Earnings Call: H2 2021

Jul 20, 2021

Hello, and welcome to the Victoria Plc Preliminary Results Call. Throughout the call, all participants will be in a listen only mode and afterwards there will be a question and answer session. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Jeff Wilding, Chairman. Please go ahead with your meeting. Good morning, everybody. Thanks for joining the call. I'll begin by handing over immediately to Mike just to start taking us through the financial numbers. So Thanks, Jeff. Good morning, everyone. So hopefully, everyone's got the I won't read every word, obviously, but I'll go through and give you So starting on Page 4, just giving the initial highlights. Revenue, dollars 662,000,000 I mean, obviously, the first thing to say is this year has been a year that's been impacted by a few things, clearly, most notably COVID. And that was really The story of 2 different parts of the year in terms of the lockdown effect on the business and then the subsequent Very strong performance that we've managed to deliver outside of lockdown, and I'll come back to that in a bit. And also, as always, there is some effective acquisitions flowing through The numbers as well. So cutting through that in conjunction with COVID, obviously delivers these numbers here. So the EUR662 is almost 7% up year on year in absolute terms. And of course, it was impacted in April May last year with the initial lockdowns in particular. But then post that time, we had a very strong like for like growth, which across the year averaged down to 6.3 percent top line like for like organic growth. EBITDA, dollars 127,400,000 so an absolute Record year for us, which has been fantastic. Again, 8% up on the prior year. And of course, bearing in mind that April and May are still delivering a record EBITDA from the remaining 10 months. 19.2% margin, which is up on the prior year of 19.0%, but actually that again disguised as the fact that with COVID and cutting through all the effects of acquisitions that we've had 340 basis point overall organic improvement in margin. And again, I'll come back to that in a bit more detail. Operating cash flow, There was a little bit of an impact, and I will come back to that on in terms of working capital. But overall, we implemented very strict treasury measures in particular, as everyone can imagine, and we have again managed to deliver very strong conversion from operating profit into operating cash flows. And that's resulted in net debt reducing this year by $20,000,000 from the prior year. Again, I'll come back to that reconciliation. And leverage at the year end was 3.1 times, which is absolutely consistent with the prior year. So I'm just moving on to Slide 5, this gives a few more highlights. Again, I'm not sure that this is repetitive, so I won't go into great detail. I'd rather get on to the data on the later slides. But just to We've been through the year and ended the year with a very, very strong balance sheet, and we've performed I believe the group has performed fantastically through this period. I won't get into the operational highlights and reasons why that will come after this and Philip will walk you through that. Margin performance has also been absolutely fantastic for various operational reasons to its historical investment and also things that we've And current year, again, Philip will take you through that some more I'll take you through a breakdown of the numbers in a sec and cash flow will. So on Slide 6, this is just to show the sort of track record. So again, Just to really show that consistent growth, both in terms of revenue and in terms of margin that we have delivered over the years. And if you look at that right hand bar in EBITDA, you can see that there was an impact in the first half second half of the year, absent that initial April May lockdown, was just a fantastic period where we delivered some very, very strong Strong performance with 21 percent EBITDA margins in that half. Over the page gives you so this is Slide 7, shows some divisional numbers as we always do in the same format as you There's various things going on around clearly around COVID. Ceramic tiles is the division that was most impacted which is a business called Ascot in Italy, which was actually bought at the end of 2020, but therefore flowed through and had an impact on 21, but the key impact of that, as you'll see in a minute, is that whilst that brought some incremental revenues, really it was all to do with manufacturing and synergies Because that business, when we first bought it, had no profits and we've managed to integrate this and do a fantastic job there. And so the margin story is Underlying these numbers post lockdown across all the divisions, we have strong margin improvement. 4 70 basis points margin improvement in U. K. And your soft flooring post April, May. It's 140 basis points margin improvement in organic margin improvement in ceramic tiles post April May and 6.90 basis points of margin improvement in Australia. And we only talk about April May lockdowns because frankly, due to more recent lockdowns, the business has performed very, very strongly. I'll move on to the next few slides because these bridges are quite interesting in terms of margin just to illustrate what have been saying. So Slide 8 is the 1st division UKEuropesoft Flooring. It bridges the EBITDA margin from last year to the EBITDA margin this year. And you can see we have an impact of that initial lockdown period. That Small, but don't forget that's only over a couple of months. So of course, like all businesses, when everyone stopped doing everything, that had an impact on our business. There were no acquisitions in this division in the year. But then