Victoria : Annual Report and Accounts 2024

Annual Report and Accounts

for the 52 weeks ended 30 March 2024

www.victoriaplc.com

stock code: VCP

WELCOME TO VICTORIA PLC

Victoria is a designer, manufacturer and distributor of innovative flooring products.

GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS

BY APPOINTMENT TO

HER MAJESTY THE QUEEN CARPET MANUFACTURERS VICTORIA CARPETS LTD KIDDERMINSTER

UNDERLYING REVENUE (£m)	UNDERLYING OPERATING PROFIT (£m)1
24					24
1,256.5				73.6
23	1,461.4		23	118.8
22	1,019.8					22	107.9
21	662.3						21	79.8
IFRS REPORTED OPERATING PROFIT / (LOSS) £m	ADJUSTED NET DEBT / EBITDA2
24	(51.8)
					24					4.4x
23	(24.1)
					23		3.4x
22	53.6
	22	2.7x
21	45.9				21	3.1x

• Execution of the integration projects has continued at pace with the resulting productivity gains and cost savings protecting the Group's underlying EBITDA margin, which fell by less than 100bps despite revenue falling by nearly 14%.
• Completion of the UK & Europe broadloom carpet integration resulted in a margin improvement of 370bps leading to underlying EBITDA for the division to increase by 23.8% to £82.8 million despite lower volumes - underlining the success of Victoria's Balta integration project.
• Management remains focussed on completing the integration projects which are expected to deliver a structural improvement in the Company's operating margins of 250-350 bps.
• Production capacity has been maintained alongside the 16% (1,170 person) reduction in employees enabled by the integration and reorganisation of the Group's business units, ensuring normalised demand can be met when it returns.
• The Group boasts a strong liquidity position with cash and undrawn credit lines in excess of £250 million.
• Almost all debt financing takes the form of Senior Notes, which have no financial maintenance covenants. Although the earliest tranche is not due for repayment until August 2026, the Board has started working on refinancing options to allow adequate time to optimise the terms of the replacement funding and management remain focussed on reducing Group leverage ratio ahead of the refinancing.
• Through the course of FY2024 Grant Thornton continued their work on addressing the concerns expressed in their FY2023 report in relation to Hanover Flooring Limited, a small subsidiary contributing 1.25% of Group revenue. These extensive additional procedures evidenced that there was no financial misconduct and all payments due to Victoria have been received, no money is unaccounted for, and Victoria has suffered no loss. Consequently, the auditors have confirmed in the FY2024 Audit Report that their concerns have been appropriately satisfied.
• The Board are confident that, notwithstanding near-term challenging macro-economic conditions, all businesses benefit from strong economic fundamentals, and skilled and dedicated management are well placed as demand normalises.

1. underlying and before exceptional and non-underlying items
2. applying our lending banks' measure of financial leverage

Read the Victoria snapshot on pages 02 and 03

Victoria PLC Annual Report and Accounts 2024

Stock Code: VCP

OUR MISSION STATEMENT

TO CREATE WEALTH FOR OUR SHAREHOLDERS

Read the Financial review on pages 16 to 26

Visit our corporate website www.victoriaplc.com

Business and Performance

CONTENTS

Business and Performance

Group financial and operational	IFC
highlights
A snapshot of Victoria PLC	02
Chairman and CEO review	04
Strategic report	12
Financial review	16
Environmental, Social and Governance	27
Report

Our Governance

Board of Directors	50
Directors' report	51
Statement of Directors' responsibilities	56

Our Financials

Independent auditor's report	57
Consolidated income statement	72
Consolidated statement	73
of comprehensive income
Consolidated and Company	74
balance sheets
Consolidated and Company	75
statements of changes in equity
Consolidated and Company	76
statements of cash flows
Significant accounting policies	77
Notes to the accounts	90

Other Information

Shareholder information	149
Registered offices of subsidiaries	150
Glossary	152
Appendix	153

www.victoriaplc.com

01

A Snapshot of Victoria PLC

OVERVIEW

The Group designs, manufactures and distributes a wide range of carpets, ceramic tiles, underlay, LVT (luxury vinyl tile), artificial grass and flooring accessories.

