Victoria : 2023 Audited Results Announcement

14 September 2023

Victoria PLC

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

Audited Results

for the year ended 1 April 2023

Record underlying revenue and EBITDA

Confident FY2024 outlook with a sharp increase in earnings and free cash flow expected due to

completion of major integration projects

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, announces its audited results for the year ended 1 April 2023, which are unchanged from the key preliminary unaudited data announced on 15 August and show the Company's tenth consecutive year of revenue and underlying profit growth.

• For the first time in the Company's history, the total volume of flooring sold in FY2023 exceed 200 million square metres (more than 29,500 football fields), generating record revenues of £1.46 billion.
• Solid like-for-like organic revenue growth of 2.8%, despite challenging macro-economic conditions and following very strong like-for-like organic growth of +19.2% in the previous 12 months.
• Underlying EBITDA grew by +20.4% over the prior year to £196.0 million.
• Year-endnet leverage was 3.44x, with the Group's senior debt consisting entirely of fixed rate, covenant-lite bonds falling due in August 2026 and March 2028.
• A resilient balance sheet, with cash and undrawn credit lines at the year-end in excess of £250 million.

• FY2023's focus on the successful integration of acquisitions has resulted in the projects' completion this month. The outcome is anticipated to conservatively deliver a £20+ million per annum increase in EBITDA.
• The Group's integration expenditure (exceptional expenses and capex) of the last three years is coming to an end. Consequently, the Board anticipates free cash flow to increase sharply. For the five-year period FY2015-2019, the Group averaged cash conversion of EBITDA to Net Free Cash Flow of 55%5, which the Board believes is a sustainable, long-term ratio and one management is focused on returning to in the near-term.
• Whilst the Group's FY2024 financial outlook is largely based on steady-state demand and underpinned by the various integration projects, each future 5% increase in overall revenue, which is Victoria's long-run organic growth rate, would be expected to deliver earnings and cash flow growth of more than £25 million per annum.
• The "signs of life" in some geographies noted in earlier market announcements, has continued to be seen - most noticeably in the UK, where we believe the Group is benefitting from the service it offers customers and its mid-high end product positioning and underlying earnings year-to-date are ahead of both budget and the same period last year.

Commenting on FY2024 Outlook and beyond, Geoff Wilding, Executive Chairman, said:

"We expect FY2024 to be a year of two halves, with stronger H2 earnings as the productivity gains from completion of the major integration projects are experienced. Completion of the projects is also expected to result in Victoria's free cash flow increasing sharply from H2 FY2024, with management focussed on returning to our long-run average cash conversion of EBITDA to Net Free Cash Flow of 55%5. Further ahead, FY2025 will see the full integration benefits with an expected uplift in margins driving an additional increase in earnings and free cash flow.

Victoria benefits greatly from being in a long-duration, steady growth industry that will drive compounding organic growth for decades. After making and integrating two-dozen acquisitions over the last 10 years we have now achieved a scale that we anticipate will result in higher productivity, more efficient logistics, wider distribution, and lower input costs than almost all our competitors. Coupling this scale advantage with the underlying sectoral tailwinds will, the Board believes, deliver outsized returns for our shareholders for a very long time."

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.
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.
5. Cash generated afterreplacement capex, interest, and tax as a percentage of EBITDA.

About Victoria PLC (www.victoriaplc.com)

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

Victoria has operations in the UK, Spain, Italy, Belgium, the Netherlands, Germany, Turkey, the USA, and Australia and employs approximately 7,300 people across more than 30 sites. Victoria is Europe's largest carpet manufacturer and the second largest in Australia, as well as the largest manufacturer of underlay in both regions.

The Company's strategy is designed to create value for its shareholders and is focused on consistently increasing earnings and cash flow per share via acquisitions and sustainable organic growth.

Victoria PLC

Chairman and CEO's Review

INTRODUCTION

Victoria's operational management philosophy during FY2023 is probably best encapsulated by Winston Churchill's advice, "When you are going through hell, keep going". Dramatic increases in the cost of raw materials, unprecedented energy prices, labour cost inflation, subdued consumer demand, and international shipping disruption created a testing backdrop against which our management team nevertheless delivered the 10th consecutive year of growth as set out in the table below.

