Victoria Regulatory News (VCP)

31 July 2013

Victoria PLC

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

Preliminary Results

for the year ended 30 March 2013

Focussed on reducing costs and improving cash position

Victoria PLC, a manufacturer, supplier and distributor of design-led carpets and other floorcoverings, is pleased to announce full year results for the year ended 30 March 2013.

Financial Highlights

Operational Highlights

·; Australian business remains competitive in a very tough market, with full year revenue at A$66.14m down 7.9% on prior year (A$71.84m)

·; Weak trading in the UK & Ireland resulted in a 7.8% decline in revenue from £30.08m to £27.73m

·; New product ranges launching in the current financial year to address developing market trends

·; New Board have focussed on reducing costs and improving the Company's cash position, through stock reduction and increasing productivity of existing assets

·; Completed move from Main Market to AIM Market of the London Stock Exchange

Geoff Wilding, Chairman of Victoria PLC commented:

"Over the last six months we have focussed on reducing costs and improving the Company's cash position".

"Looking ahead into 2013/14 the Board is actively seeking opportunities to grow Victoria, improve performance, and generate cash for distribution to shareholders."

"Victoria has an excellent brand and we are determined to enhance our position as a manufacturer of the finest quality carpets in both Australasia and the United Kingdom."

- Ends -

For more information contact:

Chairman's Statement

2013 was the year when the chickens came home to roost at Victoria. Over recent years Victoria's financial results have been sustained by overseas profits generated in a buoyant Australian economy. However, with a decline in the Australian market from early 2012, the underlying issues - poor execution of key strategies, failure to address the main issues facing the Company (as summarised in the half year results), and a lack of focus on shareholder value by previous boards and management - were exposed in the financial results for the year ended 30 March 2013:

• Group revenues declined by 8.1% (7.9% in constant currency terms) from £77.13m to £70.91m

• Group operating profit before exceptional items fell from £2.67m to a loss of £0.42m

• Group profit before tax and exceptional items decreased from £2.21m to a loss of £0.89m

• After exceptional items, the Group recorded a loss before tax of £3.52m, compared with a £1.55m profit before tax in the prior year.

So what are the new Board doing to address the situation?

Over the last six months we have focussed on reducing costs and improving the Company's cash position. Actions taken have included the following: 

·; In the UK, we have taken out a substantial amount of overhead (given the size of the business), and the impact of this on earnings will start to be reflected in the new financial year. There are more cost savings available but we need to balance the desire to minimise costs rapidly with the requirement to ensure changes are not made so quickly as to be disruptive to the functioning of the business.

·; In Australia, the Company's two spinning mills have gone through a period of rationalisation. Earlier in the year, capacity was reduced in response to the shift away from wool to synthetic carpets. Redundancies and costs associated with this move totalled c£0.9m. However, the new Board did not believe this restructuring went far enough as neither mill was operating at full capacity and early in the new financial year the two mills were consolidated on to one site at Bendigo. Although this will cost approximately £0.6m, the move will reduce our yarn conversion costs (the expense of turning wool into yarn capable of being made into carpet), and will help our Australian business remain competitive in what has become a very tough market.

·; Excessive stock levels have been reduced in both the UK and Australia, but there is more progress to be made. Although the disposal of excess stock (some of which was out of fashion or not of perfect quality) impacted on gross margins, its sale helped reduce the Company's debt and, in the UK, allowed the closure of an external warehouse that had been rented in Kidderminster saving c£0.1m in annual running costs).

·; Debt has been reduced. As at 4 October 2012, when the new Board was elected to the Company, UK debt was £9.59m and Group debt stood at £8.87m. Despite having to meet substantial restructuring and exceptional costs, at year end UK debt had been reduced to £8.00m and Group debt to £7.51m.

·; The carrying value of some assets has been written down to more accurately reflect their market value. This has had no impact on the Company's cash position and should give shareholders some comfort as to the strength of the Company's balance sheet.

These steps have not been without some pain - reflected in the exceptional items - but were essential for future value creation. Further progress is needed (and the drive to minimise costs never ends) but the Board believes a satisfactory start has been made.

Looking ahead into 2013/14 the Board is actively seeking opportunities to grow Victoria, improve performance, and generate cash for distribution to shareholders. These are not mutually exclusive objectives and early indications of the impact the changes have made are encouraging. The Board was fortunate in finding some really talented and committed people at Victoria and it has certainly made our job easier having some people that can be relied upon to deliver on their promises.

Finally, it is important to note that Victoria remains well regarded by its customers and it continues to manufacture a high quality product. Victoria's carpets are in Buckingham Palace, Balmoral Castle, and several other Royal residences. It made the carpet that graced Westminster Abbey for the Royal Wedding a couple of years ago. These are fantastic achievements - we make some of the finest carpets in the world - and, earlier this year, Victoria was granted a Royal Warrant to Her Majesty The Queen.