you can see there the very, very strong organic performance that the business was able to outside of those lockdowns to drive a record margin this year of 17.5%. If you skip over to the Slide 9, there's again an initial impact from the COVID lockdowns in that first part. This is that acquisition effect I'm talking So this is just a mix effect. We bought effectively a business in Ascot that was making virtually no profits. We also bought a smaller business during the course of this year, Keradon, In December, which is profitable in Italy as well, but smaller, but the profit margin is lower than our incumbent business. So both of those diluted did the margin in terms of just adding them in to the mix. But then beyond that, we were able to deliver some margin improvements, again, Organically. That is a smaller number than in soft flooring and what we found and again, I don't want to cut across what Philip will say as well in a minute, but What we found is that the 2nd and third or second lockdown, certainly the 2nd national lockdown had a more severe consumer behavior in Europe than it did in the UK. And That was effectively why we were able to deliver much stronger margin performance in U. K. And Europe soft flooring, which is predominantly U. K. This is our ceramic tile business, which is predominantly a Continental European business. And that also frustrated a little bit some of our integration activities, which will be delivering Everyone knows Australia wasn't had severely impacted by COVID as a country, I mean. But again, we've just had such a fantastic performance this year in Australia, both in terms Revenue and margins have been absolutely fantastic. And some of the investments that we've made over the last couple of years have really come through Just on to Slide 11. This is one that I've shown before and I'd like to repeat and It's a busy slide and I apologize for that, but it just walks through the exceptional items and other non underlying items because, of course, Understandably, there's some big numbers here and people are interested in what these things are and whether they should be worried about them or not. So I'm just going to walk I've highlighted the one in blue, which are cash items and the other ones, which are non cash items. The first few columns come up to the sort of total column after the year just ended and then the far right column is for the So if I just walk through exceptional items, we obviously make acquisitions. We made some acquisitions this year. We prospected received a lot of acquisitions this year, some of which we decided not to pursue. So there are acquisition disposal related costs. These are all all of our exception are 3rd party fees, but we're not allocating internal costs. These are legal fees, due diligence fees in this Reorganization costs, there was there were a couple of projects integrating businesses in Italy and also a small project in the UK, which Philip will talk about in a minute. So there were some redundancy The 6.5, when we bought The businesses that we bought this year, there was negative goodwill arising, an accounting Term which basically means that the price that we paid was less than the net assets of the business on the balance sheet. So we obviously got a very good price. And what you do with it in the accounts terms, you take that as an income, that's income in the consumer, which is exceptional, so it would be fair to show that as Then finally, this €5,700,000,000 were the final deferred consideration payment that we made on one of our historical acquisitions, Kerriben in Spain, which happened to be related to a tax ruling where we got a big tax benefit and then part of that agreement we need to So that was the final payment there. So those were the exceptional items. The big non underlying item that everyone was that that is Quite intangibles, which is that 20.8 a bit in the middle of the page. What is that? That is when we buy business, we fair value the brands and the customer relationships predominantly that those businesses come with and we have to put those assets on the balance sheet. You only do that on They're not obviously in the individual balance sheets of the businesses because they're intangible, but you do that on consolidation. And then you have to amortize them. And that comes through as a These aren't things that you ever have to pay to replace like a machine. There's no cash involved. And when that amortization runs out after the life of those assets, According to our depreciation amortization policy, you don't have to do anything else. You don't have to reinstate that cost. So it is very much a non underlying non cash cost. And then finally, on the finance items, just to quickly run through. We did a refinancing this year. I think as everyone's aware, we We financed our bonds entirely in March this year. It was a huge success for us. We We're very happy with this. We managed to both increase the tenure of our bonds. We now have 2 tranches maturing in 2026 and 2028. And also So at the same time, significantly reduce the coupon that we're paying. So with 50% extra financing, which we we've managed to raise, we effectively have pretty much the same interest costs annually because the coupon has come Going back to the markets to refinance and raise some new money for acquisitions. So that involved some costs. The first line release of prepayment cost is just the cost that we actually spent in the past in financing that you then have to you treated the We just released them, so that's a non cash cost. We did however, have to pay some costs and this 6.3 that's in blue is the redemption Then going further down, there's some cost relating to the preferred equity. Obviously, I