1. 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.
2. Underlying EBITDA in FY20 through FY23 is stated before the impact of IFRS 16 for consistency of comparison with earlier years. IFRS-reported EBITDA for these years are £118m, £127m, £163m, and £196m respectively.
3. The decline in reported %margin was entirely due to the acquisition mix effect; LFL organic margins increased by 0.2%

The objectives of this review are to help our shareholders better understand the business and be able to reach an informed view of the value of the company, its future prospects, and its financial resilience.

To achieve these objectives requires data to be shared in a way that communicates information and this will include both IFRS-compliant and non-IFRS performance measures. The review focuses on the underlying operating results of the business, which delivered underlying EBITDA of £196.0 million (FY2022: £162.8m) and underlying EBIT of £118.8 million (FY2022: £107.9m). The Financial Review covers non-underlying items in detail, following which IFRS reported operating loss was £24.1 million (FY2022: profit £53.6m), and furthermore covers items in the income statement below operating profit (financial items and tax).

Shareholders are of course free to accept or disregard any of this data but we want to ensure that you have access to similar information Victoria's board and management use in making decisions.

FY2023 OPERATIONAL REVIEW

Overview

The global flooring market is c. USD 200 billion1 (GBP 154 billion2), and USD 66 billion (GBP 51 billion) in Victoria's key markets of Europe and the US, with volume growth over the last 25 years of c. 2.6%1 per annum. There are fundamental drivers that sustain this long-term growth and, whilst somewhat subdued demand was experienced in FY2023, this was due to near-term macroeconomic conditions and we remain confident that the natural state of the sector is continued expansion in the regions where Victoria trades.

Before commenting specifically on each of the different operating divisions, there were several Group- wide elements in FY2023 which are worth highlighting.

1. Freedonia Global Flooring Report 2021
2. GBP/USD 1.29

Integration Projects

Integrating and reorganising an acquisition is expensive (especially in Europe where mandated social payments must be made to redundant workers) but necessary to realise the maximum value from acquired businesses. Therefore, with the proviso that the expected return on the investment must exceed our internal hurdle rate, the Group is willing to invest heavily where required, in integrating an acquisition in order to optimise future free cash flow. (To be clear, although the restructuring cash outlay is made post-completion, the quantum of the investment is scoped out prior to making the acquisition and is factored into the purchase price we pay for the business to ensure our targeted return on capital is achieved).

We have had four major projects underway throughout FY2023, all of which are now in their final stages and, when completed, are expected to conservatively result in a £20+ million per annum increase in EBITDA and a significant step down in exceptional capital expenditures:

1. Balta's integration consists of three key projects:
2. 1. The relocation of Balta's carpet manufacturing from Belgium to Victoria's existing UK factories, making full use of the designed capacity. 80% of Balta's carpet is sold in the UK and this move will lower production and transport costs whilst enabling shorter delivery times, thereby improving customer service.
   2. The consolidation of the Balta rug manufacturing operation onto Victoria's large site at
      Sint-Baafs Vijve, Belgium, alongside the relocation of some production to Usak, Turkey, where the Group has two modern rug-making and yarn extrusion factories. These changes will improve efficiency and lower production costs.
   3. The divestment of non-core business and real estate assets acquired with the Balta transaction where the opportunity for synergies with the Group's existing businesses are minimal.
3. Saloni Ceramica. With the investment Victoria has made in production technology in Spain over the last three years, we have been able to close the Saloni factory and consolidate production onto the very large Keraben and Ibero site. This move occurred ahead of schedule and was completed during March 2023. The Saloni brand continues, with the roll-out of high- end showrooms and social media presence supporting a renewed focus on the Architect & Design market.
4. Graniser, Victoria's low-cost Turkish ceramics producer, has two integration projects in progress:
5. 1. Reorganisation and integration with Victoria's Spanish and Italian factories - increasing spare annual production capacity at Graniser to 8 million sqm.
   2. Investment in new printers and packaging lines alongside integration into Victoria's existing ceramics distribution network will increase higher-margin export revenue.
6. Cali Flooring's integration comprises:
7. 1. Access to Victoria's supply chain lowering Cost of Goods Sold (COGS).