REG - Norcros PLC - Final Results

NorcrosAnnouncement

10/06/2021 07:05

RNS Number : 3982B
  
Norcros PLC
  
10 June 2021
  
 

 
 
10 June 2021
 
Norcros plc
 
Results for the year ended 31 March 2021
 
Very strong recovery from a period of unprecedented uncertainty
 
Norcros, a market leading supplier of high quality and innovative bathroom and kitchen products, today announces its results for the year ended 31 March 2021.
 
Financial Summary
 




 


20212


2020


% change as reported 


% change constant 
currency like for like3 




Revenue


£324.2m


£342.0m


-5.2%


+0.7%




Underlying operating profit1


£33.8m


£32.3m


+4.6%


 




Underlying profit before taxation1


£30.6m


£28.8m


+6.3%


 




Diluted Underlying EPS1


31.1p


28.2p


+10.3%


 




Underlying operating cash flow1


£65.8m


£38.4m


+71.4%


 




Operating profit


£24.9m


£17.8m


+39.9%


 




Underlying net cash/(debt)1


£10.5m


(£36.4m)


 


 




Dividend per share


8.2p


3.1p


 


 




 
1 Definitions and reconciliations of alternative performance measures are provided in note 5
2 Year to 31 March 2021: 52 weeks (Year to 31 March 2020: 53 weeks)
3 Like for like adjusts prior year revenue for period pro-rating of number of weeks
 
Highlights
·    Very strong recovery from a period of unprecedented uncertainty with second half revenue growth of 19.5% on a constant currency like for like basis 
·    Full year revenue of £324.2m (2020: £342.0m). 0.7% higher than prior year on a constant currency like for like basis
·    Underlying operating profit of £33.8m, 4.6% higher than prior year (2020: £32.3m)
·    Operating profit of £24.9m (2020: £17.8m)
·    Strong cash generation in the year of £46.9m has significantly strengthened the balance sheet with net cash of £10.5m (2020: net debt of £36.4m) 
·    Underlying ROCE above strategic target rate at 18.2% (2020: 16.4%)
·    Diluted underlying EPS of 31.1p, 10.3% higher than prior year (2020: 28.2p)
·    Reinstatement of dividend at 8.2p for the year (2020: 3.1p)
 
Current trading
 
·    Strong trading momentum has continued into April and May 2021 with Group revenue ahead of the comparable period in 2019 by approximately 23%
 
 
 
David McKeith, Acting Chair, commented:
 
"Norcros has recovered very strongly from a period of unprecedented global disruption and uncertainty caused by the COVID-19 pandemic. The resilience of the Group's business model and strategy is proving to be highly effective; this was particularly evident in the last financial year as we outperformed the market in the most unpredictable trading environment we have ever experienced. The Board is confident that this outperformance can be sustained."
There will be a presentation today at 9.30 am for analysts via a conference call. The supporting slides will be available on the Norcros website at http://www.norcros.com later in the day.
 
Enquiries
 




Norcros plc


Tel: 01625 547700




Nick Kelsall, Chief Executive Officer


 




Shaun Smith, Chief Financial Officer


 




 


 




Hudson Sandler


Tel: 0207 796 4133




Nick Lyon


 




Sophie Miles


 




 


 




 
Notes to Editors
Norcros is a market leading supplier of high quality and innovative bathroom and kitchen products with operations primarily in the UK and South Africa. 
 
·    Based in the UK, Norcros operates under seven brands:
·       Triton - Market leader in the manufacture and marketing of showers in the UK
·       Merlyn - The UK and Ireland's No.1 supplier of shower enclosures and trays to the residential, commercial and hospitality sectors
·       Vado - A leading manufacturer and supplier of taps, mixer showers, bathroom accessories and valves
·       Croydex - A market-leading, innovative designer, manufacturer and distributor of high quality bathroom furnishings and accessories
·       Abode - A leading niche designer and distributor of high quality kitchen taps, bathroom taps, and kitchen sinks
·       Johnson Tiles - The leading manufacturer and supplier of ceramic tiles in the UK
·       Norcros Adhesives - Manufacturer of tile and stone adhesives, grouts and related products
 
·    Based in South Africa, Norcros operates under four brands:
·       Tile Africa - Chain of retail stores focused on ceramic and porcelain tiles, and associated products such as sanitaryware, showers and adhesives
·       Johnson Tiles South Africa - Manufacturer of ceramic and porcelain tiles
·       TAL - The leading manufacturer of ceramic and building adhesives
·       House of Plumbing - Market leading supplier of specialist plumbing materials
 
·    Norcros is headquartered in Wilmslow, Cheshire and employs around 2,100 people. The Company is listed on the London Stock Exchange. For further information please visit the Company website: http://www.norcros.com
 
 
 
 
 
 
 
Chair's Statement
Overview
Norcros has recovered very strongly from a period of unprecedented global disruption and uncertainty caused by the COVID-19 pandemic. The resilience of the Group's business model and strategy is proving to be highly effective; this was particularly evident in the last financial year as we outperformed the market in the most unpredictable trading environment we have ever experienced. 
Group revenue for the year was £324.2m (2020: £342.0m), 5.2% lower than the prior year on a reported basis, 1.2% lower on a constant currency basis and 0.7% higher on a constant currency like for like basis after adjusting the prior year for period pro-rating (53 weeks versus 52). 
Underlying operating profit was £33.8m (2020: £32.3m), 4.6% ahead of the prior year reflecting the strong recovery following the significant impact of COVID-19 in the first quarter.  
The Group finished the year with net cash of £10.5m (2020: net debt of £36.4m), a significant achievement and a result of the management team's relentless focus on cost and working capital management throughout the year. 
 
COVID-19 
The unprecedented COVID-19 pandemic has had a significant impact on our results for the year, especially in the first quarter, where Group revenue was 58% of the prior year on a constant currency like for like basis as the lockdowns in our two main markets significantly reduced the demand for our products due to the closure of the majority of our customers. During this time, we mothballed our facilities, safeguarding our employees, customers and suppliers, whilst continuing to operate our businesses effectively with a skeleton staff working predominantly from their homes. 
As the lockdowns in our main markets eased at the end of the first quarter, the Group's trading recovered strongly with second half revenue at 120% of the prior year on a constant currency like for like basis. This recovery reflected the strength of the Group's market leading positions, and the rapid adaptation of our operating facilities, supply chains and commercial sales channels in response to the safe and effective working environments and modified working procedures and processes required by COVID-19. 
 
Strategy
Notwithstanding the recent challenges of COVID-19, our focussed growth strategy remains valid and relevant. Our targets to grow Group revenue to £600m with 50% derived outside of the UK whilst sustaining a pre-tax return on underlying capital employed of more than 15% over the economic cycle continue to govern how we evaluate opportunities and deploy capital. The previous timescale of 2023 will be extended to 2025 reflecting the COVID-19 disruption. The Group's very strong recovery in the second half of the year demonstrates the resilience and effectiveness of our business model and strategy. Whilst there is still a significant degree of uncertainty around the post COVID-19 economic recovery we are convinced of the validity and effectiveness of the strategy and remain committed to these targets.
 
Dividend
The Group responded swiftly to the impact of the COVID-19 pandemic and the need to preserve cash by not paying a final dividend in relation to the year ended 31 March 2020 nor an interim dividend in relation to the year ended 31 March 2021. Based on the improved trading performance in the second half of the year, the further strengthening of the balance sheet and the current outlook the Board believes that now is the right time to reinstate the dividend and has therefore taken the decision to recommend a final (and total) dividend of 8.2p per share for the year (2020 total: 3.1p). This is equivalent to a dividend cover of 3.8 times, consistent with the year ended 31 March 2019. The Group will now continue with its previous progressive albeit prudent dividend policy which takes into account the Group's growth strategy, the interests of other key stakeholders, the Group's cash generative characteristics and its earnings growth.
Pension scheme
The net deficit relating to our UK defined benefit pension scheme (as calculated under IAS 19R) has reduced to £18.3m at 31 March 2021 from £48.9m at 31 March 2020, primarily as a result of the recovery from the initial COVID-19 impact on financial markets and asset valuations in particular. 
We remain confident that our pension obligations continue to be appropriately funded and well managed. The Company recognises that the pension scheme is a key stakeholder and in recognition of this, and despite all of the necessary actions taken to conserve cash during the year, met in full its obligations and paid £3.3m into the scheme in the year in accordance with the agreement made with the Trustee in June 2019 based on the triennial valuation dated 1 April 2018. The next triennial valuation dated 31 March 2021 is currently underway. The Company and the Trustee continue to work constructively together.    
 
