3 million	-7.7%
Underlying EBITDA margin	22.3%	28.0%	-570bps
Underlying EBIT	£40.4 million	£51.5 million	-21.4%
Underlying EBIT margin	14.3%	21.1%	-680bps

The Group's ceramic tile division delivered strong revenues following the first national lockdowns in May-June 2020.

With regard to margin performance, it is important to note that the main reason for the difference between FY2020 and FY2021 is the pro-forma effect of acquisitions. We acquired two ceramic tile businesses in the prior year (Ibero in August 2019 and Ascot in March 2020), and one in the current year (Keradom in December 2020), all of which were producing lower margins than the incumbent businesses in this division. In particular, Ascot was acquired right at the end of FY2020 (so had little impact on that year) and, at the time (before integration and synergies), had an EBITDA margin of less than 5%.

Furthermore, like-for-like average margin performance during FY2021 was impacted by three factors:

· Firstly, there is a higher degree of operational leverage inherent in the ceramic tile manufacturing process compared to soft flooring (for example, kilns operating at volcano-type temperatures cannot just be turned off and on at will) and together with nominal government support during the different lockdowns, margins suffered.

· Secondly, although the acquisition of Italian ceramics factory Ascot in March 2020 delivered immediate production capacity (as detailed below), full integration was delayed by several months due to the lockdowns, which resulted in duplicated costs for part of the year.

· Finally, during the second phase of national lockdowns across Europe in the first quarter of calendar 2021 (Q4 of FY2021), consumers based in Europe were more adversely affected than their UK counterparts, and this had a much greater impact on our ceramic tiles business than it did our soft flooring business, the significant majority of which is a UK business.

Italy

· Following the successful integration of the factory and assets we acquired from a neighbouring business (Ascot Gruppo Ceramiche) in March 2020, substantial production capacity was added to our Italian business, Ceramiche Serra, which enabled it to more than double output - adding 1.2m m² of red body tiles and 0.7m m² of porcelain tiles - whilst reducing employee numbers from 368 to 250 FTE across the businesses.

· All the additional production was sold, and with DIY customer demand still increasing and some manufacturing again being outsourced, we recently (post year-end) repeated the move of adding capacity by acquiring the factory and assets of a nearby business facing closure (Ceramica Santa Maria).

· This is a highly efficient way of adding production capacity as it provides more-or-less instantaneous increase in capacity versus the 18-24 months it would take to build a factory, instal the plant, and acquire emission rights.

Spain

· Extended lockdown durations and nominal government support meant our Spanish businesses were more significantly adversely affected by Covid-19 lockdown than our Italian ceramics factories.

· In order to be able to quickly restart operations when permitted to do so, we decided not to take certain short-term operational actions to cut costs that would have been slow to reverse (for example shutting down kilns take several days to shut down and then restart carefully).

· Nonetheless, a strong recovery in consumer demand post-lockdowns delivered a very good second half to the year, once inventory shortages were overcome, which has flowed into the current financial year.

Due to the nature of its raw materials, the Group's ceramics businesses have seen little inflation in raw material prices or disruption to the supply chain.

Australia - underlying EBITDA margin growth +590bps

	FY21	FY20	Growth
Revenue	£99.6 million	£95.6 million	+4.1%
Underlying EBITDA	£16.6 million	£10.3 million	+60.7%
Underlying EBITDA margin	16.7%	10.8%	+590bps
Underlying EBIT	£11.9 million	£5.8 million	+105.4%
Underlying EBIT margin	12.0%	6.1%	+590bps

Our Australian management had to cope with a particularly uncertain operating environment during FY2021, with numerous short-term, yet highly disruptive, local lockdowns being imposed throughout the period. Nonetheless, with the support of loyal retailers (the Victoria brand is particularly strong in Australia), new products across our various brands in carpet, underlay and LVT sustained the post-lockdown momentum seen in the interim results. Also, the previously announced consolidation of underlay production into a new factory to Sydney was completed during the year, which contributed to the margin uplift.

The result was revenues that exceeded the previous year alongside an extraordinary increase in underlying operating margins. As with the Group's other divisions, this great result was purely organic.

ACQUISITIONS

Given the importance of acquisitions to the development of our business and the creation of shareholder wealth, we thought we would spend a little more time on it in this review to shareholders.

Criteria

We meet with dozens of possible acquisition opportunities each year, seeking to find businesses that generate free cash and with definable synergy opportunities - whether that be in productivity, capacity, or distribution. As and when we find a business that meet the key criteria set out below, we will endeavour to acquire it, subject to a sensible valuation. This list is not exhaustive and sometimes we will not acquire a business despite it meeting all our criteria because of some indefinable factor that makes us uncomfortable with proceeding.

1. We never buy failing turnarounds. The time and energy expended on a standalone turnaround is rarely worth it and the outcome is always sufficiently uncertain to make it too risky for us;

2. Modern, well-equipped factories. As a company, Victoria is extremely focussed on cash generation. It is free cash that enables us to pay down debt, fund growth, whether acquisitions or organic, and in due course progressively return capital to shareholders through dividends or share buybacks. So, the last thing we want to have to do after buying a business is spend all the cash it generates bringing the factory up to standard;

3. Committed, talented, and honest management. Any fool can lease a factory and buy the machinery to make flooring (and quite a few have!). The difference between the average business and the extraordinary businesses Victoria acquires is the quality of their management;

4. Broad distribution channels. Victoria's sales are overwhelmingly made to literally thousands of retailers. We like the security this diversity provides; and pay close attention to customer concentration when considering a potential acquisition;

5. A fair price. In many ways, Victoria's Board is in the same position as equity investors in that we must carefully choose the companies we acquire in order to optimise our return on the capital we invest. Although shareholders can have confidence that we will never overpay, quality businesses are rarely 'cheap' and we are mindful of the observation of Buffett's partner, Charlie Munger, that,

"Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return - even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you'll end up with one hell of a result."

If one plans to hold a share for the long term (and Victoria obviously plans to own the shares of companies it buys indefinitely), the rate of return on capital the business generates - after synergies - is far more important than the headline multiple one buys or sells at.

Finally, one thing we don't do. We are investing - building a business - for the long term. Therefore, when assessing an acquisition, we do not spend inordinate time on short-term cycles in top-down factors like monetary policy, macro-economic outlook, consumer confidence, durable goods orders, and market sentiment.

Valuation Multiples

We are frequently asked about the multiples we pay for acquisitions. It is conventional to announce acquisition valuations as a multiple of EBITDA and, rightly or wrongly, we do the same.

However, this is not the methodology we use internally to assess value. Victoria's board strongly believes shareholder value is best created over time by consistently growing underlying free cash flow per share and this is the key metric used in capital allocation decisions - including acquisitions. Consequently, the cash return (earnings after capex, after tax, after working capital movements, etc.) on capital - which is what matters in terms of wealth creation - may lead to significantly different EBITDA multiples being announced, although the cash return will be similar.

Other factors that influence what we are prepared to pay include opportunities for cost synergies, growth rates, risk, etc. And, of course, ultimately, the price paid will also reflect the negotiation process.

Victoria is also a fan of Benjamin Graham's famous 'margin of safety'. Having arrived at a view of what a particular business is worth to us, we ensure that the price we pay is a sufficient discount to this value to provide us with a margin of safety if future trading isn't what we expect it to be.

Of course, this means we miss out on some potential acquisitions. This is where the size of the market opportunity and our active prospecting becomes invaluable - we never feel pressured to do a particular deal - there is always another one. As one of our colleagues is fond of reminding us, "The opportunity of a lifetime comes along about twice a year".

Origination

Almost all our potential acquisition opportunities result from cold-calling business owners. Victoria has a very good reputation in the industry as a reliable and honourable buyer and we spend time building a one-to-one relationship with successful owners. Sometimes we are able to conclude a deal immediately, at other times the timing isn't right for the owner. However, the effort invested in getting to know a business and its owner is rarely wasted, as we build a virtual 'bank' of future opportunities.

The reasons owners decide to sell are almost as numerous as there are deals. However, many owners are facing succession issues and Victoria represents an opportunity to sell at a fair price to a friendly buyer, who is known to treat the business and employees well, post-completion. Together with the opportunity to keep working in the business for as long as they wish, Victoria's characteristics can be compelling to owners - many of whom established the business, perhaps 30 years previously, and feel a strong emotional connection to it. On more than one occasion, Victoria's offer has not been the highest, and yet owners have chosen to sell to us. Our reputation is important and valuable.

Scale of opportunity

Victoria has grown a lot in the last eight years and we are increasingly asked if we will shortly run out of acquisition opportunities. So let us reassure shareholders that this is a low (extremely low!) probability risk factor. The global flooring market is US$226 billion⁴. Restricting it to the markets in which we are already active, it is as follows:

§ North America: US$34 billion⁴

§ UK/Europe: US$35 billion⁴

§ Australasia: US$4 billion⁵

Collectively, our existing markets are some 65x larger than Victoria's current size. It is highly likely we can maintain our growth rate for many years to come.

Return on Tangible Assets

Finally, whilst on the subject of acquisitions, it is worth highlighting that, because we focus on buying high quality flooring businesses, the return on tangible assets (such as working capital and plant and machinery) is invariably excellent. The 'trade-off' is that a significant proportion of the purchase price is invariably goodwill and other intangible assets.

This is of more than academic interest. It is important to understand that the higher the return achieved on tangible assets, the better it is for wealth creation. This is for two related reasons: firstly, the goodwill 'cost' never needs to be replaced whereas plant and machinery wears out and needs to be replaced, consuming cash; and, secondly, as revenues grow, less cash needs to be invested into working capital and less cash is consumed in adding new fixed assets to manufacture the increased sales. (This advantage becomes even more acute in times of sustained inflation). Consequently, businesses achieving a high return on tangible assets generate more free cash, which is then available to further grow the value of the business.

So, what does this mean in practice for Victoria's shareholders? Below is a table setting out Victoria's Return on Tangible Assets for the last five years. This shows the ability of the company to generate consistent returns in excess of 20% - 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.

(£millions)	Pro-forma underlying EBIT	Net tangible assets	RoTA
FY 2016	28.2	83.4	33.9%
FY 2017	40.3	102.6	39.3%
FY 2018	76.7	228.1	33.6%
FY 2019	76.9	280.3	27.4%
FY 2020	82.0	309.4	26.5%
FY 2021	84.9	324.4	26.2%

4 Freedonia 2021 Global Flooring Report; 5Company estimates

DIVIDENDS

It is our view that, in a desperate search for yield, in recent years some investors are failing to see the wood for the trees. Investors should be trying to maximise their total returns (share appreciation plus dividends), rather than focussing excessively on dividend return alone.

