Annual Report and Accounts for the 52 weeks ended 28 March 2015 www.victoriaplc.com stock code: VCP 24284.04 30 July 2015 4:01 PM Proof 3 Victoria Annual Report 2015.indd 3 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:07 Mission Statement To create wealth for our Shareholders Victoria Annual Report 2015.indd 4 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:07 24284.04 30 July 2015 4:01 PM Proof 3 www.victoriaplc.com0124284.04 30 July 2015 4:01 PM Proof 3ContentsStrategic ReportBY APPOINTMENT TOHER MAJESTY THE QUEENCARPET MANUFACTURERSVICTORIA CARPETS LTDKIDDERMINSTEROur Business and PerformanceGroup Financial Highlights01Chairman’s Statement02Operating and Financial Review04Our GovernanceDirectors09Directors’ Report10Corporate Governance Statement13Statement of Directors’ Responsibilities14Our FinancialsIndependent Auditor’s Report15Consolidated Income Statement16Consolidated Statement of Comprehensive Income16Consolidated and Company Balance Sheets17Consolidated and Company Statements of Changes in Equity18Consolidated and Company Statements of Cash Flows19Significant Accounting Policies20Notes to the Accounts26Other InformationFive Year Record49Shareholder Information50Glossary51Principal Subsidiaries and their Directors52See further information online:www.victoriaplc.com Use your phone’s QR code app to go to our websiteWelcome to Victoria PLCVictoria PLC is a manufacturer, supplier and distributor of design-led carpets, carpet tiles and other floorcoverings, targeting the mid to high-end markets in which we operate.Group Financial HighlightsRevenue (£m)201520142013128.3071.3970.91Operating profit before exceptional items from continuing operations (£m)2015201420132.58(0.50)8.61Profit before tax and exceptional items from continuing operations (£m)2015201420136.972.05(0.96)Basic adjusted earning per share (pence) 20152014201345.5027.12(10.95)Victoria Annual Report 2015.indd 104/08/2015 09:59:07 Chairman’s Statement In the run-up to the Sydney Olympics in 2000 the British Men’s Rowing Eight tested every proposal, every change, every decision against one simple criterion: “Will it make the boat go faster?” The outcome was a gold medal. At Victoria we quite like that level of focus (and the result!) and Victoria’s management are encouraged to test every operational change, every capex proposal, every decision they make against the equally simple criteria: “Will it help us make more money?” We won’t always get it right but this benchmark helps us avoid fuzzy, value-destroying thinking and ensures we never forget why we are in business. So I am pleased to advise shareholders that Victoria’s financial position continues to improve with underlying pre-tax earnings for FY15 of £7.46m (as shown in the Opearting and Financial Review). The Group will however record an after-tax loss of £4.52m due primarily to the accounting impact of the Contract for Differences following the payment of the £2.92 per share special dividend in July 2014. The charge for the Contract for Differences was flagged in the half-year report and had no impact on cash or the Group’s underlying earnings. Other key numbers are: • Group revenues grew by 79.7% (84.1% in constant currency terms) from £71.39m to £128.30m • Group EBITDA before exceptional items increased from £5.14m to £11.88m • Group operating profit before exceptional items and intangible amortisation increased from £2.65m to £8.88m • After exceptional items, the Group recorded a loss after tax of £4.52m, compared with £1.61m profit after tax in the prior year • Net debt as at year end was £36.28m (2014: £1.48m). Debt to EBITDA for covenant purposes was less than two times at year end. I do not intend to review the last 12 months in particular detail. What we do is simple: we purchase raw materials, skilled people make it into carpet, and then we sell it and distribute it. There is nothing complicated in our business or our financial structure but we do focus on maximising the Group’s return on capital employed. Operational management – all of whom are shareholders - are committed to growing earnings and carefully managing their working capital to optimise free cash-flow. I feel truly privileged to be working with such a talented and motivated team. It makes my job extraordinarily simple. I do my best to keep out of their way and let them get on with working their magic. This approach seems to be working with the Group delivering record underlying profits. Their excellent work has generated capital we have been able to usefully deploy by acquiring two superb businesses during FY15: Abingdon Flooring group and the Whitestone Weavers group. Both these acquisitions have been materially earnings-enhancing and value-creating for shareholders. Yet that is not the whole story. By focussing on acquiring only the best businesses, Victoria has also gained the services of some of the most talented managers in the sector. This is important. Although it is a core part of our operating philosophy for Victoria’s businesses to continue operating autonomously, the managers do work together and by doing so their collective skills – and those of their staff – are developing operational synergies: ways to grow earnings, while providing enhanced products and services to customers. This, we believe, will continue to ensure Victoria experiences above average sector performance. The Group obtained £10m unsecured long term capital from the Business Growth Fund during the year. Since the year end we have also successfully arranged new banking facilities, which replaced the pre-existing bank debt. Given our intention to continue to grow the Group through acquisitions, these new multi-currency revolving facilities provided by Victoria’s existing Group bankers, Barclays and HSBC, provide substantial headroom for future growth. This is helpful as over the last couple of years I have visited literally dozens of flooring businesses and know there is a lot of opportunity to continue to grow Victoria. To assist our communication with shareholders and the wider investment community, I’m please to announce the appointment of Whitman Howard as joint broker to Victoria. In summary, while one always wishes more had been accomplished, I am pleased with progress to date. Yet the opportunity in front of us remains large with further potential to grow earnings in the UK and expansion into Europe via carefully scrutinised acquisitions and organically via a committed sales focus. This is what we intend to deliver for shareholders in FY16. Dividend One of the fabulous things about carpet manufacturers - and the thing that motivated legendary investor, Warren Buffet, to buy US carpet maker, Shaw Industries - is the cash they can generate. The equipment is relatively cheap to buy and lasts a long time. The time between 02 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 2 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:08 manufacturing a roll of carpet and being paid for it is relatively short. Raw materials can also be bought on attractive payment terms. These characteristics are evidenced by Victoria’s operational cash-flow exceeding it’s EBITDA for each of the last two years. Given our plans for growth, the Board is being especially selective in deciding upon a replacement and, while this process continues, have established an interim arrangement to ensure the smooth running of the finance function. Geoffrey Wilding Executive Chairman 29 July 2015 So, in the medium term, we expect Victoria to be capable of paying an attractive dividend. However, in the short term, as mentioned earlier in this statement, it is the Board’s view that we will create the most wealth for shareholders by deploying the free cash-flow generated by the existing businesses within the Group towards acquiring other high quality manufacturers. Therefore we have resolved not to pay a final dividend for FY15. Terry Danks Retirement Finally, I would like to express my genuine appreciation for the support, advice and commitment of Finance Director and Company Secretary, Terry Danks, who retires at the end of July. Terry first joined Victoria Carpets (the manufacturing subsidiary) as Chief Accountant in 1985. His first responsibility was to replace the quill pens and abacuses in use at Victoria with an IT-based accounting and operating system and has led the inevitable continual changes ever since. He was appointed the Finance Director of Victoria Carpets in 1989 and his subsequent involvement in the acquisitions of Westwood Yarns (1989), Munster Carpets (2002) & Navan Carpets (2003) has proven to be useful as Victoria PLC embarked upon its acquisition strategy in 2013. Terry’s enthusiastic embrace of the change in direction at Victoria following the board changes in October 2012 has made my job immeasurably easier. He already had plans in place to retire at the time of my appointment but allowed me to change his mind and agreed to stay for 12 months, which I managed to drag out to nearly three years. During this period he was appointed to the PLC board and has materially contributed to the growth in the value of Victoria PLC. I’m sorry to see him go and wish him a long and enjoyable retirement. e c n a m r o f r e P d n a s s e n s u B r u O - i t r o p e R c g e t a r t S i www.victoriaplc.com 03 Victoria Annual Report 2015.indd 3 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:08 Operating and Financial Review continued Operational Review United Kingdom The UK operating segment achieved sales growth of 181.1% from £33.05m to £92.91m, principally through the acquisitions of the Abingdon Flooring group and Whitestone Weavers group during the period, and the first full year effect of Westex which was acquired in the fourth quarter of the prior year. Having said that, it is important to note that underlying UK performance also improved as is illustrated in the table below. This sets out reported revenue and operating profit together with the annualised revenue and operating profit to demonstrate the underlying performance had the acquired companies been part of the Group throughout the 2015 and 2014 financial periods. UK Revenue UK Operating profit Operating margin Reported 2015 92.91 8.43 9.1% Reported 2014 33.05 1.58 4.8% Growth 181.1% 434.4% Annualised 2015 Annualised 2014 158.12 10.36 6.6% 155.86 9.48 6.1% Growth 1.5% 9.3% On an annualised basis, operating margins have increased from 6.1% to 6.6%, which, together with a 1.5% increase in revenue, delivered a 9.3% growth in UK operating profit. This can be attributed to a combination of improved manufacturing efficiencies and an ongoing focus on reducing the overhead cost base. Further operational synergies have been achieved in the latter stages of the financial year as a result of the acquisitions, which are anticipated to deliver additional operational efficiency improvements in future years. As a result of the above, the UK recorded a profit before tax and exceptional items of £8.28m (2014: 1.57m). Australia Revenues in Australia were flat due to considerable economic headwinds from the significant slowdown in mining and fall in commodity prices. The subsequent significant depreciation of the Australian Dollar against the US Dollar increased the cost of raw materials, placing margins under considerable pressure. Despite these factors, the business maintained its operating profit even after bearing the A$843,000 full year impact of occupancy costs resulting from the sale and leaseback initiatives in late FY14. Revenue Operating profit Operating margin 2015 A$m 65.64 2.88 4.4% 2014 A$m 65.40 2.88 4.4% Growth 0.4% 0.0% The business focus on productivity improvements, cost management and stronger supplier relationships combined with sale price increases to deliver an operating profit in line with the previous year despite the challenges and implications noted above. Further operational improvements at both Bendigo production plants continued to build on prior year advances. Outlook UK The outlook for the Group’s UK segment remains positive. As mentioned above, there is scope for further operational synergies to be realised in the year ahead. The UK carpet market appears to be growing and in the process of recovery from the depths of recession. The wider economic environment in Europe presents some possible threats to this, firstly through potential economic shocks and secondly through the strength of Sterling against the Euro aiding continental imports. Despite this, the UK carpet market is showing signs of growth, aided by a recovery in the residential housing market. 