Victoria PLC (LON: VCP) shares are down 17% on the release of the unaudited half year results. What’s worrying people about the VCP numbers though isn’t what the company is claiming, unaudited. The background problem here is that Victoria is a roll up. Nothing wrong with those. Take a fragmented industry, buy up substantial portions of it in small pieces and then impose some rationalisation and economies of scale. It can work and has worked in many industries.
It also comes with certain problems. Like, the accounting treatment of certain corporate purchases. Like buying up a company or three that perhaps isn’t quite and wholly kosher perhaps. Not that we are saying this is the problem at Victoria, rather that this is the sort of thing to worry about with roll ups as a basic business strategy.
The results: “The Company is delivering against its strategy of margin enhancement. Underlying EBITDA margin improved 100bps to 14.9%, compared to the prior six-month period (H2 FY23), resulting in an increase of 0.7% in Underlying EBITDA (in constant currency) to £95.8 million, whilst Underlying Revenue fell by 4.1% (in constant currency) to £643.4 million compared with the same prior six-month period.” OK, margins were better, revenue was down, what had been profits turned around into losses. So, not a happy pack of facts there.
Victoria PLC share price from Google Finance
What’s worrying people a little more is this from the auditors: “Shares and bonds in UK flooring manufacturer Victoria Plc fell after the company’s auditors said that they identified a risk of fraud or error relating to one of the company’s subsidiaries. Grant Thornton identified “potential irregularities” related to transactions within the Hanover Flooring Limited subsidiary, according to a report released by Victoria after the market close on Friday. The shares dropped as much as 25%, before paring the drop.” The company points out that even if there are problems there they’re not material - Hanover’s not large enough to affect the larger company.
But, well, if the auditors flag something then the auditors flag it for a reason. This has also led FT Alphaville to have a deep - and rather funny - look at Hanover.
The point here is not that there’s something wrong with the accounts of the larger company, Victoria PLC. Rather, if there are problems at one subsidiary then where else might there be problems? After all, we do think that accounting for takeovers and subsidiaries is one of the risk factors with a roll up.