COVID-19 related support and restructuring actions
The unprecedented COVID-19 pandemic has had a significant impact on the level of economic activity in our main markets, particularly in the first quarter and disrupted our business operations. In response to this, the Group claimed £5m of government assistance from the Coronavirus Job Retention Scheme (CJRS) in the UK and equivalent schemes in Ireland and South Africa to protect as many jobs as long as possible and avoid large scale redundancies. Notwithstanding, the Group had to implement several restructuring programmes to further reduce its cost base resulting in a reduction in employee numbers of approximately 200, incurring £2.4m of costs, of which £2.0m are cash costs, with £1.6m being paid in the year, and £0.4m are non-cash costs. Consequently, the Group has repaid £0.7m of the CJRS in respect of employees who were made redundant. In light of the continued COVID-19 uncertainty in the Middle East the Group decided to close the Norcros Adhesives Middle East operations which resulted in a further £1.4m of restructuring costs consisting of £0.3m of cash costs and £1.1m of non-cash costs.
 
Environmental, Social and Governance (ESG) 
The Board is committed to high standards of corporate responsibility, employee engagement and sustainability and continues to prioritise a number of activities that look to reduce the Group's impact on the environment and support the communities in which we operate. During the year the Board has reaffirmed its ESG principles and defined a set of building blocks which underpin a new ESG reporting framework designed to improve our ESG performance. Our environmental strategy has continued to develop during the year with a number of initiatives including Triton's pledge to be "net carbon zero by the end of 2025", Johnson Tiles UK's progress on recycling and being "plastic free" and Abode's innovative new "Swich water filter diverter" product. The Board continues to focus on employee engagement and charitable contributions in our local communities. Further details on our ESG progress can be found in our Annual Report and Accounts.   
 
Board changes
During the year, Martin Towers completed his term as Chair in July 2020 and was succeeded by Mark Allen. Unfortunately, due to his other business commitments, Mark tendered his resignation and left the Board in April 2021. We wish Mark well in his other current and future directorships. Having served on the Board for eight years as a non-executive director, I have been appointed acting Board Chair until the Group appoints a new Non-Executive Director as Board Chair. A search is underway.
Shaun Smith has notified the Board of his wish to retire in order to pursue a non-executive director career, which has been accepted and the terms and timeframe agreed.  Shaun will step down as Chief Financial Officer at the end of July 2021 and therefore will not be seeking re-election at our AGM. The Board thanks Shaun for his valued contribution since joining Norcros in 2016.  A thorough recruitment process for a successor was undertaken, which has resulted in James Eyre, our current Corporate Development and Strategy Director, being appointed to the Board as Chief Financial Officer with effect from 1 August 2021.  James has been a member of the Group's senior team since 2014, responsible for leading our acquisitions. He is a Chartered Accountant and held senior finance roles at AstraZeneca, Bank of Ireland and N M Rothschild prior to joining Norcros. Shaun will remain employed by the Company until his retirement at the end of December 2021 to ensure a smooth and effective handover. 
 
Governance
As acting Board Chair, one of my primary responsibilities is to ensure that the Group continues to operate to the highest standards in all aspects of governance and risk management. Our aim at Norcros has always been to operate in line with our values and the "Norcros DNA" which sets us apart from our competitors, while ensuring that proper operating procedures and internal controls are maintained at all times. Transparency is central to this objective and you will find more detail about our approach and progress over the last year in the Corporate Governance section of our Annual Report and Accounts.
 
People
The Board's first priority throughout the COVID-19 pandemic has been ensuring the safety and wellbeing of our employees and their families. The Board expresses its thanks to our employees for their commitment and contribution in ensuring a safe workplace and to the strong outperformance achieved by the business in this unprecedented year.
The Board continues to regard our employees as our most valuable asset and in recognition of this the Group aims to create a safe and positive working environment within an open, transparent and entrepreneurial culture and decentralised operating model. 
 
Summary
Our businesses adapted swiftly to the initial impacts of the COVID-19 pandemic to ensure that they could operate safely and cost effectively in the first half of the year. Our strong brands, leading market positions and superior customer service, supported by good stock availability, enabled us to capitalise on the strong rebound in trading in our main markets to grow revenues and market share in the second half.
The Group has successfully navigated an unprecedented period of uncertainty and trading disruption. The actions taken to adapt to the COVID-19 environment together with our leading brands, customer service and stock availability have enabled us to take full benefit of the market recovery, increasing like for like revenue and underlying operating profit on prior year and ending the year in a net cash position. These results have highlighted the effectiveness and resilience of our Group strategy, business model and employees. 
Market conditions are likely to remain uncertain and challenging albeit the Board is confident that the Group's highly experienced management teams, resilient business model, increased financial strength and focussed growth strategy will continue to drive outperformance leading to further progress against our strategic objectives in the year ahead.
 
 
Chief Executive Officer's Statement
Overview
Norcros has ended the year reporting constant currency like for like revenue growth, underlying operating profit growth and a net cash position after having successfully navigated the most turbulent trading environment in recent memory.  
The unprecedented COVID-19 pandemic led to national lockdowns in the first quarter in our two main markets significantly reducing the demand for our products during which time we mothballed our facilities, operating our businesses effectively with a skeleton staff working predominantly from their homes where possible. Since the first lockdowns have eased, the resilience and flexibility of our business model including our well established supply chains and experienced management teams enabled the business to take full benefit from the upturn in repair, maintenance and improvement activity, and rapidly return to growth and increase our market share.  
Group revenue at £324.2m (2020: £342.0m) decreased by 5.2% on a reported basis, by 1.2% on a constant currency basis, and increased 0.7% on a constant currency like for like basis after adjusting the prior year for period pro-rating (53 weeks versus 52). First quarter revenue was 58% of prior year on a constant currency like for like basis due to the prevalent national lockdowns and closure of our facilities. As our businesses reopened second quarter revenue recovered to 97% of prior year on a constant currency like for like basis, leaving the first half 17.3% lower than the prior year on a similar basis. Revenue in the second half was 19.5% higher than prior year on a constant currency like for like basis as the market recovery strengthened further driven by improved RMI and home renovation activity and our market share gains. 
Group underlying operating profit for the year increased by 4.6% to £33.8m (2020: £32.3m) reflecting the significant profit impact of the COVID-19 disruption in the first quarter partially offset by £4.3m of Government job retention support and the strong recovery in trading in the second half of the year. 
Revenue in the UK was £220.2m for the year (2020: £225.4m), 2.3% lower than the prior year on a reported basis and 0.4% lower on a like for like basis. Revenue was significantly impacted in the first quarter, down 37.6% on prior year on a like for like basis, due to the impacts of the COVID-19 pandemic associated lockdowns and facility closures. Revenue recovered in the second quarter and was 3.5% higher than prior year on a like for like basis as our businesses benefitted from an uplift in RMI activity leading to strong growth in the retail and online channels. During the second half revenue grew further, 15.2% higher than prior year on a like for like basis as we benefited from our brand leading market positions, broad distribution channels, supply chain infrastructure and  stock availability, enabling us to capitalise on the strong rebound in demand and to grow our market share further.                                                                                                                                                                                                                                                                                                                             
In the UK, Triton and Merlyn performed very strongly in terms of revenue, operating profit and cash generation and gained further market share. Triton, the UK's market leader in showers, recorded revenue 14.3% higher than the prior year on a like for like basis having quickly adapted to the changes in both supply and demand conditions ensuring product availability and maintaining superior customer service levels. Merlyn, the UK and Ireland's No. 1 supplier of shower enclosures and trays grew revenue by 3.8% on the prior year on a like for like basis as it continued to enhance its market leading position in the UK through its quality product offering and customer centric service.
Further to the COVID-19 impact on demand, our UK businesses saw significant disruption to global logistics networks in part related to Brexit, but more significantly a result of global sea freight container shortages with containers being stuck in UK and other ports globally resulting in container shortages in Asia. This had a significant impact on product delivery times and freight costs in the final quarter. Brexit related disruptions and cost impacts had been well planned for by our businesses and to date have not significantly impacted our trading. We remain vigilant on the progress of the EU-UK separation and continue to manage the risks associated with any new or amended regulations or changes in duty regimes as they arise.  
UK underlying operating profit for the year was £26.9m (2020: £24.4m), largely reflecting the strong recovery in the second quarter, continued revenue growth in the second half of the year and £3.5m of coronavirus job retention support from the UK and Irish governments. The underlying operating margin for the year was 12.2% (2020:10.8%).
Revenue in South Africa increased by 3.2% on prior year on a constant currency like for like basis, though lower by 10.8% on a Sterling reported basis, to £104.0m (2020: £116.6m). The first quarter performance was materially impacted by the COVID-19 related nationwide lockdown and associated closure of our facilities, with resultant revenue at 50% of the prior year on a constant currency like for like basis. Our businesses recovered strongly in the second quarter as our operations reopened and lockdowns ended with revenue at 106.2% of the prior year on a constant currency like for like basis, benefitting from the timely reopening of our facilities in a COVID-19 safe and secure manner ahead of many of our competitors, an improved export performance and excellent supply chain management. These management actions enabled the businesses to grow revenue further in the second half, increasing 29.2% against prior year on a constant currency like for like basis, as volumes reflected strong retail renovation demand and increased commercial housebuilder activity. 
Tile Africa, our leading retailer of wall and floor tiles, sanitaryware and bathroom fittings, grew annual revenue by 11.8% on a constant currency like for like basis driven by higher retail demand from increased renovation activity in the market and significantly improved operating disciplines and superior stock availability.
South African underlying operating profit for the year was £6.9m (2020: £7.9m), largely reflecting the translational effect of the weaker Rand, the impact of COVID-19 on first quarter trading, partially offset by the receipt of £0.8m of coronavirus job retention support from the South African government, and the recovery in revenue in the second half. 
 
