Good morning! Norcros (LON:NXR 16.5p) have issued an IMS covering their Q1 trading. They have a 31 March year end, so Q1 obviously covers Apr-Jun.
The first thing that stands out is that the constant currency figures are much better than the sterling figures. This is because about 40% of their business is in South Africa, and the Rand has depreciated significantly against sterling in the past year. Looking at the exchange rate chart, in Q1 of 2012 there were about 13 Rand to £1. In Q1 of this year, it had weakened to between 14-16 Rand to £1.
A range of factors are mentioned, which mainly create a mildly negative impression, however with trading statements I have found that the key things to focus on are: look through the detail and focus only on what the overall impact on profits against expectations is. Secondly, one needs to consider what the outlook is. Thirdly one needs to consider how the shares are currently rated - so cheap stocks tend to absorb negatives with barely a flinch, as expectations are low, whereas highly rated shares tend to get pole-axed by negative news.
Any factors which seem to be one-offs (e.g. the impact of de-stocking by UK customers in April - although I would like to know why they de-stocked) do not concern me, as that should not have any lasting impact on the business. It's more important to evaluate what's likely to happen in the future, and spot the key trends, rather than obsess over the detail of minor problems in the past. That's a general point, not just about Norcros.
The overall impression of this IMS is that H1 is not going to be great, but that cost cutting at Johnson Tiles will benefit H2. The most important sentence by far is the last one, where they say (with my bolding):
Even though the second half weighting of cost reduction benefits in Johnson Tiles UK will mean that profitability will be more heavily weighted to the second half than normal, the Board remains confident of the outcome for the full year.
Normally I don't like second-half weighting comments, as it usually means management are in denial about having a bad year, and are hoping that sales will improve in H2, which usually they don't. So it…
