Victoria PLC on Tuesday said it expects earnings to be lower than consensus expectations as challenging market conditions persisted.
The Worcester-based flooring products manufacturer reported a continuation of ‘soft’ demand across its relevant markets. For the six months to October 1, it expects revenue of £580 million, a year-on-year decline of around 9.9% from £643.4 million.
Underlying earnings before interest tax depreciation and amortisation are expected to be down by 48% to around £50 million, from £95.8 million a year prior.
‘The wider market is witnessing an estimated 20-25% decrease in demand versus 2019 levels, although the company has generally outperformed the market and continued to improve its competitive position - particularly in the UK. The board expects H2 trading to be stronger as a result of the actions taken by management alongside a small improvement in demand, although earnings are likely to be below consensus expectations,’ Victoria cautioned.
Shares in Victoria were down 5.6% at 120.60 pence in London on Tuesday afternoon.
Victoria added: ‘Whilst industry-wide low demand is impacting margins due to operational leverage, pricing remains stable and management is taking actions to optimise the cost base and this will drive better margin results when demand recovers. There has been no fundamental change to the flooring industry, which has a very long track record of consistent growth, and the low demand presently being experienced is due to broad macro-economic factors.’
The firm said it is ‘encouraged by recent positive data’ in its end markets. It noted a rise in mortgage approvals and house prices, as well was lower interest rates.
‘Similarly, as incomes have caught up with inflation alongside lower mortgage expenses, consumer discretionary spending is also likely to increase, which also drives flooring sales,’ it added.
Victoria’s Chief Executive Officer Philippe Hamers added: ‘The flooring sector is experiencing the most severe and longest decline in demand in the last 30 years. During this period, we have focussed on optimising productivity and reducing operational costs whilst maintaining the same potential production capacity.
‘These actions will have a very material positive impact on earnings and cash flow as demand normalises with the anticipated improvement in the macro-economic environment and increase in housing transactions, a key driver of demand....we remain prepared for growth when the time arrives, which will be delivered without any significant capex spend.’
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