Robust balance sheet and financial position
The Group has a strong balance sheet with net cash of £10.5m (2020: net debt of £36.4m). This is a significant improvement on prior year and reflected a strong cash performance from effective cost and working capital management, with underlying operating cashflow of £65.8m (2020: £38.4m) in the period. 
The Group is in a strong financial position and has access to a £120m committed RCF financing facility, maturing in November 2022, plus a £30m accordion facility. 
 
Strategy remains valid - timescale extended due to COVID-19
In April 2018 we launched a refreshed strategy for growth and a 2023 vision for the Group, including an updated set of strategic targets which were: to increase Group revenue to £600m by 2023; to maintain revenue derived outside of the UK at approximately 50% of Group revenue; and to sustain a pre-tax return on underlying capital employed of more than 15% over the economic cycle. As was the case in the prior year, execution of the strategy in the current year has been significantly disrupted by the impact of COVID-19. Notwithstanding, we have performed strongly against these targets as detailed below:
·    Group revenue in the current year decreased by 5.2% to £324.2m (2020: £342.0m, 2023 target: £600m) although on a constant currency like for like basis revenue was 0.7% higher. 
·    On a Sterling reported basis, reported Group revenue derived outside of the UK was 41.6% (2020: 43.1%), and in constant currency terms, from when the targets were set, 45.6% (2020: 44.8%). 
·    Group underlying return on capital employed was 18.2% on a pre-IFRS 16 basis (2020: 16.4%) and strongly exceeded our strategic target of 15%. 
The Group's very strong recovery from the COVID-19 pandemic in the second half of the year continues to demonstrate the resilience of our business model and the effectiveness of our strategy. In light of the COVID-19 disruption over the year and the prior financial year, the timing of the delivery of our strategic revenue targets have been reassessed in the context of the economic conditions in our main trading markets as they adapt to the post COVID-19 environment. As a result, the timescale has been extended to 2025. We believe this is a sensible and achievable timescale given no further significant deterioration in the COVID-19 pandemic. 
The UK bathroom and kitchen product market remains highly fragmented with significant consolidation opportunities to either broaden our product portfolio or further consolidate our current offerings. The significant strength of the balance sheet means the business is well-placed to take advantage of any acquisition or organic growth opportunities as they arise. 
Sustained investment in new product development will continue to drive organic growth alongside our market leading brands, customer service and best in class quality. Our product vitality rate, the percentage of revenue in the period derived from new products launched in the last three years, was, as expected, lower at 28% (2020: 33%) mainly due to the COVID-19 related disruption to supply chains and the temporary closure of retail showrooms during the year. Our vitality rates are market leading and are expected to increase this year as our new product launches are accelerated back closer to pre-COVID-19 levels. 
 
Summary and outlook
The Group has outperformed expectations, recovering very strongly from a period of unprecedented disruption and uncertainty. Our performance on all fronts is a testament to our business model and our employees, particularly against the backdrop of challenging markets as demand adjusts to the impact of the pandemic and Brexit. It is particularly pleasing to see how well our businesses both in the UK and South Africa responded, taking advantage of the growth opportunities in the repair, maintenance and improvement segments and continuing to gain market share, benefitting from their leading brands, supply chain infrastructure and stock availability. 
Whilst the COVID-19 pandemic has resulted in some short term disruption against our strategic growth targets we remain committed to these targets and are more convinced that many opportunities to leverage our market positions and knowledge of the sector will emerge in the medium term.
Market conditions are likely to remain uncertain and challenging for some time yet. Whilst the recovery has been strong, especially in residential markets in the UK, the full impact of the crisis is difficult to ascertain at this stage given the current disruption in our supply chain, increases in freight and input costs and the implementation of price recovery measures and an expected normalisation of consumer spending patterns. The South African economy has also recovered strongly despite limited and stretched government resources, although commercial activity has only just started to recover to prior year levels. Whilst improved infrastructure investment is high on the list of the South African government's economic growth priorities, the impact of new COVID-19 variants and a slower vaccination roll-out programme will continue to create uncertainty.     
We have ended the year strongly, outperforming our expectations and the markets in which we operate in recording revenue*, profit and cash generation growth on prior year whilst operating within the constraints and disruption of the unprecedented COVID-19 pandemic. Pleasingly, this strong trading momentum has continued into April and May with Group revenue ahead of the comparable period in 2019 by approximately 23%.
The Group is in a strong financial position and is also stronger relative to our competitors than pre COVID-19. Accordingly, the Board remains confident that the Group's focussed strategy, highly experienced management teams and market leading brands, supply chain and customer service will continue to drive outperformance in the current financial year.
 
* On a constant currency like for like basis 

 
Business performance
 





 




2021
£m




2020 
£m






Revenue




324.2




342.0





Operating profit


24.9


17.8




IAS 19R administrative expenses


1.4


1.5




Acquisition related costs


3.7


4.0





Exceptional operating items




3.8




9.0






Underlying operating profit




33.8




32.3





 





 




2021
£m




2020 
£m





Revenue - UK


220.2


225.4





Revenue - South Africa




104.0




116.6






Revenue - Group




324.2




342.0





Underlying operating profit - UK


26.9


24.4





Underlying operating profit - South Africa




6.9




7.9






Underlying operating profit - Group




33.8




32.3





Underlying operating profit margin - UK


12.2%


10.8%





Underlying operating profit margin - South Africa




6.6%




6.8%






Underlying operating profit margin - Group




10.4%




9.4%





 





 




2021
£m




2020 
£m





Underlying operating profit


33.8


32.3




Depreciation of right of use assets


4.0


4.5




Lease costs


(5.3)


(5.0)





Depreciation and underlying amortisation (owned assets)




5.4




6.8





Underlying EBITDA


37.9


38.6




Net working capital movement


21.8


(4.8)




Share-based payments


1.0


0.1




Operating profit impact of IFRS16


1.3


0.5




Depreciation of right of use assets


4.0


4.5





Cash settlement of share options




(0.2)




(0.5)






Underlying operating cash flow




65.8




38.4





 
 





 




2021
 




2020 
 





Basic underlying earnings per share


31.2p


28.4p





Diluted underlying earnings per share




31.1p




28.2p





 
 
