Randy Baron 的“辛辣”Victoria PLC 投资推介

You're about to listen to yet another value podcast with your host me, Andrew Walker. Look, it would mean a lot if you could rate, subscribe, review, and base the rate subscription review on this episode because it's a really fun one with my friend Randy Baron. This is his fourth time on. It has been way too long since he's come on and he has a, as I say at the start, a spicy one for you. It is a small UK company, very levered. So, nothing investing advice. You know, obviously I just said small UK, very levered, that carries extra risk. you know, all the disclaimers at the end of the episode, but we have a really fun discussion about a lot of different things, a lot of different angles here, a lot of different ways they can pull and uh you know, he's one of the people's most popular guests in the past for good reason. He's uh it's a really fun interview. So, we're going to get there in a second. But first, a word from our sponsors. Today's podcast is sponsored by fiscal.ai. Fisc.ai is a modern data terminal built for investors who want an institutional-grade platform without the complexity. Whether you're an individual investor or a professional portfolio manager, fiscal.ai AI gives you instant access to years of financials, earnings transcripts, and company specific segment and KPI databases all in one intuitive platform. What makes it stand out from other platforms? Speed, depth, and ease of use. Their data updates within minutes of earnings reports, not day. Segment revenue, subscriber growth. It's all there. Easy to chart, compare, and export. I've been using fiscal AI for interesting ways to chart and graph and visualize different segment KPIs, comparisons, all of that. And I think it's been really interesting, particularly it's the segment. It's really the segment data when you put it in a graph. You can get some really interesting comparisons. You know, margins from one grocery to another, how they've evolved over time, stuff like that. Anyway, use my link fiscal.ai. That's fiscal.ai for two weeks free plus 15% off any of their play any of their paid plans. That's fiscal.aiyab. All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker.

With me today, for the first time in way, way too long, is my friend Randy Baron. Randy, how’s it going?

It’s good, Andrew. Always a pleasure to be with you. I think this is my fourth appearance. I’m working for the jacket. I’m coming for another.

We were just talking about one stock that might put you over the finish line for the thing. I’m so excited to have you back on. It’s been great. We just haven’t connected in too long, but it’s been great catching up for 10 minutes before this.

Before we get started, a quick disclaimer: nothing on this podcast is investing advice. Today we’re going overseas and we’re going to a, as one of my friends said when I was prepping for this, spicy, spicy one because it’s got a lot of leverage. People should remember that leverage overseas carries extra risk factors. Nothing is investing advice; invest at your own risk.

Randy, the stock we’re reconnecting on is Victoria PLC. I guess I’ll just start and turn it over to you: what is Victoria PLC, and why are they so interesting?

I like the fact that you used the word “spicy,” because this is a UK security, and UK cuisine is not necessarily known for its spice in general. I like that.

Before we get into a deep dive on what Victoria is and why I think its equity is poised to materially rerate in 2026, let me take a step back and talk about the why. We’re recording this at the turn of the year, and I’ve been spending a lot of time in the new year thinking about the concept of imperfection. The world is not perfect. You and I as parents are not perfect. You and I as stock pickers are imperfect. Victoria is an example of an imperfect company in what has long been an imperfect equity market—the UK—burdened with an imperfect capital structure. But in imperfection lies opportunity.

What is Victoria? Victoria is a 130-year-old purveyor, manufacturer, and distributor of flooring. They make carpets and underlay, which are the pads that go under carpet. They make tile, LVT, or luxury vinyl tiles—tiles that look like wood grain or ceramics. They have a ceramics business, an astroturf business, and bamboo flooring. They make all sorts of flooring.

While it’s UK-based, it’s global in terms of its distribution. They distribute to the US. They don’t manufacture in the US, but they distribute there. They manufacture and distribute in the UK and Europe. They have a geographically—actually, their most profitable business is in Australia, but that’s geographically noncontiguous.

I think we need to lead with this: they also have a lot of warts, a lot of things that have made the equity price decline by essentially 95% over the last 3 years. So that’s a very high-level view of what Victoria is, and we can get into all those warts, I’m sure.

You said—and I’ll just reiterate this—if we were recording this podcast 3 years ago, it was interesting prepping for it to see how many big names were pitching this as a roll-up, a great business, and saying we were already at the bottom of the cycle, turning up already. The stock price was literally 20 times higher.

The market cap was over £1 billion, and today the stock is down 95%. I think that’s a great place to start. If we were recording this 3 or 4 years ago, we would have said, “Hey, we’ve got all these great compounders in here with us. The cycle’s going to turn. This is a great roll-up story,” and now the stock is down 95%. What’s gone wrong over the past 3 to 4 years that has led to the distressed investment?

Let’s start with why the market cap was where it was, because I think that’s important, and then we’ll come to the distress.

This is a company that was founded in 1895 and listed in London in 1963. This is a long-standing company. It was downlisted in 2013 to what’s called the AIM market, the Alternative Investment Market, in the UK. We can get into all the nuances of that.

The current chairman, a guy named Jeff Wilding, came in around 2013, and he’s a roll-up guy. This is a guy who, in his career, has done at least 3 very successful roll-ups. The big one was in the packaging space, and the other two were in fleet logistics, like vehicle logistics. The concept was buying businesses and rolling them up.

Since he came in, in 2013, there have been 22 acquisitions—totally rolling up an industry. This matters because the UK, which we’ll get into, is so conservative that ideally it would want 1 times leverage. I don’t know how you can have a roll-up if there’s a ceiling on what a culture will allow.

Revenue grew every year, both organically and through acquisitions, from 2013 to 2023. Really interestingly, at the end of the COVID cycle, this was a second-derivative COVID play. You and I were sitting at home, looking around our house or office and saying, “Boy, my floors need some work.” Or your puppy pees on a carpet, or your wife says, “Hey, you scuffed this.” Whatever it is, flooring tends to have a 7- to 10-year cycle of replacement, just because things get beat up. Think about carpet: it gets beaten down.

What should generally be a GDP grower—volume should grow 2% to 3% a year—saw a ton of demand pulled forward during COVID. You got double-digit growth. That’s the spike to the market cap you’re talking about.

