Floorcoverings and tiles manufacturer Victoria (LON: VCP) reported a 7.7% increase in like-for-like interim revenues even though the UK and Europe floorcoverings division, which accounts for more than 50% of group revenues, was flat.
The other divisions all grew in double digits and Victoria is increasing its market share. This organic growth was supplemented by acquisitions. In the six months to September 2022, total revenues were 59% ahead at £776m, while operating profit moved from £58.6m to £61.1m. This excludes exceptional items, including a credit because the Balta acquisition was made for below asset value.
The profit was achieved even though the price of the main raw material peaked during the period. The price has eased since then and shipping costs have also reduced. Balta, the most recent floorcoverings acquisition, is being restructured and there will be cost savings. This provides an improved backdrop to the second half. Longer-term, there are efficiency savings from capital investment.
Debt
Acquisitions are not as high a priority as in the past, at least in the short-term. The focus will be generating cash and reducing net debt, which reached £651.5m mainly due to acquisitions and capital spending to improve efficiency. There are also higher inventories so that supply is not disrupted. If no acquisitions are made, then the net debt could reduce by around £100m a year.
Peel Hunt has trimmed its full year pre-tax profit forecast from £78.3m to £73.3m because of higher interest rates. The share price slipped 7.8% to 414p, which means that the prospective multiple is nine.
The share price has fallen by nearly two-thirds, so far this year. Concerns about consumer spending and the high debt level appear to be major reasons behind the decline. Victoria has shown itself to be capable of riding out difficult market conditions and it has strong positions in its main markets.