 
Business review - UK
In the UK, full year revenue was 2.3% lower than the prior year on a reported basis and 0.4% lower on a like for like basis at £220.2m (2020: £225.4m). Revenue was significantly impacted in the first quarter due to the impact of the COVID-19 pandemic and associated lockdowns. Revenue in April 2020 was 35.0% of prior year revenue, which over the quarter recovered to 62.4% of prior year on a like for like basis. Revenue further recovered in the second quarter and was 3.5% higher than prior year on a like for like basis as our businesses benefitted from an uplift in RMI activity leading to strong growth in retail and online channels. During the second half, revenue grew further ahead with a 15.2% increase on prior year on a like for like basis as we benefited from our brands' leading market positions and superior customer service and stock availability enabling us to capitalise on the strong rebound in demand and grow market share. 
Over the year our businesses delivered an extremely resilient performance responding and adapting rapidly and effectively to the testing external environment of the COVID-19 lockdowns, re-openings and considerable supply chain disruption. During the first quarter, in response to the COVID-19 pandemic and associated lockdowns we suspended our main manufacturing and assembly operations and furloughed approximately 70% of the workforce, continuing to service our customers with a skeleton staff working predominantly from their homes where possible. As the lockdowns eased at the end of the first quarter, our UK facilities reopened ensuring COVID-19 safe and secure environments for all our workforce with our manufacturing capacity aligned with our inventory levels and demand. During this period, we redesigned our working and manufacturing environments to ensure COVID-19 safe working and adjusted shift patterns to better match customer and employee requirements and adapted our sales and training approach to be online based. During the year, circa 4% of the UK workforce tested positive for COVID-19 with no cases of on-site transmission evidenced. The appropriate steps were taken to reduce any transmission risks in line with government guidelines and we continue to ensure that every reasonable action is being taken to provide a safe working environment for all our employees.   
The end of the third quarter saw significant disruption to global logistics networks significantly impacting product delivery lead-times and costs. This disruption was in part related to Brexit, but more significantly a result of global sea freight container shortages with containers being stuck in UK and other ports globally resulting in container shortages in Asia. 
Underlying operating profit for the year was £26.9m (2020: £24.4m) in the period, largely reflecting the strong recovery in the second quarter and continued growth in the second half of the year and the receipt of £3.5m of coronavirus job retention support from the UK and Irish governments. This receipt is net of a repayment of £0.7m of Coronavirus Job Retention Scheme support to the UK government in relation to furloughed employees that were made redundant as part of the COVID-19 related restructurings. 
 
Triton
Revenue at Triton, the UK's market leader in showers, was £54.5m (2020: £48.6m), 14.3% higher than the prior year on a like for like basis. Triton recovered strongly from the first quarter COVID-19 lockdown disruption and grew revenue and profits across the remainder of the financial year by quickly adapting to the changes in supply and demand, ensuring product availability and maintaining customer service. As competitors struggled to react to the challenging situation, Triton was able to build on its market leading position taking an increasing market share in electric and mixer showers. 
Retail sector revenue was 26.9% higher than the prior year on a like for like basis driven by a significant uplift in demand for home renovation products and from customers with a strong online presence and "click and collect" facilities. The classification of showers as essential products supported customer demand and enabled us to continue selling in periods of lockdown to meet orders. 
Trade sector revenue in the first half of the year was 25.3% lower than the prior year on a like for like basis as COVID-19 imposed restrictions impacted the contract building sector. Demand recovered in the second half with revenue 27.3% higher than prior year on a like for like basis with contracts in social housing and local authorities recovering gradually. Trade sales ended the year marginally lower on a like for like basis.
Triton's full year export revenue was 18.5% higher than the prior year on a like for like basis benefitting from a similar pattern of retail recovery in the key Irish market. 
New products continue to be a key driver in maintaining Triton's long-term leading market position where ongoing investment and new product launches have proven successful. Notable revenue growth in the year was delivered from Instaflow™ Water Heating and Quiet Mark™ Pumped and Power Shower ranges. 
Proud to be manufactured in Britain for over 45 years and a member of the "Made in Britain" scheme since 2014, Triton is known as a leader in electric shower innovation with a focus on their environmental credentials. A number of initiatives are already in place including zero waste to landfill, 99.9% recycled box packaging, environmentally friendly fleet vehicles and 100% recycling of used parts. During the year Triton started working with the Carbon Trust™ and has set a target to be net carbon zero by the end of 2025; Triton's 50th anniversary year.
Triton again delivered strong underlying operating profit along with excellent cash conversion in the period.
 
Merlyn
Merlyn, the UK and Ireland's No. 1 supplier of shower enclosures and trays to the residential, commercial and hospitality sectors performed strongly and recorded revenue of £43.3m (2020: £42.5m), growth of 3.8% on the prior year on a like for like basis despite the impact of COVID-19 that reduced revenue in the first quarter by 43.9%. The business continued to grow its market leading position in the UK through its quality product offering and customer centric service. 
UK revenue grew by 4.4% on prior year on a like for like basis, with a particularly strong performance in the trade sector where revenue grew 6.0% on a like for like basis driven by growth across a number of existing customers in addition to a number of new contracts including Homes for Lambeth and Lendlease. The retail sector revenue increased by 3.2% on a like for like basis in the difficult COVID-19 trading environment which closed showrooms across the country for large periods of the year. 
Exports were in line with prior year on a like for like basis, mainly reflecting the impact of COVID-19 lockdown measures in Ireland which impacted the construction sector.
New product development remains a core component of Merlyn's growth strategy with the launches of Arysto X, Arysto Colour and slip resistant trays during the year. The future pipeline includes an Arysto range extension, a next generation of shower trays, and products with improved glass cleaning properties. Despite the impact of COVID-19 on customer service levels, Merlyn won the NBG Plumbing, Heating & Showroom Supplier of the Year award for the third year running and the CCMA Customer Service Team of the Year.
Merlyn has continued to progress its environmental credentials during the year and has developed and tested a new eco-packaging solution to eliminate the use of single use plastics with fully recyclable alternatives. This will be utilised in all new product launches going forward. 
Merlyn recorded a strong performance with an underlying operating profit ahead of last year and continued to deliver strong cash conversion in the period.
 
Vado
Vado, our leading manufacturer of taps, mixer showers, bathroom accessories and valves, recorded revenue of £38.2m for the year (2020: £42.3m), 8.0% lower than the prior year on a like for like basis. COVID-19 had a major impact on the business with revenue in April 2020 at 23% of the prior year, recovering in the second half with sales growth of 4.2% on prior year on a like for like basis. 
In the UK, retail sector revenue declined by 9.5% on prior year on a like for like basis with a 21.5% decrease in the first half recovering to a 2.5% increase in the second half as retailers found ways to operate more effectively in the COVID-19 environment. Vado gained a number of new contracts during the year including the private label "@home shower" business with the Huws Gray Group and IPG, PHG, H&B and Bathcom, all of which will drive further channel growth in the current financial year.
Trade sector revenue was 10.1% lower than the prior year on a like for like basis with a 23.6% decrease in the first half recovering to a 3.4% increase in the second half as construction activity rebounded after the first quarter lockdowns. Key contracts with Countryside and Avant Homes were retained, continued growth came through Berkeley Homes and new business was secured with CP Hart which all helped to drive revenue growth in the second half of the year. 
Export revenue was in line with prior year on a like for like basis with a 13.9% decrease in the first half recovering to a 9.1% increase in the second half driven by strong sales in Europe, and a number of project wins in Africa and the Middle East.
The investment in new product ranges has continued to support revenue growth with the prior year launches of the "Individual coloured range" supporting growth with high value developers and the "Axces" range supporting the retention of contracts with national housebuilders. Environmental and sustainability credentials have been a major focus for new product launches this year which has seen the introduction of a new range of water flow restrictors that can be used in both high and low pressure systems and the introduction of the "EcoTurn" range of cold start taps reinforcing Vado's position at the forefront of driving market trends.
Underlying operating profit was above the prior year combined with improved cash generation in the period. 
 