We’re talking about a stock priced at roughly £12 or £13 at the time. Today we’re talking about 40 pence.

That’s the 95% retrenchment. Since then, interest rates started to go up, and the consumer got a little more cautious. Maybe you put off a flooring replacement. People like Lowe’s and Home Depot worked through their inventory, so they weren’t ordering as much to distribute.

You then had 2023, 2024, and 2025. Instead of 3% CAGR, you’ve got a 14% decline in revenue. We’re on pace for a 9% decline this year. By the way, the fiscal year ends March 31, which—

I hate it. I know. I was at such a loss. I can’t even tell you what fiscal year we’re in.

It’s a pain. Anyway, we’re in fiscal 2026, and we’re on pace for around a 7% decline in volume. Revenue and volume are pretty much in line.

Simultaneous to that, you had a capital structure that was put in place to fuel these roll-ups, and Koch Industries, a private company in the US, became a big lender. It lent several different times through preferred securities, which we’ll get into, to roll up the flooring industry. Koch has a flooring division in the US as well.

Acquisitions slowed down—that’s not going to happen because the macro is what it is. Simultaneously, and this is where the British press, when they smell blood in the water—around calendar 2023, Grant Thornton, which had been their auditor since 2015, brought on a new auditor. He smelled blood in the water and found one of their subsidiary companies, called Handover. Victoria has about £1.2 billion in revenue in total, so about $1.5 billion. At that time, you were talking about around £190 million of EBITDA.

They found in their audit that they couldn’t find an invoice for one of the orders.

So, in other words, no cash is missing. This is not like a qualified opinion. It’s in the till and in the balance, but they can’t find an invoice over £150,000. So again, £150,000 over £1.2 billion. They flag the audit, and that becomes a huge opportunity for the British press, which is a little more salacious than ours in the US.

I don’t know if that’s true anymore, but I agree.

I’d like to speak generally—and, by the way, UK food is also spicier than it used to be, if we’re talking about generalities. But the point is, the auditors pause on that, then one year later come back and say not only is there a clean opinion for 2024, but they also went back and re-audited 2020: totally clean, no issues. But by then the damage is done, right?

Simultaneously, you’ve got this debt cliff coming due in 2026, and therein begins the pressure. One other thing—we’ll get into all these things in detail—is the Koch preferred. I’m sure there’s a more technical term for this, but it’s a spiral. It’s an uncollared preferred, meaning straight equity. As the equity price fell from 10 to 8 to 6 to 5 to 50 pence, the denominator—the number of shares it’s going to convert into—increased. There are 114 million shares in this company today. If you were to convert or redeem that Koch preferred today, that would be roughly 870 million shares.

Yeah, a death spiral. It doesn’t matter until the share price gets really hit, and then all of a sudden they’re taking literally every share. All right, that’s a great overview. Let me hop into a few things.

I guess the first thing I want to discuss is the US market. Listeners may or may not be familiar, but the US flooring market is dominated by 2 firms: Mohawk and Shaw. Berkshire Hathaway owns Shaw, and I think the 2 of them have more than 50% of the market. It’s roughly split between the 2 of them.

Internationally, it’s just so fragmented. The thesis behind the Victoria rollup was, “Hey, let’s go roll this industry up and make it look like the US.” So, we could talk about the puts and takes of the rollup, but why was the UK market so fragmented? It doesn’t seem like this rollup has been that successful, ignoring the macro. I just don’t think it’s done as well. What are the barriers? As I’m thinking about it, why is that market so much different from the US market, where it’s kind of consolidated into a duopoly?

You could make a joke about English homes being a lot colder than those in the US. That’s where my head went initially, from a comedy perspective. But there’s something fundamental about the US liking big-box retail, right? I do think there’s a correlation for housing between why Lowe’s and Home Depot are so successful. Victoria, by the way, distributes to these players.

There were more mom-and-pops. I think there was also more history. As I mentioned to you, Victoria started in the 1890s as a carpet company. Along the way, some of the businesses they divested included a wool-spinning business. This was a terrible business. These are the things that get outsourced to other countries, and this is what the US apparel industry has gone through in a material way.

There’s Berkshire Hathaway again, right? You just talk textiles and apparel.

Yep.

Well, yeah. We own a company, Unifi, which is doing the same thing in North Carolina. They have to go to South America and Asia. There are reasons for that, but I think fundamentally the UK is a smaller market in total than the US, and therefore there’s less opportunity for scale for the mom-and-pops.

The 3 main publicly listed flooring companies in the UK are Headlam, which is HEAD; Likewise, which is LGRS; and Victoria, which is VCP. I don’t even like phrasing it that way because, again, Victoria is more global than just the UK. What’s been fascinating, at least in the UK, is that those 3 players have seen similar pressures. Likewise is doing a little better on revenue, but they’ve never made any money for their investors.

Headlam, which is not the purpose of this podcast, is in distress. There’s some theory that they’re going to go bankrupt this year. I have no opinion on that. They did hire a restructuring firm, Alvarez & Marsal.

Alvarez & Marsal—you’re probably familiar with them at some point.

Yeah, like that. Again, I’m not saying that, but they did a couple of restatements of their expectations. This is Headlam we’re talking about. They restated their expectations a couple of times this year and fired their CEO. They put in the chairman, who’s not really an operator. What was £600 million in revenue is now on pace to be below £500 million, and maybe even less than that.

The question for Headlam is whether they can cut costs enough, because they have fixed leases and other things that are really tough to deal with if revenue is going down. The only way to get profitability is to cut costs further, and that looks really difficult at this stage.

What I would say about that market is that Headlam was the price competitor, while Victoria has always been premium. The appeal of Victoria has been that if you’re a small shop on a main street, or high street, in the UK, you get treated as a commercial entity. Even though you’re small, 85% of the UK has next-day delivery from Victoria.

I’m the small mom-and-pop. I call up, I get treated well, I get my pallet—whatever it is I need for flooring—and the customer is happy. It’s the service. For that service premium, Victoria was the premium, meaning maybe a 10% price premium.