Since October 2012, when the current board was appointed, every £1,000 invested in Victoria⁵ has become £66,060.54, a compounded annual gain of 61.7% per annum. Had a shareholder instead sold shares each year to produce a 'dividend yield' of 4%⁶ (a yield comfortably in excess of the average FTSE250 yield over the same period), then as at today, that shareholder would have received a total income of £6,125.13 and still have shares worth £49,634.17, compared with the FTSE250 investor, who would have received an income of £362.68 and have shares worth £1,910.23. (This is even before taking into account the more advantageous taxation of capital gains on share sales rather than taxation of dividends, which has been discussed in a previous Annual Report). Furthermore, following that policy, that same shareholder would today be receiving an annual 'income' greater than their original total investment.

It remains the Board's view (as it has been for the last eight years) that it can continue to deploy capital to optimise the creation of wealth for shareholders and therefore it has again resolved not to pay a final dividend for FY2021.

ENVIRONMENTAL MATTERS

The environment matters.

In the last couple of years many annual reports have been awash with a plethora of pious platitudes about environmental sustainability or aspirations to the same. Objectively, many of the vacuous commitments are unsustainable, unmeasurable, and ultimately meaningless.

Victoria's approach is different. We take our obligations seriously and to ensure our commitments are sustainable, we seek ways to meet those obligations that also deliver on our mission statement, "To create wealth for shareholders" by lowering production and distribution costs or enhancing our product offering.

For example, we actively seek opportunities to incorporate recycled raw materials or consumer waste in our product. A significant proportion of our ceramic tiles use patented technology (Victoria owns the patents) to incorporate recycled bricks and tiles, and we manufacture our own tile glaze from discarded computer and television screens. We recycle mattress components and sneaker soles in our underlay production and recycled soft drink bottles in our artificial grass, which is itself 100% recyclable. "RENU", our new sustainable carpet underlay is made from 98% recycled materials (including the use of bio-film made from sugar cane) and is itself is 100% recyclable at end-of-life.

Waste heat from our ceramic kilns is used to drive turbines in co-generation plants - making the factories largely self-sufficient in electricity (in fact we sell surplus generation back to the national grid). We capture and recycle waste water in our factories. 85% of the delivery fleet (270 vehicles) is now 'EURO 6' compliant and we are trialling HVO-fuelled vehicles (Hydrotreated Vegetable Oil made from 100% renewable raw materials such as fat, waste vegetables and other oils).

These actions (and numerous others) may not be as flashy as some of the more headline-grabbing announcements we have observed, but, because all these changes improve our earnings and return on capital, there is no risk of backsliding or quietly dropping them in the future.

5 Assumes that the dividends declared on 20 December 2012 and 3 October 2013 and the special dividend declared on 25 June 2014 were re-invested in Victoria plc shares on the respective dates.

6 Calculated on the gross value of shares held at the end of each calendar year.

OUTLOOK

Operations

The foreseeable outlook for the existing business is encouraging. Demand remains strong and traditional leading indicators suggest this demand will be sustained:

· Home price appreciation, savings rates, and consumer confidence are key for stable and growing residential spending on flooring. Residential renovation and maintenance spending is strongly correlated with these factors - in other words the ability and willingness of home owners to access cash to purchase flooring. Across our key markets home prices are increasing and consumer savings rates are at record levels. Therefore, continued growth in residential renovation and repair spending is likely in the years ahead.

· Increased wear and tear. Not surprisingly, with more people spending more time at home, flooring has suffered from increased use. Also, the more time people spend at home, the more house proud they become and consequently, the more aware of faults they become.

· Housing transactions are a longer-term guide to residential flooring demand. Home owners frequently replace the flooring in their new (to them) home 12-18 months post-purchase. Whether driven by concerns around hygiene or style preferences, the correlation is remarkable and, given the high levels of housing sales in many of our markets, demand is likely to hold up for the medium term.

· Anecdotally, we understand consumers are buying better quality flooring than normal, which fits Victoria's product profile.

Acquisitions

Victoria has completed several high-quality acquisitions since the end of FY2021. Our operational management team are fully engaged in integrating them into our business and it is expected they will have a meaningful impact on Victoria's cash flow and operating profits this financial year.

Nonetheless, we continue to look at additional opportunities. We have highlighted earlier in this review the size of the market in which we operate and our way of identifying potential acquisitions. We are very confident we will be able to continue to make value-creating acquisitions in the years ahead.

CONCLUSION

Victoria does not have detailed five- or 10-year plans. We have a mission ("To create wealth for shareholders") and a fundamental strategy to deliver on it : to use acquisitions to build manufacturing and distribution scale, and leverage that scale to deliver operating synergies and generate cash. Outside of that we avoid the straitjacket of detailed long-term plans.

Truth be known, we think precise forecasts and excessive planning are of very limited use. Prussian military theorist, Carl Von Clausewitz, argued that plans do not survive contact with the enemy (or, as Mike Tyson, so memorably expressed it, "Everyone has a plan until they get punched in the mouth"). Therefore, Victoria focuses on its objective, whilst retaining the necessary flexibility to adapt to conditions and opportunities.

As part of our mission, we strive for ways to manage risk - our financing is long-dated and covenant lite, acquisitions incorporate contingent earnouts, our focus is on the less cyclical residential repair and redecorating market, we maintain low operational gearing, our customer base is highly diversified, we outsource a portion of our manufacturing to create a buffer in demand downturns, we are geographically diversified, managers are empowered to take meaningful decisions so they can react quickly to changing circumstances, the list is almost endless. Yet, this risk management approach, which is an integral part of our business model, stood us in good stead during the tumult of 2020 - and shareholders have benefitted.

Ultimately, we believe Victoria is a good business because it earns a very good return on capital and, just as importantly, with its business model, has the opportunity to continue to deploy the capital it generates at these excellent returns. As a Board and management team we strive to thoughtfully invest the capital generated by operations to maximise the long-term value of the business. Einstein once remarked that compounding return was the eighth wonder of the world and it is a mathematical certainty that, if we are able to continue to do this, the effect on shareholder wealth over time will be remarkable.

Geoffrey Wilding Philippe Hamers

Executive Chairman Chief Executive Officer

20 July 2021

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 3,500 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.

	2021	2020
	£'m	£'m
Revenue	662.3	621.5
% growth at constant currency	7.4%	10.2%
Underlying EBITDA¹	127.4	118.1
% margin¹	19.2%	19.0%
Underlying operating profit	79.8	77.1
% margin	12.0%	12.4%
Operating cash flow²	93.9	97.6
% conversion against underlying EBITDA¹	83%	92%
Free cash flow³	38.8	39.2
% conversion against underlying operating profit	49%	51%
Underlying EBITDA per share^1,4	91.21p	85.52p
Earnings per share (diluted, adjusted)⁴	30.21p	28.42p
Operating cash flow per share^2,4	76.59p	77.78p
Adjusted net debt / EBITDA⁵	3.10x	3.04x

¹ FY20 EBITDA is stated before the extraordinary increase in credit loss provision at the start of the Covid pandemic (£2.8m); FY21 stated after credit losses. EBITDA per share shown on a pre-IFRS 16 basis for consistency with pre 2020 periods.

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

³ Free cash flow shown before investment in growth capex, acquisitions and exceptional items.

⁴ The number shares applied does not include dilution impact of unutilised preferred equity funding at the year-end (employed for post-year end acquisitions).

⁵ 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 3 April 2021 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.

When considering key corporate decisions, such as material acquisitions or financing arrangements the Board considers the interests and objectives of the Company's stakeholders, in particular its shareholders. In doing so, the potential risk and rewards of these transactions are carefully balanced. A careful and consistent financial policy is employed, in particular focusing on maintaining a level of financial leverage that the Board consider to be sustainable through economic cycles, and long-dated and flexible financing terms in relation to covenants and restrictions. Where there are potential material financial costs or redemption requirements within financing arrangements, for example the make-whole provisions in the Company's senior notes and preferred equity, or the change in control provisions in the preferred equity, the Board considers the likelihood of these scenarios and any potential mitigating actions.

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 on the Company's strategy and long-term decisions are set out in the Chairman and CEO's Review.

PRINCIPAL RISKS AND UNCERTAINTIES

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

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 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. Victoria currently has €750 million of Senior Secured Notes ("bonds") in issue, of which €500m falls due in August 2026 and €250m falls due in March 2028. These bonds 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 Health & Safety, 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

20 July 2021

Financial Review

HIGHLIGHTS

The financial year to March 2021 was characterised by the Covid-19 pandemic, the resultant social and economic lockdowns in various countries, and Victoria's reaction to this in terms of operations and sales. It was a year where the Company demonstrated its financial robustness in the face of a one-off significant decline in sales (which occurred during the initial lockdown in March to June 2020) and its operational flexibility to react quickly in unpredictable conditions to meet changing customer needs, fulfil spikes in demand, and conserve cash. It was also a year where the significant benefits of past restructuring and synergy-driven investment were clearly apparent.

Victoria is primarily focused on the residential end-market across all of its product categories. Global residential markets have proven to me much more resilient than commercial markets through the pandemic, as household consumers adjusted quickly to a new way of working and living and have continued to invest in home improvement, whereas commercial investment decision making - particularly property-related - stalled. Furthermore, Victoria operates across numerous geographical end-markets and all of the key residential distribution channels within these markets. This diversity has helped the business to remain robust by minimising individual country, channel and customer risk.

As a result, despite the adverse impact of Covid lockdowns, Victoria had an extremely strong year in FY21 in terms of operational and financial performance, delivering higher revenue, underlying EBITDA and operating profit than in the previous financial year. This involved a huge, co-ordinated effort from everyone in the business, across commercial, operational, finance and administrative teams.

	2021	2020	Growth
	£'m	£'m

Revenue	£662.3m	£621.5m	+6.6%

Gross Profit	£234.9m	£226.4m	+3.7%
Margin %	35.5%	36.4%

Operating Profit	£45.9m	(£8.5m)	-
Margin %	6.9%	-1.4%


Exceptional and non-underlying EBITDA items	(£7.1m)	(£57.8m)	-97.6%

Amortisation of acquired intangibles	(£26.8m)	(£25.0m)	-


Underlying EBITDA	£127.4m	£118.1m	+7.9%
Margin %	19.2%	19.0%


Underlying Operating Profit	£79.8m	£77.1m	+3.5%
Margin %	12.0%	12.4%


Free cash flow⁷	£38.8m	£39.2m	-

% conversion against underlying operating profit	49%	51%	-

The underlying EBITDA and operating profit figures shown above are inclusive of charges relating to credit losses (bad debts). These amounted to 0.23% of revenue in FY21 (FY20: 0.45%, due to some Covid-specific additional provisions), which is a normal level for the business. This strong performance reflects the very low customer concentration of the Group, the financial resilience of our customers, and the additional efforts from our credit control teams in the past year to work constructively with them.