Croydex
Croydex, our market leading, innovative designer, manufacturer and distributor of high-quality bathroom furnishings and accessories, recorded revenue of £24.1m (2020: £23.7m) for the period, 3.4% higher than the prior year on a like for like basis. Revenue in the first half decreased by 10.6% on prior year on a like for like basis and recovered in the second half growing by 16.7% on the prior year on a like for like basis.  
Retail sector revenue was up 13.1% on prior year on a like for like basis, with sales in the first half down 2.0%, with a recovery in the second half, 26.3% higher than prior year on a like for like basis. Increased online and e-commerce demand with digitally enabled businesses such as Argos, Wayfair and Very outweighed the reduced activity in our traditional High Street customers as town and city centres remained significantly impacted by COVID-19 restrictions. Croydex has also grown revenues in the DIY sector through Wickes, having won major rollouts within their 'take-away' bathrooms and showroom business.
Trade sector revenue was down 9.0% on the prior year on a like for like basis despite a strong performance in the second half with sales level with prior year on a like for like basis, with the recovery in demand from some of our more traditional merchants being held back as they struggled to meet social distancing rules. 
Export sales grew 18.2% on prior year on a like for like basis mainly driven by growth in the US from cabinet and mirror sales to Home Depot.com and European growth from existing markets and a launch of a new cabinet range in Spain. 
Our ongoing new product development programme has played a major role in driving new sales opportunities, the most significant being a second half Wickes store and online rollout of 150 new products including toilet seats, cabinets, and shower accessories. Further new product launches included new cabinet designs introduced by El Corte Ingles in Spain, illuminated mirrors for on-line Home Depot in the US and "Flexi-Fix" toilet seats recently introduced into our Italian customer base. 
We continue to focus on our environmental and sustainability credentials. A new packaging policy was developed and implemented in the period to reduce the environmental impact of our packaging in line with the UN environmental programme of sustainability. This policy also includes an implementation plan for the reduction in packaging, inclusion of more recycled content, elimination/replacement of single use plastics and the use of sustainable sources. We also introduced a range of products in the US designed to conform with the American Disability Act. Underlying operating profit was ahead of the prior year and cash generation remained strong. 
 
Abode
Abode, our leading designer and distributor of high-quality hot water taps, bathroom mixers, kitchen sinks and taps, recorded revenue of £15.0m for the year (2020: £14.8m), a 3.4% increase on a like for like basis. 
In a strong second half revenue was up 37.1% on prior year on a like for basis recovering from a 21.7% decline in the first half with distribution being strengthened through a new partnership with national distributor PJH Group further extending the retail display base. From a product perspective the Pronteau steaming water tap proposition has been enhanced by the launch of a second generation boiler at the KBB 2020 exhibition whilst the home delivery of sinks was also expanded, supporting online sales with a cost effective delivery of single ceramic sinks to consumers' doorsteps.  
Continuing investment in product development and showcasing saw the opening of a new showroom and in-house photographic studio at our Barnsley head office alongside the launch of the 'Distinctly Abode' collection, including Pronteau hot water taps, which is differentiated from the main branded range to provide greater retail exclusivity. The innovative Abode water filtration system 'Swich' won an Ideal Home Award for sustainability and the newly launched 'Prothia' tap was commended for its steaming hot water tap design. 
Abode's flexible supply chain was further strengthened during the year through the introduction of SMETA standards for ethical trading with Abode also being accredited by 'Investors in People' for employee engagement and people management processes. 
Underlying operating profit and cash performance were both higher than the prior year, reflecting the second half recovery in revenue.  
 
Johnson Tiles
Johnson Tiles, our UK market leading ceramic tile manufacturer and a market leader in the supply of both own manufactured and imported tiles, recorded revenue of £32.8m (2020 £41.7m), 19.8% lower than the prior year on a like for like basis. This result was significantly impacted by the COVID-19 pandemic with first half revenues at 67.6% of prior year on a like for like basis. During the first national lockdown in April, where demand dropped sharply to 24% of prior year, the focus was on supporting commercial and retail contracts and rapidly developing the factory outlet website. Revenues recovered through the first half as the DIY retailers and construction sites returned to a more normal level of operation. This recovery continued into the second half where revenues were 93.1% of prior year on a like for like basis.
Trade sector revenue was down 19.8% on the prior year on a like for like basis, with the second half recording a 3.9% decrease on prior year on a like for like basis. The house developer sector recovered strongly throughout the second half, but commercial specifications, which are driven by the hospitality and retail sectors, have been very slow to restart with the social housing refurbishment market continuing to be impacted by the overhang from the Grenfell cladding issue. We benefitted in the second half from our strong position with the national house developers where we have either exclusive supply or significant shares of the tile supply to Barratt David Wilson, Persimmon, Charles Church, Redrow, Countryside and Bellway. During the year we supplied a number of major contracts in the period including the Royal Wharf Development in London, Birmingham Airport Holiday Inn, Booking.com's UK offices, the Clayton Hotel in Manchester and the Cardhu distilleries offices.
Retail sector revenue was down 21.1% on prior year on a like for like basis with the second half recording a 11.6% decrease on prior year on a like for like basis with tiles not benefitting as much as some categories from the general market DIY uplift. However, we have still been successful in winning new space in both B&Q and Wickes during the year and Johnson Tile's position as the only remaining UK based tile manufacturer is expected to help us gain future retail traction. In 2021 Johnson Tiles is celebrating both its 120th year as a UK manufacturer of tiles and its heritage as a designer and innovator in tiles. 
Export revenue which accounts for approximately 8% of overall revenue finished down 12.9% against prior year on a like for like basis, with second half revenue level with the prior year on a like for like basis. Strong performances in Bauhaus in Germany from new ranges and project driven sales in the Middle East were offset by a challenging performance with Leroy Merlin in France, with sales being impacted by the COVID-19 lockdowns.
Johnson Tiles has taken a market leading position on sustainability over many years in its manufacturing processes including the recycling of kiln waste heat, scrap tiles and water. In addition to this, during the year the business has become plastic free eliminating over 100 tonnes a year of plastic from its processes.
The business was profitable in the second half although for the year it incurred an underlying operating loss due to the lower revenues and the under recovery of fixed production costs whilst production activities were curtailed in the first half, only fully re-opening in mid-September. Cash generation in the year however was a particularly strong feature, reflecting significantly reduced inventory levels in the period.
 
Norcros Adhesives
Revenue at Norcros Adhesives, our UK manufacturer and supplier of tile and stone adhesives and ancillary products, was 6.0% higher than prior year on a like for like basis at £12.3m (2020: £11.8m) despite the impact of COVID-19, with distributor customers unable to open showrooms for several months. We benefitted from our presence in the large multiples who were classified as essential retailers and quickly implemented social distancing measures, in addition to our growing specification business, all of which helped revenues to recover from COVID-19 related disruption and ultimately exceed prior year performance. 
Trade sector revenue was 34.1% ahead of prior year on a like for like basis reflecting Norcros Adhesives' ongoing focus on building sales through the specification channel and was assisted by the launch of two new levelling products in Screwfix. 
Retail sector revenue was 1.7% ahead of prior year reflecting the fast adaptation of the larger multiple customers to COVID-19 secure environments.
Our Middle East operations were severely impacted by COVID-19 with revenue 53.3% below prior year on a like for like basis with ongoing lockdown conditions disrupting many projects. With the growth expectations of the region significantly reduced and market liquidity continuing to tighten further the decision was made to close the business from 31 March 2021. Associated cash costs of £0.3m and non-cash costs of £1.1m have been recognised as exceptional restructuring costs. 
New product initiatives in the period included the launch of our novel "Rock Tite" fixing system for porcelain tiles, with the technology also supplied as an own brand for the leading distributor in the Landscape Market, Aquacut. Environmental standards have been maintained in the year with the continued "Gold Standard" accreditation from the Supply Chain Sustainability School (which is partnered with the housebuilder Barratt). A small underlying operating loss was recorded in the year which was an improvement on the prior year and reflected higher revenue and the benefits of new product introductions, price increases and product reformulations.
 
Business review - South Africa
Revenue for the year increased by 3.2% on prior year on a constant currency like for like basis, though a decline of 10.8% on a Sterling reported basis to £104.0m (2020: £116.6m). The first quarter performance was materially impacted by the COVID-19 related nationwide lockdown which saw revenue decline to 50% of the prior year on a constant currency like for like basis. Our four businesses were closed during April, with our retail businesses re-opening in May having implemented COVID-19 safe operating procedures and we were fully operational by the end of June. The businesses managed to recover strongly in the second quarter with revenue at 106.2% of prior year on a constant currency like for like basis benefitting from the timely reopening of our facilities in our COVID-19 safe and secure manner ahead of many of our competitors, an improved export performance and excellent supply chain management. The second half saw revenue increase by 29.2% against prior year on a constant currency like for like basis driven by strong retail renovation demand, increased commercial housebuilder activity, and improved export performance. 
The COVID-19 pandemic has impacted our employees and their families. Whilst there were no cases of transmission of the virus at work, 8% of our colleagues have tested positive. Two employees have sadly passed away and we offer their families our deepest sympathies. The business has been proactive in the support provided to all staff throughout the year with full access to our wellness centre that extends to all aspects of well-being, including free access to independent psychological support.
During the year we continued to focus on our communities and have participated in a government-backed initiative "Project Yes" (Youth Employment Service), to provide work experience for unemployed young people nationwide with the hiring of 65 young people spread across all four businesses. We continue to remain actively involved in providing safe toilet facilities for underprivileged schools. 
Underlying operating profit for the year was £6.9m (2020: £7.9m), the reduction in profits largely reflecting the translational effect of the weaker Rand, the impact of COVID-19 in the first quarter, partially offset by the receipt of £0.8m of coronavirus job retention support from the South African government, and the recovery in demand in the second half. Cash generation across the South African businesses was strong despite the COVID-19 trading disruptions, driven by cost mitigation measures and effective working capital management. The business finished the year in a strong financial and competitive position, well placed to continue to gain market share in its respective markets. 
 