UNDERLYING REVENUE		OPERATING PROFIT		EMPLOYEES
UK & Europe Soft Flooring	50.6%	UK & Europe Soft Flooring	42.3%	UK & Europe Soft Flooring	57.0%
UK & Europe Ceramic Tiles	27.9%	UK & Europe Ceramic Tiles	38.8%	UK & Europe Ceramic Tiles	32.4%
Australia	8.5%	Australia	10.6%	Australia	5.9%
North America	13.0%	North America	8.3%	North America	4.7%

UK & EUROPE SOFT FLOORING

Underlying Revenue

£636.2m

Employees

3,592

m2 flooring sold

90.4m

m2 underlay sold

42.0m

UK & EUROPE CERAMIC TILES

Underlying Revenue

£350.9m

Employees

2,046

m2 flooring sold

43.6m

AUSTRALIA

Underlying Revenue

£106.1m

Employees

370

m2 flooring sold

8.0m

m2 underlay sold

14.3m

NORTH AMERICA

Underlying Revenue

£163.3m

Employees

299

m2 flooring sold

7.1m

02

Victoria PLC Annual Report and Accounts 2024

Stock Code: VCP

Business and Performance

LOCATION OF OPERATIONS

The Group has operations in the UK, Europe, Turkey, the USA and Australia, employing approximately 6,300 people at more than 30 sites.

UNITED KINGDOM

Dumfries,

Hartlepool,

Dumfries & Galloway

County Durham

Accessories production

Sales & marketing

Distribution

Distribution

Keighley,

Dewsbury,

West Yorkshire

West Yorkshire

Underlay production

Carpet production

Sales & marketing

Sales & marketing

Distribution

Distribution

Worcester,

Worcestershire

Head Office

Rossendale,

Distribution

Lancashire

Underlay production

Sales & marketing

Distribution

Newport,

South Wales

Carpet production
		Hemel Hempstead,
Sales & marketing
		Hertfordshire
Distribution	Kidderminster,
Distribution
	West Midlands
	Sales & marketing

EUROPE

OSS,

Genemuiden, Netherlands

Netherlands

Artificial grass

Sales & marketing

Manufacturing

Distribution

Uden, Netherlands

Waregem,

Sales & marketing

Aalten, Netherlands

Belgium

Sales & marketing

Carpet and Rugs

Manufacturing

Ronse,

Rahden,

Germany

Izmir, Turkey

Belgium

Artificial grass

Ceramics production

Sales & marketing

Manufacturing

Usak, Turkey

Rugs Manufacturing

Castellon, Spain		Sassuolo, Italy		Alfonsine, Italy
Ceramics production	Ceramics production	Ceramics production
Sales & marketing	Sales & marketing	Sales & marketing
Distribution	Distribution	Distribution

AUSTRALIA

Sydney

Underlay production

Sales & marketing

Distribution

Melbourne

Carpet production

Sales & marketing

Distribution

NORTH AMERICA

Los Angeles, California

Atlanta, Georgia

Distribution

Rugs distribution

San Diego, California		Palm City, Florida
LVT & Wood Flooring		Ceramic Tiles & LVT Flooring
Sales & Marketing		Sales & Marketing
Distribution		Distribution

www.victoriaplc.com

03

Chairman and CEO's Review

INTRODUCTION

Last year, flooring demand fell more than we expected, impacting revenue and margins.

Why did this happen? Firstly, let us assure shareholders it is not because, after 129 years, Victoria has suddenly forgotten how to competitively manufacture and sell flooring. In fact, the contrary is true and we are pleased to confirm that the Group outperformed the wider market in several of its key geographies. (More on this later in the report). Nevertheless, two macro- factors combined to create a perfect storm in terms of consumer demand for flooring:

1. Pull-forwardof demand in FY2021 and FY2022. Consumers understandably invested heavily in their homes during Covid-19 lockdowns and the normal repair/replacement/improvement ("RMI") cycle was accelerated. The magnitude of this effect varied across geographies, but long-term industry data suggests the 'excess consumption' in 2021/22 has now been largely offset by the abnormally low consumption of the last two years.
2. Macro-economicenvironment depressing consumer discretionary spending. Central banks increasing interest rates to levels not seen in a generation, inflation driving higher prices for essentials, and less perceived job security led to lower consumer confidence over the last 24 months and therefore less spending on discretionary items such as flooring.

Consequently, FY2024 was the first year of negative revenue and earnings growth for more than 10 years.