Non-underlying items in the year - other than non-cash amortisation of acquired intangibles recognised on the balance sheet (primarily brands and customer relationships), which in any case are below EBITDA - totalled £7.1 million (FY20: £57.8 million). Further details are provided below.

Cash conversion from underlying operating profit to free cash flow⁷ was 49% (FY20: 51%). This small reduction was driven by increased interest payments (including due to a change in timing of payments at the point of the bond refinancing shortly before year-end, and therefore payments in the period reflecting more than 12 months' worth of interest) and a slightly larger than usual adverse swing in working capital due to Covid-related timing differences, offset by lower capital expenditure and lower corporation tax. Further details and provided below.

7 Cash flow after interest, tax and net replacement capex, but before exceptional items and investment in growth capital projects and acquisitions.

PERFORMANCE THROUGH THE YEAR - COVID IMPACT

March to May 2020 - First UK and Europe national lockdowns

During the first two months of the financial year, there was significant global uncertainty in the face of a new pandemic with unknown consequences. Our business saw varying impacts in different territories - whilst in the UK it was a sharp reduction in demand (as retailers, our customers, were forced to shut), in Europe it was a mixture of demand and, at times, limited ability to manufacture as both our Spanish and Italian operations went through periods of mandatory closure enforced by local governments on their entire respective regions. Conversely, the Australia division saw a far smaller impact from Covid during this period.

A set of emergency operational and treasury measures were implemented across the Group designed to conserve cash and maximise liquidity. These measures included:

§ Cancellation of all non-essential and uncommitted capital expenditure;

§ Cancellation of all non-essential expenditure relating to sales, marketing and administration;

§ Selective shutting down of manufacturing and distribution operations - continuing to operate only where and when profitable and safe to do so;

§ Postponing of raw material purchases;

§ Reduction in direct labour costs - through removal of overtime, reduction in the number of shifts and removal of agency staff, whilst avoiding any longer-term redundancies;

§ Reduction in manager and senior manager salaries;

§ Implementation of enhanced credit control - working with our customers to understand their cash flow situation, collect cash where possible and support struggling customers where appropriate;

§ Close collaboration with suppliers and credit insurers to ensure understanding of our strong financial standing and agreed continuation of payment terms;

§ More frequent, daily monitoring at Group level of overdue debtor and creditor balances in addition to other regular treasury data;

§ Full draw of the Group's £75 million bank revolving credit facility (in mid-March 2020) for six months, as at that time we didn't know if a liquidity-squeeze would follow - this was repaid in September 2020 and the Group incurred some exceptional interest costs for that period;

§ Increases where available in local working capital facility limits for the operating businesses across the Group.

The primary objective of these measures was focused on cash and not profit. Whilst cash and profit are positively correlated in the medium-to-long term, they are often inversely correlated in the very short-term. For example, maximising profit within the period would have involved continuing to manufacture throughout in order to avoid adverse variances taking production overheads directly to the income statement (as long as one expects to sell the resulting stock in the future at above cost), whereas this would have clearly been detrimental to cash.

Nevertheless, whilst revenues during this two-month period saw a temporary significant drop - in line with the rest of the industry and many other industries - of approximately 50%, the Group's ability to quickly implement the above measures and its resultant low operational gearing meant that EBITDA over this period remained positive. To give a simple illustrative example for context, mathematically a business that normally delivers a c. 20% margin would break-even when falling to 50% revenue if 25% of its costs were fixed and 75% of its costs were fully variable with revenue - so this provides some colour as to the level of operational flexibility that we retain in the Group, being far higher than in many businesses and industries.

Covid employment support schemes

The Group did benefit in the year from certain government-backed schemes designed to support employment, in particular the UK Coronavirus Job Retention Scheme. It received a total of £6.9m, of which £6.5m in the UK, the majority of which related to the first national lockdown. It is important to note that as a result of this scheme the Group thankfully did not have to consider any Covid-related restructuring of its UK operations during that period in order to further reduce costs. Since that time - as discussed further below - trading has picked up significantly in all key geographies and government-backed Covid grants or similar schemes are no longer required or utilised.

Remainder of H1 - Summer 2020

After the conservation of cash, the secondary objective of the Group's emergency Covid measures described above was to ensure maximum flexibility to re-start sales quickly in response to a return of the market, both operationally and financially. This took the form of, for example, supporting the Group's staff and avoiding any structural changes that may have cut costs further but would have been more difficult to reverse, ensuring that a minimum operational team were available even when manufacturing and distribution sites were fully closed, and supporting our customers and suppliers with a conservative yet sustainable working capital policy.

Indeed, June 2020 saw rapid change in Victoria's UK and European markets as retailers started to adjust and re-open and consumers very quickly ramped-up demand for our products. The Group wholly capitalised on this change as a result of the initiatives noted above, leading the industry in reaction time and therefore positioning itself optimally to service retailers in generating new sales as early as possible.

Group revenue outside of lockdown during the following four months to September 2020 was almost 10% up on the prior year on a like-for-like basis⁸, driven in particular by very strong growth in the UK. In Australia, due to different timings and severity of the spread of the pandemic compared to Europe, a national Covid lockdown was in place much later, from late August and through September resulting in lower overall revenue in the period for that segment. Albeit prior to this lockdown, Australia divisional revenue was up by a similar amount on the prior year.

June to Sep FY21
UK & Europe Soft Flooring
	Jun to Sep FY21	Jun to Sep FY20	Growth

Revenue	£116.1m	£90.9m	+27.8%
Underlying EBITDA	£21.5m	£11.8m
Margin %	18.5%	13.0%	+500 bps LFL

UK & Europe Ceramics
	Jun to Sep FY21	Jun to Sep FY20	Growth

Revenue	£100.5m	£78.9m	+27.4%
Underlying EBITDA	£24.3m	£21.5m
Margin %	24.2%	27.3%	+150 bps LFL

Australia
	Jun to Sep FY21	Jun to Sep FY20	Growth

Revenue	£32.3m	£33.1m	-2.4%
Underlying EBITDA	£4.5m	£3.3m
Margin %	14.0%	10.1%	+260 bps LFL

Margins delivered during this period were at all-time record highs, with underlying EBITDA margin in excess of 20%, a circa 300bps improvement over the same period in the prior year on a LFL basis⁹. The margin of the UK & Europe Ceramic Tiles division is not directly comparable due to the margin-dilutive full-year effect of prior year acquisitions (being Ibero, which was acquired in August 2019 and was a circa 13% EBITDA margin business prior to acquisition and synergies, and Ascot, which was acquired in March 2020 and was a circa 3% EBITDA margin business prior to acquisition and synergies).

Margin improvement was delivered across all divisions, enabled by the 2018-19 investments in manufacturing and distribution synergy projects. In fact, not only did these investments drive improved margins, they also allowed for the increased capacity and efficiency required to deliver the level of sales seen post-lockdown.

8 Like-for-like revenue growth on a constant-currency basis, after removing the impact of prior year acquisitions, and the extra trading week in the current year

9 Like-for-like margin variance assessed after removing the impact of prior year acquisitions

H2 - Regional lockdowns in Q3, followed by second national lockdowns in Q4

From October 2020 onwards, the UK and European governments started to implement new regional-based lockdown systems. However this did not have a major impact on the sales and financial performance of the business given, by this time, retailers had developed their sales approach to consumers, with a greater focus on:

§ Mailing of samples (which until this year was less common at the higher-end of the market and with soft flooring);

§ Online or over-the-phone collation of order information regarding room sizes and required product characteristics;

§ Appointment-based sales (whether at home or in store, subject to the rules);

§ Where appropriate, a full e-commerce model.

H2 FY21
UK & Europe Soft Flooring
	Oct to Mar FY21	Oct to Mar FY20	Growth

Revenue	£154.4m	£137.8m	+12.0%
Underlying EBITDA	£29.9m	£21.0m
Margin %	19.3%	15.2%	+420 bps LFL

UK & Europe Ceramics
	Oct to Mar FY21	Oct to Mar FY20	Growth

Revenue	£149.9m	£121.8m	+23.1%
Underlying EBITDA	£35.4m	£33.0m
Margin %	23.6%	27.1%	+40 bps LFL

Australia
	Oct to Mar FY21	Oct to Mar FY20	Growth

Revenue	£52.6m	£45.9m	+14.4%
Underlying EBITDA	£10.4m	£5.1m
Margin %	19.8%	11.1%	+870 bps LFL

Strong Group revenue performance continued throughout the second half of the year, with overall LFL growth in excess of 5% over the prior year. Continued high growth was seen in the UK in particular as the business' product, manufacturing and logistics strategies all came together to provide customers with an optimised offering. This dynamic continued through the second full lockdown in the UK, starting in January 2021, which didn't have a substantive effect on the Group's UK sales. Revenues in Australia also remained robust throughout the period. European markets, mainly relevant to the Group's UK & Europe Ceramic Tiles division, were the most adversely impacted in H2 by ongoing lockdowns across various countries, with the slower decline in Covid cases (and potentially slower uptake of vaccination) having an impact.

Margin performance in H2 followed a similar story to revenue. Covid lockdown challenges in Europe meant that the full benefits of previous Ceramic Tile synergy projects could not yet be seen, and in addition the integration of Ascot into the incumbent Italian ceramic tile business was delayed versus the original plan, hence full margin benefits of these initiatives will not be apparent until sometime during the current year, FY22. As a result, UK & Europe Ceramic Tile margins in H2 fell back to prior year levels on a like-for-like basis¹⁰. On the other hand, the UK & Europe Soft Flooring and Australia divisions continued to improve their margins on the H1 post-lockdown period and deliver incredibly strong results.

¹⁰ Like-for-like margin performance in H2 was analysed by removing the impact of current year acquisitions, but including a full year effect of prior year acquisitions in the comparative figures due to ongoing integration making disaggregation of prior year acquisitions challenging.

ACQUISITIONS

FY21 was not significantly impacted by new acquisitions.

The Group made only two small acquisitions, both late in the financial year - Keradom in December 2020, an Italian ceramic tiles manufacturer making approximately €3.2 million (£2.8 million) of underlying operating profit on an annual basis, and Hanover in January 2021, a UK-based flooring distributor making approximately £2.2 million of operating profit on an annual basis. Total operating profit contribution from these acquisition in FY21 was £0.7 million.

Following the year-end, the Group has also acquired two small ceramic tile distributors based in Italy, one small ceramic tile manufacturer based in Italy, a manufacturer of artificial grass based in the Netherlands and a distributor of hard flooring wood and vinyl products in the US. Material synergy benefits are expected to be delivered from the integration of all of these acquisitions into the existing business and operations of the Group.

Further details of these acquisitions are provided in Note 8 to the accounts.