The whole Company is now working to turn that success into financial success and wealth creation for shareholders.

Dividend

The Board declares a final dividend of 6.00p per share (2012: 7.00p), which, subject to shareholder approval, will be paid on 3 October 2013 to members on the Register at the close of business on 6 September 2013.

Geoffrey Wilding

Executive Chairman

30 July 2013

Operating and Financial Review

Operating Review

United Kingdom & Ireland

Tough market conditions and economic uncertainty both in the UK and the Eurozone has continued to have a detrimental effect on consumer confidence and discretionary spend on 'big ticket' items including carpet. Consequentially UK & Ireland experienced a 7.8% decline in revenue from £30.08m to £27.73m.

With wage growth lagging behind inflation rates, consumers' disposable income continues to be squeezed and, as a result, we are seeing a market trend towards less expensive products. Victoria will be launching a number of product ranges in the current financial year to address this market trend.

Gross margins were impacted in the period by the stock rationalisation in the second half of the year. Underlying margins (after adjusting for the stock rationalisation) showed a slight improvement on the prior year, reflecting some easing in wool prices.

A number of operational initiatives were identified by the new Board in the second half that will result in substantial cost savings and the full benefits will flow into future financial periods.

As a result of the above, the UK & Ireland recorded a loss before tax and exceptional items of £2.03m. This result is unacceptable but Victoria management are confident the actions already taken and plans in place will address this.

Australia

The Australian economy is being impacted by the decline in the key resources sector as a direct result of slowing growth in China. The tough market conditions flagged at the half year have continued through the second half and are the most difficult faced by local manufacturers for 25 years.

The major factors affecting the business are;

- Reduced residential and commercial construction activity;

- Lower real estate sale activity levels;

- Increased import competition on the back of the strong Australian dollar;

- Consumer trend away from wool to synthetics; and

- Competition eroding producer margins in an overall weak market.

Consumers remain cautious about personal debt levels and household savings levels continue to rise despite lower interest rates. Expectations are that this trend will continue and the improvement in household balance sheets certainly provides a solid foundation for a revival in the building and construction sector in Australia. There are some early signs that residential building activity and property clearance rates are improving which should provide some momentum into the calendar year of 2014.

The rate of decline in revenue on the previous year slowed in the second half with the second half revenue down 4.2% on the same period last year, whilst full year revenue at A$66.14m was down 7.9% on the prior year (A$71.84m). Intense competition has impacted margins through compressed selling prices.

With demand for 'softer handle' products on the rise our new range of synthetic products, such as EverSoft®, continues to bring success and improve our share of that market.

Similarly we have produced some encouraging results with our range of tile products and see further opportunities ahead.

With tight and effective stock control, we have been able to reduce inventory levels by A$2.46m (-10.7%) against prior year. The Australian business continues to generate good cash flows and was effectively debt free at year end.

Canada

Revenue in our Canadian associate company, Colin Campbell, was up by 5.5% from C$7.62m to C$8.04m with growth underpinned by relatively strong commercial contract sales. The company recorded a pre-tax profit of C$0.29m compared to C$0.31m in the comparative period last year.

Outlook

United Kingdom & Ireland

We anticipate economic and market conditions to remain difficult in the short to medium term as household incomes continue to get squeezed.

On a more positive note, one of the key drivers of carpet sales is house sales resulting in new buyers redecorating and we are encouraged by recent reports that housing sales are increasing.

We see the UK well positioned to significantly improve its performance in the new financial year and will be focussing on the cost reduction initiatives discussed elsewhere, together with the active management of the business.

Australia

Given the current performance and state of the Australian economy, we continue to see a difficult trading environment in the short term. The low interest rates and potential softening of the Australian Dollar are, however, likely to lead to an increase in building and construction activity providing uplift for the sector and our business.

We remain focussed on developing new and innovative products, reviewing all costs to ensure we are competitive and prudently managing working capital to position ourselves for an improved operating environment.

Summary

Victoria has an excellent brand and we are determined to enhance our position as a manufacturer of the finest quality carpets in both Australasia and the United Kingdom.

Financial Review

The Group's financial performance for the year ended 30 March 2013 is summarised as follows:

Revenue and profitability have been described in detail in the Operating Review above.

Exceptional Items

The exceptional charge for 2013 is made up of the following items:

Some restructuring of the two Australian spinning mills was undertaken in April 2012 as a result of declining demand for woollen yarns. With the trend away from wool to synthetic carpets continuing, the decision was taken to close the smaller of the two mills and relocate key equipment to improve efficiencies at the larger mill. As a result, further exceptional costs will be incurred in the new financial year to consolidate the two sites.