As Headlam stops gouging on pricing, relatively speaking, and pricing becomes more rational, it’s probably a good net move for Victoria. I certainly wouldn’t be surprised if Victoria starts taking some business from Headlam while it’s in distress.

Look, I think the Headlam situation is interesting. You’ve got this industry rollup that probably hasn’t worked out well, but it’s not just the UK—it’s the US, too. I was reading Victoria’s call, and they said the flooring market is down 20% to 25%, kind of below trend right now. US residential is the exact same thing. Across the board, you’re seeing the COVID hangover, whether it’s flooring, bedding, or whatever you’re talking about.

That makes sense, and then they might have the added benefit of Headlam being aggressive on pricing. If they go bankrupt and file, they take that pressure off their back, and maybe you get more rational pricing.

So you’ve got those 2 things, but I guess I want to ask you this: This is a company where, as we noted, some of the bonds—the 2028s, I think—are trading at 20% of par. We just used the term death spiral for the preferred that I think can convert next year.

How much should we be thinking about this as a business story, a fundamental story, versus how much should we be calling up distressed-debt lawyers and thinking, “Hey, we need the cycle to turn right now, or else we need to start thinking about how we’re going to knife people and negotiate with the Koch family”?

If they convert and get 95% or 99% of the equity, and then the cycle turns, that’s great. But as equity holders ourselves, we’re not really getting any upside anymore. How much do you need the distressed-debt hat versus the business hat?

When I was preparing for this and thinking about how I wanted to talk about it, I knew how deeply you were going to get into things. This was not like when you and I talked about data centers, which are core to my heart, with 60% EBITDA margins. I love them as a business.

I don’t have an opinion on flooring as a business, right? It’s a 10% to 15% EBITDA-margin business and a steady-state grower. Over time, it comes back. I view Victoria as an idiosyncratic, one-off special situation.

I like the fact that it’s a rollup, and I disagree with something you said in passing: that it’s unsuccessful. It’s unsuccessful in the stock price, right? But it also affords them a lot of opportunity to divest of things. I think it would be worth going through all the different debt instruments and explaining to your audience what we’re doing.

Sure, sure, sure, sure. But some of the stuff they bought, like artificial grass in Australia, is something private equity wants and would pay 8 to 10 times for. It’s geographically noncontiguous. I wouldn’t be surprised if we saw a sale of that at some point.

Just a little bit away from the UK.

Right. But before we even get into the positives and why I think this is poised to materially rerate, let’s take a snapshot of the balance sheet you mentioned, because it is in distress. Let’s frame it for your audience.

If I look at enterprise value, there are 114 million shares, and the stock is roughly 40 pence where it is today. So your market cap is somewhere around £50 million. All of this is in GBP, just to keep it coherent.

On the debt side, you have 3 main pieces of debt. You have a super-senior credit facility that was issued in 2025 and is due in 2030. You have a 2029 note, which is the big one and replaced 2 notes that I’ll come back to in a second. There’s £530 million drawn on that today. That’s the one trading at 80% of par.

Then you have these 2028 notes. The nearest maturity is 2028, with £145 million drawn on them. They were trading at one point in the fourth quarter at 12% of par, but I think the mark-to-market for the people who own them was roughly 17% or 18% of par.

So call it 20% of par at year-end. Then you’ve got some other minor things. In total, you’re talking about £900 million of debt face value. If I mark to market, again, two of those are significantly distressed, you’re at £680 million mark to market.

On top of that, I have the toxic convert from Koch Equity Development, which is just under £350 million. That’s a PIK instrument, so it just keeps accruing. Why that matters—and this is what’s really stressed the stock price—is that in November 2026, it is first puttable to the company.

And when they put it again, it can convert into just the stock.

It’s an equity instrument. We should probably, at some point, talk about the difference between IFRS and GAAP, because you and I came up in GAAP, and I get it. IFRS, I have a lot of issues with, but one of them is that leases have to be treated as debt, even though it’s an operating lease and something you can get out of.

But, 2, they have to treat that as really a debt instrument even though it is straight equity. It is straight equity. And like we said before, 800-something million shares would go.

Well, let’s stick with the prefs. Actually, before we stick with the prefs, it is funny: as I was researching this, we’ve mentioned Berkshire 2 times already, and I’m just going to follow the rule of 3s and make it a third.

This investment does remind me a lot of the famous Todd Wesler investments around 2000 that got his career started, where you’ve got this highly levered player. There’s firm asset value there. If it works, the stock is a multibagger.

Now, the heavy emphasis is on “if,” because I also know ones where it has been “if it works,” and it goes the other way. But I think it’s interesting because, as you said, they do have—and they’ve been selling real estate. They’ve got a little bit more real estate they can sell. They can sell Australia, they can sell this, and I do think the critical thing is they’ve got until maybe November with the prefs, but on the debt side they’ve got until 2028. So they’ve got a little bit of breathing room there.

Let’s talk about the prefs again, because I think they’re death-spiral prefs. You’re in a situation where you need either the stock to go a lot higher, or—I don’t think it can go higher until you negotiate the prefs. How do you think the prefs play out? I think that is the critical swing here.

Okay, so just to be totally candid—and again, we put as many disclaimers as we can—this is a levered stub in the UK. Like all these things, it can go in a lot of different directions, but I think the preferred securities don’t get addressed until the 2028 notes do.

For me, the sequence of events would be: resolve the 2028s, which have the nearest maturity in terms of proper secured debt, and then the prefs, which seem, at least from the outside, to be aligned with Victoria’s management. I’ll get into what I mean by that.

So the history of the preferreds is that, sometime in the COVID era, in 2020, Koch comes to Victoria. I’m not clear on that origin story. I’m not sure if they were trying to buy Victoria. The chairman, by the way, of this company owns 20% of it.

So when you talk about eating your own cooking, this is a guy who paid himself, for the longest time, £60,000 or £65,000 a year, and all of his net worth would go up or down with the stock price. So this guy, on paper, lost £250-odd million. I mean, it’s real numbers. There are other times when you and I talk about companies and the CFO doesn’t own any shares, or the CEO doesn’t, and it’s really frustrating.