RESTATEMENT OF ACQUISITION ACCOUNTING

A decision has been made to change the accounting treatment of contingent earn-out consideration payable in certain circumstances. This change has no impact on the underlying results, the cash flow or the tax position of the Group.

Earn-outs are deferred elements of consideration, typically paid in cash over a three to four-year period following acquisition, that are contingent on the financial performance of the target business meeting pre-determined targets over that period. Whilst these form part of the purchase price that is negotiated with each respective seller and are contractually payments in exchange for the shares or assets of a business, on review of guidance regarding interpretation of the relevant standard, IFRS 3 (business combinations), the accounting treatment has been remedied where leaver provisions exist that result in the earn-out effectively being contingent on the continued employment of the seller(s) following the acquisition.

Such leaver provisions are included in our acquisitions in order to protect the goodwill being acquired over the first few years of ownership. However, in accordance with the interpretation noted above, in such circumstances the relevant earn-outs are now being treating as non-underlying remuneration costs, accrued over the earn-out period. Previously they were fully recognised at fair value at the point of acquisition, thereby forming part of goodwill. We have restated our prior year accounts accordingly, as shown in the comparative numbers within the financial statements.

Further details are provided in Note 10 to the accounts.

FINANCING - PREFERRED EQUITY

On 22 October 2020, the Company announced the issuance of convertible preferred equity to Koch Equity Development, LLC ('KED'), initially for £75 million but with the ability to increase this to £175 million at the Company's option. This financing is for the sole purpose of funding acquisitions.

At the time, with a depressed share price due to the Covid pandemic, it was not attractive to the Board to issue new ordinary equity, hence the issuance of preferred equity was an ideal solution to raising funds for acquisitions whilst not breaching the Board's financial policy, around leverage in particular. In addition, KED is an ideal financing and strategic partner for the Group, given Koch Industries' scale and firepower, broader industry experience and existing interests in the flooring sector (in the US). At the same time as receiving the preferred equity, KED also acquired a meaningful stake in the ordinary equity of the Company on the secondary market.

As part of the preferred equity financing, KED was also issued with ordinary equity warrants vesting after three years with an exercise price of £3.50 (the share price at the time of issue). Whilst technically these allow a subscription of up to a maximum of 12.402 million shares, the maximum number of shares that will be issued depends on the share price at the time and, in any case, is much lower. This is due to two factors: the Company's ability to net settle the warrants (which is the current intention), and a built-in cap mechanism limiting the overall returns available to KED. For example, the number of shares that would be issued if exercised after three years and if the share price at the time is the same as the year-end (£8.46) would be 1.19 million.

This preferred equity is legally structured as an equity instrument and, whilst it ranks ahead of ordinary equity, it has many equity-like features, including:

§ Being a perpetual instrument - the Company never has to repay (ultimately KED's protection is that they are convertible into ordinary equity after six years);

§ No enforced cash servicing - the Company can choose whether to settle the preferred dividends in cash (9.35% per annum) or by way of a Payment In Kind ('PIK') issuance of further preferred shares (9.85% per annum, PIK every quarter);

§ Ranking behind debt, with no ability for the Company to default, or for the preferred shares to accelerate a claim alongside any debt instruments.

Despite the above, the preferred equity is classed as a financial instrument under IFRS 9 rather than equity on the balance sheet, one of the key reasons being that the conversion price into ordinary shares (convertible after six years) is based on the prevailing share price at the time, rather than being fixed at the outset. Whilst this reduces any potential dilution of ordinary equity in the future as the share price grows, from an accounting perspective it means that the instrument cannot be classified as equity in accordance with the standards, given that it results in a variable number of converted ordinary shares for a fixed number of preferred shares.

As required under IFRS 9, the preferred equity is being accounted for as a host contract (net of pre-paid fees), carried in the balance sheet at amortised cost, along with a number of separate 'non-closely related' embedded derivatives. There are two embedded derivatives that have been deemed, from an accounting perspective, to have to be valued separately from the host:

(1) the ability of the Company to cash redeem the preferred equity at any time (for a premium), held at fair value through profit and loss; and

(2) the ability of KED to convert the preferred equity into ordinary equity after six years or longer, however this is valued at £nil.

Separately, financial instruments have also been recognised for:

(1) the ability of the Company to issue an additional £100m of preferred equity to KED for a period of 18 months, held at amortised cost; and

(2) the ordinary equity warrants described above, held at fair value through profit and loss.

Further details are provided in Note 6 to the accounts.

FINANCING - BONDS

On 23 February 2021 and 9 March 2021, the Company announced two new bond issuances of €500 million maturing in August 2026, and €250 million maturing in March 2028, respectively. The proceeds from these bonds were for two purposes: (1) the refinance of the previous €500 million 2024 bonds (including payment of the associated early redemption premium), and (2) to hold on balance sheet alongside the preferred equity proceeds for short-term future anticipated acquisitions (as it happens, since that time several acquisitions have been made).

Whilst the previous bonds did not mature until 2024, the reason for refinancing at that time was the materially improved terms that the Company was able to achieve. These deliver significant benefits to the Company over the medium-term despite it having to pay an early redemption premium. Hence the Company made an opportunistic approach to the market. The new coupon rates are 3.625% and 3.75% on the 2026 and 2028 bonds, respectively. This compares to 5.25% on the previous bonds that have now been redeemed. As a result, the Company is now paying additional annualised cash interest on the bonds of only €1.25 million (£1.1 million) whilst having additional financing of €250 million (+50%) in gross terms.

Under IFRS 9, as with the previous bonds last year, the new bonds are accounted for with a separately-identified embedded derivative asset, being the ability of the Company to redeem at any time (for a premium). The underlying bond instruments are carried in the balance sheet at amortised cost, whilst the embedded derivatives are carried in the balance sheet at fair value (with fair value differences at each reporting date going through the income statement as an income or expense, depending on the movement). Further details are provided in Note 6 to the accounts.

EXCEPTIONAL AND NON-UNDERLYING ITEMS

This section of the Financial Review runs through all of items classified as exceptional or non-underlying in the financial statements. The nature of these items is, in many cases, the same as the prior year as the financial policy around these items has remain unchanged, for consistency. Hence, whilst the quantum of these items are all slightly different to FY20, many of the explanations below are identical to those given previously.

Exceptional costs relate entirely to third-party expenditure. Victoria does not treat any recurring internal costs (such as employee time spent on restructuring or acquisition projects) as exceptional, given these resources are recurring.

The Group incurred £7.8 million of exceptional costs during the year (FY20: £49.9 million). 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.

These main reason for the significant year-on-year decrease was a £50 million goodwill impairment recognised in the prior year following the start of the Covid pandemic. No further goodwill impairment was recognised in FY21 as the market outlook is now significantly different compared to during the first national lockdown last year.

	2021	2020
	£'m	£'m
Exceptional items
Acquisition and disposal related costs	(3.0)	(2.2)
Reorganisation costs	(5.5)	(3.5)
Negative goodwill arising on acquisition	6.5	5.8
Contingent consideration linked to positive tax ruling	(5.7)	-
Exceptional goodwill impairment	-	(50.0)
Total exceptional items	(7.8)	(49.9)

Other than the prior-year goodwill impairment, exceptional costs in FY21 were £7.9 million higher than in FY20, primarily due to a one-off charge in the year reflecting the final instalment of contingent consideration on the acquisition of Keraben, which was linked to a positive ruling over the tax deductibility of certain pre-acquisition costs.

In addition, exceptional reorganisation costs were £2.0 million higher than in FY20. During the year, there was a significant restructuring project in the UK relating to the amalgamation of the Westex and G Tuft carpet manufacturing operations, involving significant redundancy costs. Furthermore, the delivery of synergies between Ascot's manufacturing site and the Group's incumbent operations in Italy (albeit delayed versus the original timeline due to Covid as noted above) involved redundancy and other operational restructuring costs.

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 three non-underlying items in the year:

· Acquisition-related performance plan charge - this represents the accrual of contingent earn-out liabilities on historical acquisitions where those earn-outs are linked to the ongoing employment of the seller(s), resulting from an accounting restatement implemented this year, as described above.

· Non-cash share incentive plan charge - the charge under IFRS 2 relating to the pre-determined fair value of existing senior management share incentive schemes, including the share options plan announced on 26 June 2020. This charge is non-cash as these schemes cannot be settled in cash. The charge in FY21 was significantly lower than the prior year due to FY20 containing an 'accelerated' accounting charge under IFRS 2 resulting from certain participants exiting a historical scheme.

· 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. The charge has increased in FY21 due to additional acquisitions having been completed (coupled with the fact that the intangible assets from the original acquisitions starting in 2013 are not yet fully written-down).

	2021	2020
	£'m	£'m
Other non-underlying operating items
Acquisition-related performance plan charge	1.7	(2.0)
Non-cash share incentive plan charge	(1.0)	(5.9)
Amortisation of acquired intangibles	(26.8)	(25.0)
	(26.1)	(32.9)

Further details of exceptional and non-underlying operating items are provided in Note 2 to the accounts.

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

	2021	2020
	£'m	£'m
Non-underlying financial costs
Release of prepaid finance costs	7.3	4.4
Net cost of redemption premium on refinancing of previous senior notes	6.3	-
Underwriting fees and costs relating to previous bank facilities	-	6.5
One-off refinancing related	13.6	10.9
Finance items related to preferred equity	13.1	-
Acquisition related items	2.1	3.0
Interest on short-term draw of Group Revolving credit facility	1.4	-
Fair value adjustment to notes redemption option	(4.6)	7.3
Unsecured loan redemption premium charge / (credit)	0.2	(0.2)
Mark to market adjustments and gains on foreign exchange forward contracts	4.2	(3.2)
Translation difference on foreign currency loans	(6.3)	13.0
Other non-underlying	(5.1)	16.9
	23.7	30.8

The significant items are described below:

· 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. Whilst a refinancing occurred in FY20 and therefore was not expected at that time to re-occur for a number of years, a further refinancing was undertaken in March 2021 to capitalise on strong credit markets and highly-positive credit sentiment towards Victoria. Whilst this resulted in a short-term subsequent release of prepaid finance costs as shown in the table, this was deemed to be worth the significant upside of a reduction in coupon of more than 160bps as well as extended maturity.

· Net cost of redemption premium on refinancing of previous senior notes - as described above, in March 2021 the Group refinanced its 2024 senior secured notes with new 2026 and 2028 notes due to materially improved pricing and maturity, which outweighed the cost of early redemption. This charge represents the redemption premium on the 2024 notes, offset in part by the release of the liability premia attached to the host debt, which were extinguished.