think as I go into where we raised some preferred equity This year back in November, dollars 75,000,000 of preferred equity. It is equity, it's actually it's an equity instrument. It sits under IFRS as a financial instrument on the balance sheet, but it's a perpetual instrument It is that we very much treat as equity and our rating agencies treat as equity. So we treat the costs associated with the non underlying, but I've split them out here They're not cash. We don't have to pay these things in cash. There's a 3.4% cost of the actual underlying preferred equity instrument. And then there were various movements on other stated items that we have to recognize like warrants and embedded derivatives, for example, embedded derivatives for our rights to be able to redeem early if we want and They move around in value. We stay value in every balance sheet date. And at this balance sheet date, some of them reduced in value these options, And so you get a cost, and that's that SEK 9,700,000,000 So again, we don't treat these as underlying Just for time value of money or for changes in forecasts, earn outs on historical acquisitions. The The last cash item is a we drew when March we drew our RCF fully because we were worried with So we did that. We sat on 75,000,000 cash for 6 months and then we repaid it. And that was the cost of that, which we treated as it did cost us some cash, but not really underlying future of the business. And then finally, all of these final items for all other noncash items, mark to market adjustments on foreign exchange contracts or translational differences on foreign denominated cash or debt. So that completes the picture there. And then sorry, for quite a long slide. Finally, getting into cash flow, go on to Page 12. Very strong performance This year, especially in March of COVID, you'll see, if you look at so if you show all the years as we've done in the past, 2021 on the far right, you'll see there Underlying movement in working capital just before the 1st subtotal, EUR 18,300,000,000. So that is worse than it normally is. COVID did have an impact in that sense, And that is unwinding during the course of this year. So, it's a timing difference, but COVID does have an impact on us from a working capital perspective to absorb a little bit more cash. So that brought our conversion down slightly at the operating level. And then below that line, you'll see also it looks like we've got a Huge increase in interest paid there of €30,000,000 versus the previous year €25,000,000 That's not actually the case. That's just because we refinanced at the time, which means that that €30,000,000 actually represents more than 1 year's worth of The actual annual interest cost is about $24,000,000 It's just because of the timing of the refinancing. The tax replacement CapEx you see was a bit lower than last year against the COVID, and that brings down to the free cash flow, which Again, for those reasons above, conversion was slightly lower than last year, but not much. Just moving on to the next slide to show how that then feeds into net debt. The first bar there of the €38,800,000 movement, this is on Slide 13, is The total from the bottom of the previous one is the same. We define that as the free cash flow generated, bringing down the net debt. We then spent 37,000,000, so pretty much all of that number on acquisition expansion, that was the acquisitions in the year, but also some earn outs on previous acquisitions. We then had Some refinancing costs and other items relating to the bond refinancing and the pref refinancing and pref Money coming in as well. This is cash coming in net of costs. If people remember, we did a share buyback in the year that's wrapped up in that figure. The net impact of all the financing activities we did in the year was to bring the net debt down by £18,000,000 And then we Yes, we spent some money on the expansionary CapEx, which links to those projects that I mentioned earlier, which Philip will talk a bit more about. And then there's some translational differences in the last part. So in overall, net debt has come down by about €20,000,000 in Yes. And as I said, leverage, very stable. Just and And that's basically summarized on the next slide. So you can see there we have our debt Actual bonds or bank debts or other loans and cash, but our net debt at that level is SEK 346,000,000 And then below that, we have These liabilities for IFRS 16 accounting and there's Some of the embedded derivatives and so on. That's just a bridge back because you'll see in the account the number of 4.92. And leverage was, as I said, a very stable 3.1, which is well within our financial pools. That's it. Philip, are closing over to you for the operational overview. Thank you. Okay. Thank you, Mike. Good morning. So very glad to report very Results in U. K. And Europe, South Florida. As you can see, the EBITDA is up 18.7% to 17.5%. With revenues on par, we had a very strong second half of the year with GBP 150,000,000 And don't forget, as Mark has mentioned, the 1st couple of months, in the year or the 1st 10 weeks, actually, the revenue was down 80% And we still managed to make an EBITDA of 49%, up from 41.3%. Post lockdown EBITDA was 20%, 21%. So we've been trading very strong in the last 10 months of will be recorded in the Q1 of this year as well. So overall, 79.5%, this is a record year for U. K. And Soft Flooring. And the reasons the three reasons why we have had this result is, of course, we have the very strong post log Down demand from customers. We also have the improvement of logistics efficiency and the factory productivity, as we've explained in the past. And then, of course, there's the CapEx plan, which we've done in the products