If you want me to hop up on my soapbox and talk about directors, CEOs, and CFOs not owning enough stock, I’m always ready to dust off the soapbox.

So Koch shows up through whatever mechanism—but again, like you said, it’s a big space but a small space. You know the players, and Koch starts supporting and writing checks for Victoria to do this roll-up. And they didn’t do it once; they did it 2 or 3 times.

As they got a board seat and saw the way these guys were operating, they said, “We want to be involved.” So they kept writing bigger checks. Ironically, at that time—again, 2020—the coupon was going down as they kept writing it.

And so, in that era, that’s when these 2 initial pieces of debt—what was originally a 2026 note, which was resolved last year, and a 2028 note, the one we’re talking about, trading at 20% of par—that’s all like the backstop that goes into it.

So what happens over time? Koch keeps the board seat and gets really involved in operations. Today—and they’ve talked about this publicly on their calls—Victoria is benefiting, despite 100-plus years of history, from best practices from Koch Industries worldwide.

Now, what’s really interesting to me is, if you say to yourself, “Would Koch take this company over?” I think we should get into that for a second. One thing that’s important to stress is that if people on this podcast don’t know the history of the Koch family, they were traditionally, in the pre-2016 era, super supporters of conservative political actors in the US.

And, not surprisingly from that train of thought, the thing that’s happened in the last couple of years that no one has really picked up on is that Koch has exited—or at least Koch Equity Development, KED, has exited—its UK and European operations. They’ve closed their London office to focus on the US and US operations.

So when bankers may have met them in London before, now they’re flying to Wichita to meet with them. I would argue there’s a fundamental canary in the coal mine that these guys are less interested in owning UK or European operations than US operations. I don’t think that’s a bold statement.

Simultaneously, I’m going to take a tangent here to talk about the difference between the UK and US on an important thing, which is disclosure. I think your listeners will understand, generally speaking, the UK investor base is more conservative than the US base. So it won’t surprise your listeners to realize the thresholds at which they have to disclose are different.

In the US, for example, when we cross 5%, you file a 13D or a 13G if you’re going to go passive or active, and this is all reported. The threshold in the UK is 3%, right? So when you look at the register, there’s even a podcast guest of yours, Philosophy Capital, that shows up on there, along with some known players. That’s the point.

The interesting thing for this company today is Koch owns the prefs, and it also owns some of the equity. It owns roughly 10% of the equity. If any company or any player crosses 30% in a UK security, there is—and I’m laughing as 2 white men talking on a podcast—there used to be something called the whitewash rule.

It’s now called Rule 9 of the Takeover Panel, but basically it means that unless the company whitewashes you—or creates a circular and has an annual meeting to allow it—you have to make a takeover offer for the entire company.

Not uncommon in all of Europe. I believe Sweden has this law. I think it’s not uncommon in Europe.

But I say that because in the US, we know short-form mergers at 90%; the thresholds are totally different. So 29.9% is going to be important for the story, because you don’t want to cross 30%.

And why not in this instance? You could say, on paper, okay, Koch can take all the equity, and they’re going to have—but, by the way, once you cross 90%, which is what that 950 million-odd on top of 114 million shares would amount to, not only is a change of control mandatory, which means the bonds are callable at par, but the way the indentures read, there’s a 10% premium.

Then you say to yourself, all right, so you’re going to be spending an extra $300 million for something where I can give you 20% of the company in equity—or 19%, whatever—to get under 29.9%. And if we’re right in this scenario, you’re going to get upside that will more than make up that difference.

And so I think Koch—again, this is me speculating—but the way I see Koch playing out is there will be some resolution before November of this year, because they don’t want to let it come to that point. And I think Koch has been generally supportive, at least when you hear what Victoria, which is biased, has been saying.

They would have some other debt instrument, some equity dilution, and, in so doing, take out what is perceived under IFRS as debt to the tune of £50 million or £100 million, just on that alone.

So, just to clarify: again, this is UK law—you go over 30%, you have to make an offer. And if I remember, the offer has to be at the highest share price—the highest price you paid. It’s very favorable to minority shareholders. And what you’re saying is—

They are not going to want to go over 30%.

So in November, when this comes, you think there’s a negotiation, probably involving the 2028 notes, these Koch prefs, and the company. You think there’s a negotiation that gets resolved favorably to equity in some way, shape, or form.

And I don’t think it’s crazy to say, hey, with notes trading at 20% and the prefs—I just said “death spiral”—being a huge overhang on the company, if that happens, the stock can, just on the extended optionality of liquidity alone, go screaming higher.

Yeah. And my yes to all of that, except I think anything resolved here is favorable to equity. So when you say it’s favorable to equity, I mean any resolution, because this is an overhang for suppliers, distributors, and investors.

Like, this clearly is something that’s pressuring them. But I think, again, I want to reiterate that when people look at this—because this is a company that screens terribly, to our opening comments about imperfection—you’re not going to dig into it. People don’t realize the corollary that if Koch were to take it over, they have hundreds of millions of payments to the bondholders that they otherwise would not have to make if they stayed under 30%. And that’s my soapbox, as a rational actor.

Yeah.

As a rational actor.

No, I guess if I was—why would I not just—I mean, you don’t have to put it all at once, right? So why would I not just come November, instantly go from—they have 10% right now—convert enough to get to 29.9%, and then look to sell down? Or, if I love the cycle, kind of hold that and ride it up. Why would they not be a little bit more aggressive? Why would they kind of want to get it all?

And listen, your crystal ball is as murky as mine, right? There are lots of iterations on how they could come out. And you’re right: maybe 10% of it gets resolved, 20%, whatever. The point is, you have 114 million shares. For every 100 million of debt you take out, you’re adding, roughly, 90p a share of equity to something that’s trading at 40p.

Pence.