The Company's shares were transferred from the Official List to the AIM market of the London Stock Exchange on 17 January 2013.

The incentive plan costs relate to a proposed remuneration scheme that was subsequently withdrawn and a Contract for Difference between the Company and Mr G Wilding which received shareholder approval in the year. The contract was entered into in April 2013 and set up to establish a direct link between the remuneration of Mr G Wilding and the creation of value for all shareholders.

General Meeting costs in 2013 relate to expenses incurred in holding the General Meeting on 3 October 2012 (that resulted in changes to the Board composition) and expenditure by the previous Board in their unsuccessful attempts to generate shareholder support.

The write off of certain intangible assets principally relates to the intangible asset recognised on acquisition of certain assets of C&H Distribution in September 2011 and was in respect to the customer list, brand name and an exclusive supplier agreement. The asset was written off in the period on the basis that the C&H brand and products have largely been replaced by the launch of our own Victoria Luxury Flooring ('VLF') branded products.

The Board has reviewed its investment in the Canadian associate company Colin Campbell & Sons Limited, and that assessment has resulted in impairment in value of the investment held.

Taxation

The tax credit in the year was £0.74m (2012: tax charge of £0.46m), equivalent to an effective tax rate of 21.0%. The tax credit is lower than the current UK standard rate of 24% primarily due to the tax effect of permanently disallowable items, the effect of bringing in our share of the Canadian associate after tax and the effect of a different standard tax rate in Australia.

Cash Flow and Debt

The Group recorded strong operating cash flows in the period (before exceptional items) relative to EBITDA (before exceptional items), driven by reduced working capital levels. The Group has focussed on reducing inventory levels and at year-end inventory was £5.10m below prior year at £20.87m.

Capital expenditure remained relatively modest at £0.75m (2012: £1.38m) and significantly below depreciation levels. The Group remains well invested with modern plant and equipment and capital expenditure levels are expected to remain at a relatively low level in the new financial period.

Net debt levels reduced slightly to £7.51m (2012: £7.75m) and headroom against current facilities is at a comfortable level.

A refinancing of the Group's UK facilities occurred in July 2012 which converted the majority of UK borrowings from short term overdraft to a committed three year revolving credit facility expiring in July 2015. The facilities are subject to financial covenants measured against Group results and at 30 March 2013 all lending covenants were satisfied.

Future funding

The Group's renewal of banking facilities was completed in June 2012 in Australia and facilities were renegotiated in the UK in July 2012. Australia facilities are due for renewal in September 2013 and there are no problems anticipated on renewal given Australia's current cash position. The current facilities across the Group provide sufficient capacity in Australian Dollars, Sterling and Euros to cover all anticipated capital expenditure and working capital requirements in the year ahead.

Going concern

The consolidated financial statements have been prepared on a going concern basis. The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's Statement and this Operating and Financial Review.

Having reviewed the Group's budgets, projections and funding requirements, and taking account of reasonable possible changes in trading performance, the Directors believe they have reasonable grounds for stating that the Group has adequate resources to continue in operational existence for the foreseeable future.

The Directors are of the view that the Group is well placed to manage its business risks despite the difficult economic and market conditions. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Accounting standards

The financial information in this announcement has been produced in accordance with International Financial Reporting Standards (IFRS), as endorsed and adopted for use in the EU. There have been no changes to IFRS this year that have a material impact on the Group's results. There have been no changes in the accounting policies of the Group and its subsidiaries this year.

Key performance indicators (KPIs)

The KPIs monitored by the Group Board are set out in the table below.

* Earnings before interest, tax, depreciation, amortisation and exceptional items

Principal risks and uncertainties

The principal risks facing the business are set out as follows:

Competition

The Group companies operate in mature and highly competitive markets, resulting in pressure on pricing and margins. Management regularly review competitor activity to devise strategies to protect the Group's position as far as possible.

Global economic conditions

The operating and financial performance of the Group is influenced by economic conditions in the geographic areas it operates, particularly the UK, Eurozone, Australia and the USA. The Group is managing the current downturn in our markets through operational efficiency improvements, cost reductions and product development to better align operations with current market conditions.

Key input prices

Material adverse changes in certain raw material prices, in particular wool prices, could affect the Group's profitability. These prices are closely monitored and forward contracts placed to help manage shorter term volatility.

Fluctuations in currency exchange rates

A significant amount of the Group's purchases are made in US Dollars and Euros and therefore the Group is exposed to foreign currency fluctuations. The Group manages this risk through the use of forward contracts where appropriate.

Geoffrey Wilding

Chairman

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated and Company Balance Sheets

Consolidated statement of Changes in Equity

Company Statement of Changes in Equity

Consolidated and Company Statement of Cash Flows