Victoria reports continued softness in flooring demand

15th Oct 2024 11:10

(Sharecast News) - Victoria reported continued softness in flooring demand across its markets in its first half on Tuesday.

The AIM-traded company said it expected to report revenue of about £580m and underlying EBITDA of £50m for the six months ended 1 October.

It said that performance mirrored the challenging conditions seen in the latter half of the 2024 financial year, where demand was 20% to 25% lower than 2019 levels due to broader macroeconomic factors.

However, Victoria said it had generally outperformed the market, particularly in the UK, as its management anticipated improved trading in the second half of the year due to strategic actions taken to optimise costs and a slight uptick in demand.

Despite the industry-wide downturn affecting margins, Victoria said it had maintained stable pricing.

Management said it had been focusing on cost-saving initiatives that would position the company for margin recovery as demand improved.

Key actions included the integration of Balta's UK carpet business, delivering savings in rent, logistics, and personnel, and optimising production capacity by relocating operations from Belgium to Turkey, with further savings expected in the 2026 financial year.

Additionally, the company said it had introduced a group-wide procurement team to drive cost efficiencies, which was projected to enhance earnings by £5m for every 1% reduction in purchasing costs.

Victoria said it was also investing in a major reorganisation of its ceramics production, aiming to optimise its Spanish factories.

The long-term project was expected to deliver full benefits by 2027, with projected earnings improvements of £16m to £19m.

Victoria said it remained financially robust, with over £200m in available liquidity, including cash on hand and undrawn credit lines.

The company said it had appointed Lazard as debt advisers and Latham & Watkins as legal advisers to assist in refinancing its senior secured notes, the first tranche of which was due in August 2026.

Further updates on refinancing plans would be provided as appropriate, the board said.

"The flooring sector is experiencing the most severe and longest decline in demand in the last 30 years," said chief executive officer Philippe Hamers.

"During this period, we have focussed on optimising productivity and reducing operational costs whilst maintaining the same potential production capacity.

"These actions will have a very material positive impact on earnings and cash flow as demand normalises with the anticipated improvement in the macro-economic environment and increase in housing transactions, a key driver of demand."

Hamers said the recovery was continuing to "draw closer", although added that it was difficult to pinpoint precisely when it would start.

"However, we remain prepared for growth when the time arrives, which will be delivered without any significant capex spend."

At 1044 BST, shares in Victoria were down 6.6% at 119.37p.

Reporting by Josh White for Sharecast.com.