Flooring maker Victoria (VCP) has announced that cash profits for the year to March 2019 will be around a tenth below previous market consensus expectations, due to challenging market conditions, increased volumes of low-margin products and a substantial rise in raw material prices.
The announcement comes at a difficult time for the group. In October, its strategy of aggressive expansion led management to warn that margins for the year would fall short of expectations. Then in November, it cancelled plans to issue a €450m (£394m) senior secured note when indicative terms looked set to be higher than expected.
Management now estimates that adjusted cash profits will be in the region of £95m-£97m for 2019, a 35-39 per cent increase on last year’s level of £64.7m. However, the announcement precipitated the latest in a series of downward revisions to analyst forecasts. In early September last year, joint house broker Berenberg was forecasting profits of £115m for the financial year, which fell to £108m at the end of November and £95m this week.
Executive chairman Geoff Wilding said group like-for-like revenues had continued to grow in spite of weakness in the UK and Australia markets. The group has been pushing the sale of lower-margin products in a bid to capitalise on market weakness and capture market share. That appears to be working - Mr Wilding said the share of the UK market had grown to 17 per cent, from 14 per cent this time last year.
Management has been stripping out costs to improve margins, integrating factories for its Keraben and Saloni businesses in Spain and improving logistics in the UK. Berenberg is forecasting a cash profit margin of 16 per cent, an increase on 2018’s 15.2 per cent, but below the 18.1 per cent previously expected.
Management is also discussing options for refinancing, following the cancellation of its bond in November. It said it was looking at “a number of attractive options” and expects to be able to give further detail soon. It has 18 months to run on its current facility.
