Current Trading

Since their appointment to the Board in October, it has become apparent to the Directors that Victoria is facing some real challenges. The Group is experiencing strong economic headwinds in each of its major markets, has a cost structure that is too high for its current level of business, limited competition advantages, excessive debt levels in the UK, surplus production capability (in a sector with abundant surplus production capacity) and a considerable over supply of stock in the UK.

These issues are reflected in the disappointing results for the 26 weeks ended 29 September 2012 announced in November. However, Victoria is well known for producing superb quality carpets, has an enviable reputation for service, and employs some talented and committed people. Since their appointment, the Directors have begun to build on these foundations to address the key issues facing the business.

The Contract

Following discussions with the Company's professional advisers, the Board believes that the proposed contract is an appropriate way of aligning the interests of Mr Wilding, as the key executive responsible for putting the Company's strategy into effect and achieving the key objectives which emerge from the strategy, with the interest of all shareholders.

A significant number of shareholders have expressed to the Board a desire to see shareholder value and returns generated in the near term. The proposed Contract reflects these wishes and requires substantial returns to be made to shareholders in the next two years before the Contract has any value to Mr Wilding.

At least £3 per Share must be returned to shareholders within the next two years before any value can accrue to Mr Wilding under the Contract. Victoria's share price has exceeded £3 per share for only a short period (between December 2011 and April 2012) over the past five years and for much of that period (January to March 2012) the Company was in a formal sale process.

That process did not result in any offer being made for the Group. If at least £3 per share is returned to shareholders within the next two years, Mr Wilding will begin to accrue value under the Contract and will be entitled to a share of additional shareholder value, the quantum of which is determined by reference to the amount by which total shareholder value exceeds a hurdle, subject to overall caps on the quantum of the payment.

Full details of this formula and how Mr Wilding's value is determined are contained in the Circular. Since Mr Wilding's share of further shareholder value increases as more value is created for shareholders, and given the investment required to be made by him in the Contract and the risk of loss, his interests are directly aligned with shareholders. The Board believes that in creating this direct and transparent link between the value of the Contract and shareholder value, shareholders stand to benefit most from Mr Wilding's relevant experience, commitment and skills.