04 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 4 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:08 e c n a m r o f r e P d n a s s e n s u B r u O - i t r o p e R c g e t a r t S i Outlook continued Australia Building construction and house renovations activity has picked up significantly and together with continued strength in housing prices in the major markets of New South Wales and Victoria State should provide a strong lead into FY16. The weakening Australian Dollar against key global currencies due to weaker commodity demand and prices will see an increase in raw material costs for local producers and importers alike. It is likely that regulatory efforts to cool the housing market market will slow the market next year but overall the outlook for the short to medium term is positive. Financial Review The Group’s financial performance for the year ended 28 March 2015 is summarised as follows: Revenue Underlying operating profit Underlying finance costs Underlying profit before tax and exceptional items Intangible amortisation Business Growth Fund redemption premium interest Business Growth Fund share options charge Reported profit before tax and exceptional items Exceptional items (Loss)/profit before tax from continuing operations Tax (Loss)/profit after tax from continuing operations 2015 £m 128.30 8.88 (1.42) 7.46 (0.27) (0.16) (0.06) 6.97 (9.92) (2.95) (1.57) (4.52) 2014 £m 71.39 2.65 (0.53) 2.12 (0.07) – – 2.05 0.23 2.28 (0.67) 1.61 % Change 79.7% 235.0% 167.2% 251.9% 285.7% n.a n.a 239.9% –4,394.4% –229.5% 133.8% –381.2% Reported profit before tax and exceptional items of £6.97m is after charging £0.49m for the non-cash items listed in the table which are not considered to form part of the Group’s underlying profitability. Underlying profit before tax of £7.46m is therefore presented to highlight the Group’s underlying profitability in the period. Exceptional Items The exceptional items for the year end 28 March 2015 are summarised below: Contract for Differences Acquisition costs Deferred consideration Profit on sale of properties Restructuring of Australia's spinning mills 2015 £m (7.55) (0.40) (1.97) – – (9.92) 2014 £m (1.63) (0.66) – 3.30 (0.78) 0.23 The Contract for Differences between the Company and Camden Holdings Limited was terminated in the year and resulted in the issue of 7,087,730 new shares on 29 July 2014 to Camden Holdings Limited. Camden Holdings Limited is owned by the Camden Trust of which Geoff Wilding, Executive Chairman, is the settlor and a discretionary beneficiary. The value of the contract on termination was £9.0m, of which £1.6m was accounted for in the prior year. The exceptional charge in the year also includes £0.15m of related professional fees. Apart from the professional fees incurred, this is a non-cash item. www.victoriaplc.com 05 Victoria Annual Report 2015.indd 5 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:08 Operating and Financial Review continued Acquisition costs in the period relate to professional fees associated with the acquisitions of the Abingdon Flooring group in September 2014 and the Whitestone Weavers group in January 2015. Deferred consideration in respect to acquisitions is measured under IFRS 3, initially at fair value discounted for the time value of money. Subsequently, deferred consideration is re-measured at each year end to unwind the time value of money and for changes to the earn-out value arising from actual and forecast business performance. Such adjustments, which are non-cash items, are reflected in the income statement within administrative costs. Taxation The tax charge in the year was £1.57m against a reported pre-tax loss of £2.95m, giving an effective tax rate of negative 53.2%. This is distorted by the £9.92m charge for exceptional items in the period, all of which have been treated as non- deductible for tax. The underlying effective tax rate measured against profit before tax and exceptional items of £6.97m is 22.5%. The Group’s tax rate is above the prevailing UK standard rate of 21% impacted by a number of factors including a higher standard rate of 30% in Australia and expenses that are not deductible in determining taxable profit. A full reconciliation of factors impacting the tax rate in the period is detailed in Note 6 to the financial statements. Cash Flow and Debt Operating profit from continuing operations and before exceptional items Depreciation and non-cash items Foreign exchange Movement in working capital Operating cash flow (before exceptional items) EBITDA* Operating cash flow conversion % (against EBITDA*) * Earnings before interest, tax, depreciation, amortisation and exceptional items. 2015 £m 8.61 3.20 (0.03) 0.86 12.64 11.88 106.4% 2014 £m 2.58 2.55 0.06 4.32 9.51 5.14 185.1% 06 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 6 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:09 e c n a m r o f r e P d n a s s e n s u B r u O – i t r o p e R c g e t a r t S i The Group achieved strong operating cash flows in the period (before exceptional items), with cash generation exceeding EBITDA (before exceptional items). The cash impact of exceptional items in the year was £0.55m, resulting in operating cash flows after exceptional items of £12.09m. Working capital was reduced by £0.86m in the period and remains a key area of focus. Inventory management is the key contributor to the working capital improvement, with underlying inventories levels reducing year on year by £1.42m after adjusting for the opening inventory balances on the acquisitions during the year. Operating cash flow (before exceptional items) Interest paid Corporation tax paid Capital expenditure Free cash flow (before exceptional items) Proceeds on disposal of property, plant and equipment Acquisitions Dividends paid Issue of share capital Deferred earn-out payments Restructuring of Australia's spinning mills Dividends and sales proceeds from Colin Campbell Other items Net cash flow Opening net debt Opening debt balances from acquisitions Closing net debt 2015 £m 12.64 (1.42) (2.11) (1.39) 7.72 0.82 (15.01) (20.69) 1.54 (1.00) – – (0.06) (26.68) (1.48) (8.12) (36.28) 2014 £m 9.51 (0.53) (0.40) (0.53) 8.05 11.70 (12.84) (0.56) – – (0.78) 0.50 (0.04) 6.03 (7.51) – (1.48) Interest, corporation tax and capital expenditure have all increased year on year reflecting the expansion of the Group in the second half of the year with the completion of two acquisitions. The net cash outflow from acquisition in the period of £15.01m relates to the acquisitions of the Whitestone Weavers group and the Abingdon Flooring group and comprises the initial cash consideration and cash equivalents acquired of £14.61m and related professional fees of £0.40m. The acquisitions were funded using facilities provided by the Company’s long-standing bankers, Barclays Bank, and from a newly-signed fully-subordinated £10m 2022 unsecured loan note facility provided by the Business Growth Fund. The Company made a special dividend payment of £2.92 per share in July 2014 resulting in a cash outflow of £20.69m. Net debt levels increased by £34.80m during the financial year to £36.28m (2014: £1.48m). Future funding In April 2015 the Company entered into a new multi-currency revolving credit facility with its existing Group bankers, Barclays and HSBC, which has replaced existing facilities. The agreement also includes an Accordion facility option to further increase available credit which provides substantial headroom for future growth. The new facility is subject to various financial covenants measured against Group results and all lending covenants have been satisfied to date. 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. In addition, note 26 to the financial statements includes details of the Group’s financial instruments, hedging activities and its exposure to and management of credit risk, liquidity risk, currency www.victoriaplc.com 07 Victoria Annual Report 2015.indd 7 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Operating and Financial Review continued risk and interest rate risk. 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. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts. Accounting standards The financial statements have been prepared 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 (KPI’s) The KPI’s monitored by the Group Board are set out in the table below for the year ended 28 March 2015. KPI Sales growth (constant currency) Operating margin (pre exceptional items) Return on operating assets (pre exceptional items) Earnings/(loss) per share (basic adjusted) Adjusted net debt to adjusted EBITDA* Interest cover (against EBITDA) 2015 2014 2013 84.1% 6.7% 15.3% 44.3p 1.8 times 7.2 times 6.8% 3.6% 7.1% 27.1p 0.3 times 9.7 times -7.9% -0.6% -0.9% -11.0p 3.3 times 4.8 times * Adjusted net debt excludes the £10m loan notes with the Business Growth Fund and adjusted EBITDA is calculated using the annualised EBITDA for the businesses acquired during the year. 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 remains focussed on driving operational efficiency improvements, cost reductions and ongoing product development to adapt to the current market and economic 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. Geoffrey Wilding Executive Chairman 29 July 2015 08 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 8 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Directors Geoff Wilding Executive Chairman Geoff Wilding Bsc is a former investment banker. He set up his own investment company in New Zealand in 1989. Geoff was appointed Executive Chairman at the General Meeting on 3 October 2012 and is a member of the Nominations Committee. Alexander Anton Non-executive Director Alexander Anton, a member of the founding family of Victoria, was appointed to the main Board in 1995 and is a former Chairman. He is currently Chairman of Legacy Portfolio. Alexander was appointed to the Board at the General Meeting on 3 October 2012 and is a member of the Audit, Remuneration and Nominations Committees. Andrew Harrison Non-executive Director Andrew Harrison has more than twenty years as a solicitor in private practice, specialising in company law. He has advised on a wide variety of corproate transactions, including management buy-outs and buy-ins, corporate acquisitions and disposals and listed company take-overs. Andrew was appointed to the Board at the General Meeting held on 3 October 2012 and is the Senior Independent Non-executive Director. Terry Danks Executive Director Appointed as Company Secretary to Victoria PLC in 1993 and appointed to the Board in May 2014. Terry joined Victoria Carpets in 1985 as Chief Accountant and has been responsible for both the accounting and IT function within the company since that date. Terry was subsequently appointed as Finance Director of Victoria Carpets in 1989. Terry has a breadth of experience and knowledge of the industry and his high standards of financial control are invaluable to the Group. Gavin Petken Non-executive Director Gavin Petken is the Business Growth Fund’s Regional Director for The Midlands and has developed the firm’s local investment activities in the Midlands region for smaller entrepreneurial companies. He has also been actively involved with the Business Growth Fund’s major strategic initiative to extend the firm’s provision of growth capital to listed companies providing similar access to long term funding. He is a Chartered Accountant, qualifying with Arthur Andersen. Gavin was appointed to the Board in September 2014 and is a member of the Audit and Remuneration Committees. e c n a n r e v o G r u O www.victoriaplc.com 09 Victoria Annual Report 2015.indd 9 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Directors’ Report The Directors present their Annual Report and the audited financial statements for the Group for the year ended 28 March 2015. Principal activities and Strategic Report The Group’s principal activities are the manufacture, distribution and sale of floorcoverings. The Company is required by the Companies Act 2006 to prepare a Strategic Report that includes a fair review of the Company’s business, the development and the performance of the Company’s business during the year and its future development, of the position of the Company at the end of the financial year to 28 March 2015 and a description of the principal risks and uncertainties faced by the Company. The Strategic Report can be found on pages 2 to 8. The Corporate Governance Report is set out on page 13, is incorporated by reference and shall be deemed to form part of this report. Results and dividends The results include those of Victoria PLC and its subsidiaries for the full year and are set out in the financial statements on pages 16 to 48. Loss attributable to shareholders Total dividend paid in the financial year Retained loss £000 4,524 20,691 25,215 A special dividend of £2.92 pence per share was paid to shareholders on 25th July 2014 following approval by shareholders at a General Meeting on 9th July 2014. Given the substantial special dividend paid, the Directors do not recommend the payment of a final dividend for the financial year ended 28 March 2015. Directors and their interests The current Directors of the Company together with their biographical details are listed on page 9. The Directors of the Company who held office at 28 March 2015 had the following interests in the Ordinary shares of the Company: 28 Mar 2015 29 Mar 2014 Beneficial 18,075 7,087,730 29,993 26,956 — Non- beneficial 80,000 — — — — Beneficial 71,075 — — — — Non- beneficial 80,000 — — — — Alexander Anton Geoff Wilding* Terry Danks Andrew Harrison Gavin Petken * Geoff Wilding and his family are discretionary beneficiaries of The Camden Trust which in turn owns Camden Holdings Limited. Camden Holdings Limited is the owner of the above shareholding of 7,087,730 Ordinary Shares and as a result Mr. Wilding is the beneficial owner of this shareholding. Alexander Anton is also deemed by the Panel on Takeovers and Mergers to form part of the concert party formed in December 2011. At 28 March 2015 the concert party held 10.1% of the issued shares in the Company. The enlarged concert party with the addition of Camden Holdings Limited held 58.8% of the issued shares in the Company at 28 March 2015. In accordance with the Company’s Articles of Association, the Director retiring by rotation at the 2014 Annual General Meeting is Geoffrey Wilding who, being eligible, offers himself for re -election pursuant to Article 86. Also in accordance with the Company’s Articles of Association, Gavin Petken who was appointed on 30th September 2014 offers himself for election. No Director, either during or at the end of the financial year, was materially interested in any significant contract with the Company or any subsidiary undertaking, with the exception of: • A contract for differences (‘CFD’) between the Company and Camden Holdings Limited which received shareholder approval at a General Meeting on 20 February 2013. The contract was terminated on 28 July 2014 and resulted in the issue of 7,087,730 new shares on 29 July 2014 to Camden Holdings Limited, a company wholly owned by The Camden Trust of which Mr Wilding, Executive Chairman, is the settlor and a discretionary beneficiary. • Gavin Petken is the Business Growth Fund’s (‘BGF’) Regional Director for the Midlands. On the 30 September 2014 the Company entered into a £10m 2022 unsecured loan facility with the BGF. The BGF has also been granted an option over 746,000 new Ordinary 25p shares in the Company, representing 5% of the Company’s deemed enlarged issued share capital at the time of grant. Further details of the share option agreement are set out in Note 28 of the Accounts. Directors’ insurance and indemnities The Company maintains directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its directors. In accordance with section 236 of the Companies Act 2006, qualifying third- party indemnity provisions are in place for the directors in respect of liabilities incurred as a result of their office, to the extent permitted by law. Both the insurance and indemnities applied throughout the financial year ended 28 March 2015 and through to the date of this report. 