	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24
Revenue
(£ million)	71.4	127.0	255.2	330.4	417.5	566.8	621.5	662.3	1,019.8	1,461.4	1,256.5
Underlying
EBITDA1,2
(£ million)	5.1	15.8	32.3	45.7	64.7	96.3	107.2	112.0	143.5	171.3	129.6
EBITDA
margin %	7.2	12.4	12.7	13.8	15.5	17.0	17.2	16.9	14.1	11.7	10.3

1. The KPIs in the table above are alternative performance measures used by management along with other figures to measure performance. Full financial commentary is provided in the Financial Review below and the 'alternative performance measures' are reconciled to IFRS-compliant measures in the appendix to this Annual Report.
2. Underlying EBITDA in FY20 through FY24 is stated before the impact of IFRS 16 for consistency of comparison with earlier years. IFRS-reported EBITDA for these years are £118m, £127m, £163m, £196m, and £161m respectively.

04

Victoria PLC Annual Report and Accounts 2024

Stock Code: VCP

The objectives of this report are to help our shareholders better understand the business and be able to reach

an informed view of the value of the Company, its future prospects, and its financial resilience.

In order to communicate this information, we include both IFRS and non-IFRS performance measures. The review focuses on the underlying operating results of the business, which delivered underlying EBITDA of £160.7 million (FY2023: £196.0m) and underlying EBIT of £73.6 million (FY2023: £118.8m). The Financial Review covers non-underlying items in detail, following which the IFRS reported operating loss was £51.8 million (FY2023: loss £24.1m), and additionally covers financial items and tax.

Shareholders are of course free to accept or disregard any of this data but we want to ensure that you have access to similar information Victoria's Board and management use in making decisions.

FY2024 OPERATIONAL REVIEW Overview

The global flooring market is c. USD 242 billion1 (GBP 186 billion2), and c. USD 60 billion1 (GBP 51 billion2) in Victoria's key markets of Europe and the US, with volume growth over the last 25 years of c. 2.6%1 per annum. There are fundamental drivers that sustain this long-term growth and, whilst demand was somewhat subdued in FY2023, with a further and sharper reduction experienced across the flooring industry in FY2024, this was due to near-term macroeconomic conditions and the natural state of the sector is continued expansion in the regions where Victoria trades.

These long-term fundamental industry drivers include continually ageing housing stock with interiors requiring repair and renovation, higher household formation, broad housing shortages, and increasingly style- conscious consumers. All these factors have continued to apply throughout the extended period of high inflation and high interest rates and, as has

Business and Performance

happened in previous cycles, we therefore believe demand will rebound as our markets experience a more favourable interest rate environment.

Given this backdrop, management's focus throughout FY2024 was

on completing the integration/ reorganisation projects described in previous reports to shareholders to ensure the Group is well-positioned to benefit from the inevitable demand recovery. We expect these actions, which have maintained production capacity despite a 16% (1,170 person) reduction in employees, to deliver a structural improvement in the Company's operating margins of 250- 350 bps alongside lower capex and a more competitive market position due to better customer service levels, lower cost manufacturing, and wider distribution. We recognise that it isn't the product per se that leads to success, it's the ability to make and distribute that product efficiently.

1. Freedonia Global Flooring Report 2023
2. GBP/USD 1.29

DIVISIONAL REVIEW

This section focuses on the underlying operating performance of each individual division, excluding exceptional and non- underlying items, which are discussed in detail in the Financial Review and Note 2 to the accounts.

UK & Europe Soft Flooring - Margin expansion and strong out-performance of the wider market

	FY2024	FY2023	Growth
Volumes (sqm)	132.4 million	149.9 million	-11.7%
Revenue	£636.2 million	£718.8 million	-11.5%
Underlying EBITDA	£82.8 million	£66.9 million	+23.8%
Underlying EBITDA margin	13.0%	9.3%	+370bps
Underlying EBIT	£34.6 million	£27.2 million	+27.3%
Underlying EBIT margin	5.4%	3.8%	+170bps

Victoria is Europe's largest soft flooring manufacturer and distributor. Following 31% like-for-like ("LFL")3 organic revenue growth in FY2022 and 4.7% LFL growth in FY2023, LFL revenue declined 10.5% in FY2024. However, independent market research suggests UK volumes were down circa 20%, which makes up the largest portion of the division, indicating that VIctoria has continued to outperform the market - a factor the Board believes augurs well for earnings as demand recovers.

3. Like-for-like revenue growth is growth at constant currency, adjusting for the pro-forma impact of acquisitions where relevant

www.victoriaplc.com

05

Chairman and CEO's Review

It is also important to note that some of the lower volume was due to 'bottom slicing' - the decision by our operational management to remove low margin SKU's from the product range and eliminate nonprofitable customers. As part of the reorganisation projects the Group has had underway over the last 18 months, management have been rigorously reviewing each SKU and customer to ensure an adequate margin is made on each one. In cases where the margin is insufficient and a price increase is unsustainable, the product has been discontinued and/or the customer no longer supplied. Although this impacts headline revenue, it leads to higher margins, improved cash flow, and a higher return on working capital.