and logistics over the last 2 years. So some of the elements, Okay. They are listed there. I won't go in too much detail, but as we mentioned in the mid year numbers, So we've continued to bottle slicing exercise of margin value of the products. So when there was a strong demand, we could easily do that. We have not focused on new product development. Yes, we have new product development in the pipeline, but we haven't launched it because the current products are selling very well. The biggest project in this division was the move of Westex. Actually, the plant Westex removed to the Dewsbury side. Wythex used to have there the dyeing of the natural fiber, and we moved the whole plant to there. So they are are now at a completely different location. The site was sold. This move has been done from a production operational point of view. Officers and children will follow And of course, on the Q2. So we've also added new tuftors to speed up the productivity. We've added beaming activity, which should reduce working capital. Normally, when we are tufting, we're tufting from Rags. No, we have started tufting from Beam. Basically, these are smaller batches, so So we can put less stock than when we would be testing on the racks. Interesting, and this is why we've mentioned it here, It's a new development or fantastic development in the underlay, which is a quality called Renew, which is a Sustainable corporate underlay made from 98% of recycled material. And when I say recycled material, we are talking about post consumer waste and this is selling for the moment like hotcakes, very interesting new product development. Also like we've seen in the corporate side, with the underlay, we have decided to in source the logistics because we were still working with 3rd portal logistics, so we've in sourced that because that's A key driver of the business as we have seen with the corporate side as well. Then As you know, we have done a smaller acquisition on the continent, SD WAN, on the underlay, and this has become now the European outlet The business and the improved margin at logistics, and this you will find on the right side. I'm on Page 16, by the way. This remains a key differentiator with our European counterparts. So currently, just for your information and to recap that, We have 3 warehouses in the U. K. We have 1 in Hemmel Hempstead in the south, 1 in the middle in Skidimitzsche and then 1 in the north Hartlepool. And we are shipping currently 24,000 pieces per week. This activity is currently we're doing 50% 52% more orders with 33% less employees, so the productivity has up massively. We serve the whole country, ninety one Percent of U. K. Mainland is served on a daily basis and on time deliveries are at 94%. So we've invested in more vehicles. We have 2 70 vehicles on the road now, which are for 85 percent Euro 6 compliant, and they can even run on If you also hydropeated the vegetable oil, so we Alliance is for the moment, an in the Alliance's logistics part has currently its own P and L. There's also some third party logistics because we are so good. I think we are one of the best providers in the market to deliver soft flogging and hard flogging in the U. K. Market. So This unique selling proposition which we have on logistics, we cherish that and we will be looking to further develop it in the future. Then I switch over to Page 17. So when we talk about U. K. Ceramics, so The revenue growth is very we had a very strong growth. Growth in the second half year was even GBP 150,000,000. The overall margin performance, as Mike has explained, is weaker, but basically from The reason why this is the pro form a effect of the acquisitions, as you know, in the previous year, we bought Ibero in August 2019. We bought Ascot in March 2020, Which was a business which had very low EBITDA, between 3% 5%, and we've improved that massively. And then In this current year, we have and Mike has mentioned that as well, we've done a small acquisition in Italy, which was Kerabem that was in December 2020. But there's more than that. So there's the like for like average margin performance is basically impacted by 3 factors. Of course, in ceramics, have a higher degree of operational leverage. And Ascot, as mentioned by Mark as well, so give us immediate production capacity, But we had the delayed integration. It took us a few months to do the integration, so we had some duplicated costs for a repeated period of time. And then the Q1 2021, which is actually the Q4 of 2020 financial result. So what we call the lockdown to the 2nd stage of the lockdown, European and Continental customers were more impacted are new customers, the U. K. Customers. So in U. K, although there was a lockdown, we've performed on a very good level. This was to a lesser extent the case in the ceramics business. So very specifically then in Italy, We had the acquisition of ASCO 10 DOOM. We acquired this for the capacity. There was a brand, local brand Capri, And half of the production was used, therefore, and we used the other half to in source some of the outsourced product. We've also managed to reduce the operations with 129 people. So there was a restructuring going on. We've increased on the productivity of the will be happy to take the questions as well in the business going forward. Very strong demand in Italy, mainly from the DIY, from Germany, France and Eastern Europe. And as Mike mentioned as well, so we've stopped that acquisition up, another small bolt on acquisition, Which was Santa Maria. Santa Maria is a plant, which is close to Imola. It was a very interesting concept because we had issued mainly by buying production capacity rather than brands and to expand and to start in sourcing because that