10 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 10 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Directors’ emoluments The emoluments of all Directors for the financial year ended 28 March 2015 were: Executive Geoffrey Wilding Terry Danks (from 12 May 2014) Non-executive Alexander Anton Andrew Harrison Gavin Petken (from 30 September 2014)* Salary/Fees £000 Benefits in kind £000 Bonus £000 65 69 35 35 18 222 — 8 — — — 8 — — — — — — Total 2015 £000 65 77 35 35 18 230 Total 2014 £000 65 — 35 35 — 135 * There is no annual fee payable directly to Mr Petken in respect of his services to the Company. He is the Business Growth Fund’s (‘BGF’) Regional Director for the Midlands and the Company entered into a £10m loan agreement with the BGF in September 2014. BGF receive an annual fee of £35,000 which is commensurate with that paid to the Company’s other non-executive directors. Directors’ pension entitlements One Director who held office at 28th March 2015 was a member of a money purchase scheme. Contributions paid by the Group in respect of this scheme were: Taxation status The Directors are advised that the Company is not a ‘close company’ within the provisions of the Income and Corporation Taxes Act 1988. Terry Danks (from 12 May 2014) 2015 £000 39 39 2014 £000 — — Employees Employees are encouraged to attend training courses and there is regular consultation with employee representatives to ensure that employees are informed of all matters affecting them. Applications for employment by disabled persons are given full and fair consideration having regard to their particular aptitudes and abilities. Appropriate training within their capabilities is provided for disabled employees seeking career development. Employees who become disabled during their employment have continued in employment wherever possible. Going concern After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Post balance sheet events New bank facilities The Company has agreed a new multi-currency revolving facility with its existing Group bankers, Barclays and HSBC, which has replaced existing facilities and provides substantial headroom for future growth. Auditor Each person who is a Director at the date of approval of this Annual Report confirms that: Political donations The Directors made no political donations during the year in line with its policy (2014: £nil). a) So far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and Financial instruments The Group’s financial risk management objectives and policies are set out within note 26 of the financial statements. Note 26 also details the Group’s exposure to foreign exchange, interest, credit and liquidity risks. This note is incorporated by reference and deemed to form part of this report. b) the Director has taken all steps that he ought to have taken as a Director in order to make himself aware of any such relevant audit information and to establish that the Company’s Auditor is aware of that information. The above is in accordance with the provisions of Section 418 of the Companies Act 2006. Nexia Smith & Williamson has expressed its willingness to continue in office as Auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. www.victoriaplc.com 11 e c n a n r e v o G r u O Victoria Annual Report 2015.indd 11 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Directors’ Report continued Annual General Meeting Notice of the 2015 Annual General Meeting to be held on 25 September 2015, together with a description of the business to be discussed at the AGM, is set out in the accompanying Notice. Notice of this year’s AGM will be available to view on the Company’s website at www. victoriaplc.com. The Directors consider that each of the proposed resolutions to be considered at the AGM are in the best interests of the Company and its shareholders and are most likely to promote the success of the Company for the benefit of its shareholders as a whole. The Directors unanimously recommend that shareholders vote in favour of each of the proposed resolutions, as the directors intend to do in respect of their own shareholdings. The Strategic Report (from pages 2 to 8 and Directors’ Report (from pages 10 to 12) have been approved by the Board on 29 July 2015. On behalf of the Board Terry A Danks Director and Secretary 29 July 2015 12 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 12 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Corporate Governance Statement As an AIM listed group, Victoria PLC is not required to comply with the UK Corporate Governance Code. The Group applies certain principles of good governance it believes appropriate to a group of its size. On behalf of the Board Terry A Danks Director and Secretary 29 July 2015 e c n a n r e v o G r u O www.victoriaplc.com 13 Victoria Annual Report 2015.indd 13 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:10 Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have also chosen to prepare the parent company financial statements under the IFRSs as adopted by the European Union. Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements the Directors are required to: The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website, www.victoriaplc. com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. • select suitable accounting policies and then apply them On behalf of the Board consistently; • make judgements and accounting estimates that are reasonable and prudent; • state that the financial statements comply with IFRSs as adopted by the European Union subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. Terry A Danks Director and Secretary 29 July 2015 14 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 14 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:11 Independent Auditor’s Report to the Members of Victoria PLC We have audited the financial statements of Victoria PLC for the 52 weeks ended 28 March 2015 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditor As explained more fully in the Statement of Directors’ Responsibilities set out on page 14, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 28 March 2015 and of the Group’s loss for the 52 week period then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. l i s a c n a n F r u O i Sancho Simmonds Senior Statutory Auditor, for and on behalf of Nexia Smith & Williamson Chartered Accountants and Statutory Auditor 25 Moorgate, London, EC2R 6AY, United Kingdom 29 July 2015 www.victoriaplc.com 15 Victoria Annual Report 2015.indd 15 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:11 Consolidated Income Statement For the 52 weeks ended 28 March 2015 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administrative expenses (including exceptionals and intangible amortisation) Other operating income Operating (loss)/profit Comprising: Operating profit before exceptional items Intangible amortisation Exceptional items Finance costs Comprising: Interest charges Business Growth Fund redemption premium interest and share options charge (Loss)/profit before tax Taxation (Loss)/profit for the period from continuing operations Profit for the period from discontinued operations (Loss)/profit for the period (Loss)/earnings per share — pence basic diluted (Loss)/earnings per share from continuing operations basic diluted 52 weeks ended 28 March 2015 52 weeks ended 29 March 2014 Notes £000 £000 1 1 1,2 3 3 3 1,4 6 1 8 8 8 8 128,304 (86,695) 41,609 (22,423) (20,928) 432 (1,310) 8,880 (270) (9,920) (1,643) (1,419) (224) (2,953) (1,571) (4,524) — (4,524) (38.15) (38.15) (38.15) (38.15) 71,386 (50,544) 20,842 (13,804) (7,914) 3,688 2,812 2,651 (70) 231 (531) (531) — 2,281 (672) 1,609 116 1,725 24.52 24.52 22.87 22.87 Consolidated Statement of Comprehensive Income For the 52 weeks ended 28 March 2015 Exchange differences on translation of foreign operations Amounts which may be subsequently reclassified to profit or loss (Loss)/profit for the period Total comprehensive loss for the period 52 weeks ended 28 March 2015 £000 (756) (756) (4,524) (5,280) 52 weeks ended 29 March 2014 £000 (5,078) (5,078) 1,725 (3,353) 16 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 16 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:11 Consolidated and Company Balance Sheets As at 28 March 2015 Non-current assets Goodwill Intangible assets Property, plant and equipment Investment property Investment in subsidiary undertakings Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Cash at bank and in hand Assets held for sale Total current assets Total assets Current liabilities Trade and other payables Current tax liabilities Other financial liabilities Total current liabilities Non-current liabilities Trade and other payables Other financial liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Retained earnings Share based payment reserve Total equity Group Company 28 March 2015 £000 29 March 2014 £000 28 March 2015 £000 29 March 2014 £000 Notes 10 11 12 13 13 19 15 16 12,14 17 18 17 18 19 20 21 21 21 6,481 8,858 22,489 180 — 1,903 39,911 40,956 30,953 2,392 — 74,301 114,212 39,066 2,014 18,408 59,488 12,260 20,264 2,370 34,894 94,382 19,830 3,639 10,144 5,987 60 19,830 2,735 4,953 18,681 180 — 1,441 27,990 21,203 13,964 15,192 547 50,906 78,896 17,496 1,162 5,406 24,064 7,716 11,267 1,210 20,193 44,257 34,639 1,772 909 31,958 — 34,639 — — — 180 38,180 708 39,068 — 24,427 — — 24,427 63,495 4,995 — 16,206 21,201 6,757 19,876 — 26,633 47,834 15,661 3,639 10,144 1,818 60 15,661 — — — 180 27,126 285 27,591 — 16,177 13,151 — 29,328 56,919 3,128 — 5,267 8,395 6,804 9,733 — 16,537 24,932 31,987 1,772 909 29,306 — 31,987 Company Registered Number (England & Wales) 282204 The financial statements on pages 16 to 48 were approved by the Board of Directors and authorised for issue on July 29 2015. They were signed on its behalf by: Geoffrey Wilding Executive Chairman l i s a c n a n F r u O i www.victoriaplc.com 17 Victoria Annual Report 2015.indd 17 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:11 Consolidated Statement of Changes in Equity For the 52 weeks ended 28 March 2015 At 30 March 2014 Loss for the period Other comprehensive loss for the period Transactions with owners: Dividends paid Issue of share capital Movement in share-based payment reserve At 28 March 2015 At 31 March 2013 Profit for the period Other comprehensive loss for the period Transactions with owners: Dividends paid Movement in share-based payment reserve Transfer of share-based payment reserve to retained earnings Issue of share capital in connection with exercise of share options under LTIP plan At 29 March 2014 Share capital £000 1,772 — — 1,772 — 1,867 — 3,639 1,758 — — 1,758 — — — 14 1,772 Share premium £000 909 — — 909 — 9,235 — 10,144 829 — — 829 — — — 80 909 Retained earnings £000 31,958 (4,524) (756) 26,678 (20,691) — — 5,987 35,724 1,725 (5,078) 32,371 (563) — 150 — 31,958 Share-based payment reserve £000 — — — — — 60 60 162 — — 162 — (12) (150) — — Company Statement of Changes in Equity For the 52 weeks ended 28 March 2015 At 30 March 2014 Loss for the period Transactions with owners: Dividends paid Issue of share capital Movement in share based payment reserve At 28 March 2015 At 31 March 2013 Profit for the period Transactions with owners: Dividends paid Transfer of share-based payment reserve to retained earnings Issue of share capital in connection with exercise of share options under LTIP plan At 29 March 2014 Share capital £000 1,772 — 1,772 — 1,867 — 3,639 1,758 — 1,758 — — 14 1,772 Share premium £000 909 — 909 — 9,235 — 10,144 829 — 829 — — 80 909 Retained earnings £000 29,306 (6,797) 22,509 (20,691) — — 1,818 4,669 25,097 29,766 (563) 103 — 29,306 Share-based payment reserve £000 — — — — — 60 60 103 — 103 — (103) — — Total equity £000 34,639 (4,524) (756) 29,359 (20,691) 11,102 60 19,830 38,473 1,725 (5,078) 35,120 (563) (12) — 94 34,639 Total equity £000 31,987 (6,797) 25,190 (20,691) 11,102 60 15,661 7,359 25,097 32,456 (563) — 94 31,987 18 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 18 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Consolidated and Company Statements of Cash Flows For the 52 weeks ended 28 March 2015 Net cash inflow/(outflow) from operating activities Investing activities Purchases of property, plant and equipment Dividend received from Colin Campbell & Sons Limited Proceeds from disposal of Colin Campbell & Sons Limited Proceeds on disposal of property, plant and equipment Deferred earn-out payments Acquisition of subsidiaries Net cash used in investing activities Financing activities Increase in long term loans Issue of share capital Repayment of obligations under finance leases/HP Dividends paid Net cash (used)/generated in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at end of period Notes 23 24 Group Company 52 weeks ended 28 March 2015 £000 8,557 (1,391) — — 816 (1,000) (14,616) (16,191) 8,596 1,543 (241) (20,691) (10,793) (18,427) 9,925 — (8,502) 52 weeks ended 29 March 2014 £000 7,093 (531) 179 324 11,696 — (12,176) (508) 10,488 94 (14) (563) 10,005 16,590 (6,475) (190) 9,925 52 weeks ended 28 March 2015 £000 (6,430) — — — — (1,000) (7,655) (8,655) 16,832 1,543 — (20,691) (2,316) (17,401) 7,884 — (9,517) 52 weeks ended 29 March 2014 £000 13,263 — 179 324 5,600 — (16,000) (9,897) 9,233 94 — (563) 8,764 12,130 (4,246) — 7,884 l i s a c n a n F r u O i www.victoriaplc.com 19 Victoria Annual Report 2015.indd 19 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Significant Accounting Policies Basis of Accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRIC interpretations and the parts of the Companies Act 2006 that apply to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for certain financial instruments which are recorded at fair value in accordance with IAS39. Land and buildings were professionally valued at 4 April 2004 and this valuation was adopted as deemed cost on adoption of IFRS. The accounting policies have been applied consistently in the current and prior year. The principal accounting policies adopted are set out below. Basis of preparation The consolidated financial statements have been prepared on a going concern-basis. The Strategic Report on page 7 sets out the justification for this basis of preparation. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and statement of comprehensive income and related notes. Business combinations and goodwill Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in the business combination are measured initially at their fair values at the acquisition date. The Group measures goodwill at the acquisition date as: • the fair value of the consideration transferred; less • the net recognised amount of the identifiable assets acquired and liabilities assumed. Costs related to acquisition, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Segmental Reporting The Group’s internal organisation and management structure and its system of internal financial reporting to the Board of Directors are based on the geographical locations of its businesses. The chief operating decision-maker has been identified as the Board of Directors. Non-current assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell. Investment Property The investment properties are valued on an historical cost basis, having been professionally valued at 4 April 2004 on adoption of IFRS, and is considered to be the deemed cost. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Sales of goods are recognised when goods are despatched. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts 20 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 20 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see below). Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Where sale and operating leaseback transactions are entered into, the transaction is treated as a disposal and any profit or loss is recognised immediately in the income statement. The determination of the treatment of the subsequent leasing arrangement is dependent on whether substantially all of the risks and rewards of ownership are transferred to the lessee. Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised in equity. In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts and options (see below for details of the Group’s accounting policies in respect of such derivative financial instruments). For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Sterling using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of. Government grants Government grants relating to property, plant and equipment are treated as deferred income, and released to profit or loss over the expected useful lives of the assets concerned. Other government grants, including those towards staff training costs, are recognised in profit or loss over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. www.victoriaplc.com 21 l i s a c n a n F r u O i Victoria Annual Report 2015.indd 21 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Significant Accounting Policies continued Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their deemed cost, being the fair value at the date of adoption of IFRS, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation on buildings is charged to profit or loss. Fixtures and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, less any anticipated residual value, over their estimated useful lives. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The expected useful lives of assets are: Buildings 50 years Plant and equipment 3 to 20 years Fixtures and equipment 3 to 20 years Motor vehicles 4 to 5 years The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Intangible assets (i) Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date, which is regarded as their cost. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. (ii) Amortisation of intangible assets Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets which range between 20 to 35 years. Amortisation commences from the date the intangible asset becomes available for use. 22 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 22 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Share-based payments The Group has applied the requirements of IFRS 2 Share- based payment. In accordance with IFRS 1, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005. The Group has issued equity settled share-based payments to the Business Growth Fund (see Note 28). Equity settled share-based payments are measured at fair value (excluding the effect of non- market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity settled share-based payments is expensed on a straight-line basis over the period of the loan agreement with the Business Growth Fund. Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on Management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The liability in respect of equity-settled amounts is included in equity. Exceptional Items Transactions which are material by virtue of their size or incidence are disclosed as exceptional items. iii) Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. (iv) Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash- generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash- generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. i l s a c n a n F r u O i www.victoriaplc.com 23 Victoria Annual Report 2015.indd 23 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Significant Accounting Policies continued Financial instruments (a) Financial assets The Group’s financial assets fall into the categories discussed below, with the allocation depending on the purpose for which the asset was acquired. Although the Group occasionally uses derivative financial instruments in economic hedges of currency rate risk, it does not hedge account for these transactions. The Group has not classified any of its financial assets as held to maturity. Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair values. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. (i) Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables) and deposits held at banks but may also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost less provision for impairment, where appropriate. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable; the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a separate allowance account with the loss being recognised within distribution expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. (ii) Fair value through profit or loss This category comprises only “in the money” foreign exchange derivatives to the extent that they exist (see (b)(ii) for “out of the money” derivatives ). They are carried in the balance sheet at fair value with changes in fair value recognised in finance income or expense. Other than these derivative financial instruments, the Group does not have any assets held for trading nor has it designated any financial assets as being at fair value through profit or loss. The fair value of the Group’s foreign exchange derivatives is measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturity of the contracts. (b) Financial liabilities The Group classifies its financial liabilities into one of two categories depending on the purpose for which the liability was incurred. Although the Group uses derivative financial instruments in economic hedges of currency risk, it does not hedge account for these transactions. Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. (i) Financial liabilities measured at amortised cost These liabilities include the following items: • Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost. • Bank borrowings and loan notes are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost. Interest is recognised as a finance expense in the income statement. 24 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 24 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 (ii) Fair value through profit or loss This category comprises only “out of the money” derivatives to the extent that they exist (see (a)(ii) for “in the money” derivatives). They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss. The methods used for calculating the fair value of the Group’s interest rate and foreign exchange derivatives have been described in (a)(ii) above. Also included within this category is the CFD, which was in the balance sheet at fair value with changes in fair value recognised in finance income or expense. The CFD was settled during the year ended 28 March 2015. (c) Share Capital The Group’s Ordinary shares are classified as equity instruments. Share capital includes the nominal value of the shares. Any share premium attaching to the shares are shown as share premium. Adoption of new and revised standards IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities have been adopted in the year but they have only had a presentation and disclosure impact on these financial statements. Other than this, there have only been minor improvements to existing International Financial Reporting Standards and interpretations that are effective for the first time in the current financial year that have been adopted by the Group. These have had no impact on its consolidated results or financial position. Applicable standards, amendments and interpretations that are expected to be effective for periods beginning on or after 1 April 2015 , subject to EU endorsement include the following: • Amendments to IAS 1 Classification of liabilities • Amendments to IAS 7 Statement of cash flows • Amendments to IFRS 2 Share-based payments • Amendments to IFRS 10, IFRS 11, IFRS 12 • Amendments to IAS 27 (revised), IAS 28 (revised) Consolidated financial statements and related topics • IFRS 9 Financial instruments • IFRS 15 Revenue from contracts with customers The Directors are currently assessing the impact of these on the Group’s results, assets and liabilities. The Directors do not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements. l i s a c n a n F r u O i www.victoriaplc.com 25 Victoria Annual Report 2015.indd 25 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 Notes to the Account 1. Segmental information The Group is organised into two operating divisions, the sale of floorcovering products in the UK and Australia. Geographical segment information for revenue, operating profit and a reconciliation to entity net profit is presented below. Income statement UK Australia Revenue £’000 92,911 35,393 128,304 128,304 Unallocated central expenses Total continuing operations Tax (Loss)/profit after tax from continuing activities Profit from discontinued operations* (Loss)/profit for the period 128,304 For the 52 weeks ended 28 March 2015 Exceptional operating items £’000 Segmental operating profit £’000 Finance costs £’000 8,427 1,552 9,979 – – (150) (155) (305) Profit before tax* £’000 8,277 1,397 9,674 Revenue £000 33,047 38,339 71,386 For the 52 weeks ended 29 March 2014 Segmental Exceptional operating operating profit items £000 £000 Finance costs £000 1,577 1,686 3,263 – 1,824 1,824 (9) (138) (147) Profit before tax* £000 1,568 3,372 4,940 (1,369) (9,920) (1,338) (12,627) (682) (1,593) (384) (2,659) 71,386 2,581 231 (531) 8,610 (9,920) (1,643) (2,953) (1,571) (4,524) 8,610 (9,920) (1,643) (4,524) 71,386 2,586 – 5 111 342 (531) 1,725 2,281 (672) 1,609 116 * Prior year profit from discontinued operations relates to the Canadian operation Colin Campbell & Sons Limited, which was sold on 28 March 2014. The result is shown net of tax. Intersegment sales between the UK and Australia were immaterial in the current and comparative periods. Management information is reviewed on a segmental basis to profit before tax. 26 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 26 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:12 1. Segmental information continued Balance Sheet UK Australia Assets held for sale Unallocated central assets/liabilities As at 28 March 2015 Segment assets £000 Segment liabilities £000 As at 29 March 2014 Segment assets £000 Segment liabilities £000 93,527 19,797 — 888 114,212 65,407 7,939 — 21,036 94,382 55,877 22,000 547 472 78,896 Assets held for sale relates to the Castlemaine spinning mill in Australia which was sold in May 2014. Other segmental information Depreciation and amortisation UK Australia No other significant non-cash expenses were deducted in measuring segment results. Capital expenditure UK Australia 52 weeks ended 28 March 2015 £000 1,928 1,345 3,273 52 weeks ended 28 March 2015 £000 1,049 342 1,391 24,739 11,022 — 8,496 44,257 52 weeks ended 29 March 2014 £000 904 1,650 2,554 52 weeks ended 29 March 2014 £000 304 227 531 i l s a c n a n F r u O i www.victoriaplc.com 27 Victoria Annual Report 2015.indd 27 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 Notes to the Accounts continued 2. Exceptional Items from continuing operations (a) Contract for Differences (b) Acquisition costs (c) Deferred consideration (d) Profit on sale of properties (e) Restructuring of Australia’s spinning mills 52 weeks ended 28 March 2015 £000 (7,554) (398) (1,968) — — (9,920) 52 weeks ended 29 March 2014 £000 (1,631) (655) — 3,297 (780) 231 All exceptional items are classified within administrative expenses (except where noted). (a) Relates to the Contract for Differences between the Company and Camden Holdings Limited. The contract was terminated on 28 July 2014 and resulted in the issue of 7,087,730 new shares on 29 July 2014 to Camden Holdings Limited, a company wholly owned by The Camden Trust of which Mr Wilding, Executive Chairman, is the settlor and a discretionary beneficiary. The value of the contract on termination was £9.0m, of which £1.6m was accounted for in the prior year. The exceptional charge in the period also includes £0.15m of related professional fees. (b) Relate to professional fees in connection with the two acquisitions completed during the year. (c) Deferred consideration in respect to acquisitions is measured under IFRS 3, initially at fair value discounted for the time value of money. Subsequently, deferred consideration is re-measured at each half-year and year-end to unwind the time value of money and for changes to the earn-out value arising from actual and forecast business performance. Such adjustments are non-cash items. (d) Relates to the profit from the sale and leaseback of Australia’s carpet manufacturing facility and spinning mill in Bendigo, and the profit from the sale and leaseback of the carpet manufacturing facility in Kidderminster, UK. This profit is included as part of other operating income. (e) Relate to costs associated with the “right-sizing” and reorganising the two spinning mills to meet reduced volume requirements as a result of declining demand for woollen yarns. 