Significantly, despite the inevitable negative impact of operational gearing from the lower volumes of soft flooring being produced and higher cost inputs (raw materials, labour, and energy), operating margins improved by 370bps to 13.0%. Consequently, despite

the 11.5% fall in revenue, underlying

EBITDA increased by more than 23% to £82.8 million and EBIT by more than 27% to £34.6 million.

This pleasing performance is primarily down to the following three factors:

1. Successful completion of the integration of Balta's broadloom carpet business (acquired in April 2022) into the Group's UK operation. This has been a major project costing circa £19 million and involving the complete closure of a factory in Belgium, with extensive redundancies, and re- siting of machinery to the UK but has led to significant productivity gains and, consequently, margin improvements.
2. The ongoing reorganisation of the Balta rug business, consisting of the consolidation of production facilities in Belgium alongside transferring significant production capacity to Turkey, where the Company has two modern, certified and low-cost factories. The circa £31 million cost of this project

predominantly entailed construction of an additional building in Turkey, extensive relocation of plant and machinery, and redundancies in Belgium. A lot of upside opportunity remains and as this project moves to completion, we expect a further reduction in production costs

and improved margins, which will increase the international competitiveness of Balta's rugs and should lead to top line growth as a result.

3. Our logistics capability continues to provide Victoria with what we believe to be a robust and sustainable competitive advantage that is responsible for driving market share gains. Retailers value service and product availability over the last few pennies in price (no margin at all is made by a retailer on unavailable product!). Apart from further enhancing Victoria service proposition, our logistics operation, Alliance Flooring Distribution, is also now generating third-party logistics income.

UK & Europe Ceramic Tiles - challenging macro-economic conditions

	FY2024	FY2023	Growth
Volumes (sqm)	43.6 million	53.9 million	-19.0%
Revenue	£350.9 million	£453.3 million	-22.6%
Underlying EBITDA	£60.3 million	£105.8 million	-43.0%
Underlying EBITDA margin	17.2%	23.3%	-620bps
Underlying EBIT	£31.8 million	£77.5 million	-58.9%
Underlying EBIT margin	9.1%	17.1%	-800bps

Following double-digit LFL revenue and EBITDA growth in FY2023 as the Group benefitted from competitors struggling in what were exceptionally challenging trading conditions, these key metrics returned to FY2022 levels in FY2024.

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Victoria PLC Annual Report and Accounts 2024

Stock Code: VCP

Three factors contributed to lower revenue:

• Firstly, volumes across Victoria's key markets declined by as much as 25% as consumers deferred investing in their homes in the face of significant cost of living pressures.
• Secondly, Management's decision to hold prices in the face of very weak demand to protect our premium brand position. Although this created additional near-term challenges for our sales people, safeguarding brand equity was judged to be important for the medium-long term. Price, once discounted by a premium brand, is extremely difficult to recover as customers understandably resist subsequent increases and can lead to a permanent loss of margin.
• Finally, alongside all the other European ceramics businesses, Victoria has been facing sudden and very aggressive pricing competition from ceramics manufacturers based in India. However, in April 2024 anti- dumping and countervailing duty (or anti-subsidy) petitions were filed by the industry with the US government

seeking the imposition of substantial tariffs (estimated between 408% to 828%) on imports of ceramic tile from India. (A similar application

is expected to the European Commission). The industry expects the US government to launch an investigation and anticipates a favourable outcome this year.

This revenue decline directly led to materially lower margins due to negative production variances arising from the lower volumes. Additionally, volatility in the Turkish Lira and government-mandated wage increases ahead of an election also contributed circa 1.2% of margin compression.

Clearly, the Board is not satisfied with the ceramics division's trading results and a number of initiatives have been initiated to mitigate this impact without losing capacity for the anticipated recovery:

1. A project is underway to fully integrate production across our three ceramics businesses to optimise efficiency. The factories have different equipment and different cost structures that makes

Business and Performance

one factory more efficient than another to produce a particular type of tile. The project is to ensure production takes place at the optimal facility and will include increased manufacturing in Turkey, which has many of the cost advantages of the Indian manufacturers and yet, being much closer to Europe, has much lower transportation costs.