And I think your point is that my worry was the death spiral, right? This comes to November, the stock price isn’t up, they convert it all, and all of a sudden Koch owns 90%. I think the nice thing here is you just laid out 4 ways and reasons why they can’t death spiral, right? They’re capped at it. So that just means even if we don’t get the 2028 bond resolution, even if we don’t get full resolution, the point is, hey, we’ve got probably another 18 months to try to get the cycle to turn.

If the cycle turns, as I mentioned, you go from 20% to 25% below demand to at demand. Cycles—the longer they’re depressed, the more violently they tend to turn. You go above demand, and all of a sudden this thing could be looking a hell of a lot different. I just want to say there are 2 things on that. This company has said that for every 5% volume recovery—and again, we said at the outset that if you compare with 2019, the pre-COVID levels, we are 20% to 25% below on volume—for every 5% increment, it’s £25 million that flows through to EBITDA.

Which is, again, the market cap.

£190 million of EBITDA today—we’re at £115 million, or even £135 million if you include the synergies that they say they captured. You can add £100 million to that. These are big numbers because, again, you can’t control the macro; you can control your costs. And the more you can take out, they’re taking out £80 million of cumulative costs on a company that, at trough, does £115 million of EBITDA. That’s remarkable.

The other thing you mentioned in passing with the 2028 notes, and I think it’s important for your audience to know, is that they’re not sitting idly by, watching the clock and waiting. So, in the 3rd or 4th quarter of 2025, they made an exchange offer to take out those notes at 55% of par. They then pulled the exchange offer, and of course, with this kind of company under distress, people assume the worst.

What your audience may not realize is that when we look at a 13F holding, we can see who the equity holders are. As I mentioned, you can look at the top 10 holders of Victoria, and you can see Philosophy Capital, Spruce, and all of them. On the bond side, it doesn’t work that way. So I’m of the opinion—again, this is my speculation—that they used that exchange offer to flush out the dentist in Germany who’s got it in his drawer. You know who maybe the big holders are, but you don’t know the tail.

I’m of the opinion that while the exchange offer at 55% of par was pulled, that is going to be resolved this year. Something else that also happened—and this is just 1 step back for history—is that this company had, past tense, €500 million of debt that was due in 2026 and €250 million that was due in 2028. That 2028 note still exists. The indentures were so broad you could drive a truck through them.

When those 2026s were resolved last year with the new note—that’s the 2029 note now—you could drive a truck through it. What they did was basically treat that as 1 class, meaning the €250 million notes became subordinated. And so that’s why I said they issued this new super-senior note. That’s why this thing is trading at 20% of par.

Interestingly, you could make an argument that you could just buy that debt and 5x by 2028, and that would be a prudent investment. It’s really hard to buy; I’ve tried that.

You know, I hear you. I’m going to come back to that in a second, but let me ask another question just on the cycle, right? I think my questions, or my framing, has been a lot on trough—on trough, right? You’ve got this low multiple, and you’re just hoping to stay alive, stay breathing, until the cycle can turn. And then, if it turns and you get back to trend and it’s plus 20% on volume, as you said, you’re basically adding the whole market cap in net income, or more than the whole market cap if it goes even higher.

They did have a question on their most recent earnings call, and somebody said, “Hey, you guys keep saying we’re 20% below the demand line. It’s been 3 years of this. Why should we believe that this isn’t a structural, not cyclical, change—where this is just the new demand line?”

To me, that’s a question that gets asked at the bottom of every market, right? People say, “Hey, it’s a structural drawdown. We’re never going back.” But it’s a question worth pondering because there have been some times where it’s happened. So why should we believe this is not structural? Why should we believe this drawdown is cyclical and we’re just waiting on the turn?

Well, I don’t think it’s new news to anyone listening that the housing market has been in distress, right? We all know interest rates have gone up, the consumer feels stretched, et cetera. Ninety percent of Victoria’s business is—I was going to say the word “replacement,” but basically buying a home, like a used home. You have 2 types of homes: new construction, and the vast majority of us have homes that were owned by other people before us.

We cycle in and out. Most people, when they come in and out of a house, spend the bulk of their money on upgrading the house in the first 2 years, whether that’s the paint, the floors, or whatever it is. In this case, housing is so below trend, both in new housing starts and in the general velocity of housing turnover.

Again, it’s my opinion. You may be right. Maybe this is dire straits, and people are going to live in their parents’ basements forever and we’re never going to have a housing recovery. That’s totally, to quote something else that you and I just talked about before recording, a totally Malthusian-appropriate approach to life. I’m just of the opinion that you’re going to get to some normalized housing, especially as we’re going into a cycle where interest rates are coming down.

That having been said, let’s say this is the worst-case scenario, right? This is the new trend: 2019 minus 20% or 25%. They have taken out—or by the end of fiscal 2027, which is March 2027, they will have taken out—£80 million in cumulative savings.

While I have trough EBITDA at £115 million, on that same call you just referenced they talked about how they have now realized £20 million, which by the end of this fiscal year, in 2 months, is fully there. Next year there’s another £20 million coming on top of that. So I’m at £115 million plus £20 million, right? I’m at £135 million, plus another £20 million is £155 million. And by the way, where is consensus for 2027? It’s at £160 million.

I don’t view it as a stretch. The only thing they can control is their costs. They can’t control the customer coming back. And again, I’m also not saying we’ve got a COVID cycle coming—thank goodness—where everyone is going to be trapped and everyone’s going to do this whole cycle. I think we just go back to normal. We go back to growing 2% to 3% a year.

If we have that, it’s not even a grand slam; it’s beyond it. It would make owning the equity much more attractive than owning the 2028 debt, which has a 5x return by 2028.

Let me ask about the 2028 debt. I can understand why the equity is trading down here, right? You’ve got an 8x-levered company. You’ve got the death-spiral preferred, as we’ve mentioned a few times—“death spiral” is my word, not yours. It’s not an official term or anything. That’s just my word.

You’ve got all these issues in front of the equity. For the debt—the 2028 bonds—which, as you said, are very liquid, but still, they’re trading at about 20% of face, right? And when I look at this and say, “Hey, a company that’s trading at kind of 8x trough EBITDA, with assets to sell, as we’ve talked about—the real estate assets, the cost cuts they’ve done, and maybe non-core businesses—the market cap is now only 120. There’s a super-senior security, but it doesn’t imply you’re creating the business for much.”