3. Finance costs Interest on loans and overdrafts wholly repayable within five years Interest on loan from the Business Growth Fund Business Growth Fund Redemption Premium Interest Business Growth Fund Share Options Charge Hire purchase and finance lease interest 52 weeks ended 28 March 2015 £000 883 491 164 60 45 1,643 52 weeks ended 29 March 2014 £000 500 — — — 31 531 28 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 28 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 4. (Loss)/profit on ordinary activities before taxation After charging/(crediting) Net foreign exchange (gains)/losses Depreciation of property, plant and equipment (see note 12) Amortisation of intangible assets (see note 11) Staff costs (see note 5) Cost of inventories recognised as an expense (Profit)/loss on sale of fixed assets Government grants (see note 25) Operating lease rentals Auditors’ remuneration: Fees payable to the Company’s Auditor for the audit of the Company’s annual financial statements The audit of the Company’s subsidiaries pursuant to legislation Total audit fees Other services pursuant to legislation Tax services Total non-audit fees 5. Staff Costs Wages and salaries Social security costs Other pension costs Termination benefits 2015 £000 (11) 3,003 270 31,899 86,695 (69) (295) 3,235 25 119 144 1 29 30 2015 £000 28,193 2,174 1,532 — 31,899 2014 £000 152 2,484 70 19,565 50,544 (3,324) (315) 495 16 69 85 54 13 67 2014 £000 17,300 1,242 1,023 — 19,565 Directors’ remuneration is included as part of the staff costs above. Directors’ remuneration is disclosed separately in the Directors’ Report and forms part of these financial statements. Average number employed (including executive directors of subsidiaries) Directors Sales and Marketing Production Logistics Maintenance Finance, IT and Administration 2015 £000 16 101 678 101 35 95 1,026 2014 £000 11 68 378 53 33 42 585 Pension costs The Group operates a number of money purchase pension schemes. The companies and the employees contribute towards the schemes. The total pension cost for the Group was £1,532,000 (2014: £1,023,000), of which £869,000 (2014: £345,000) relates to the UK schemes. The total contributions outstanding at year end was £nil (2014: £nil). i l s a c n a n F r u O i www.victoriaplc.com 29 Victoria Annual Report 2015.indd 29 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 Notes to the Accounts continued 6. Tax Current tax — Current year UK — Current year overseas — Adjustments in respect of prior years Deferred Tax (note 19) — Credit recognised in the current year — Adjustments in respect of prior years — Effect of rate change Total tax 2015 £000 1,815 495 (145) 2,165 (523) (92) 21 (594) 1,571 2014 £000 168 1,243 (2) 1,409 (836) 30 69 (737) 672 Corporation tax is calculated at 21% and 30% (2014: 23% and 30%) of the estimated assessable profit for the year in the UK and Australia respectively. The tax charge for the year can be reconciled to the profit/(loss) per the income statement as follows: (Loss)/profit before tax Tax (credit)/charge at the UK corporation tax rate of 21% (2014: 23%) Contract for Differences charge non taxable Tax effect of items that are not deductible/ non taxable in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Deferred consideration fair value re-measurement non taxable Effect of change in rate Movement in deferred tax on revalued land no longer required Tax adjustment for intangibles amortisation Crystallisation of rollover gain on plant and machinery Profit on disposal of UK property non taxable Profit on sale of Colin Campbell & Sons Limited non taxable Tax adjustments in relation to share options Tax effect of investment in Colin Campbell & Sons Limited (discontinued operation) Tax losses not recognised for deferred tax Other short term timing differences Adjustments to prior periods Tax expense/(credit) and effective tax rate 7. Dividends 2015 £000 (2,953) (620) 1,586 2 126 413 21 (4) 46 — — — — — 49 189 (237) 1,571 2015 % 21.0 (53.7) (0.1) (4.3) (14.0) (0.7) 0.1 (1.5) — — — — — (1.6) (6.4) 8.0 (53.2) Amounts recognised as distributions to equity holders in the period: Special dividend of 292.0p per share paid on 25 July 2014 Final dividend for the year ended 30 March 2013 6.0p per share (paid 3 October 2013) Interim dividend for the year ended 29 March 2014 2.0p per share (paid 20 December 2013) 2014 £000 2,397 551 (1) 591 234 — 69 (947) 29 (159) (14) (2) (1) 293 — 28 672 2015 £000 20,692 — — 20,692 2014 % 23.0 — 24.6 9.7 — 2.9 (39.5) 1.2 (6.6) (0.6) (0.1) (0.0) 12.2 — 1.2 28.0 2014 £000 — 422 141 563 30 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 30 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 8. (Loss)/earnings per share The calculation of the basic, adjusted and diluted (loss)/earnings per share is based on the following data: Profit/(loss) attributable to ordinary equity holders of the parent entity Exceptional items (net of tax effect): Contract for Differences Acquisition costs Deferred consideration Profit on sale of Australia properties Profit on sale of UK property Restructuring of Australia’s spinning mills Profit on sale of investment in Colin Campbell & Sons Limited Earnings for the purpose of basic and adjusted (loss)/earnings per share Weighted average number of shares Basic 2015 £000 Adjusted 2015 £000 Basic 2014 £000 Adjusted 2014 £000 (4,524) (4,524) 1,725 1,725 — — — — — — — (4,524) 7,554 398 1,968 — — — — 5,396 — — — — — — — 1,631 633 — (1,823) (693) 546 (111) 1,725 1,908 Weighted average number of ordinary shares for the purposes of basic and adjusted (loss)/ earnings per share Effect of dilutive potential ordinary shares: Business Growth Fund share options Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share 2015 Number of shares (‘000) 2014 Number of shares (‘000) 11,859 7,036 120 — 11,979 7,036 The potential dilutive effect of the share options has been calculated in accordance with IAS 33 using the average share price over the period the options have been in existence. The Group’s earnings/(loss) per share are as follows: Basic adjusted Diluted adjusted Basic Diluted 9. Rates of exchange 2015 Pence 45.50 45.05 (38.15) (38.15) 2014 Pence 27.12 27.12 24.52 24.52 The results of overseas subsidiaries have been translated into Sterling at the average exchange rates prevailing during the periods. The balance sheets are translated at the exchange rates prevailing at the period ends: Australia – A$ 2015 Average 1.8547 Year end 1.9184 2014 Average 1.7057 Year end 1.7988 i l s a c n a n F r u O i www.victoriaplc.com 31 Victoria Annual Report 2015.indd 31 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 Notes to the Accounts continued 10. Goodwill At cost 2015 £000 6,481 2014 £000 2,735 Goodwill is attributed to the businesses identified below for the purpose of testing impairment. These businesses are the lowest level at which goodwill is monitored and represent cash generating units (“CGU”). The aggregate carrying amounts of goodwill allocated to each CGU are as follows: Globesign Limited Whitestone Weavers Group Abingdon Flooring Limited Group Reported Segment UK UK UK 2015 £000 2,735 2,407 1,339 6,481 2014 £000 2,735 — — 2,735 The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the goodwill has been determined based on value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. The discount rate of 18.14% is estimated using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the market in which the businesses operate. The calculation uses cash flow projections extrapolated from the budget for the year ending 28 March 2015. A terminal value was calculated based on a terminal growth rate assumption of 2.5% As at 28 March 2015 no impairment provision was considered necessary. Goodwill comprises intangible assets that do not qualify for separate recognition, in particular the existing workforce. None of the goodwill is expected to be tax deductible. 11. Intangible assets Cost Amortisation Net book value At 31 March 2013 Additions (see Note 22) Intangible assets derecognised At 29 March 2014 At 30 March 2014 Additions (see Note 22) At 28 March 2015 At 31 March 2013 Charges for the period Intangible assets derecognised At 29 March 2014 At 30 March 2014 Charges for the period At 28 March 2015 At 28 March 2015 At 29 March 2014 At 30 March 2013 Customer Relationships £000 323 2,291 (75) 2,539 2,539 2,161 4,700 199 40 (75) 164 164 163 327 4,373 2,375 124 Brand Names £000 322 2,484 (75) 2,731 2,731 2,014 4,745 198 30 (75) 153 153 107 260 4,485 2,578 124 C&H Distribution £000 400 — (400) — — — — 400 — (400) — — — — — — — Group Total £000 1,045 4,775 (550) 5,270 5,270 4,174 9,445 797 70 (550) 317 317 270 587 8,858 4,953 248 32 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 32 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:13 12. Property, plant and equipment Property, plant and equipment Group Company Freehold land and buildings £000 Plant and machinery £000 Fixtures vehicles and equipment £000 Cost At 31 March 2013 Exchange differences Acquisition Additions Transfers Assets transferred to ‘assets held for sale’ (See Note 14) Disposals At 29 March 2014 At 30 March 2014 Exchange differences Acquisition Additions Transfers Disposals At 28 March 2015 Accumulated depreciation At 31 March 2013 Exchange differences Charge for the year Transfers Assets transferred to ‘assets held for sale’ (See Note 14) Disposals At 29 March 2014 At 30 March 2014 Exchange differences Charge for the year Transfers Disposals At 28 March 2015 Net Book Value At 28 March 2015 At 29 March 2014 At 30 March 2013 Included within fixed assets are the following: 12,063 (795) 7,396 10 275 (955) (9,115) 8,879 8,879 (29) 293 34 (169) (22) 8,986 1,083 (74) 258 231 (408) (815) 275 275 (13) 289 (120) (22) 409 8,577 8,604 10,980 46,449 (5,574) 459 144 (275) — (149) 41,054 41,054 (1,427) 4,126 1,007 169 (1,749) 43,180 34,959 (4,125) 1,881 (231) — (108) 32,376 32,376 (1,136) 2,106 120 (1,604) 31,862 11,318 8,678 11,490 3,527 (400) 220 377 — — (195) 3,529 3,529 (102) 1,538 350 — (384) 4,931 2,219 (270) 345 — — (164) 2,130 2,130 (72) 608 — (329) 2,337 2,594 1,399 1,308 Freehold land and buildings £000 5,506 — — — — — (5,506) — — — — — — — — 540 — 60 — — (600) — — — — — — — Total £000 5,506 — — — — — (5,506) — — — — — — — — 540 — 60 — — (600) — — — — — — — — — 4,966 — — 4,966 Total £000 62,039 (6,769) 8,075 531 — (955) (9,459) 53,462 53,462 (1,558) 5,957 1,391 — (2,155) 57,097 38,261 (4,469) 2,484 — (408) (1,087) 34,781 34,781 (1,221) 3,003 — (1,955) 34,608 22,489 18,681 23,778 Held under hire purchase/finance leases: Cost at 28 March 2015 Accumulated depreciation at 28 March 2015 Depreciation charged in year Held under finance leases: Cost at 29 March 2014 Accumulated depreciation at 29 March 2014 Depreciation charged in year www.victoriaplc.com Group Plant and machinery Hire purchase £000 Group Fixtures, vehicles and equipment Hire purchase £000 Group Fixtures, vehicles and equipment Finance lease £000 215 68 6 — — — 718 222 39 — — — 1,405 353 220 650 257 118 Group Total £000 2,338 643 265 650 257 118 33 l i s a c n a n F r u O i Victoria Annual Report 2015.indd 33 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:14 Notes to the Accounts continued 12. Property, plant and equipment continued Capital expenditure authorised and committed at the period end: Contracts placed Group 2015 £000 188 2014 £000 — The Company held no assets under finance lease or hire purchase agreements and had no capital commitments at either year end. 13. Fixed asset investments Investment property Investment in subsidiaries Note (a) (b) Group Company 2015 £000 180 — 2014 £000 180 — 2015 £000 180 38,180 2014 £000 180 27,126 a) Investment property Investment property relates to land, therefore no depreciation charge has been applied. b) Investment in subsidiaries The investment represents shares in subsidiaries at cost. Victoria PLC owns directly or indirectly the whole of the allotted ordinary share capital of the following subsidiary companies. Victoria Carpets Limited Westwood Yarns Limited Carpets@Home Limited Globesign Limited Westex (Carpets) Limited Abingdon Flooring Limited Distinctive Flooring Limited Alliance Distribution Limited Whitestone Carpets Holdings Limited View Logistics Limited Carpet Line Direct Limited Whitestone Weavers Limited Thomas Witter Carpets Limtied Gaskell Mackay Carpets Limited The Victoria Carpet Company Pty Limited V-Line Carpets Limited The Victoria Carpet Company Limited Flooring at Home Limited Munster Carpets Limited Country of incorporation and operation England England England England England England England England England England England England England England Australia England England England Ireland Nature of business Carpet manufacture Yarn manufacture Carpet distributor Holding Company Carpet manufacture Carpet manufacture Carpet distributor Logistic Services Holding Company Logistic Services Carpet distributor Carpet distributor Carpet distributor Carpet distributor Carpet manufacture Non-trading Non-trading Non-trading Non-trading 34 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 34 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:14 14. Assets held for sale The assets held for sale in the prior year comparatives related to the Castlemaine spinning mill in Australia. The spinning mill was sold during this period for proceeds amounting to net book value. 