Victoria sees some positive signs in subdued market

13th Mar 2024 11:58

(Sharecast News) - Flooring company Victoria said in a trading update on Wednesday that, despite ongoing challenges in the market, it was seeing signs of improvement in the medium-term macroeconomic outlook, particularly in flooring demand indicators.

The AIM-traded firm said current trading conditions remained consistent with previous updates, however, with overall market demand down around 20%.

European markets were still experiencing soft consumer demand, while the UK and Australia maintained stable but subdued conditions.

Conversely, there had been a recent uptick in demand in the United States.

The company anticipated that revenue for the 2024 financial year would be slightly lower compared to the prior year, aligning with market expectations.

Similarly, underlying EBITDA was expected to be below the levels achieved in the prior year, estimated at about £160m.

Despite the challenges, Victoria said it had made significant progress in various reorganisation and integration projects, resulting in permanent overhead reductions and productivity gains.

Victoria said it was committed to its deleveraging strategy, aiming to reduce debt levels despite near-term earnings impacts.

The company had been steadily repurchasing its 2026 senior secured notes, with a target of acquiring €25m.

Additionally, progress had been made in selling non-core assets, with net proceeds already received and further proceeds anticipated.

The company said it expected to generate additional cash inflows from improved inventory management, contributing to its de-leveraging efforts.

In line with its capital allocation policy, Victoria said it intended to invest up to £25m in repurchasing its shares.

The board said the decision reflected its belief that the current share price was undervalued compared to the company's intrinsic value.

While it was not the beginning of a formal capital return programme, the board said it viewed the share purchases as opportunistic and aligned with the goal of creating shareholder wealth.

The buyback programme would be subject to certain conditions, and would prioritise maintaining the company's cash position and liquidity.

"It has been a busy 18 months for the operational management teams with execution of various synergy projects," said group chief executive Philippe Hamers.

"These include the relocation of Balta's carpet manufacturing and logistics to the group's existing UK facilities, relocating much of Balta's rug production to a newly expanded factory in lower-cost Turkey, and introducing new IT systems to improve operational decision-making and financial reporting.

"We have also initiated a project for the full integration of ceramics production to optimise productivity, and acquired new warehouse and distribution facilities in the US to improve customer service, improving inventory management, and consolidation of raw material procurement."

Hamers said those actions, some of which had been extended and remained ongoing, allowed production capacity to be maintained with 1,170 fewer employees, or a 16% reduction.

"Therefore, as volume demand normalises with improving consumer confidence, the synergies are anticipated to increase group EBITDA margins by 250 to 350 basis points, alongside lower capex, and a more competitive market position due to better customer service levels, lower pricing, and wider distribution.

"I am confident, therefore, that Victoria will experience faster growth than the wider market as demand returns."

At 1139 GMT, shares in Victoria were down 7.38% at 226p.

Reporting by Josh White for Sharecast.com.