So I ask: what are the bonds worried about? Because if you told me distressed trough earnings, I’d say 60% or 70%. Twenty percent is hardcore distress. What are the bonds worried about that they’re trading so low?

Well, again, these are subordinated, right? As the dominoes fell, the 2028s were the ones left out in the cold, right? And so part of the reason—and again, this is my thinking—for economic rational actors is that you have a bunch of institutions and individuals holding this note. Like I mentioned, anecdotally, the doctor in Germany.

The institutions just marked their year-end 2025 note at 20% of par. If, conceptually, Victoria can come in and offer 35%, 30%, whatever the number is—32% of par—in the first half of this year to then set up the next resolution, conceptually, with the Kochs, that’s really interesting. If I’m a PM sitting with a book and I can say—I’m just doing it here on the calculator—that’s a 60% to 70% return.

Look, I don’t disagree with any of that, but then we’d start wondering where the risk is. The PMs can do that math too, right? And the math would work the same if I said, “Hey, the bonds—we should go buy the bonds, and we could keep trading them up to 40, and then we’d say, ‘Hey, they come and offer us 50.’”

But you’re trading at 20 because people are worried that you’re going to file, and you might not get a lot of recovery.

Would that also mean that you're more willing to take a cash buyout, then?

One thing that changed when they made the offer last fall for 55% of par with a new note, which would have been a 12% coupon—and we should come to what I think the positives are—is that they have realized they have real sources of cash that, for a host of reasons, the market is not realizing. I think they can pay out these 2028 notes instead of issuing a new note with some function of cash. Maybe there's some note involved in it, but the point is, this is a company with $86 million in cash on the balance sheet today.

One of the buckets—and I don't know if we can get into the ethics of whether it's appropriate or not—is when I spoke to the realtor in Belgium, saying, "Hey, what's for sale?" Not talking about it as a Victoria owner, but just out of curiosity, I think they had bought a business called Balta in Belgium. They sold one of their properties there last year, early in 2025, and the legacy losses from Balta that they were able to keep through the subsidiary meant that they did a $20 million gain on the real estate but paid only $1 million in tax. So, the tax leakage is really, really de minimis here, which is fascinating.

Anyway, there are 3 pieces of property for sale, and the CFO talked about this on the recent call, though not the numbers. I think those 3 in total are worth somewhere between $80 million and $100 million at realized market value. The first one, I'm of the opinion—only because when you speak to the realtor, they're saying, "You're not taking bids"—I think it's already sold. I think it's somewhere in the 40 to 50 million euro range.

You've got another one that's going to come to market in January or February of this year, and then a third one. So, you took $100 million of asset value there that is in the process—they've said—in the process of being realized. You've got another, call it, $10 million of properties being sold in the UK, another $40 million to $50 million in Italy. They own some stuff in Spain that they're probably not going to sell because that'd be a wholesale sale-and-leaseback thing for them. But the point is, I can get, conceptually in my brain, to $125 million to $150 million of realized value.

In Belgium, you do have to pay because they have 5,300 employees in total, and they have to pay severance. Belgium is a super-pro-labor state. So, you've got—I think they've said $30 million or $40 million, whatever the number is—that comes out of that. But the point is, you take $86 million of cash on the balance sheet today. Obviously, there are baskets and restrictions and whatnot. You add some cash, and I then go to the 2028 notes and say, "Hey, guys, you think we're not going to exist, to your point, right? You think we're under. So, do you want to take 35% of par and be done with it?" That's a win all around.

So, for me, I view that as: I'm not as concerned about why the company is perceived by those 2028 noteholders, other than I know that they're junior in the stack. But I can see, as a rational actor, that if you get that offer, at least you have a conversation. I'm not saying you take it, but I imagine you have a conversation.

Let me hard pivot to the CEO, right? I mentioned this because you gave some of his background. He takes over in 2012 or 2013. I mean, this is a screaming home run. If I remember correctly, the stock was at 2 at the time. He says, "Hey, if I can pay you $2 per share in dividends over the next 2 years, then I want an option to buy 50% of the company." I think shareholders sign up for that, and he does it. So, that's crazy. That's where all of his ownership comes from.

When I go to the IR website, I think this is interesting. The IR website's front page is his photo, and then on the right it says, "If you had invested a dollar into the company"—or, I guess, a pound into the company—"when he took over, you'd have $2.50 per share-ish." I'm sure they did that 4 years ago when the answer was a lot higher than £2.50, right?

But I think that's interesting for one reason. I think you put that there when you're proud of your returns and when the only thing you're thinking about is creating shareholder value. Now, on the other end, as you said, he used to take £60,000 in salary. Now he's taking £1.2 million. So, I guess my question here is: How do you think about the chairman? He's the same guy who created this great empire and then kind of ran it into the ground. It isn't there yet, but with all the troubles, the buck stops here. How do you think about him now? He's taking a salary. How do you think about his endgame? How do you think about all of that?

I was thinking he did that. He was like, "It's the proudest moment of my life. 10x now."

I would say to you—and just to give your listeners some perspective—he owned about 23 million shares. So, when it was at £12, that was almost £300 million.

I can look at it in 2 ways, and I know the latter from personal experience. Either they got really lazy with their IR site, which I think is decent. I think their slides look decent. I think it's nice.

I think they're pretty good. I think that means they're not being inattentive to the investor relations approach.

So, I think it's the latter: you said he's proud of it when it goes up. While you're not proud of being the steward of that going down, he also hasn't hidden it, right? He has stood up and taken his lumps.

This guy—it's funny. We talk a lot about flooring and kind of that overview. I'm invested in this company because I'm of the opinion that Jeff Wilding is an excellent allocator of capital, full stop. It just happens to be that this roll-up is in flooring, and it just happens to be what the opportunity was in.