15. Inventories Raw materials Work-in-progress Finished goods Group 2015 £000 5,613 2,955 32,388 40,956 2014 £000 4,296 1,957 14,950 21,203 The Company held no inventories at either year end. There is no material difference between the balance sheet value of inventories and their replacement cost. 16. Trade and other receivables Amounts falling due within one year : Trade debtors Amounts owed by subsidiaries Other debtors Prepayments and accrued income Group Company 2015 £000 29,120 — 6 1,827 30,953 2014 £000 12,807 — 14 1,143 13,964 2015 £000 — 23,763 — 664 24,427 2014 £000 — 15,693 — 484 16,177 The average credit period taken on sale of goods is 54 days (2014: 54 days). No interest is charged on past due receivables. Amounts owed by subsidiaries to the Company are not considered to be impaired. The above amounts are stated net of an allowance (net of VAT) of £811,000 (2014: £218,000) made for estimated irrecoverable amounts from sale of goods. The movement of this allowance account during the year is summarised below: Opening balance at 30 March 2014 Acquisitions opening balances (Decrease)/increase in provisions Written off against provisions Recovered amounts Exchange differences Closing balance at 28 March 2015 2015 £000 218 805 (64) (123) (19) (6) 811 2014 £000 212 — 196 (159) (8) (23) 218 i l s a c n a n F r u O i www.victoriaplc.com 35 Victoria Annual Report 2015.indd 35 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:14 Notes to the Accounts continued 16. Trade and other receivables continued An analysis of the age of trade receivables that are past due at the reporting date but not impaired can be seen in the table below: 1 - 30 days overdue 31 - 60 days overdue > 60 days overdue Total An analysis of the age of impaired trade receivables is as follows: 1–30 days overdue 31–60 days overdue > 60 days overdue Total 2015 £000 5,081 484 441 6,006 2015 £000 80 30 990 1,100 2014 £000 1,241 117 216 1,574 2014 £000 99 4 118 221 The main factors in assessing the impairment of trade receivables are the age of the balance and the circumstances of the individual customer. The directors consider that the carrying amount of all receivables, including those impaired, approximate to their fair value. 17. Trade and other payables Amounts falling due within one year : Trade creditors Amounts due to subsidiaries Deferred and contingent earn-out liabilities Other creditors Accruals Fair value of Contract for Differences Deferred income Amounts falling due after one year : Deferred and contingent earn-out liabilities Deferred income Other creditors Group Company 2015 £000 23,633 — 6,459 5,939 2,780 — 255 39,066 2014 £000 9,554 — 1,000 2,827 2,213 1,605 297 17,496 2015 £000 — 1 4,416 — 578 — — 4,995 Group Company 2015 £000 11,675 527 58 12,260 2014 £000 6,804 841 71 7,716 2015 £000 6,757 — — 6,757 2014 £000 — 32 1,000 — 491 1,605 — 3,128 2014 £000 6,804 — — 6,804 Deferred and contingent earn-out liabilities (Group and Company) are in connection with the acquisitions of Globesign Limited, Abingdon Flooring group and Whitestone Weavers group. Under IFRS 13 Fair Value Measurement this is classified under the fair value hierarchy as Level 3. The Group deferred and contingent earn-out liabilities due after one year of £11.68m is split as follows: between one to years £5.72m and between two to five years £5.96m. Deferred income relates to government grants as shown in note 25. 36 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 36 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:14 18. Other financial liabilities Amounts falling due within one year : Bank overdrafts Bank loans Hire purchase and finance lease creditors Amounts falling due after more than one year: Bank Loans — between one and two years — between two and five years Other Loans — between two and five years — over five years Hire purchase and finance lease obligations payable — Between one and two years — Between two and five years Group Company 2015 £000 10,894 6,689 825 18,408 Group 2015 £000 9,712 — 1,831 8,333 326 62 20,264 2014 £000 5,267 — 139 5,406 2014 £000 4,023 6,965 — — 164 115 11,267 2015 £000 9,517 6,689 — 16,206 Company 2015 £000 9,712 — 1,831 8,333 — — 19,876 The contractual amounts of loans (undiscounted) falling due after more than one year are repayable as follows: Bank Loans — Between one and two years — Between two and five years Other Loans — Between one and two years — Between two and five years — Over five years Group 2015 £000 10,363 — 2,000 6,758 9,408 2014 £000 4,732 7,042 — — — Company 2015 £000 10,363 — 2,000 6,758 9,408 2014 £000 5,267 — — 5,267 2014 £000 2,768 6,965 — — — — 9,733 2014 £000 3,477 7,042 — — — The directors consider that the carrying amounts of other financial liabilities approximate to their fair value. Bank borrowings in the United Kingdom are secured by way of debentures over the assets; the UK businesses were in a net debt position of £36.96m at the year end (2014: net cash of £0.19m). Bank borrowings of the Australian subsidiary are secured by a general security agreement over its assets; the Australian company was in a net cash position of £0.68m at the year-end (2014: Net borrowing position of £1.25m). The Company has guaranteed the bank borrowings of its UK subsidiaries and there is a Composite Accounting Agreement between the Company, Victoria Carpets Limited, Westwood Yarns Limited, Globesign Limited, Westex (Carpets) Limited and Barclays Bank PLC. At the 28 March 2015 the UK subsidiaries were in a net cash position under the Composite Accounting Agreement of £2.93m (2014: net cash position of £0.96m). The average effective interest rate of borrowings is set out in note 26 “Financial instruments”. Other loans were £10.16m at the 28 March 2015 and are in respect of a fully subordinated £10m 2022 unsecured loan note facility provided by the Business Growth Fund at the time of the acquisition of Abingdon Flooring group. The loan agreement also includes a £2.1m redemption premium repayable in 2019 and £0.16m of accrued interest in this period is included within the loan balance. www.victoriaplc.com 37 i l s a c n a n F r u O i Victoria Annual Report 2015.indd 37 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:15 Notes to the Accounts continued 18. Other financial liabilities continued Operating lease arrangements The Group and Company as lessee Details of operating lease arrangements for the Group and Company are as follows: Minimum lease payments under operating leases recognised in income statement for the year. Group Company 2015 £000 2,761 2014 £000 668 2015 £000 495 At the balance sheet date, the Group and Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Minimum lease payments Within one year In the second to fifth years inclusive After five years Present value of minimum lease payments Within one year In the second to fifth years inclusive After five years Group Company 2015 £000 4,192 10,772 12,304 27,268 2014 £000 1,569 5,521 11,926 19,016 2015 £000 503 2,004 6,998 9,505 Group Company 2015 £000 3,694 7,261 3,583 14,538 2014 £000 1,382 3,695 3,544 8,621 2015 £000 439 1,287 1,616 3,342 2014 £000 1 2014 £000 495 1,988 7,425 9,908 2014 £000 436 1,290 1,655 3,381 Operating lease payments represent rentals payable by the Group and Company principally for vehicles and certain of its properties. Leases of vehicles are usually negotiated for a term of 3-5 years and rentals are fixed for the term of the lease. Leases of land and buildings are usually negotiated for 5-20 years. 19. Deferred taxation At 30 March 2013 Exchange adjustment Credit to Income statement (Note 6) Adjustment for acquisition of Globesign Limited Effect of rate change (Note 6) Deferred tax on intangible assets acquired At 29 March 2014 At 29 March 2014 Exchange adjustment Credit to Income statement (Note 6) Adjustment for acquisitions in year opening balances Effect of rate change (Note 6) Deferred tax on intangible assets acquired At 28 March 2015 Group £000 Company £000 (574) 157 (806) (32) 69 955 (231) (231) 55 (615) 402 21 835 467 471 — (756) — — — (285) (285) (444) 21 — (708) 38 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 38 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:15 19. Deferred taxation continued The provision for deferred taxation is as follows: Capital Allowances Liability on recovering value through sale Deferred grant income Tax losses Other timing differences Group Company 2015 £000 2,521 (81) (234) (1,237) (502) 467 2014 £000 618 (188) (341) (838) 518 (231) 2015 £000 — (81) — — (627) (708) 2014 £000 (1) (77) — (207) — (285) The provision is based on taxation rates of 20% in the UK and 30% in Australia (2014: 20% and 30% respectively). Effect on UK deferred tax balances of Proposed changes in the UK corporation tax rate In the 2013 Budget, issued on 20 March 2013, the government announced that the main rate of corporation tax would be reduced to 20% with effect from 1 April 2015. This rate reduction was substantively enacted for financial reporting purposes on 2 July 2013. Accordingly, current tax has been provided for at a rate of 21% and deferred tax has been provided for at a rate of 20% in these financial statements. The Chancellor announced further reductions to the UK corporation tax rate to 19% for FY17 and 18% for FY20 in the 8 July 2015 Budget. Those rates have not yet been formally ratified by Parliament and therefore not taken into account in the current period. Deferred tax assets and liabilities The deferred tax balances shown on the balance sheet are: Group Company Deferred tax liabilities Deferred tax assets 20. Share capital Allotted, called up and fully paid 14,556,579 Ordinary shares of 25p each (2014: 7,087,730) 2015 £000 2,370 (1,903) 467 2014 £000 1,210 (1,441) (231) 2015 £000 — (708) (708) 2015 £000 2014 £000 — (285) (285) 2014 £000 3,639 1,772 The Company has one class of Ordinary shares which carry no right to fixed income. The Company issued 7,468,849 fully paid ordinary shares of 25p each during the year ended 28 March 2015, of which 7,087,730 were issued in respect to settlement of the Contract for Differences between the Company and Camden Holdings Limited. The Company issued 379,561 shares to certain senior management of the 3 businesses acquired in the current and prior period, with 73,421 of these shares issued in lieu of deferred consideration payable to the vendors. The Company also issued 1,558 shares in connection with a retailer incentivisation scheme established in July 2014. Capital risk management The Group considers its capital to comprise its Ordinary share capital, share premium, accumulated retained earnings and net debt. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group monitors its gearing to balance risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. The Group is subjected to a number of financial covenants in connection with its UK bank facilities. These covenants are tested quarterly and were not breached during the year. www.victoriaplc.com 39 i l s a c n a n F r u O i Victoria Annual Report 2015.indd 39 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:15 Notes to the Accounts continued 21. Reserves (i) Share Premium and Retained Earnings 52 weeks ended 29 March 2014 At 30 March 2013 £000 Income Statement £000 Dividends paid £000 Other movements £000 52 weeks ended 28 March 2015 At 29 March 2014 £000 Income Statement £000 Dividends paid £000 Other movements £000 At 28 March 2015 £000 Group Share Premium Profit and Loss Account Adjustments arising out of consolidation: Goodwill Exchange rates Retained earnings Company Share Premium Retained earnings 829 — — 80 909 — — 9,235 10,144 27,262 1,725 (563) 150 28,574 (4,524) (20,691) — 3,359 (1,533) 9,995 35,724 — — 1,725 829 4,669 — 25,097 — — (563) — (563) — (5,078) (4,928) (1,533) 4,917 31,958 — — (4,524) — — (20,691) — (756) (756) (1,533) 4,161 5,987 80 103 909 29,306 — (6,797) — (20,691) 9,235 — 10,144 1,818 The loss of the Company for the year determined in accordance with the Companies Act 2006 was £6,797,000 (2014: profit of £25,097,000) The Company is exempt under Section 408 of the Companies Act 2006 from presenting its own Income statement and Statement of Comprehensive Income. (ii) Share-Based Payment Reserve Balance at 29 March 2014 Business Growth Fund Share Options - finance costs Exchange rates Transfer of share-based payment reserve to retained earmings Balance at 28 March 2015 22. Acquisition of subsidiaries Group 2015 £000 — 60 — — 60 2014 £000 162 — (12) (150) — Company 2015 £000 — 60 — — 60 2014 £000 103 — — (103) — (a) Abingdon Flooring Limited and its wholly owned subsidiaries On 30 September 2014, the Group acquired the entire issued share capital of Abingdon Flooring Limited and its wholly owned subsidiaries, Alliance Distribution Limited and Distinctive Flooring Limited (‘Abingdon Flooring group’). The principal activity of the Abingdon Flooring group is the manufacture and sale of carpets, carpet tiles and hard flooring across the UK. The business operates from facilities in South Wales, Kidderminster and Yorkshire, employing a workforce of more than 500 people. The acquisition is expected to be accretive to the underlying earnings per share of the Company. The Group results for the year ended 28 March 2015 included £38.4m of revenue and £2.4m profit before tax from the Abingdon Flooring group. Consideration (i) Initial cash consideration of £7.655m was transferred on acquisition. (ii) Deferred consideration of up to £4.5m at the end of the third anniversary of the acquisition if Abingdon Flooring Group achieve annual performance targets for increased EBIT, payable in annual instalments of up to £1.5m. (iii) Deferred consideration at the end of the third anniversary of the acquisition being 50 per cent of the EBIT generated by Abingdon Flooring Group in excess of the cumulative target EBIT of £9.85m over the three financial periods. (iv) Deferred consideration is also payable if the average working capital for the first 12 calendar months post acquisition is below £13.5m, and payable at 50% of the improvement. 