Victoria PLC, the international designers, manufacturers, and distributors of flooring, has reported a “soft” market with half year sales expected to be close to £600m.
According to its latest trading update for the six-month period ended 1 October 2024, H1 revenue is expected to be circa £580m and Underlying EBITDA expected to be circa. £50m, which is a continuation of the lower demand environment experienced in H2 FY2024 (£64.9m).
“The wider market is witnessing an estimated 20-25% decrease in demand versus 2019 levels, although the Company has generally outperformed the market and continued to improve its competitive position – particularly in the UK,” the group said.
“The Board expects H2 trading to be stronger as a result of the actions taken by management alongside a small improvement in demand, although earnings are likely to be below consensus expectations.
“Whilst industry-wide low demand is impacting margins due to operational leverage, pricing remains stable and management is taking actions to optimise the cost base and this will drive better margin results when demand recovers.
“There has been no fundamental change to the flooring industry, which has a very long track record of consistent growth, and the low demand presently being experienced is due to broad macro-economic factors.”
The group added that its is “encouraged” by recent positive data in its end markets, with housing transactions a key driver of demand and in the last quarter saw an increase in mortgage approvals, rising house prices, and lower interest rates in its key markets. Furthermore, as incomes have caught up with inflation, alongside lower mortgage expenses, consumer discretionary spending is also likely to increase, which also drives flooring sales.
In relation to its management actions, the full integration of Balta’s UK carpet business during H1 allowed the company to recently merge the brands of Balta & Carpet Line Direct and Victoria & Hugh Mackay, and separately consolidate its underlay operations with immediate savings in rent, logistics, and personnel totalling c.£5m per annum.
Furthermore, optimising the synergy gains from the completed relocation of production capacity from Belgium to Turkey alongside cost-cutting in Belgium, it is expected to generate an additional €6.1m per annum in savings, which will be seen in FY2026, while it has also integrated procurement. For the first time Victoria has had, since July, a Group-wide procurement team responsible for approximately £500m of purchasing – raw materials, logistics, and finished goods for resale.
Each 1% cost saving delivers c. £5m annually of increased earnings and meaningful savings have already been secured, although the full impact is heavily weighted to FY2026. The group said that these actions are expected to drive a £25m increase in Victoria’s earnings, supporting EBITDA margin expansion back towards the Group’s historical levels of mid-high teens.
Chief Executive, Philippe Hamers, said: “The flooring sector is experiencing the most severe and longest decline in demand in the last 30 years. 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.
“Clearly the recovery continues to draw closer, although it is difficult to pinpoint precisely when it will begin. However, we remain prepared for growth when the time arrives, which will be delivered without any significant capex spend.”