He's someone that, when you speak with him—and you've mentioned Buffett 3 times, so let me make it a 4th—he totally speaks in the paradigm of value creation in a real way. I love the fact that he's taken pain alongside any of us who may have owned it during that time, and I love the fact that he thinks about things like share buybacks. I mean, you go back to that 2028 conversation, when this thing traded at 20% of par. In what rational world would someone be talking about buying your stock back, right? But the point is, he's saying, "I see a lot of levers of value here that the market's not realizing. If the market's going to let me buy something on the cheap, why wouldn't I benefit all shareholders?"

So, I think he thinks really strategically. You did say one thing: You called him the CEO. He's the chairman, right? The CEO is actually retiring this upcoming summer. So, he gave—I think he gave—a 9-month runway for them to bring in people. One of the other things—Randy spitballing things—I wouldn't be surprised to see 2 CEOs named, right? At the end of the day, this is soft flooring—rugs—and hard flooring—tile and ceramic. The synergies between the 2 aren't the greatest.

I was actually going to ask that. I'm glad you mentioned that.

The multiples are also different across the board. Ceramics have a higher depreciation cycle, so it's a little different. How about this as a potential endgame? Again, this is 3 derivatives of Randy thinking through the whole thing.

You have the price today. You benefit from some sort of 2028 refinance. You benefit from a potential Koch resolution, whatever form that comes in. You benefit from land sales. You benefit from maybe selling Australia. Originally, I approached it thinking, "Okay, Australia is geographically contiguous. It does $14 million a year in EBITDA." When you look at the numbers, the Aussie dollar has been really weak relative to the pound. So, it looks not great, but fundamentally, it's growing every year. It's doing really well, and it doesn't make geographic sense.

If you sell that at 7 to 8 times the multiple, you get $100 million of realized value. So, I keep looking at the levers. But the real endgame, if all these things happen and the stock price doesn't rerate—which is a total possibility—is that you put 2 CEOs in, sell 1 of the divisions, and just take all the debt out and say, "Screw it. We're done. We're totally done."

By the way, when I say he's a great capital allocator, that's what he's done before. The 2026 and 2028 notes—the 2026 notes just got resolved, and the 2028s, I think, are in the process of getting resolved—were at around 3.8% and 3.6%, respectively. Initially, those were 5% notes that, as he got leveraged down, he refinanced. You see a history in this company of financial architecture.

So, while we're talking about flooring as the engineering of a house, what really appeals to me about the story is the financial engineering.

This is a tough one to ask, but I'll try to frame it the right way. Again, this isn't just you. People can go look at the Alta Fox in 2021. This guy is really highly regarded, right? And I guess, for somebody who's really highly regarded...

We've mentioned this will be the 5th mention of Berkshire, and nobody's saying he's Warren Buffett. We've mainly mentioned him from the distressed Todd Wesler angle, but for someone this highly regarded at capital allocation, how did he get over his skis like this?

I'm not in his seat, so that's a huge disclaimer. But I think he saw the—as we said—the difference between the U.S. and the rest of the world is that there's a lot of mom-and-pops. And I think he's a relationship guy who's going out and meeting the ceramics grandma in Spain who's doing this.

The reason the CEO-versus-chairman distinction is so important is that if a chairman should set strategic priorities, the chairman is also the person who's out fishing for ideas so that the CEO and CFO can execute. The business goes on, and the trains run on time. If you'd said to me that flooring was going to be down 25% off peak levels, I don't know what my opinion of that would have been. I probably would have said, "No, that seems extreme." But maybe I should have thought that when I said it was going to be down 50%.

I wasn't in the name at that time. For me, looking at it today, you always make a decision about the players you're going to put on the field today. We're talking in January 2026 about an opportunity today. I imagine, knowing this guy, that they're good operators, and Koch's support shows that. When you know they have this new factory, V4—there's a video on their site that anyone can go look at—it's really kind of amazing that they're going into Spain.

They spent $31 million on this factory. It's basically for overhauling, becoming more efficient, having more throughput and more production. They do it really, really well. And then, by the way, we're in year 4 of the Ukraine war now. The Middle East and Russia are big ceramics markets, right? They sold the division that was selling to them. But who would have thought that Gaza would happen? And then guess what?

Look, there's a lot of energy that goes into these, right? And it's not like Europe has been easy on energy. So prices—I guess it's just tough for me because I look at the UK: home sales dropped by 33% from 2007 to 2008, 2009, right? So that's an extreme drop.

But I do think these guys in flooring and cyclicals—there's a cycle. It's just hard for me when I look at this guy and we've comped him into a great capital allocator who thinks overseas. But then, on the other hand, I'm like, hey, it's not like we were ever talking about top-of-cycle numbers.

This is really interesting, too, because the one imperfection I talked about was the UK market, right?

And that's actually where I was about to go.

The UK has been a pariah since Brexit, which is the part that's jaw-dropping to me: 10 years ago this year. That's crazy. I always used to have this tongue-in-cheek adage that even mushrooms can grow in the dark, right? But the truth is, this was a loathed market. They lost their financial center to Brussels, the whole thing.

And yet, when you look at what actually happened in the UK in 2025, this is now the canary in the coal mine. Maybe things are changing. The UK market's FTSE beat the S&P by 5 points.

Last year? Really?

Yeah. Here are the numbers. This is local return first, and then total return is another 5 points. The FTSE 100 was up 21.5%.

Right, on a total-return basis. So that difference is 5 points. On a total-return basis, it's 8 points to the FTSE's favor. And then you say, fine, this isn't a macro cap; this is a microcap, so don't look at it that way.

So then I started saying, all right, well, this is a value podcast. What are the P/E multiples? The UK forward P/E is 12.4. The U.S. P/E right now is 23.5, roughly. U.S. large caps are at 28, U.S. small caps at 30, but roughly speaking, 23. The UK is 13.

Look, I think the UK is the most interesting market in the world right now. Japan's been cheap forever, but it might be changing. In the UK, you get activism; there are roles for activists. It's allegedly a Western market with roles for activists, and there's room. A lot of these companies have assets outside of London, and you're talking about an economy that's just been bombed out. It's an inefficient market to me.