· Preferred equity finance charge - the preferred equity issued in November 2020 is treated under IFRS 9 as a financial instrument with a number of associated embedded derivatives (as discussed above). There are a number of resulting financial items taken to the income statement in each period, including the cost of the underlying host contract, amortisation of pre-paid costs and fees, and the income or expense related to the fair-valuation of the warrants and embedded derivatives. However, the preferred equity is legally structed as equity and is also equity-like in nature (see further details above), including the fact that it never has to be serviced in cash.

· Acquisition related items - costs that relate to value adjustments to deferred consideration and contingent earn-outs on historical acquisitions (including acquisition-related performance plans under the new accounting treatment described above), comprising the unwinding of present value discounts and adjustments in relation to forecast performance against earn-out targets.

· Interest charge on exceptional RCF draw-down - as noted above, in March 2020 the Company fully drew its £75 million bank revolving credit facility for a period of six months, as a one-off Covid-related emergency treasury measure at the start of the pandemic. This cash sat untouched on the balance sheet for the duration and was repaid in September 2020.

· Fair value adjustment to notes redemption option - the corporate bonds originally issued in FY20 matured in FY25, and the two tranches of bonds subsequently issued in FY21 mature in FY27 and FY28, respectively. However, the company can choose to repay early if it pays a redemption premium, the level of which varies over time (a very high cost within the first two to three years, followed by comparatively lower costs, stepping-down over the remaining term). Under IFRS 9, this 'embedded call option' must be separately disclosed as a financial asset on the balance sheet and fair-valued at each reporting date. The income or charge resulting from this revaluation exercise at each reporting is a non-cash item.

· 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 items in this regard are the Euro-denominated €500m 2026 corporate bonds, and €250m 2028 corporate bonds.

Further details of non-underlying finance items are provided in Note 3 to the accounts.

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.

Operating profit and PBT	2021	2020
	£'m	£'m

Underlying operating profit	79.8	77.1

Reported operating profit (after exceptional items)	45.9	(8.5)


Underlying profit before tax	50.1	48.0
Reported loss before tax (after exceptional items)	(7.5)	(65.6)

Reported operating profit (earnings before interest and taxation) increased to £45.9 million (FY20: loss of £8.5 million), driven by strong operating and financial performance as described above. In addition, the prior year was impacted by a one-off £50 million impairment of goodwill following the start of the Covid pandemic. After removing the exceptional and non-underlying items described above, underlying operating profit was £79.8 million, representing a 3.5% increase over the prior year.

TAXATION

The reported tax credit in the year of £10.3 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 £13.0 million against adjusted profit before tax of £50.1 million, implying an underlying effective tax rate of 25.9%.

EARNINGS PER SHARE

The Group delivered basic earnings per share of 2.30p (FY20: loss per share of 57.22p). However, adjusted earnings per share (before non-underlying and exceptional items) on a fully-diluted basis was 30.21p (FY20: 28.42p). This figure does not include the diluted impact of unutilised preferred equity funding, which was deployed for acquisitions post year-end. This represents a 6.3% increase in earnings over the prior year.

Earnings per share	2021	2020


Basic earnings / (loss) per share	2.30p	(57.22p)

Diluted adjusted earnings per share	28.66p	28.42p
Diluted adjusted earnings per share (excluding dilution impact of unutilised preferred equity funding at year end)	30.21p	28.42p

OPERATING CASH FLOW

Cash flow from operating activities before interest, tax and exceptional items was £93.9 million which represents a conversion of 83% of underlying EBITDA (pre-IFRS 16).

Operating and free cash flow	2021	2020
	£'m	£'m


Underlying operating profit	79.8	77.1

Add back: underlying depreciation & amortisation	47.6	41.0


Underlying EBITDA	127.4	118.1

Payments under right-of-use lease obligations	(14.4)	(11.6)

Non-cash items	(0.8)	(0.8)

Underlying movement in working capital	(18.3)	(8.0)


Operating cash flow before interest, tax and exceptional items	93.9	97.6


% conversion against underlying operating profit	118%	127%
% conversion against underlying EBITDA (pre-IFRS 16)	83%	92%


Interest paid	(30.4)	(25.0)

Corporation tax paid	(5.0)	(8.6)

Capital expenditure - replacement / maintenance of existing capabilities	(20.9)	(25.4)

Proceeds from fixed asset disposals	1.2	0.7


Free cash flow before exceptional items	38.8	39.2


% conversion against underlying operating profit	49%	51%
% conversion against underlying EBITDA (pre-IFRS 16)	34%	37%

Pre-exceptional free cash flow of the Group - after interest, tax and net replacement capex - was £38.8 million. Compared with underlying operating profit (i.e. post-depreciation), this represents a conversion ratio of 49%. The difference in free cash flow conversion versus the prior year is primarily due to slightly larger adverse working capital absorption in the year due to Covid (which is ultimately expected to unwind) and higher interest cash payments, in part resulting from the timing of refinancing meaning that more than 12 months' worth of interest was paid in the year.

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 3 April 2021, the Group's net debt position (excluding IFRS 16 right-of-use leases and preferred equity) was £20.2 million lower than at the prior year-end. Free cash flow of £38.8 million was generated in the year, of which £13.1 million was invested in organic growth / synergy initiatives and £12.7 million in acquisition-related expenditure (including debts assumed on acquisition). In terms of financing activities, net cash proceeds from the preferred equity (after fees) were £65.3 million, and £30.0 million was spent on the share buy-back that immediately followed as part of that transaction. The redemption premium on refinancing of the bonds, plus other associated fees, totalled a further £17.6 million.

Applying our banks' adjusted measure of financial leverage, the Group's year end net debt to EBITDA ratio was 3.10x (FY20: 3.04x).

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.

Free cash flow to movement in net debt	2021	2020
	£'m	£'m


Free cash flow before exceptional items (see above)	38.8	39.2


Capital expenditure - growth	(7.6)	(8.4)

Exceptional reorganisation cash cost	(5.5)	(3.5)


Investment in organic growth / synergy projects	(13.1)	(11.8)


Acquisitions of subsidiaries	(2.8)	(11.0)


Total debt acquired or refinanced	(9.9)	(1.5)

Deferred and contingent consideration payments	(21.3)	(12.1)

Exceptional M&A costs	(3.0)	(2.2)
Proceeds from discontinued operations	-	1.0


Acquisition-related expenditure	(37.0)	(25.8)



Buy back of ordinary shares	(30.0)	-
Preferred equity	65.3	-
Refinanced bonds - redemption premia	(17.6)	-

Net refinancing cash flow	17.7	-

Other debt items including prepaid finance costs	(6.8)	(2.8)

Translation differences on foreign currency cash and loans	20.6	(24.8)


Other exceptional items	13.8	(27.6)



Total movement in net debt	20.2	(26.0)


Opening net debt	(365.9)	(339.9)


Closing net debt	(345.7)	(365.9)

Net debt	2021	2020
	£'m	£'m

Net cash and cash equivalents	344.8	174.7
Senior secured debt (at par)	(637.7)	(523.4)
Unsecured loans	(51.7)	(15.6)
Finance leases and hire purchase arrangements (pre IFRS 16)	(1.1)	(1.6)


Net debt before obligations under right-of-use leases	(345.7)	(365.9)


Adjusted net debt / EBITDA	3.10x	3.04x



Bond embedded redemption option	9.0	-

Bond issue premium - cash	-	(7.5)

Bond issue premium - non-cash (related to embedded redemption option)	(4.3)	(6.8)

Pre paid finance costs on senior debt	10.9	9.9

Preferred equity, associated warrants and embedded derivatives	(76.2)	-

Obligations under right-of-use leases (incremental)	(86.0)	(78.2)


Statutory net debt (net of prepaid finance costs)	(492.2)	(448.5)

Michael Scott

Group Finance Director

20 July 2021

Consolidated Income Statement
For the 53 weeks ended 3 April 2021

			53 weeks ended 3 April 2021			52 weeks ended 28 March 2020
						(restated)
			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	662.3	-	662.3	621.5	-	621.5
Cost of Sales			(427.4)	-	(427.4)	(395.1)	-	(395.1)
Gross profit			234.9	-	234.9	226.4	-	226.4

Distribution costs			(74.8)	-	(74.8)	(73.2)	-	(73.2)
Administrative expenses			(84.2)	(33.9)	(118.1)	(82.9)	(82.8)	(165.7)
Other operating income			3.9	-	3.9	4.0	0.0	4.0

Operating profit / (loss)			79.8	(33.9)	45.9	74.3	(82.8)	(8.5)
Comprising:
Operating profit before credit losses, non-underlying and exceptional items			81.3	-	81.3	77.1	-	77.1
Increase in credit loss provision			(1.5)	-	(1.5)	(2.8)	-	(2.8)
Amortisation of acquired intangibles		1,2	-	(26.8)	(26.8)	-	(25.0)	(25.0)
Other non-underlying items		1,2	-	0.7	0.7	-	(7.9)	(7.9)
Exceptional goodwill impairment		1,2	-	-	-	-	(50.0)	(50.0)
Other exceptional items		1,2	-	(7.8)	(7.8)	-	0.1	0.1


Finance costs		3	(29.7)	(23.7)	(53.4)	(26.3)	(30.8)	(57.1)
Comprising:
Interest on loans and notes		3	(23.9)	(1.4)	(25.3)	(21.5)	-	(21.5)
Amortisation of prepaid finance costs and accrued interest		3	(2.6)	(7.3)	(9.9)	(2.1)	(4.4)	(6.5)
Unwinding of discount on right-of-use lease liabilities		3	(3.0)	-	(3.0)	(2.6)	-	(2.6)
Preferred equity items		3	-	(13.1)	(13.1)	-	-	-
Other finance items		3	(0.2)	(1.9)	(2.1)	(0.1)	(26.4)	(26.5)

Profit / (loss) before tax			50.1	(57.6)	(7.5)	48.0	(113.6)	(65.6)
Taxation (charge) / credit			(13.0)	23.3	10.3	(12.4)	8.2	(4.2)
Profit / (loss) for the period from continuing operations			37.1	(34.3)	2.8	35.6	(105.4)	(69.8)
Loss from discontinued operations			-	-	-	-	(2.0)	(2.0)
Profit / (loss) for the period			37.1	(34.3)	2.8	35.6	(107.4)	(71.8)
Earnings / (loss) per share - pence	basic	4			2.30			(57.22)
	diluted	4			2.29			(57.22)

Consolidated Statement of Comprehensive Income
For the 53 weeks ended 3 April 2021