has a positive effect on margin going forward. For the moment, In Italy, with all the investments we've done and with the plans we've bought, we have a capacity of about 8 kilns are spread over 3 factories, and it is we keep on focusing on the low cost production and integrated management. And then Spain, Spain suffered a little bit more because of the extended lockdowns. There was also a lesser Government support, so they were impacted a bit more than the Italian factories. And then when the business all started, The inventory, it takes a while because the program is pretty wide. It takes a while to build up the inventory again. So it took us a bit are interested to do some like for like increases in the result as well on the ceramics. Also interesting to know and to mention is the growth of the U. S. Market. We do more business in the U. S. As well. Part of that is due to the increased import duties from China. So some of that business has come to Europe. The integration now, I'm happy to say that the integration now is complete in the Spanish factories. All the factories are integrated. We managed between Ibero and Saloni to reduce the cost at about 7%. And it was as mentioned here, so The silica law, so we are an industry benchmark for health and safety improvements in Spain. So we speed up these investments just to be compliant with health and safety and the silica protection. So we've done all the investments needed then. Then the last part is Australia. As we have mentioned already before, extremely strong performance, It was surging between the lockdowns. They have been highly disruptive, but the management, the local management has been coping very well, have in the meantime used the opportunity to introduce more and new product into the marketplace. We do more LVT collections now, So the distribution of that is going very good and the demand is at a very high level. Also in the products, we see more polyester than polyprop, so there is an evolution there. So in products which are margin generating. And last thing to mention here is that that we have completed now. So as you know, we've closed one underlay factory in Melbourne and all of that was moved to Sydney. The integration was done in Sydney of all underlay activities and this process has 100% been completed now. So overall, most of the activities, which Whether that's soft flooring ceramics or our business in Australia, we've done all the integration exercises And we're working on the integration now for the moment at the newest companies we bought in the recent quarter. Okay. Mike, if I can hand over back to you. Thanks, Liam. Well, I mean, that's just on the platform license. Jeff, do you want to talk through the outlook or conclude on the year? Yes. So the year has started very strong. I appreciate we're only are coming up to 4 months into it, but we've had a very strong start to the year. And We've been successful at passing on the increased cost of raw materials To our customers, certainly, the demand for consumers has made that very, very easy. And one of the factors that we think is encouraging is its that we think is encouraging is it's for many years, the data has just shown that 12 to 18 months after people buy A new home, I don't mean a brand new, I mean a new to them home, they replace the flooring. And there's a very strong correlation between the 2. And with the number of housing transactions, are not only in the U. K, but also across Europe and in the United States, beginning about 6 to 9 months ago. We think that that will sustain the demand for flooring for the next couple of years. So we feel that the short and medium term outlook for the business is very positive. Turning to acquisitions. We continue to pursue A number of opportunities. We've still got substantial amount of capital available to us, partly as a result of the bond refinancing earlier this year and partly as a result of Coke's commitment and investment in Victoria. So I think it would be it's and investors should expect to see some meaningful acquisitions occur in the weeks and months ahead. And with that, I'd just like to hand over for any questions. Thank you. Answer session. Our first question comes from the line of Charles Hall from Peel Hunt. Please go ahead. Good Good morning, everyone. Could I just ask on the UK? Obviously, you had a very strong second half margin performance. Was there anything exceptional in that? Or do you expect that to continue on through this year? You obviously alluded to Being able to pass on price increases, can you comment about the extent And I think previously you talked about being able to mitigate any supply chain issues that are are generally around in the economy. Is that still the case? Yes. Thank you, Charles. So I'll take this one. So We have a very strong as we in the Q1, we continue on the same level as we've been working in the second half of last year. So the demand remains very solid. And yes, we have seen some supply chain issues, Especially with transport prices, with container prices for some of the products we are importing, but we've been able to manage that. We've had some raw material These prices are in recovery mode now, but we've passed on our price increases. So and we are hanging on to the price increases because for the simple fact that We need to hang on to them because we didn't increase to the peak. So over time period, this will flatten out. And we keep on having a few challenges in the market from a supply chain point of view, but we're mitigating And we pass it on to the customers after we've negotiated with suppliers and do what we have to do. So Don't forget as well, Charles, we are still improving on our logistics, on logistics performance. We