And on your podcast about the UK housing market, which I listened to, you described it as conceptually third world, maybe. But I would argue it's almost punitively first world. For example—and most of your audience probably won't know this—do you remember why the U.S. Revolution happened? There were Stamp Acts put on.

I read the tariff book in April, so I did know how much the Stamp Acts had to do with it.

And do you know what you have when you buy a security in the UK?

Oh, I do.

A stamp.

You've got to pay 0.5% of your transaction value to change hands. And mind you, you can do options. You can get around that if you're—

If you're big enough.

But I mean, I think that's one of the things: if you're a retail person, the kind of person who would look at a Victoria, you're paying—there is friction. That's the point.

There was all this concern and consternation about Rachel Reeves in the September-November time frame coming out with the new budget. Taxes were never going to get cut, but they didn't spike in a meaningful way. And when you look at what they're trying to do—and this is chapter 1 in a whole process—they're trying to make the UK more investable.

They've limited the amount of their Individual Savings Accounts. It's kind of like our 401(k)s, where by putting a ceiling, you can get more money into the stock markets locally. They're trying to—they've done a pause on stamp duty. AIM securities don't have a stamp, but that's a different point. Inflation seems to be moderating. You look at growth in the UK: of the G7, it's number 2 in 2025.

So if I were to just blindfold you and say, "Forget biases. Forget anything. Just look at something where I'm 10 points cheaper on value, I've got interest rates going my way, and I can find ideas here." And, by the way, the Japan distinction is really interesting because if you do international stuff, the MSCI indexes are still 30-some-odd percent on the small-cap side in Japan, right? That's a legacy of the 1980s. The UK is not.

Culturally—and I've lived this experience—to be able to access a Japanese company and do the real work versus a UK company, with the cultures and the mores being very similar, it's a lot easier. So I feel—and again, this is a hopeful comment—that the UK's moment is coming. Maybe it hasn't really come today, but it's sooner than later, and we're 10 years in the wilderness.

I've got a few friends who'd be—including me—very happy. Let me ask 1 last question. I've mentioned cycles and everything a lot here.

You clearly are seeing a path for them to resolve the preferred in November and address the 2028 maturity. You're seeing a path.

I just want to ask: if the cycle—forget it—if we went down another 20%, we'd be talking about something completely different, right? But if the cycle doesn't rebound, as we've talked about—and it could rebound 4 years from now—but if it doesn't rebound in the next 12 to 18 months, is there a path for them to do all this, to get over this on their own? Or do you think you need at least a little bit of moderation in the cycle for them to get through all of this?

Yeah, I think that's a really valid question given what they just went through. But realistically, if we said it was going to turn down another 20%, right?

Forget that. I think it's important because it means there's a nuclear event. There's something so external to the black swan that we're dealing with a lot of other issues than this.

I think in a realistic life-and-living scenario, let's say there's a 5% downturn. They can dig their way out of that. Like I've said a couple times on here, $80 million of cumulative cost savings on $150 million trough EBITDA.

I did this because I came from a free-cash-flow world, but this was fascinating to me when I did it for myself. I asked them, and they were like, "We've never looked at it this way." But if you kind of just do a free-cash-flow analysis on this, it's really fascinating. So this is on a pro forma basis. I've mentioned $115 million. They've realized $20 million of savings, so just make that $135 million.

And your contention, I guess, is that all the savings are dropping through to the bottom line?

Well, that's the $20 million. On their December earnings, they said, "We've realized this. It's here." So I'm going to say $135 million. Consensus 2027 expectations are $160 million. I'm not going to use that. I'm just saying $135 million.

Let's flow through cash tax. They've got huge NOLs. In this decade, they're not paying cash tax. So cash tax is roughly $2 million a year, maybe $3 million. Interest, which at peak in 2029 will be $74 million. The way they structured this 2029 note is that for the first 12 months, it's 1% plus 8.5% PIK, or 8.7% PIK. So in terms of cash, we're just doing cash.

It's going to be £56 million of cash interest. So, again, I'm at £135 million minus £2.5 million minus £56 million. Then capex—they used to be £60 million of capex; now they're at £50 million. That's the new run rate.

They've done all the builds they have to do. This is what I'm trying to telegraph: they're saying this publicly—“We've done all the work.” And then you have severance. Severance is going to be £10 million this year, £30 million. So I'm just using £10 million here.

I get to free cash flow of £16.5 million, which on a per-share basis is 14.15p, a 36% free cash flow yield.

And by the way, the beautiful thing about leverage, man—look at the competitors. Likewise has never made money. They pay a dividend, which is why people are attracted to them. Headlam may not exist. So, if you think Victoria could maybe take some business from Headlam's eventual demise, that's found money. I gave you the trough.

Yeah. No, Headlam is the angle. Until we got on the podcast, I hadn't really thought about it as, hey, it's not just that you're at the bottom of the cycle. You've got a competitor, and sometimes this is how it works, right? You hope they've got the levers to pull and the liquidity runway. You wait for that one competitor to die and cede all their share.

This happened in trucking, and then the cycle took another turn. But you wait for Yellow to hit the drain, and once they hit the drain, it's a free-for-all. Everybody takes it, the whole thing resolves, and everybody's just partying like it's 1999, I guess.

Yeah. So, again, I'm not telling your audience a certain share price. I'm not telegraphing anything. I'm just saying, when I look at my universe, if the downside risk is, to your point, 20%—let's just use that as a number—the upside potential is pretty incredible.

Perfect. Perfect. Well, Randy, I think we're going to have to wrap it up here, unless you have any last thoughts, because we talked for 10 minutes before. We've been over an hour, and at some point I have to go pick up the kids from daycare. Anything else you want to hit on this?

No, we're good. Andrew, good to see you again, as always.

This has been great. And, you know, similar to Fast & Furious for the 10th episode, I think we've already got eyes on the 5th episode. We're going to space, baby.

Paul Walker forever, as they said. [Laughter]

Looking forward to having you on, and we'll chat soon. Later, buddy.

All right. See you.

A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.