		53 weeks ended 3 April 2021	52 weeks ended 28 March 2020
			(restated)
	Note	£m	£m
Profit / (loss) for the period		2.8	(71.8)
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on defined benefit pension scheme	7	(0.1)	1.4
Decrease in deferred tax asset relating to pension scheme liability		-	(0.1)
Items that will not be reclassified to profit or loss		(0.1)	1.3
Items that may be reclassified subsequently to profit or loss:
Retranslation of overseas subsidiaries		(6.1)	3.1
Items that may be reclassified subsequently to profit or loss		(6.1)	3.1
Other comprehensive (expense) / income		(6.2)	4.4
Total comprehensive expense for the period attributable to the owners of the parent		(3.4)	(67.4)

Consolidated Balance Sheet
As at 3 April 2021

		Group
		3 April 2021	28 March 2020	30 March 2019
			(restated)	(restated)
	Notes	£m	£m	£m
Non-current assets
Goodwill		164.8	172.6	203.7
Intangible assets other than goodwill		224.2	244.3	241.4
Property, plant and equipment		202.1	211.6	190.6
Right-of-use lease assets		82.6	78.5	-
Investment property		0.2	0.2	0.2
Investments in subsidiaries		-	-	-
Trade and other non-current receivables		-	-	-
Deferred tax assets		17.2	6.4	5.8
Total non-current assets		691.1	713.6	641.7
Current assets
Inventories		164.4	165.4	140.5
Trade and other receivables		150.1	144.1	116.0
Cash and cash equivalents		348.8	176.8	66.4
Total current assets		663.3	486.3	322.9
Total assets		1,354.4	1,199.9	964.6
Current liabilities
Trade and other current payables		213.8	241.2	168.4
Current tax liabilities		5.1	-	-
Obligations under right-of-use leases - current		13.0	11.8	-
Other financial liabilities		30.2	4.9	10.4
Total current liabilities		262.1	257.9	178.8
Non-current liabilities
Trade and other non-current payables		17.0	16.6	17.5
Obligations under right-of-use leases - non-current		74.0	68.0	-
Other non-current financial liabilities		647.5	540.6	392.3
Preferred equity		70.1	-	-
Preferred equity - contractually-linked warrants		6.1	-	-
Deferred tax liabilities		62.9	69.9	66.1
Retirement benefit obligations	7	6.5	6.3	7.8
Total non-current liabilities		884.1	701.4	483.7
Total Liabilities		1,146.2	959.3	662.6
Net Assets		208.2	240.6	302.1
Equity
Share capital		6.3	6.3	6.3
Share premium		-	288.7	288.7
Retained earnings		198.7	(62.7)	2.5
Foreign exchange reserve		(0.4)	5.7	2.6
Other reserves		3.6	2.6	2.0
Total equity		208.2	240.6	302.1

Consolidated Statement of Changes in Equity
For the 53 weeks ended 3 April 2021

	Share capital	Share premium	Retained earnings	Foreign exchange reserve	Other reserves	Total equity
	£m	£m	£m	£m	£m	£m
At 30 March 2019 on previous basis	6.3	288.7	20.6	2.3	2.0	319.9
Impact of restatement (Note 10)	-	-	(18.1)	0.3	-	(17.8)
At 30 March 2019 (restated)	6.3	288.7	2.5	2.6	2.0	302.1
Loss for the period to 28 March 2020	-	-	(71.8)	-	-	(71.8)
Other comprehensive income for the period	-	-	1.3	-	-	1.3
Retranslation of overseas subsidiaries	-	-	-	3.1	-	3.1
Total comprehensive loss	-	-	(70.5)	3.1	-	(67.4)
Issue of Share capital	-	-	-	-	-	-
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 (restated)	6.3	288.7	(62.7)	5.7	2.6	240.6

At 28 March 2020 on previous basis	6.3	288.7	(42.9)	5.9	2.6	260.6
Impact of restatement (Note 10)	-	-	(19.8)	(0.2)	-	(20.0)
At 28 March 2020 (restated)	6.3	288.7	(62.7)	5.7	2.6	240.6
Profit for the period to 3 April 2021	-	-	2.8	-	-	2.8
Other comprehensive loss for the period	-	-	(0.1)	-	-	(0.1)
Retranslation of overseas subsidiaries	-	-	-	(6.1)	-	(6.1)
Total comprehensive profit/(loss)	-	-	2.7	(6.1)	-	(3.4)
Cancellation of share premium account	-	(288.7)	288.7	-	-	-
Buy back of ordinary shares	-	-	(30.0)	-	-	(30.0)
Share-based payment charge	-	-	-	-	1.0	1.0
Transactions with owners	-	(288.7)	258.7	-	1.0	(28.9)
At 3 April 2021	6.3	-	198.7	(0.4)	3.6	208.2

Consolidated Statements of Cash Flows
For the 53 weeks ended 3 April 2021

	Group
	53 weeks ended	52 weeks ended
	3 April 2021	28 March 2020
		(restated)
	£m	£m
Cash flows from operating activities
Operating profit / (loss)	45.9	(8.5)
Adjustments For:
Depreciation and amortisation of IT software	47.7	40.9
Amortisation of acquired intangibles	26.8	25.0
Negative goodwill arising on acquisition	(6.5)	(5.8)
Goodwill impairment	-	50.0
Amortisation of government grants	(0.5)	(0.5)
Profit on disposal of property, plant and equipment	(0.1)	(0.2)
Share incentive plan charge	1.0	5.9
Defined benefit pension	(0.1)	(0.1)
Net cash flow from operating activities before movements in working capital, tax and interest payments	114.2	106.7
Change in inventories	7.6	(4.4)
Change in trade and other receivables	(0.3)	(10.8)
Change in trade and other payables	(25.6)	9.9
Cash generated by continuing operations before tax and interest payments	95.9	101.4
Interest paid on loans and notes	(30.4)	(25.0)
Interest relating to right-of-use lease assets	(3.0)	(2.6)
Income taxes paid	(5.0)	(8.6)
Net cash flow from discontinued operations	-	0.1
Net cash inflow from operating activities	57.5	65.3

Investing activities
Purchases of property, plant and equipment	(27.6)	(32.7)
Purchases of intangible assets	(0.9)	(1.1)
Loan to subsidiary companies	-	-
Proceeds on disposal of property, plant and equipment	1.2	0.7
Deferred consideration and earn-out payments	(15.6)	(10.0)
Acquisition of subsidiaries net of cash acquired	(2.8)	(11.0)
Proceeds from disposal of subsidiaries	-	0.9
Net cash used in investing activities	(45.7)	(53.2)

Financing activities
Increase in new borrowings, net of refinancing costs	303.7	109.0
Repayment of borrowings	(164.7)	-
Issue of preferred equity, net of refinancing costs	65.3	-
Buy back of ordinary shares	(30.0)	-
Payments under right-of-use lease obligations	(11.3)	(9.0)
Net cash generated in financing activities	163.0	100.0

Net increase in cash and cash equivalents	174.8	112.1
Cash and cash equivalents at beginning of period	174.7	60.2
Effect of foreign exchange rate changes	(4.7)	2.4
Cash and cash equivalents at end of period	344.8	174.7

Comprising:
Cash and cash equivalents	348.8	176.8
Bank overdrafts	(4.0)	(2.1)
	344.8	174.7

1. Segmental information

The Group is organised into three operating segments: soft flooring products in UK & Europe; ceramic tiles in UK & Europe; and flooring products in Australia. The Executive Board (which is collectively the Chief Operating Decision Maker) regularly reviews financial information for each of these operating segments in order to assess their performance and make decisions around strategy and resource allocation at this level.

The UK & Europe Soft Flooring segment comprises legal entities in the UK, Republic of Ireland, the Netherlands and Belgium, whose operations involve the manufacture and distribution of carpets, flooring underlay, artificial grass, LVT, and associated accessories. The UK & Europe Ceramic Tiles segment comprises legal entities primarily in Spain and Italy, whose operations involve the manufacture and distribution of wall and floor ceramic tiles. The Australia segment comprises legal entities in Australia, whose operations involve the manufacture and distribution of carpets, flooring underlay and LVT. Whilst additional information has been provided in the operational review on sub-segment activities, discrete financial information on these activities is not regularly reported to the CODM for assessing performance or allocating resources. No operating segments have been aggregated into reportable segments.
Both underlying operating profit and reported operating profit are reported to the Executive Board on a segmental basis.
Transactions between the reportable segments are made on an arm length's basis. The reportable segments exclude the results of non revenue generating holding companies, including Victoria PLC. These entities' results have been included as unallocated central expenses in the tables below.

Income statement
	53 weeks ended 3 April 2021																			52 weeks ended 28 March 2020 (restated)
	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	280.4		282.4		99.6			-				662.3			282.0		243.9			95.6		-		621.5
Underlying operating profit	28.7		40.4		11.9			(1.3)				79.8			20.0		50.5			5.7		(1.9)		74.3
Non-underlying operating items	(5.0)		(18.9)		(1.7)			(0.5)				(26.1)			(5.8)		(18.8)			(1.7)		(6.6)		(32.9)
Exceptional goodwill impairment	-		-		-			-				-			-		(50.0)			-		-		(50.0)
Other exceptional operating items	0.1		(4.3)		-			(3.6)				(7.8)			(1.0)		3.7			(0.7)		(1.9)		0.1
Operating profit / (loss)	23.8		17.2		10.2			(5.4)				45.9			13.2		(14.6)			3.3		(10.4)		(8.5)
Underlying net finance costs												(29.7)												(26.3)
Non-underlying finance costs												(23.7)												(30.8)
Loss before tax												(7.5)												(65.6)
Tax												10.3												(4.2)
Loss from discontinued operations												-												(2.0)
Profit / (loss) for the period												2.8												(71.8)

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 were immaterial.