40 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 40 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:15 22. Acquisition of subsidiaries continued Net assets acquired Property, plant and equipment Inventories Trade and other receivables Net cash/(overdraft) Bank loan HP/ Finance lease Trade and other payables Current tax liabilities Deferred tax liability Fair value of net assets acquired Fair value adjustments Intangible assets (see Note 11) Deferred tax liability on intangible assets acquired Total identifiable net assets Goodwill (see Note 10) Total consideration Satisfied by: Cash Deferred consideration The deferred consideration of £3.40m was determined by applying a discounted cash flow model to estimated future earnings. Net cash outflow arising on acquisition: Cash consideration Cash and cash equivalents acquired Amounts recognised at acquisition date £’000 4,050 12,814 14,636 (67) (6,300) (649) (15,620) (266) (220) 8,378 1,672 (335) 9,715 1,339 11,054 7,655 3,399 11,054 (7,655) (67) (7,722) i l s a c n a n F r u O i Other than where fair value adjustments have been made, the book value of assets acquired are considered to approximate to their fair values. Transaction costs of £166,000 relating to the acquisition of Abingdon Flooring group have been recognised as an expense and included within adminstrative expenses in the Income Statement. If the acquisition of Abingdon Flooring group had been completed on the first day of the financial year, Group revenues for the period would have been £36.45m higher and Group profit before tax would have been £0.61m higher. (b) Whitestone Weavers group On 14 January 2015, the Group acquired the Whitestone Weavers group of companies, comprising Whitestone Weavers Limited, Carpet Line Direct Limited, Gaskell Mackay Carpets Limited, View Logistics Limited and Thomas Witter Carpets Limited. The principal activity of the Whitestone Weavers group is the design, sale and distribution of carpets across the UK. The business operates from facilities in Hartlepool, employing a workforce of more than 100 people. The acquisition is expected to be accretive to the underlying earnings per share of the Company. The Group results for the year ended 28 March 2015 included £7.9m of revenue and £0.7m profit before tax from the Whitestone Weavers group. www.victoriaplc.com 41 Victoria Annual Report 2015.indd 41 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:15 Notes to the Accounts continued 22. Acquisition of subsidiaries continued Consideration (i) Initial cash consideration of £5.748m was transferred on acquisition. (ii) Deferred cash consideration of (a) £2.271m payable on 31 March 2015; (b) £1.748m payable in April 2016; and (c) £2.536m payable in January 2018. (iii) Deferred consideration of up to £1.5m at the end of the third anniversary of the acquisition if Whitestone Weavers Group achieve annual performance targets for increased EBITDA, payable in annual instalments of up to £0.5m. Net assets acquired Property, plant and equipment Inventories Trade and other receivables Net cash/(overdraft) Bank loan HP/ Finance lease Trade and other payables Current tax liabilities Deferred tax liability Fair value of net assets acquired Fair value adjustments Intangible assets (see Note 11) Deferred tax liability on intangible assets acquired Total identifiable net assets Goodwill (see Note 10) Total consideration Satisfied by: Cash Deferred consideration The deferred consideration of £6.52m was determined by applying a discounted cash flow model to estimated future earnings. Net cash outflow arising on acquisition: Cash consideration Cash and cash equivalents acquired Amounts recognised at acquisition date £’000 1,907 8,920 4,602 (1,146) (759) (414) (4,535) (534) (182) 7,859 2,503 (500) 9,862 2,407 12,269 5,748 6,521 12,269 (5,748) (1,146) (6,894) Other than where fair value adjustments have been made, the book value of assets acquired are considered to approximate to their fair values. Transaction costs of £232,000 relating to the acquisition of the Whitestone Weavers group have been recognised as an expense and included within adminstrative expenses in the Income Statement. If the acquisition of the Whitestone Weavers group had been completed on the first day of the financial year, Group revenues for the period would have been £28.56m higher and Group profit before tax would have been £1.12m higher. 42 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 42 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 23. Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities Operating (loss)/profit from continuing operations Adjustments for: — Depreciation charges — Amortisation of intangible assets — Deferred consideration revaluation — Fair value charge for Contract for Differences — Profit on disposal of property, plant and equipment — Exchange rate difference on consolidation Operating cash flows before movements in working capital Decrease/(increase) in working capital Cash generated/ (used) by operations Interest paid Income taxes paid Net cash inflow/ (outflow) from operating activities 24. Analysis of net debt Cash Bank overdraft Cash and cash equivalents Finance leases and hire purchase agreements — Payable less than one year — Payable more than one year Bank loans — Payable less than one year — Payable more than one year Other loans payable more than one year Net debt At 29 March 2014 £000 15,192 (5,267) 9,925 (139) (279) — (10,988) — (1,481) Group 2015 £000 (1,310) 3,003 270 1,968 7,397 (69) (27) 11,232 857 12,089 (1,419) (2,113) 8,557 Cash flow £000 (12,800) (5,627) (18,427) 241 — 369 1,198 (10,164) (26,783) 2014 £000 2,812 2,484 70 — 1,605 (3,324) 55 3,702 4,317 8,019 (531) (395) 7,093 Acquisition £000 — — — (773) (290) (7,058) — — (8,121) Company 2015 £000 2014 £000 (5,902) 24,163 — — 1,301 7,397 — — 2,796 (8,112) (5,316) (1,114) — (6,430) 60 — — 1,605 (693) — 25,135 (11,488) 13,647 (384) — 13,263 Other non-cash changes £000 Exchange movement £000 — — — (164) 164 — — — — — — — 10 17 — 78 — 105 At 28 March 2015 £000 2,392 (10,894) (8,502) (825) (388) (6,689) (9,712) (10,164) (36,280) The Group’s policy on Derivatives and Other Financial Instruments is set out in note 26 “Financial instruments”. 25. Government Grants During the year ended 28 March 2015, the Group’s Australian operations benefited from government assistance under the SIP (Strategic Investment Programme) which was accounted for as follows: Deferred Income at 29 March 2014 Total grant income in the year Less: Amortisation to deferred income by release through cost of production in the year Exchange differences Deferred income at 28 March 2015 Presented in: Current liabilities Non-current liabilities Deferred income at 28 March 2015 There are no unfulfilled conditions or other contingencies attaching to government assistance. www.victoriaplc.com 2015 £000 1,138 — (295) (61) 782 255 527 782 2014 £000 1,774 — (315) (321) 1,138 297 841 1,138 43 l i s a c n a n F r u O i Victoria Annual Report 2015.indd 43 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 Notes to the Accounts continued 26. Financial instruments Background In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout the financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The “financial instruments” which are affected by these risks comprise borrowings, cash and liquid resources used to provide finance for the Group’s operations, together with various items such as trade debtors and trade creditors that arise directly from its operations, inter-company payables and receivables, and any derivatives transactions (such as interest rate swaps and forward foreign currency contracts) used to manage the risks from interest rate and currency rate volatility. A contract for differences was entered into in April 2013 between the Company and Camden Holdings Limited, a company wholly owned by The Camden Trust of which Mr Wilding, Executive Chairman, is the settlor and a discretionary beneficiary, and was established to link the performance and reward of Mr Wilding to the creation of wealth for all shareholders. Under the original terms of the agreement, this was to be settled in cash, but was subsequently settled during the financial period in shares and therefore there is no on-going exposure to risk. General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments. The Group’s exposure to credit risk is primarily attributable to its trade receivables. Credit risk is managed locally by the management of each business unit. Prior to accepting new customers, credit checks are obtained from reputable external sources. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction on the recoverability of the cash flows. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with low credit risk assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Company has no significant concentration of credit risk, other than with its own subsidiaries, the performances of which are closely monitored. The Directors confirm that the carrying amounts of monies owed by its subsidiaries approximate to their fair value. 44 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 44 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 26. Financial instruments continued Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, the cash position is continuously monitored to ensure that cash balances (or agreed facilities) meet expected requirements for a period of at least 90 days. The Board monitors annual cash budgets and updated forecasts against actual cash position on a monthly basis. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The maturity of financial liabilities is detailed in note 18 ‘Other financial liabilities’. Market risk Market risk arises from the Group’s use of interest bearing and foreign currency financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates (currency risk). a) Interest rate risk The Group finances its operations through a mixture of retained profits, equity capital and bank facilities, including hire purchase and lease finance. The Group borrows in the desired currency at floating or fixed rates of interest and may then use interest rate swaps to secure the desired interest profile and manage exposure to interest rate fluctuations. Interest rate sensitivity The annualised effect of a 50 basis point decrease in the interest rate at the balance sheet date on the variable rate debt carried at that date would, all other variables held constant, have resulted in a increase in a decrease in post-tax loss for the year of £110,000 (2014: increase in post-tax profit of £16,000). A 50 basis point increase in the interest rate would, on the same basis, have increased the loss for the year by the same amount. Effective interest rate analysis In respect of income-earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest rates for the rermaining contractual maturity based on the discounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. As at 28 March 2015 As at 29 March 2014 Effective Interest Rate % Total £000 0–1 years £000 1–2 years £000 2–5 years £000 Over 5 years £000 Effective Interest Rate £000 Total £000 0–1 years £000 1–2 years £000 2–5 years £000 Group Cash Bank loans & overdraft Other loans Finance lease and HP Company Cash Bank loans & overdraft Other loans — 2,392 2,392 — 4.15 (27,295) (17,583) (9,712) — — — — 13.30 (10,164) — — (1,831) (8,333) 0.08 17,505 17,505 — — 2.99 (18,568) (8,835) (2,768) (6,965) 5.32 (1,213) (825) (326) (62) — 6.59 (36,280) (15,641) (10,169) (2,137) (8,333) 6.94 3.08 (418) (66) (180) (172) (1,481) 8,604 (2,948) (7,137) — — — — 3.46 (25,918) (16,206) (9,712) — — — — 0.11 13,151 13,151 — — 3.70 (15,000) (5,267) (2,768) (6,965) 13.30 (10,164) — — (1,831) (8,333) — — — — — 6.23 (36,082) (16,206) (9,712) (1,831) (8,333) 3.70 (1,849) 7,884 (2,768) (6,965) www.victoriaplc.com 45 l i s a c n a n F r u O i Victoria Annual Report 2015.indd 45 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 Notes to the Accounts continued 26. Financial instruments continued Non-interest bearing liabilities Non-interest bearing liabilities falling due within one year 2015 £000 2014 £000 38,901 17,496 Details of trade and other payables falling due within one year are set out in note 17. b) Currency risk The main currency exposure of the Group arises from the ownership of the Australian subsidiary, which accounts for approximately 60% of the Group’s net assets. It is the Board’s policy not to hedge against movements in the Sterling/Australian Dollar exchange rate. Other currency exposure derives from trading operations where goods are exported or raw materials and capital equipment are imported. These exposures may be managed by forward currency contracts, particularly when the amounts or periods to maturities are significant and at times when currencies are particularly volatile. Currency risk sensitivity The effect of a 10% strengthening of the Australian Dollar against Sterling over the full year would, all other variables held constant, have resulted in a decrease in Group post-tax loss for the year of £121,000. (2014: increased Group post-tax profit by £255,000). A 10% weakening in the exchange rate would, on the same basis, have increased Group post-tax loss by £99,000 (2014: decreased Group post-tax profit by £208,000). The effect of a 10% strengthening of the Australia Dollar against sterling at year end rates would have resulted in an increase to equity of £1,318,000 (2014: an increase of £1,582,000). A 10% weakening in the exchange rate would, on the same basis, have decreased equity by £1,078,000 (2014: decrease of £1,294,000). The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Australian dollar Liabilities 2015 £000 7,939 2014 £000 Assets 2015 £000 2014 £000 11,022 19,797 22,547 c) Trading It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. 