are attracting more business. We keep on growing. If I look at the numbers of last month, how much business we attract, Especially from overseas suppliers, because overseas suppliers seem to be struggling a little bit with Brexit related matters on administration can bring product across also for the distribution of their products. So whatever we've invested in logistics has come to fruition now. Perfect. Thanks for that. And also a similar sort of theme in Australia. What are you seeing on pricing there? And you had a very strong second half margin. How much is that a sustainable level? Well, we in Australia, we have had to serve between the lockdowns last year, and it's not much different now because I think half of Australia is back in lockdown. There's no interstate traveling. There's some challenges. In some states, retail shops are closed I know that they are still open, but if I see the numbers coming in, we the demand remains very strong. I think from a raw material point of view, they are less they are hit to a lesser extent development where they have incorporated the new prices of the raw materials, so in order to protect their margin. So Strong demand in Australia and likely to go on for the foreseeable future. Perfect. That's very helpful. Thanks. Will be at now. Our next question comes from the line of Robert Chantry from Berenberg. Please go ahead. Hi, good morning everyone. Just three questions from me. Firstly, I just wondered if you could give a bit more color on the competitive environment and customer behavior in Europe in terms of the flows of ex European tiles coming into the market, etcetera. Secondly, I guess, in terms of deal structure, deferred and contingent payment hasn't really been used in the last three deals. There's an and the presentation deck of how you might fund the next €70,000,000 of acquisitions. Has there been a reason deferred in contingent hasn't been that used? Is it sensible to assume there is capacity to do something in the future. And then thirdly, clearly, the Coke transaction last year was I know there's some comment in the release this morning around procurement of certain types of inputs, opportunity with deal sourcing and financing, but Some examples of how they've changed the way you approach the business. Thanks. Philip, can you talk about the competitive environment in Europe and so on? And then I'll cover off the other couple of points from Robert. Yes, sure. Competitive environment hasn't really changed a lot. And I have to say, on the continent, The demand in hard flooring, I'm talking hard flooring and soft flooring because soft flooring we are not doing any soft flooring business in the continent. So our hardwiring business, the demand has been very solid, especially to but in fact across all channels, but especially through the DIY channel, Which is more directed to our Italian businesses, we get demand. So we're looking even with all the extra production which we bought, we are looking for extra to outsource extra capacity with as OEM contracts with alternative suppliers. So demand is very strong. From the independents, this is then more the Spanish business And the exports, so we see a very strong demand as well. So we're having We can keep our lead times. The demand is strong. And there's no extra competitors, but there's a few competitors who are specialized In specific activities like for example, just to give you one example in ceramics, polished is very in top, polished product, very Shiny products, marble look alikes are pretty much in there. So we've invested there as well to play in that game. So We cover most of the production, not the production, the sales channels. And we have a public development, which is coping to comply with demand. So Not a lot of changes, Rob. So let me just cover off A couple of questions. One about the first one was about contingent consideration The deals that we did in Italy, The companies that we bought were actually we were effectively buying factories capacity. And And we were going to completely integrate those businesses into our own current Production. And as a result, an earn out wasn't appropriate because we would not be able to identify Actually, the revenues from sorry, the earnings from the businesses that we've acquired Versus the businesses that we already own because they would be completely subsumed into our existing businesses. The same has happened with the grass business that we bought in the Netherlands. That has been completely integrated into our existing business as well. And as a result, it was going to be impossible to identify the earnings, The contribution is individually from that particular business, so an earn out wasn't appropriate. The U. S. Business that we acquired, it was a largely private and majority private equity owned business and earn out wasn't an In fact, the reason we were able to buy that business for such an incredible price was The private equity fund that owned it, this was the remaining asset in the fund and they were winding the fund up. They thought they already had a buyer. That buyer defaulted on completion. And they needed cash to continue complete the winding up of their fund. So firstly, that meant that there was no earn out available because they needed cash. But secondly, that enabled us to buy that business at an So those are the reasons for the lack of earnouts in those. I think other opportunities that we're talking to at the present time and we are in active conversations as you would expect with a number of opportunities, earn outs are definitely one of the components of the deal in most of those discussions. Coming on to Coke, look, there's 3 things they've done for us. Obviously, Their capital has