All revenue generated across each operating segment was from the sale of flooring products recognised at a point in time in accordance with IFRS 15. The flooring products sold across each operating segment have similar production processes, classes of customers and economic characteristics such as similar rates of profitability, similar degrees of risk, and similar opportunities for growth. The Group's revenue for the period was split geographically (by origin) as follows:

						2021					2020
						£m					£m
Revenue
United Kingdom						243.4					259.5
Spain						197.2					209.3
Italy						85.2					34.6
Netherlands						36.9					22.5
Australia						99.6					95.6
						662.3					621.5

Balance sheet
		53 weeks ended 3 April 2021																	52 weeks ended 28 March 2020 (restated)
		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		274.5		692.2			91.7		296.0				1,354.4			265.5		703.3			78.2		152.9		1,199.9
Total Liabilities		(136.7)		(246.4)			(32.4)		(730.6)				(1,146.2)			(122.5)		(254.0)			(26.3)		(556.5)		(959.3)
Net Assets		137.7		445.8			59.3		(434.6)				208.2			143.0		449.3			51.9		(403.6)		240.6


The Group's non-current assets (net of deferred tax) as at 3 April 2021 were split geographically as follows:
										2021				2020
										£m				£m
Non-current assets (net of deferred tax)
United Kingdom										171.9				167.4
Spain										389.1				430.9
Italy										72.3				70.7
Netherlands										0.9				0.2
Australia										39.7				38.0
										673.9				707.2

Other segmental information
	53 weeks ended 3 April 2021					52 weeks ended 28 March 2020
	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)	20.3	22.6	4.7	-	47.6	19.6	16.8	4.5	-	40.9
Amortisation of acquired intangibles	4.9	20.2	1.7	-	26.8	4.7	18.6	1.7	-	25.0
	25.2	42.9	6.4	-	74.4	24.3	35.4	6.2	-	65.9


	53 weeks ended 3 April 2021					52 weeks ended 28 March 2020
	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)	12.7	12.7	2.2	-	27.6	13.1	16.8	2.7	-	32.7
Disposals of property, plant and equipment	(0.9)	(0.2)	-	-	(1.1)	(0.5)	(0.1)	(0.1)	-	(0.7)
Capex - intangibles (incl. finance lease / HP)	0.1	0.8	-	-	0.9	0.3	0.7	-	0.1	1.1
Total capital expenditure (cashflow)	11.9	13.3	2.2	-	27.4	12.9	17.5	2.6	0.1	33.1

2. Exceptional and non-underlying items

	2021	2020
		(restated)
	£m	£m
Exceptional items
(a) Acquisition and disposal related costs	(3.0)	(2.2)
(b) Reorganisation and Covid-related exceptional costs	(5.5)	(3.5)
(c) Negative goodwill arising on acquisition	6.5	5.8
(d) Contingent consideration linked to positive tax ruling	(5.7)	-
(e) Exceptional goodwill impairment	-	(50.0)
Total exceptional items	( 7.8)	(49.9)
Non-underlying operating items
(f) Acquisition-related performance plans	1.7	(2.0)
(g) Non-cash share incentive plan charge	(1.0)	(5.9)
(h) Amortisation of acquired intangibles	(26.8)	(25.0)
	(26.1)	(32.9)

All exceptional items are classified within administrative expenses.

(a) One- off third-party professional fees in connection with prospecting and completing specific acquisitions during the period. The prior year also includes costs associated with disposals.

(b) One-off costs relating to a few small efficiency projects during the year, of which the majority were redundancy costs, plus one-off expenditure relating to precautionary measures for health and safety in light of Covid-19. Other than redundancy payments these items relate entirely to exceptional third-party purchases and fees, and do not include any allocation of internal resources. The largest of the new efficiency projects were the merger of our Westex manufacturing operations into one of the other UK factories, and the integration of Ascot (acquired in March 2020) with our incumbent Italian business, Serra. Prior year costs relate to synergy projects and performance improvement programmes.
(c) Negative goodwill arising on consolidation of subsidiaries acquired during the prior year, achieved through favourable bilateral negotiations.

(d) One-off charge in the year reflecting the final instalment of contingent consideration on the acquisition of Keraben, which was linked to a positive ruling over the tax deductibility of certain pre-acquisition costs. (e) One-off goodwill impairment charge during the prior year.

(f) Credit/(charge) relating to the accrual of expected liability under acquisition-related performance plans.

(g) Non-cash, IFRS2 share-based payment charge in relation to the long-term management incentive plans.

(h) Amortisation of intangible assets, primarily brands and customer relationships, recognised on consolidation as a result of business combinations.

3. Finance costs

	2021	2020
		(restated)
	£m	£m
Underlying finance items
Interest on bank facilities and notes	23.1	20.7
Interest on unsecured loans	0.8	0.8
Total interest on loans and notes	23.9	21.5
Amortisation of prepaid finance costs on loans and notes	2.6	2.1
Unwinding of discount on right-of-use lease liabilities	3.0	2.6
Net interest expense on defined benefit pensions	0.2	0.1
	29.7	26.3


Non-underlying finance items
(a) Release of prepaid finance costs	7.3	4.4
(b) Net cost of redemption premium on refinancing of previous senior notes	6.3	-
(c) Underwriting fees and costs relating to previous bank facilities	-	6.5
One-off refinancing related	13.6	10.9
(d) Finance items related to preferred equity	13.1	-
Preferred equity related	13.1	-
(e) Unwinding of present value of deferred and contingent earn-out liabilities	0.3	0.8
(f) Other adjustments to present value of contingent earn-out liabilities	0.7	0.9
(g) Unwinding of present value of deferred and contingent earn-out liabilities	1.1	1.3
Acquisitions related	2.1	3.1
(h) Interest on short term-term draw of Group revolving credit facility	1.4	-
(i) Fair value adjustment to notes redemption option	(4.6)	7.3
(j) Unsecured loan redemption premium charge / (credit)	0.2	(0.2)
(k) Mark to market adjustments and gains on foreign exchange forward contracts	4.2	(3.2)
(l) Translation differences on foreign currency loans	(6.3)	13.0
Other non-underlying	(5.1)	16.9

	23.7	30.8

(a) Non-cash charge relating to the release of prepaid costs on previous bank facilities on refinancing. In light of positive market conditions, the company opportunistically approached the bond market in March 2021 to refinance its 2024 senior secured notes despite only having issued these notes during the prior year, securing a reduction in coupon from 5.25% to 3.625%. Hence why a charge has occurred in both the current and prior periods.
(b) Cost of early redemption in relation to the refinancing of the 2024 senior secured notes, offset in part by the release of the liability premium relating to the embedded derivatives attached to the host debt.
(c) One off fees paid in the prior year in relation to underwritten bank facilities obtained to provide certainty around the company's inaugural refinancing processes, plus deferred costs relating to previous 2018 bank facilities.

(d) The net impact of non-cash items relating to preferred equity issued to Koch Equity Development during the year. This comprises: i) accrual of preferred dividends and other value movements of the host contract (£3.4m); ii) fair value adjustment to embedded derivative representing a cash settlement option (£5.2m); iii) amortisation of associated instrument representing the option to issue additional preferred equity (£0.7m); iv) fair value adjustment to contractually-linked warrants (£1.6m); and iv) 6% ticking fee on option to issue £100.0m additional preferred equity (£2.2m) .

(e) Non-cash costs relating to the unwinding of present value discounts applied to deferred consideration and contingent earn-outs on 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.

(f) Non-cash items relating to changes in contingent earn-out consideration arising from the evolution of actual and forecast financial performance of the relevant acquisitions.

(g) Non-cash cost relating to unwinding of the present value discount on acquisition-related performance plans.
(h) Interest cost associated with the drawing of the Group's £75m revolving credit facility in March, as a precautionary measure in response to the Coronavirus pandemic. This has subsequently been repaid.
(i) Fair value adjustment to embedded derivative representing the early redemption option within the terms of the senior secured notes. See Note 6 for further details.

(j) Unsecured loan redemption premium charge / credit - Non-cash item relating to the £2.1 million redemption premium on the BGF loan. During the prior year it was agreed with the BGF to defer payment from December 2019 to December 2021, resulting in a one off credit to the income statement.

(k) Non-cash fair value adjustments on foreign exchange forward contracts. In the period this was offset by a realised cash gain on certain FX contracts (£0.5m).

(l) 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:

	53 weeks ended 3 April 2021		52 weeks ended 28 March 2020
	Basic	Adjusted	Basic	Adjusted
			(restated)	(restated)
	£m	£m	£m	£m
Earnings / (loss) attributable to ordinary equity holders of the parent entity	2.8	2.8	(69.8)	(69.8)
Exceptional and non-underlying items:
Income statement impact of preferred equity	-	13.1	-	-
Amortisation of acquired intangibles	-	26.8	-	25.0
Other non-underlying items	-	(0.7)	-	7.9
Exceptional goodwill impairment	-	-	-	50.0
Other exceptional items	-	2.1	-	(0.1)
Interest on short -term draw of Group revolving credit facility	-	1.4	-	-
Amortisation of prepaid finance costs	-	7.3	-	4.4
Fair value adjustment to notes redemption option	-	(4.6)	-	7.3
Translation difference on foreign currency loans	-	(6.4)	-	13.0
Other non-underlying finance items	-	18.6	-	6.1
Tax effect on adjusted items where applicable	-	(23.3)	-	(8.2)
Earnings / (loss) for the purpose of basic and adjusted earnings per share from continuing operations	2.8	37.1	(69.8)	35.6
Loss attributable to ordinary equity holders of the parent entity from discontinued operations	-	-	(2.0)	-
Earnings / (loss) for the purpose of basic and adjusted earnings per share	2.8	37.1	(71.8)	35.6


Weighted average number of shares
			2021	2020
			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			122,257	125,398
Effect of dilutive potential ordinary shares:
Share options			530	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share			122,787	125,398
Preferred equity and contractually-linked warrants			6,625	-
Weighted average number of ordinary shares for the purposes of diluted adjusted earnings per share			129,412	125,398

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:
			2021	2020
				(restated)
			Pence	Pence
Earnings / loss per share from continuing operations
Basic earnings / (loss) per share			2.30	(55.63)
Diluted earnings / (loss) per share			2.29	(55.63)
Basic adjusted earnings per share			30.34	28.42
Diluted adjusted earnings per share			28.66	28.42
Loss per share from discontinued operations
Basic loss per share			-	(1.60)
Diluted loss per share			-	(1.60)
Earnings / loss per share
Basic earnings / (loss) per share			2.30	(57.22)
Diluted earnings / (loss) per share			2.29	(57.22)
Basic adjusted earnings per share			30.34	28.42
Diluted adjusted earnings per share			28.66	28.42

Diluted earnings per share for the period is not adjusted for the impact of the potential future conversion of preferred equity or potential future exercise of contractually linked warrants (see Note 6) due to these instruments having an anti-dilutive effect, whereby the positive impact of adding back the associated financial costs to earnings outweighs the dilutive impact of conversion/exercise. Diluted adjusted earnings per share does take into account the impact of these instruments as shown in the table above setting out the weighted average number of shares.