27. Key sources of estimation uncertainty In applying the Group’s accounting policies, appropriate estimates have been made in a number of areas and the actual outcome may vary from the position described in the Group’s and Company’s balance sheets at 28 March 2015. The key sources of uncertainty at the balance sheet date that may give rise to a material adjustment to the carrying value of assets and liabilities within the next financial year are as follows: Deferred tax assets (£1,903,000; 2014: £1,441,000) Deferred tax assets are recognised at the balance sheet date based on the assumption that there is a high expectation that the asset will be realised in due course. This assumption is dependent on the UK and Australia’s ability to generate sufficient future taxable profits. Inventories (£40,956,000; 2014: £21,203,000) A proportion of inventory is made up of stocks which are not expected to sell for the full normal selling price, either because they are remnants, come from discontinued ranges, or are below the required quality standard. This inventory is carried at a value which reflects the Directors’ best estimates of achievable selling prices. The carrying amount of inventories carried at fair value less costs to sell amounted to £3,322,000 (2014: £2,021,000). During the year, provisions relating to these stocks increased by £1,005,000 (2014: an increase of £16,000). 46 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 46 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 27. Key sources of estimation uncertainty continued Deferred earn-out consideration and intangible asset valuations on acquisitions Details of the deferred earn-out consideration and intangible asset valuations on the acquisitions made during the period are set out under note 22. Details of the deferred earn-out consideration for Globesign Limited (acquired in prior year) are set out in the 29 March 2014 Annual Report and Accounts. Trade receivables Details of the provision made for non-recoverability of debts due to the Group from the sale of goods are set out under note 16. 28. Share-based payments Business Growth Fund Share Option Agreement The Company entered into a fully subordinated £10m 2022 unsecured loan note facility provided by the Business Growth Fund (‘BGF’) at the time of the acquisition of Abingdon Flooring group. The Company granted BGF an option for 746,000 new Victoria Plc ordinary 25p shares, representing 5% of the Company’s deemed enlarged issued share capital at the time of grant. These options have an exercise price of £2.86, being the latest closing mid-market price on the date of grant. The options are exercisable on the earlier of 30 September 2017 and certain changes in the Company’s shareholders. Details of the share options outstanding during the year are as follows: At start of period Granted during the period Forfeited or expired during the period Outstanding at end of the period Exercisable at end of the period Number of Shares Weighted average exercised price (p) 2015 — 746,000 — 746,000 — 2014 — — — — — 2015 — 286.0 — 286.0 — 2014 — — — — — The estimated fair value of the options granted to the BGF is £725,000. The fair value of the option will be charged through the income statement and recognised as a finance cost on a straight line basis over the period of the loan note. The total stock option charge in the year is £60k for the six month period the agreement has been in place. The fair value of the option was calculated at the date of grant using the Black-Scholes model. The inputs into the Black-Scholes are as follows: Exercised price (p) Expected volatility Expected life Risk-free interest rate Expected dividend yields 286.00 40% 6 years 3.5% 2.5% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous five years. The expected useful life in the model has been adjusted, based on Management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. i l s a c n a n F r u O i www.victoriaplc.com 47 Victoria Annual Report 2015.indd 47 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:16 Notes to the Accounts continued 29. Related parties Transactions between the Company and its subsidiaries have been eliminated on consolidation. Identity of related parties The Group has a related party relationship with its Directors and executive officers. The Company has a related party relationship with its subsidiaries and its directors and executive officers. Transactions with key management personnel Key management personnel are considered to be the directors of the Company and its subsidiaries. As at 28 March 2015, the key management personnel, and their immediate relatives controlled 52.4% of the voting shares of the Company. The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS24 Related Party Disclosures. Short-term employee benefits Post-employment benefits Transactions with subsidiary undertakings: Dividend income – The Victoria Carpet Company Pty Limited Dividend income – Victoria Carpets Limited Dividend income – Globesign Limited Dividend income - Abingdon Flooring Limited Dividend income - Whitestone Carpets Holdings Limited Rental income – Victoria Carpets Limited Amounts due from subsidiary undertakings Amounts due to subsidiary undertakings 30. Post balance sheet events New bank facilities Group 52 weeks 28 March 2015 £000 1,661 196 1,857 Company 52 weeks 28 March 2015 £000 — 500 2,000 1,500 500 80 As at 28 March 2015 £000 23,763 1 52 weeks 29 March 2014 £000 1,033 112 1,145 52 weeks 29 March 2014 £000 14,393 2,000 10,000 — — 80 As at 29 March 2014 £000 15,693 32 The Company has agreed a new multi-currency revolving facility with its existing Group bankers, Barclays and HSBC, which has replaced existing facilities and provides substantial headroom for future growth. 48 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 48 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 Five Year Record Results of continuing operations Revenue EBITDA (note a) Depreciation and amortisation Operating profit/(loss) (Pre Exceptional items) Finance costs Profit/(loss) before tax and exceptional items Exceptional items Profit/(loss) before tax Tax Profit/(loss) from continuing operations Profit/(loss) for the period from discontinued operations Profit/(loss) attributable to shareholders Dividend attributable to the period ASSETS EMPLOYED Operating assets Non-current assets Net current assets (note b) Non-current liabilities Financed by Share capital and premium Retained reserves Shareholders funds Net debt ANALYSIS Return on operating assets Return on shareholders funds Earnings per share (basic) Earnings per share (basic adjusted) Dividend per share attributable to the period Dividend cover (basic) Dividend cover (adjusted) % % p p p times times 52 weeks 28 March 2015 £000 128,304 11,883 (3,273) 8,610 (1,643) 6,967 (9,920) (2,953) (1,571) 52 weeks 29 March 2014 £000 52 weeks 30 March 2013 £000 52 weeks 31 March 2012 £000 52 weeks 2 April 2011 £000 71,386 5,135 (2,554) 2,581 (531) 2,050 231 2,281 (672) 70,909 2,331 (2,752) (421) (465) (886) (2,634) (3,520) 738 77,126 5,642 (2,974) 2,668 (461) 2,207 (660) 1,547 (461) 70,503 5,358 (2,962) 2,396 (472) 1,924 — 1,924 (715) (4,524) 1,609 (2,782) 1,086 1,209 — (4,524) — 38,008 30,829 (12,727) 56,110 13,783 6,047 19,830 36,280 56,110 15.34 (14.89) (38.1) 45.5 — n.a n.a 116 1,725 141 26,549 17,056 (7,485) 36,120 2,681 31,958 34,639 1,481 36,120 7.15 6.59 24.5 27.1 2.0 11.41 13.53 (182) (2,964) 563 24,206 23,155 (1,380) 45,981 2,587 35,886 38,473 7,508 45,981 (0.92) (9.15) (39.6) (11.0) 8.0 n.a n.a — 1,086 729 26,458 24,144 (2,535) 48,067 2,565 37,755 40,320 7,747 48,067 5.55 3.84 15.6 23.7 10.5 1.49 2.26 — 1,209 625 27,593 21,668 (3,268) 45,993 2,565 37,197 39,762 6,231 45,993 5.21 4.84 17.4 18.3 9.0 1.93 2.04 n o i t a m o f n I r e h t O Notes (a) Earnings before interest, tax, depreciation, amortisation and exceptional items (b) Excluding net debt, but including fair value of financial instruments where applicable. www.victoriaplc.com 49 Victoria Annual Report 2015.indd 49 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 Shareholder Information Corporate website The Annual Report, Company announcements and other information are available on the Group’s website at: www.victoriaplc.com. Shareholder queries If you have any queries in relation to Victoria PLC shares, please contact the Company’s registrars whose details are as follows: Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Telephone: 0871 664 0300 Overseas: +44 20 8639 3399 website:www.capitaregistrars.com Financial calendar Preliminary results announcement AGM Half year results 30 July 2015 25 September 2015 November 2015 Dividend payments Our registrars have the facility to pay shareholders’ dividends directly into their bank accounts, instead of receiving the dividend payment by cheque. They are also able to convert dividend payments into local currency and send the funds by currency draft or, again, if preferred, pay them straight into a bank account. More information on the above services can be obtained from Capita Registrars or downloaded from the Group’s website: www.victoria.plc.com/victoriaplc/investors/downloads/ Unsolicited mail The Company is required by law to make its share register available on request to the public and organisations which may use it as a mailing list resulting in shareholders receiving unsolicited mail. Shareholders wishing to limit such mail should write to the Mailing Preference Service DMA house, 70 Margaret Street, London, W1W 8SS or register online at www.mpsonline.org.uk Victoria PLC Registered office Worcester Road Kidderminster Worcestershire, DY10 1JR Company Registered No. (England & Wales) 282204 Advisors Auditor: Nexia Smith & Williamson – 25 Moorgate, London, EC2R 6AY Banker: Barclays Bank PLC – PO Box 3333, One Snow Hill, Queensway, Birmingham, B3 2WN Registrar: Capita Registrars Ltd – The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Solicitor: Brown Rudnick LLP – 8 Clifford Street, London, WS1 2LQ Stockbroker: Cantor Fitzgerald Europe – One Churchill Place, Canary Wharf, London E14 5RB Public Relations: MHP Communications – 60 Great Portland Street, London, W1W 7RT 50 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 50 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 Glossary CFD EBIT EBITDA Contract for Differences Earnings before interest and tax Earnings before interest, tax, depreciation, amortisation and exceptional items Exceptional Items Transactions which are material by virtue of their size or incidence FY15 FY16 IAS IFRS LTIP KPIs PBT PSP The 52 weeks ended 28 March 2015 The 53 weeks ending 2 April 2016 International Accounting Standards International Financial Reporting Standards Long Term Incentive Plan Key Performance Indicators used to assess business performance Profit before taxation Performance Share Plan n o i t a m r o f n I r e h t O www.victoriaplc.com 51 Victoria Annual Report 2015.indd 51 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 Principal Subsidiaries and their Directors Victoria Carpets Limited Manufacture, distribution and sale of carpets Kidderminster, UK John Shirt (Non-executive Chairman) Neil Glover (Managing) Gary Restall Jonathan Stone The Victoria Carpet Company Pty Limited Manufacture and sale of carpets Dandenong, Australia Michael Oakley (Non-executive Chairman) Phil Smith (Managing) Anne Seymour Michael Davies (Non-executive) Warwick Whyte (Non-executive) Westwood Yarns Limited Manufacture and sale of carpet yarns Holmfirth, UK Trevor Chippendale (Managing) Terry Danks Westex (Carpets) Limited Manufacture and sale of carpets Cleckheaton, UK John Shirt (Joint Managing) John Snee (Joint Managing) Geoffrey Wilding Abingdon Flooring Limited Manufacture, distribution and sale of carpets Newport, Wales, UK James Taylor (Managing) Edward Charlesworth Robert Dight Martin Peace Christine Matthews Geoffrey Wilding Whitestone Weavers Limited Distributor of carpet and carpet accessories Hartlepool, UK Steve Byrne (Managing) Vincent Holden Geoffrey Wilding Gaskell Mackay Carpets Limited Distributor of carpet and carpet accessories Hartlepool, UK Steve Byrne (Managing) Stephen Donlan Geoffrey Wilding Carpet Line Direct Limited Distributor of carpet and carpet accessories Hartlepool, UK Steve Byrne (Managing) Nicholas Finley Clive Beckett Geoffrey Wilding 52 Victoria PLC Annual Report and Accounts 2015 Stock Code: VCP Victoria Annual Report 2015.indd 52 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 24284.04 30 July 2015 4:01 PM Proof 3 Victoria Annual Report 2015.indd 6 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 Victoria PLC Worcester Road Kidderminster Worcestershire DY10 1JR Tel: +44 (0)1562 749300 Fax: +44 (0)1562 749649 www.victoriaplc.com Victoria Annual Report 2015.indd 1 24284.04 30 July 2015 4:01 PM Proof 3 04/08/2015 09:59:17 24284.04 30 July 2015 4:01 PM Proof 3