provided us with an ability to continue to grow the business significantly over the next Yes. So the capital contribution has been very valuable and it's very valuable to the shareholders because we haven't had to issue Equity, which would obviously be dilutionary. Secondly, they have been able to provide us with advice on raw materials, Particularly around polypropylene, polypropylene prices, which and polypropylene is a core ingredient in The carpet fiber and the carpets that we make, polypropylene prices spiked earlier this year or the underlying Actually, they spiked in terms of price. And we know some of our competitors Whereas Coke, who are a very large producer of propylene out of their factories in the U. S. Were able to tell us that it was a short term spike and they would start heading back down again, which is exactly what's happened. So we didn't do anything Stupid and hedge prices at the absolute peak. And then the last thing that they have been very helpful to Victoria is providing introductions and giving frankly giving credibility to Victoria, who is a completely unknown entity in the U. S. In the U. S, Coke have opened doors for us. So the transaction you've seen Victoria already do in the U. S. With KALI, Coke's credibility enabled us to engage with AppSeller and there are other opportunities, which Sounds like good guys to know. Thanks for the answers, guys. And we have one more question from the line of Richard Higginbotham from Singer Capital Markets. Please go ahead. Good morning. You've answered most of my principal questions, but just a couple of supplementaries, if I may. I just wondered how far To run is the sort of bottom slicing of low margin soft flooring products. And the other Question I had was just really about the focus of future expansionary CapEx, what sort of quantum, what sort of opportunities are there for you And what sort of return criteria you're putting against that investment? Okay. So how far do we run the bottom slicing? So well, for manufacturing purposes, they are the minimum quantity, which you will always need. So we try to look for the right equilibrium in our factories. So if we need For a factory like the Abingdon factory, if we need 12,000,000 square meters, so we will try to optimize that. And we will cut accordingly products away, The cost price is not what it is. If you're only running at 80% of the capacity, so We're looking for that fine balance. So that's as far as we take the margin dilution. Then on future CapEx, so I think on the soft flooring, we are With regard to production with the new production outlet, which we're having in Dewsbury for our natural fibers and then we have Avendron for the Synthetic Fiber. So we still add some testers and do bits and pieces, but This is never big, so and I think it was mentioned somewhere in the presentation, I think we can make another 15% to 20% growth Without having to heavily invest in CapEx, as I said earlier as well, most important for me as a key differentiating factor It's logistics, so we will keep on investing there. So don't be surprised if sooner or later you will see Some more investment on the logistics side of that, because this is just so helpful for us. The margin on the cut length is so much more Then the margin on a roll. So the more we can cut, the better it is. So you can see some potential more investment in cutting operations. Having said that, The next 15% to 20% growth, which we can have we can easily handle through the existing warehouses. And the future, if we will grow beyond that number, then you may see some more investments. Nothing major on the soft side. If we talk about hard flooring, hard flooring, we are in all our factories, whether that's in Italy and in Spain, we are at full capacity. So you may see some production build, some extra production capacity, If we want to expand, and we can do that. We still have a couple of possibilities to go on this expansion. As you know, Hard flooring is a bit more capital intensive than soft flooring. But okay, it provides a better margin as well, so it can carry that. But I would say nothing spectacular to do the numbers, the code numbers, which we foresee for the next year or a couple of years. So you should not expect anything spectacular on the production side. Problem is with new investments, it takes a while before they are there. So Sometimes it's better to follow a strategy like you do in Italy to do some bolt on acquisitions, as Jeff has explained, just by Production capacity, so the advantage is we can immediately in source some of the products. Don't forget, not only In Italy, but also in Spain, we are outsourcing a lot of work. So if we are buying a production plant, we have immediately upside by doing by integrating the Is that an answer to your question, Richard? Yes, yes. Thanks. Thank you very much. Richard, just on your question on return on investment, it's we have We have a minimum hurdle of 20% internally, but actually more generally, we look for a 2 to 3 year payback as a general, So which is obviously higher than 20%. So just to give you the broad idea of how we look at that in Great. Thanks, Mike. And as there are no further questions, I'll hand it back for any closing No, I think sorry, I started Speaking while I was still on mute. I think both the R and S is are fairly full and the presentation is fairly full. Obviously, if you have any further questions, you're more than welcome to contact any one of the 3 of us. But Fundamentally, I think Victoria is in a very good place, and we can expect to continue to grow the business and increase the free cash flow per share over the next 12 months significantly from where it is today. And so with that, thank you very much