VCP Capital Markets Day Presentation - Victoria Plc
Objective: to create wealth forshareholdersCapital Markets Day: Westex25 January 2017Geoff Wilding, Executive ChairmanMike Scott, Group Finance Director
VICTORIA PLC’S WEALTH CREATION STRATEGYSCALETHROUGHACQUISITIONSSYNERGIES- GROWMARGINS8% 12%HIGH FREECASH –POTENTIALFOR FUTUREDIVIDENDYIELD2
SCALE via ACQUISITIONS Flooring is a HUGE market – every building has at least one floor Consolidator in a highly-fragmented, inefficient industry Massive global market US 325bn – 19.4bn sqm - in 2018 (Freedonia Market Research) 73bn – 4.7bn sqm - in Western Europe (including the UK) 250 UK and European flooring manufacturers ‘in frame’Many retiring owners with no succession planningToo small for IPO, aging trade buyers not interested, slow growth overlooked by PEVCP perceived as ideal buyer – one of only a few buyersHighly selective acquisitions Competitive advantage (channels, distribution, product)GrowingSustainable, above average marginsCommitted managementBroad distribution channelsModern plantFair price3
SYNERGIES – use scale to drive margins Customer-facing (design, branding, sales, marketing) retains independence Benefits: Product and brand differentiation Customer responsiveness Manageable size Operational (procurement, production, logistics, IT) integration drives‘hard’ synergies Benefits: Lower raw material inputs SKU reduction These are broadly in order ofease / timing Significant progress on the firsttwo; have started on the thirdand fourth Manufacturing efficiency to beaddressed Logistics Improved financial reporting / controls Manufacturing efficiency Commercial synergies (bundling of underlay with carpet, product cross-selling) Benefits: Sales growth SKU reduction44
FREE CASH FLOW POTENTIAL FOR FUTURE DIVIDEND YIELD Warren Buffet acquired Shaw Industries (world’s 2nd largest carpet manufacturer)for its free cash flow Victoria PLC Operating cash flow: before interest and tax: 32.8 million (full year FY16)Free cash flow before exceptional items: 17.2 million (full year FY16) High cash conversion Plant longevityPlant relatively inexpensiveConsolidate production capability increased utilisationProduct rationalisation (SKU reduction, increased stock turn) Benefit Rapid debt reduction during acquisition phaseHigh dividend yield once ‘steady state’5
SO HOW ARE WE DOING?TRACK RECORD – CONSISTENT GROWTHRevenue ( m)EBITDA ( 18358.7Earnings Per Share 74.1(2.2)FY1716.924.228.549.6EBITDA Margin 612.6%FY1713.6%FY1813.8%Notes1.2.3.4.EBITDA and EPS shown before exceptional and non-underlying itemsEPS shown as basic, adjusted. Historical figures adjusted for five for one share split effective 12 September 2016EPS figures for FY13 and FY14 are as reported and do not reflect the change in accounting policy on sampling expenditure effected in theyear ended 2 April 2016FY17 and FY18 forecast figures represent consensus market estimates EXCLUDING additional acquisitions6
OUTLOOK Brexit impactRevenue driversStrength in a recessionCompetitive strengths
BREXIT NET POSITIVE FOR VICTORIA 60% of carpet sold in the UK is imported. Weaker GBP makes importedproduct materially more expensive Less than 20% of our UK cost base is in EUR or USD. So currency fluctuationshave limited impact European competitors have increased prices 5-7% Australia, which represents circa 30% of Group earnings, is operationally andcommercially independent. Translational gains in GBP8
REVENUE DRIVERS Steady market in the UK ( 3.5% lfl H1 17)
6 River & Mercantile Asset Mgt 2,707,410 2.98 7 JPMorgan Asset Mgt 2,326,525 2.56 8 Shore Capital Stockbrokers 1,829,275 2.01 9 Hargreaves Lansdown Asset Mgt 1,760,370 1.94 10 Mr Charles A
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