5. Rates of exchange

	2021		2020
	Average	Year end	Average	Year end

Australia - A$	1.8392	1.8172	1.8685	2.0202
Europe - €	1.1244	1.1761	1.1442	1.1152

6. Net Debt

Analysis of net debt

Reconciliation of movements in the Group's net debt position:
Group		At 29 March 2020	Cash flow		Capital expenditure	Acquisitions	Other non-cash changes	Exchange movement	At 3 April 2021
		£m	£m		£m	£m	£m	£m	£m

Cash and cash equivalents		176.8	172.9		-	3.8	-	(4.7)	348.8
Bank overdraft		(2.1)	(1.9)		-	-	-	-	(4.0)

Net cash and cash equivalents		174.7	171.1		-	3.8	-	(4.7)	344.8

Senior secured debt (gross of prepaid finance costs):
- Senior notes redeemed in the period - due in more than one year		(463.3)	88.7		-	-	355.9	18.6	-
- Senior notes issued in the period - due in more than one year		-	(287.4)		-	-	(353.7)	8.2	(633.0)
- Revolving credit facility - due in more than one year		(74.4)	76.0		-	-	-	(1.5)	-
Unsecured loans:
- due in less than one year		(2.8)	(27.1)		-	(2.4)	6.1	-	(26.2)
- due in more than one year		(12.8)	-		-	(7.5)	(5.1)	-	(25.5)

Net debt		(378.6)	21.2		-	(6.2)	3.1	20.6	(339.9)

Obligations under right-of-use leases:
- due in less than one year		(11.8)	11.3		(1.7)	(0.1)	(10.8)	-	(13.0)
- due in more than one year		(68.0)	-		(9.9)	(6.7)	10.2	0.4	(74.0)
Preferred equity (gross of prepaid finance costs)		-	(66.3)		-	-	(10.9)	-	(77.1)
Prepaid finance costs:
- In relation to preferred equity		-	0.9		-	-	-	-	0.9
- In relation to senior debt		9.9	10.8		-	-	(10.0)	0.2	10.9

Net debt including right-of-use lease liabilities, issue premia, preferred equity and prepaid finance costs		(448.5)	(22.0)		(11.6)	(13.0)	(18.3)	21.2	(492.2)
The cashflows therein included represent the physical cash inflows received by the Group as a result of the refinancing exercise in the period, the majority of which was directly paid by the new debt holders to the existing debt holders, with the remainder of the cash being held by the Company. The Group determined that the financial institution that handled the transactions with bond holders acted in their capacity as principal.

Senior debt Senior debt as at 3 April 2021 relates to €750m of senior secured notes, split between two tranches: €500m 3.625% notes maturing in 2026; and €250m 3.75% notes maturing in 2028. The coupon on the notes is paid bi-annually. These notes were issued in March 2021, at which time the previous €500m 5.25% notes were refinanced. One-off early redemption costs were incurred in relation to the refinanced notes (see Note 3). The additional funds raised of €250m less redemption and financing costs were held on balance sheet at the year end for the purpose of funding future acquisitions.
Attached to both sets of notes are early repayment options, which have been identified as embedded derivative assets, separately valued from the host contracts. Changes in the Group's credit rating and market pricing of the notes would have an impact on the value of the options. The redemption price of the repayment option on the €500m 2026 notes is the par value of the notes plus any accrued interest, plus the following premia: within the first two years 1.813% plus a make-whole of the present value of interest that would otherwise have been payable in that period; in the third year 1.813%; in the fourth year 0.906%; in the fifth year 0%. The redemption price of the repayment option on the €250m 2028 notes is the par value of the notes plus any accrued interest, plus the following premia: within the first three years 1.875% plus a make-whole of the present value of interest that would otherwise have been payable in that period; in the fourth year 1.875%; in the fifth year 0.938%; in the final two years 0%. These options have 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 fair value of the derivative assets at inception of the first and second tranches of the notes was £4.3m in aggregate. The value of the senior debt liabilities recognised were increased by a corresponding amount at initial recognition, which then reduces to par at maturity using an effective interest rate method. The fair value of the derivative asset at the year end was £9.0m, and therefore an associated non-cash credit was recognised through the income statement for the period of £4.6m. Prepaid legal and professional fees associated with the issue of the new notes totalling £10.8m (1.7% of gross debt raised) is offset against the senior debt liability and is amortised over its life (£0.1m in the year). As a result, as at 3 April 2021 there is a total liability recognised of £622.1m in relation to notes with a par value of £637.7m (€750m).
Additionally, the Group has a variable rate £75m multi-currency revolving credit facility maturing in 2024, which at the year end was undrawn.
Unsecured loans Unsecured loans comprises the £11.9m loan from the BGF maturing in December 2021 and a number of smaller local loans and credit lines utilised by the Group's operating subsidiaries for working capital purposes. During the year a number of additional unsecured loans and facilities were drawn as part of the special treasury measures put in place at the start of the Covid-19 pandemic.
Preferred equity Background and key terms On 30th October 2020 the company entered into an agreement whereby Koch Equity Development, LLC. (via its affiliate KED Victoria Investments, LLC) committed to invest a total of £175m by way of convertible preferred equity to be issued by the Company. As part of this agreement, £75m of preferred equity was issued immediately, on 16 November 2020. A structuring discount of 5% was payable at the outset. The balance of up to £100m can be issued at any time during the following 18 months at the Company's option. A 'ticking' fee of 6% is payable on the unissued commitment during this period, although the Company can ask KED to cancel the commitment at any time. The preferred equity attracts a dividend of 9.35% if cash settled, or 9.85% if Paid In Kind by way of issue of additional preferred shares (such PIK occurring quarterly). Starting in year five, the dividend moves from a fixed rate to a spread over three-month LIBOR. The spread starts at 9.35% and 9.85% (for cash and PIK settlement respectively) and increases by 1% in each subsequent year up to year nine, after which it remains flat.
The preferred equity is a perpetual instrument, albeit the Company can choose to redeem it in cash at any time, subject to a redemption premium. The redemption price of this repayment option is the face value of the preferred shares plus any accrued dividends, plus the following premia: within the first three years 6.0% plus a make-whole of the present value of dividends that would otherwise have accrued in that period; in the fourth year 6.0%; in the fifth year 3.0%; and after the fifth anniversary 0%. There are two scenarios in which mandatory cash redemption of the preferred equity can occur outside of the Company's control, both of which are highly unlikely in management's view: (i) if the Group becomes insolvent (being bankruptcy, placing into receivership or similar events), or (ii) a change in control of the Company where the offer for the ordinary shares is not all-cash and, at the same time, the offeror (on an enlarged pro-forma basis) is deemed to be sub-investment grade. After the sixth anniversary, KED can elect to convert the outstanding preferred equity and PIK'd dividends into ordinary shares, with the conversion price being the prevailing 30 business day VWAP of the Company's ordinary shares.
In the event of a change of control of the Company (for example a tender offer, merger or scheme of arrangement in relation to the ordinary shares of the Company), the terms of the preferred equity envisage three scenarios: (i) where an all-cash offer is made and accepted, the preferred equity and any PIK'd dividends will convert into ordinary shares which are then subject to the same offer price per share made to other shareholders and acquired by the offeror; (ii) where an offer is made and accepted that is not all-cash and the offeror (on an enlarged pro-forma basis) is deemed to be investment grade, the preferred equity and any PIK'd dividends plus a material penalty fee will convert into ordinary shares which are then subject to the same offer price per share made to other shareholders and acquired by the offeror (such penalty fee having the effect of doubling the number of ordinary shares that KED would otherwise receive on conversion that would then be subject to the offer price per share; this being designed to incentivise the offeror to consider agreeing to fund redemption of the preferred equity rather than conversion); and (iii) where an offer is made and accepted that is not all-cash and the offeror (on an enlarged pro-forma basis) is deemed to be sub-investment grade, the preferred equity will be subject to mandatory redemption as described above. Attached to the preferred equity are warrants issued to KED over a maximum of 12.402m ordinary shares. These warrants are only exercisable following the third anniversary (unless the preferred shares have been cash redeemed or there has been a change in control of the Company) at an exercise price of £3.50. The terms include a total maximum return for KED, across both the preferred equity and the warrants, of the greater of 1.73x money multiple or 20% IRR. If this limit is exceeded at the point of exercising the warrants (calculated as if the preferred equity was being redeemed at the same time), then the number of shares receivable on exercise is reduced until the returns equal the limit.
Accounting recognition Whilst the preferred equity is legally structured as an equity instrument through the Company's articles of association and have many equity-like features, they must be accounted for as a financial instrument under IFRS. This primarily relates to the fact that the conversion option is based on the prevailing share price, and therefore it fails the 'fixed-for-fixed' criteria as prescribed in the standard. Based on the terms of the preferred equity, the underlying host instrument was identified alongside a number of embedded derivatives and other associated instruments. Furthermore the embedded derivatives were assessed to identify those that are deemed to be closely-related to the host instrument and those that are not, the latter of which are required to be separately valued in the balance sheet. The underlying host instrument is held at amortised cost and valued into perpetuity on the assumption of PIK'd dividends for the first ten years and then a terminal value assuming cash dividends thereafter. This has been valued using a binomial option pricing model, which uses standard option pricing techniques to calculate the optimal time to exercise the respective options, taking into account the specific contractual details of the instruments and their interconnectedness. The 5% structuring discount is accounted for within this valuation. On this basis it was valued at £69.3m at initial recognition, which is net of £0.9m of prepaid advisory fees. At each reporting date the terminal value is re-assessed based on long-term LIBOR curves and a revised accrued value of the instrument is calculated at that date using an effective interest rate method, with the increase in value taken to the income statement as a financial charge. The value as at the year end was £72.6m. The KED commitment to invest in up to £100m additional preferred equity at Victoria's election was identified as an associated financial instrument. This asset was fair valued at £2.8m at initial recognition and is subsequently amortised over the 18 month period of the commitment, with a value of £2.1m as at the year end. As the terms of the preference shares are fixed, issuance of more of these shares may become advantageous relative to market financing rates in the future. The initial valuation has been determined by calibrating the valuation of the various elements of the financing package to the transaction price. This asset has been netted off against the preferred equity host instrument. Two non closely-related embedded derivatives were identified: i) the Victoria option to cash redeem (rather than the instrument running into perpetuity or conversion, see below) - asset valued at £5.7m at initial recognition, fair valued at each subsequent reporting date through the income statement, with a value of £0.5m as at the year end. This option has been valued based on the contractual redemption terms and the Group's forward assessment of the preferred equity value based on an option pricing model. ii) the KED option to convert into ordinary shares - this was valued at £nil. The model uses standard option pricing techniques to calculate the optimal time to exercise the respective options. As such, the valuation technique assumes that all interest will be accrued and rolled into the preference share balance and that there will be no conversion of the preference shares into ordinary shares due to their coupon and enhanced liquidity preference. As a result, nil value has been attributed to this feature. Finally, the KED ordinary equity warrants have been separately identified. This financial instrument was recognised as a liability of £4.5m at initial recognition and is subsequently fair valued at each reporting date through the income statement, with a value of £6.1m as at the year end. These warrants have been valued using a binomial option pricing model. The model uses standard option pricing techniques to calculate the optimal time to exercise the respective options, taking into account the specific contractual details of the instruments and their interconnectedness.
7. 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 £4,634,000 (2020: £3,877,000), of which £2,350,000 (2020: £2,245,000) relates to the UK schemes. The total contributions outstanding at year-end were £nil (2020: £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 (2020: £136,000) in respect of the Main Scheme and £nil (2020: £nil) 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.

	2021			2020