Johnson Tiles South Africa
Johnson Tiles South Africa, our tile manufacturing business, recorded revenue of £12.5m (2020: £14.0m) a 10.7% decrease on a reported basis and 2.5% higher on a constant currency like for like basis, a commendable performance given that the manufacturing plant was closed for the first two and half months of the financial year. 
The business benefitted from the investment in inventory levels coming into the lockdown period and an excellent performance from the production team once the economy re-opened post-lockdown. These actions, alongside targeted plant investments during the period helped to drive improved manufacturing stability, throughput and product quality, enabling the business to meet the increased demand resulting from the strong recovery in housing renovations and in the later part of the year from commercial housebuilders as construction sites reopened. During the second half recovery our products were specified and installed in a number of leading developments across the country, including The Whisken and Sky City residential developments in Johannesburg, and the Lotus Gardens development in Pretoria. 
Our New Product Development programme helped to support the recovery in retail demand and is expected to continue to do so as the recovery in the commercial sector gathers pace in the year ahead.
Cash generation was strong and ahead of the prior year although underlying operating profit was marginally lower than the prior year reflecting the extended plant shutdown in the first quarter.
 
Tile Africa
Tile Africa, our leading retailer of wall and floor tiles, sanitaryware and bathroom fittings recorded revenue of £54.9m (2020: £56.8m) a 3.3% decrease on a reported basis and 11.8% higher on a constant currency like for like basis. The improvement on prior year was driven by improved retail demand from increased renovation activity and significantly better operating disciplines and superior stock availability. 
The commercial contracts sector was hardest hit by the COVID-19 lockdowns as this coincided with the start of the annual building cycle. Despite the lower overall new build activity, Tile Africa completed several large retail floor covering installations for Pick n Pay, Boxer and Spar, with a noticeable pickup in activity in the second half with other specialist projects completed or underway including a dairy plant floor installation for Clover and the Ridge mixed-housing development in Cape Town.
Tile Africa successfully launched a private label shower enclosure range during the year with Merlyn's assistance, with excellent initial sell-through being achieved. It was also particularly pleasing to see bathroom ware growth in the year as the business continues to benefit from the ability to directly source product utilising the Group's wider supply chain network.
Tile Africa currently operates from 32 owned stores and two franchise stores. Ongoing capital investment in the business majored on the flagship Greenstone branch upgrade completed this year and the Ballito branch relocation completed recently, with both developments including a bathroom store-within-a-store concept and a bespoke alternative floorcoverings department. 
Operating profit and cash were both significantly better than the prior year. 
 
TAL
TAL, our market-leading adhesive business, recorded revenue of £19.1m (2020: £22.1m) a 13.6% decrease on a reported basis albeit a 0.5% increase on a constant currency like for like basis. Following the national lockdown in the first quarter there was a sharp decline in large commercial new build projects with first half revenue at 79.0% of the prior year on a constant currency like for like basis. In the second half, the business grew 24.4% on the prior year on a constant currency like for like basis reflecting good operational planning on the timely re-opening of our production facilities which allowed the business to meet strong local and export retail demand, often at the expense of competitors who struggled to re-open their operations efficiently. 
TAL remains the preferred partner in the market in relation to numerous technical projects with the business supplying market-leading products and technical expertise into several prestigious projects this year, including the redevelopment of an uncovered swimming pool at the world class aquatics centre in King Edward VII School, Johannesburg, the installation of a liquid marble epoxy floor in the Quna Restaurant at the Saxon Hotel & Spa in Johannesburg, the installation of an Olympic size swimming pool for the University of the Western Cape, construction of Sky City residential apartments and the first phase of the Munyaka commercial housebuilding project. 
Our new product development is focused on developing novel fixing systems for coverings outside of our traditional tile market and during the year we launched the Profix LVT adhesive for large vinyl tile installations.
Cash generation was strong and ahead of the prior year despite underlying operating profit being lower than the prior year, reflecting the extended plant shutdown in the first quarter.
 
House of Plumbing
House of Plumbing, our market-leading supplier of specialist plumbing materials into the specification and commercial segments, recorded full year revenue of £17.5m (2020: £23.7m) 26.2% lower than the prior year on a reported basis and 14.6% lower on a constant currency like for like basis. The first half saw revenue decline to 71.2% of prior year on a constant currency like for like basis as the business was initially heavily impacted by COVID-19 as the large commercial projects supplied by House of Plumbing took longer to recover after lockdown. In the second half of the year the business recovered to prior year revenue levels on a constant currency like for like basis, with the fourth quarter seeing growth of 17.8% over prior year on a constant currency like for like basis against the prior year as new build project activity increased. 
While there was a sharp decline in the number of large commercial projects in the year, the management teams focus on providing expert technical advice and consistent stock availability resulted in new B2B and B2C business being gained. The business also successfully opened our first new store post acquisition in Polokwane as part of our plan to establish a comprehensive national footprint. The business currently operates out of four branches, with four new branches planned for the year ahead. During the year, House of Plumbing supplied a number of landmark projects, including the Wierda Road and Tree Tops apartment developments in Johannesburg and The Capital Hill Hotel in Nelspruit. 
Underlying operating profit and cash generation were lower than the prior year reflecting the more marked disruption from COVID-19 on a number of large new build commercial projects. 
 
 
Financial overview





 




2021
£m
 




2020
£m
 






Revenue




324.2




342.0





Underlying operating profit


33.8


32.3




IAS 19R administrative expenses


(1.4)


(1.5)




Acquisition related costs


(3.7)


(4.0)





Exceptional operating items




(3.8)




(9.0)





Operating profit


24.9


17.8





Net finance costs




(6.4)




(2.8)





Profit before taxation


18.5


15.0





Taxation




(3.5)




(4.1)






Profit for the year




15.0




10.9




 
 
 
 



 
Revenue
Group revenue at £324.2m (2020: £342.0m) decreased by 5.2% on a reported basis, by 1.2% on a constant currency basis, and increased 0.7% on a constant currency like for like basis after adjusting the prior year for period pro-rating (53 weeks versus 52). 
Underlying operating profit
Underlying operating profit increased by 4.6% to £33.8m (2020: £32.3m). Our UK businesses delivered underlying operating profit of £26.9m (2020: £24.4m), and our South African businesses generated an underlying operating profit of £6.9m (2020: £7.9m). Group underlying operating profit margin was 10.4% (2020: 9.4%). 
Underlying operating profit includes £3.3m of UK Government assistance in respect of the Coronavirus Job Retention Scheme and £0.2m and £0.8m respectively from the Irish and South African governments in relation to similar schemes. The support received is net of a £0.7m repayment, made in June 2021 of Coronavirus Job Retention Scheme support received from the UK government in relation to furloughed employees that were made redundant as part of the COVID-19 related restructurings.
IAS 19R administrative costs
These costs represent the costs incurred by the Trustee of administering the UK pension scheme and are reflected in the Income Statement under IAS 19R. Costs of £1.4m are in line with prior year (2020: £1.5m).
Acquisition related costs
A cost of £3.7m (2020: £4.0m) has been recognised in the year and is analysed as follows:





 




2021
£m
 




2020
£m
 





Deferred remuneration


-


0.6




Intangible asset amortisation 


3.7


3.7




Release of provision for contingent consideration 


-


(1.1)





Advisory fees




-




0.8






 




3.7




4.0





 
In accordance with IFRS 3R, a proportion of the deferred consideration payable to the former shareholders of certain acquired businesses is required to be treated as remuneration, and, accordingly, is expensed to the Income Statement as incurred which amounted to a cost of £0.6m in the prior year in relation to the House of Plumbing acquisition. In the current year, this provision has been released as the earn-out targets have not been met. We have increased our property provision by an equivalent amount due to the anticipated COVID-19 related loss of rental income on our last remaining legacy onerous lease, which expires in June 2022. 
In the prior year in relation to the House of Plumbing acquisition, £1.1m of contingent consideration was released to the income statement.
The advisory fees in the prior year relate to the costs incurred in relation to acquisition activity that did not conclude.
Exceptional operating items
A net exceptional operating charge of £3.8m (2020: £9.0m) has been recognised in the year. 
 





