Spending on expansion has come at the expense of margins for flooring maker Victoria (VCP). The company warned that margins are expected to fall short of consensus expectations by 1 to 1.5 percentage points by the full year, although will be ahead of last year. The board reiterated its stance that spending to increase market share is the “correct strategy” for the company, despite admitting to tough market conditions. Revenue is anticipated to beat expectations, and margins should recover over the next 12 months, management said.
But judging by the share price fall since the announcement, the market may not be so convinced. A significant part of Victoria’s growth strategy has been through acquisition, which harks back to executive chairman Geoff Wilding’s roots in private equity. Costs associated with two of the most recent purchases – European floor manufacturer Keraben Group and tile maker Cerámica Saloni – wiped out statutory profits during the 52 weeks to June, leading to a pre-tax loss of £31.6m. Although synergies have been found between the two acquired businesses, pricing pressure in the market, coupled with spending on a new Italian factory, have hit sales and margins in the hard flooring division.
Sales in the Australian business have fallen 4 per cent, after the company had previously benefited from a strong housing market. Soft flooring fared better, with organic sales growth of 5 per cent, although that was driven by price cuts to boost sales volumes.