1. Working with our key customers we reformulated the clay composition so that thinner tiles could be manufactured with no increase
   in breakages. This action lowers energy consumption and speeds up production.
2. The Saloni brand now focusses exclusively on high-end commercial applications, with stylish new showrooms for the Architecture & Design community opened in key locations in Spain. This change in approach to the market has been well received and we are now seeing double-digit LFL revenue growth this year - albeit off a relatively low base of €75 million.

Australia - Stable margins in a softer market

	FY2024	FY2023	Growth
Volumes (sqm)	22.3 million	23.3 million	-3.9%
Revenue	£106.1 million	£120.9 million	-12.2%
Underlying EBITDA	£13.4 million	£15.3 million	-12.3%
Underlying EBITDA margin	12.7%	12.7%	-bps
Underlying EBIT	£8.7 million	£10.0million	-12.9%
Underlying EBIT margin	8.2%	8.3%	-10bps

Following double-digit organic growth in FY2023, demand was softer in Australia across all flooring categories in FY2024 due to broadly the same macro-economic factors seen in Victoria's other markets. Selling prices were adjusted as inflationary inputs moderated, but margins were maintained despite the lower volumes.

However, there has been no structural change in the Australian market and with ongoing inwards migration and household formation, we expect demand in Australia to recover as high inflation and interest rates moderate.

www.victoriaplc.com

07

Chairman and CEO's Review

North America - Operational excellence programmes deliver ongoing margin expansion

	FY2024	FY2023	Growth
Volumes (sqm)	7.1 million	6.1 million	+15.7%
Revenue	£163.3 million	£168.4 million	-3.1%
Underlying EBITDA	£11.8 million	£9.3 million	+27.4%
Underlying EBITDA margin	7.3%	5.5%	+170bps
Underlying EBIT	£6.8 million	£6.0 million	+12.3%
Underlying EBIT margin	4.1%	3.6%	+60bps

Our North American business consists entirely of distribution businesses - selling products (rugs, artificial turf, and ceramic tiles) manufactured in Victoria's European factories alongside outsourced products.

Market conditions were challenging throughout the year, with demand down 7-9% for the industry as a whole. North America continues to be a key market for Victoria. Despite this backdrop, we were able to increase operating margins through commercial excellence programmes, and opportunity exists for further improvement. North America continues to be a key market for Victoria and the Group's North American-sourced revenues (including exports to the US by our European factories) exceeds USD 350 million.

CASHFLOW & LIQUIDITY

Net operating cash flow was in line with management expectations with Free Cash Flow of £23.2 million after movements in working capital, tax, interest payments, capex, and all exceptional costs.

	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
IFRS Reported EBITDA	5.3	8.7	30.4	43.1	53.5	72.5	60.3	120.3	140.9	94.6	92.6
Adj EBITDA	5.1	15.8	32.3	45.7	64.7	96.3	118.1	127.4	162.8	196.0	160.7
Adj EBITDA (pre IFRS-16)	5.1	15.8	32.3	45.7	64.7	96.3	107.2	112.0	143.5	171.3	129.6
FCF1	18.3	8.4	15.3	22.5	12.5	8.9	32.2	30.2	20.1	5.9	23.2
FCF post pref2	18.3	8.4	15.3	22.5	12.5	8.9	32.2	27.6	10.6	(12.9)	0.8

1. FCF: Net cash flow from operating activities after movements in working capital, tax, interest payments, all capex, and all exceptional costs.
2. FCF post-pref: Net free cash flow defined as above but assuming 100% of the preferred share dividend was paid in cash instead of PIK.

As predicted, capex costs reverted to normal levels of £62.5 million for the period and are expected to broadly remain at this level for the foreseeable future. This compares with £99.6 million for the full year FY2023 and reflects the completion of the major reorganisation projects.

Although progress has been slower than we had anticipated, the Group is improving its working capital management, primarily through better control of inventory. Nevertheless, this source of cash remains a key area of focus with management incentives in place for delivery of defined targets.

Victoria continues to maintain a strong liquidity position and the Group finished the period with cash and undrawn credit lines in excess of £250 million. Furthermore, almost all Victoria's debt financing takes the form of long-dated Senior Notes ("bonds") which, in themselves, have no financial maintenance covenants, with the earliest tranche not due for repayment until August 2026. Nevertheless, the Board has started working on a range of refinancing options to allow adequate time to optimise the terms of the replacement funding. Further commentary on refinancing considerations is provided within the Financial Review.

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Victoria PLC Annual Report and Accounts 2024

Stock Code: VCP