 




2021
£m




2020
£m





COVID-19 related restructuring 


3.8


-





COVID-19 related impairment




 -




9.0






 




3.8




9.0





 
COVID-19 has significantly affected economic activity and disrupted the business operations of the Group. The Group has implemented several restructuring programmes during the period which resulted in a reduction in employee numbers of approximately 200, and incurred £2.4m of costs, of which £2m are cash costs, with £1.6m being paid in the year, and £0.4m are non-cash. In light of the continued COVID-19 uncertainty and its impact on our Adhesives business in the Middle East we have also decided to exit the Adhesives market and close our small Adhesives Middle East operation at the year-end which resulted in an additional £1.4m of restructuring costs comprising £0.3m of cash costs and £1.1m of non-cash costs.
During the prior year an exceptional charge of £9.0m was incurred in relation to the impairment of tangible, intangible and right of use assets within the Johnson Tiles UK business.
Net finance costs 





 




2021
£m




2020
£m





Interest payable on bank borrowings


(1.5)


(1.6)




Interest on lease liabilities


(1.7)


(1.9)




Movement on fair value of derivative financial instruments


(2.0)


-





Amortisation of costs of raising debt finance




(0.2)




(0.2)





Finance costs


(5.4)


(3.7)





Movement on fair value of derivative financial instruments




-




1.7






Finance income




-




1.7






IAS 19R finance cost




(1.0)




(0.8)






Net finance costs




(6.4)




(2.8)





 
Net finance costs for the year of £6.4m compares to £2.8m in 2020. This increase is mainly due to the movement in the fair value of foreign exchange contracts which is a £2.0m cost in the year (2020: £1.7m income) in relation to expired forward foreign exchange contracts. Forward foreign exchange contracts are now accounted for under IFRS 9 hedge accounting, with the movement in fair value recognised in the consolidated statement of comprehensive income.  
The Group has recognised a £1.0m interest cost in respect of the defined benefit pension scheme liability (2020: £0.8m) which increased by £0.2m principally reflecting the higher deficit at the start of the year.
Underlying profit before tax
Underlying profit before tax was £30.6m (2020: £28.8m), mainly reflecting the increase in underlying operating profit of £1.5m noted above. 
Taxation
The tax charge for the year of £3.5m (2020: £4.1m) represents an effective tax rate for the year of 18.9% (2020: 27.3%). The decrease in the effective tax rate is mainly due to the impact of the non-deductible impairment charge in the prior year. 
The standard rates of corporation tax in the UK, South Africa and Ireland in the period were 19% (2020: 19%), 28% (2020: 28%) and 12.5% (2020: 12.5%) respectively.
Dividends
The Group responded swiftly to the impact of the COVID-19 pandemic and the need to preserve cash by not paying a final dividend in relation to the year ended 31 March 2020 or an interim dividend in relation to the year ended 31 March 2021. Based on the improved trading performance in the second half the Board believes that now is the time to reinstate its dividend and has therefore taken the decision to recommend a final dividend of 8.2p per share (2020: 3.1p). This is equivalent to a dividend cover of 3.8 times, consistent with the year ended 31 March 2019. The cash cost of the dividend is £6.6m.
The Group will now continue with its progressive albeit prudent dividend policy which takes in to account the Group's growth strategy, the interests of other key stakeholders, the Group's cash generative characteristics and its earnings growth.
This final dividend, if approved at the Annual General Meeting, will be payable on 30 July 2021 to shareholders on the register on 25 June 2021. The shares will be quoted ex-dividend on 24 June 2021. Norcros plc operates a Dividend Reinvestment Plan (DRIP). If a shareholder wishes to use the DRIP the latest date to elect for this in respect of this final dividend is 9 July 2021.
Balance Sheet
The Group's balance sheet is summarised below.





 




2021
£m




2020
£m





Property, plant and equipment


28.0


29.0




Right of use assets


19.6


20.6




Goodwill and intangible assets


93.6


96.5




Deferred tax


(0.5)


4.7




Net current assets excluding cash and borrowings


44.0


67.5




Pension scheme liability


(18.3)


(48.9)




Lease liabilities


(24.2)


(25.1)




Other non-current assets and liabilities


(4.3)


(3.5)





Net cash / (Net borrowings)




10.5




(36.4)






Net assets




148.4




104.4





 
Total net assets increased by £44.0m to £148.4m (2020: £104.4m). 
Property, plant and equipment reduced by £1.0m and included additions of £2.5m (2020: £4.0m). The depreciation charge was reduced to £5.2m (2020: £6.6m) due to the prior year impairment of Johnson Tile assets and foreign exchange gains were £1.7m (2020: loss of £3.2m). 
Right of use assets decreased by £1.0m to £19.6m (2020: £20.6m), reflecting the difference between additions or renewals and right of use asset depreciation in the year. Lease liabilities of £24.2m (2020: £25.1m) decreased by a similar amount.
The deferred tax asset decreased by £5.2m to a liability of £0.5m (2020: asset of £4.7m). The decrease is mainly the result of a movement in the pension deferred tax asset reflecting the lower pension scheme deficit at 31 March 2021. 
 
Pension schemes
On an IAS 19R accounting basis, the gross defined benefit pension scheme valuation of the UK scheme showed a deficit of £18.3m compared to a deficit of £48.9m last year. Whilst the present value of scheme liabilities rose by £5.3m due to a reduction in the discount rate to 2.05% (31 March 2020: 2.21%), partially offset by changes in mortality assumptions, the value of scheme assets increased by £35.9m due to the recovery from the initial COVID-19 impact on financial markets and asset valuations. 
The triennial actuarial valuation for the Group's UK defined benefit pension scheme as at 1 April 2018 reported an actuarial deficit of £49.3m (2015: £73.5m) representing an 89% funding level (2015: 84%). The deficit recovery plan was agreed with the scheme Trustee, with a cash contribution of £3.3m per annum plus CPI, payable for the 6.5 years to 30 September 2025. In line with this agreement the Group made deficit recovery contributions of £3.3m (2020: £3.3m) into its UK defined benefit pension scheme during the year.
The Group's contributions to its defined contribution pension schemes were £3.0m (2020: £3.5m).
 
Cash flow and net debt
Underlying operating cash flow was £27.4m higher than in the prior year at £65.8m (2020: £38.4m). 





 




2021
£m




2020
£m





Underlying operating profit 


33.8


32.3




Depreciation and amortisation 


5.4


6.8




Net working capital movement


21.8


(4.8)




IFRS 2 charge add-back


1.0


0.1




Depreciation of right of use assets 


4.0


4.5





Cash settlement of share options 




(0.2)




(0.5)






Underlying operating cash flow




65.8




38.4





 
The main driver of the improved underlying operating cashflow was a significant cash inflow from working capital including £3m of Government approved VAT deferral which will be repaid in the year to 31 March 2022. Underlying operating cash conversion in the year was 174% of underlying EBITDA (2020: 99%).
 





 




2021
£m




2020
£m





Underlying operating cash flow


65.8


38.4




Cash flows from exceptional items and acquisition related costs


(2.5)


(0.3)





Pension fund deficit recovery contributions




(3.3)




(3.3)





Cash flow generated from operations


60.0


34.8




Net interest paid


(3.2)


(3.5)





Taxation




(3.5)




(5.3)





Net cash generated from operating activities


53.3


26.0




Capital expenditure


(2.8)


(4.8)




Acquisitions


-


(9.2)




Dividends


-


(7.0)




Share transactions


0.3


(0.8)




Principal element of lease payments


(4.3)


(3.8)





Other items




0.4




(1.8)





Net cash generated/(spent) 


46.9


(1.4)





Opening net debt




(36.4)




(35.0)






Closing net cash/(debt)




10.5




(36.4)





 
Cash generated from operating activities was £27.3m higher than the prior year at £53.3m, largely due to the £27.4m increase in underlying operating cash flows. 
Cash flows from exceptional items and acquisition related costs in the current year primarily relate to the costs of the COVID-19 related restructuring carried out in the year totalling £1.6m, acquisition activity from the prior year that did not conclude, totalling £0.5m, and costs related to our legacy onerous lease totalling £0.4m.    
Capital expenditure at £2.8m (2020: £4.8m) was lower due to COVID-19 related cash conservation measures.  
Acquisition expenditure of £9.2m in the prior period mainly relates to the acquisition of the House of Plumbing. 
The Group ended the year with net cash of £10.5m (2020: net debt of £36.4m) on a pre-IFRS 16 basis after a net cash inflow of £46.9m. Net debt inclusive of IFRS 16 lease liabilities was £13.7m (2020: £61.5m).
Funding and Liquidity 
The Group has committed banking facilities of £120m (plus a £30m accordion) with a maturity date of the facility of November 2022. 
As a result of the impact of the COVID-19 pandemic in the first quarter, the Group agreed with its banking group a number of covenant waivers at September 2020 and March 2021 together with a new replacement Maximum Net Debt covenant of £95m, tested quarterly until June 2021. The focus on cost alignment and cash generation across the Group alongside the strong trading recovery in the second half of the year has ensured that these covenant waivers will not be required. The Group's improved liquidity position was achieved without the need to raise funds from any equity raises or accessing Coronavirus Business Interruption Loans.   
 
Principal Risks and Uncertainties 
Risk management is a priority for the Group to help sustain the success of the business in the future. There is a range of potential risks and uncertainties which could have a material impact on the Group's performance. The Board is responsible for the Group's risk management and determining the Group's risk appetite. Our risk management framework identifies the principal risks and uncertainties that we consider may threaten the Group's business model, future performance, solvency or liquidity. 
The Board has carried out a robust assessment of the principal risks and taken them into consideration when assessing the long-term viability of the Company. The principal risks are listed below and does not comprise all the risks that the Group may face, and they are not listed in any order of priority.
 
·    Strategic risks, include the risks associated with the Coronavirus (COVID-19) pandemic, future acquisitions, and the Environmental, Social and Governance (ESG) agenda.
·    People risks, include the risks associated with staff retention and recruitment.
·    Commercial risks, include risks associated with market conditions, the loss of key customers and competition.
·    Operational risks include the risks associated with the reliance on production facilities, the loss of a key supplier and cyber security. 
·    Financial Risks, include the risks associated with maintaining a suitable level of funding and liquidity and those associated with managing the defined benefit pension scheme.
 
Further details on the principal risks including detailed descriptions and mitigating actions are presented in the Annual Report and Accounts.   
 
Responsibility Statement
Each of the directors, whose names and functions are listed below, confirms that, to the best of their knowledge:
·    The consolidated financial statements, prepared in accordance with the applicable United Kingdom law and in conformity with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and  
·    The business review includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole; and
·    There have been no significant individual related party transactions during the year. 
 
Directors:  David McKeith (Chair), Nick Kelsall (Chief Executive Officer), Shaun Smith (Chief Financial Officer), and Alison Littley (Non-Executive Director).
 
Nick Kelsall
Chief Executive Officer
 
Shaun Smith
Chief Financial Officer

 
Consolidated income statement
Year ended 31 March 2021
 




 


 


Notes


2021
£m


2020
£m


 




 


Continuing operations


 


 


 


 




 


Revenue


2


324.2


342.0


 




 


Underlying operating profit


 


33.8


32.3


 




 


IAS 19R administrative expenses


 


(1.4)


(1.5)


 




 


Acquisition related costs


3


(3.7)


(4.0)


 




 


Exceptional operating items


3


(3.8)


(9.0)


 




 


Operating profit


 


24.9


17.8


 




 


Finance costs


4


(5.4)


(3.7)


 




 


Finance income


4


-


1.7


 




 


IAS 19R finance cost


 


(1.0)


(0.8)


 




 


Profit before taxation


 


18.5


15.0


 




 


Taxation


 


(3.5)


(4.1)


 




 


Profit for the year from continuing operations


 


15.0


10.9


 




 


Earnings per share attributable to equity holders of the Company


 


 


 


 




 


Basic earnings per share:


 


 


 


 




 


From profit for the year


6


18.6p


13.6p


 




 


Diluted earnings per share:


 


 


 


 




 


From profit for the year


6


18.6p


13.5p


 




 


Weighted average number of shares for basic earnings per share (millions)


 


80.6


80.3


 




 


Alternative performance measures


 


 


 


 




 


Underlying profit before taxation (£m)


5


30.6


28.8


 




 


Underlying earnings (£m)


5


25.1


22.8


 




 


Basic underlying earnings per share


6


31.2p


28.4p


 




 


Diluted underlying earnings per share


6


31.1p


28.2p


 




 
 
 
 
Consolidated statement of comprehensive income
Year ended 31 March 2021




 


 


2021
£m


2020
£m




Profit for the year


 


15.0


10.9




Other comprehensive income and expense:


 


 


 




Items that will not subsequently be reclassified to the Income Statement


 


 


 




Actuarial gains/(losses) on retirement benefit obligations


 


24.1


(14.8)




Items that may be subsequently reclassified to the Income Statement


 


 


 




Cash flow hedges - fair value loss in year net of taxation


 


(1.5)


-




Foreign currency translation of foreign operations


 


5.3


(9.2)




Other comprehensive income/(loss) for the year


 


27.9


(24.0)




Total comprehensive income/(loss) for the year


 


42.9


(13.1)




 
 
Items in the statement are disclosed net of tax.
 
 
Consolidated balance sheet
At 31 March 2021




 


 


2021
£m


2020
£m




Non-current assets


 


 


 




Goodwill


 


60.8


60.1




Intangible assets


       


32.8


36.4




Property, plant and equipment


 


28.0


29.0




Right of use assets


 


19.6


20.6




Deferred tax assets


 


-


4.7




 


 


141.2


150.8




Current assets


 


 


 




Inventories


 


78.1


78.9




Trade and other receivables


 


64.6


60.5




Derivative financial instruments


 


-


2.0




Cash and cash equivalents


 


28.3


47.3




 


 


171.0


188.7




Current liabilities


 


 


 




Trade and other payables


 


(95.4)


(72.9)




Lease liabilities


 


(5.4)


(5.2)




Current tax liabilities


 


(1.0)


(1.0)




Derivative financial instruments


 


(2.3)


-




Financial liabilities - borrowings


 


-


(0.1)




 


 


(104.1)


(79.2)




Net current assets


 


66.9


109.5




Total assets less current liabilities


 


208.1


260.3




Non-current liabilities


 


 


 




Financial liabilities - borrowings


 


(17.8)


(83.6)




Pension scheme liability


 


(18.3)


(48.9)




Lease liabilities


 


(18.8)


(19.9)




Deferred tax liabilities


 


(0.5)


-




Other non-current liabilities


 


(0.3)


(0.3)




Provisions


 


(4.0)


(3.2)




 


 


(59.7)


(155.9)




Net assets


 


148.4


104.4




Financed by:


 


 


 




Share capital


 


8.1


8.1




Share premium


 


30.2


29.9




Retained earnings and other reserves


 


110.1


66.4




Total equity


 


148.4


104.4




 
 
 
 
 
 
Consolidated cash flow statement
Year ended 31 March 2021




 


Notes


2021
£m


2020
£m




Cash generated from operations 


7


60.0


34.8




Income taxes paid


 


(3.5)


(5.3)




Interest paid


 


(3.2)


(3.5)




Net cash generated from operating activities 


 


53.3


26.0




Cash flows from investing activities


 


 


 




Purchase of property, plant and equipment and intangible assets


 


(2.8)


(4.8)




Acquisition of subsidiary undertakings (including payment of deferred consideration) net of cash acquired


 


-


(9.2)




Net cash used in investing activities 


 


(2.8)


(14.0)




Cash flows from financing activities


 


 


 




Proceeds from issue of ordinary share capital


 


0.3


0.1




Principal element of lease payments


 


(4.3)


(3.8)




Purchase of treasury shares


 


-


(0.9)




Repayment of borrowings


 


(66.0)


-




Drawdown of borrowings


 


-


25.0 




Dividends paid to the Company's shareholders


 


- 


(7.0)




Net cash (used in)/generated from financing activities 


 


(70.0)


13.4




Net (decrease)/increase in cash at bank and in hand and bank overdrafts 


 


(19.5)


25.4




Cash at bank and in hand and bank overdrafts at the beginning of the year


 


47.2


23.4




Exchange movements on cash and bank overdrafts


 


0.6


(1.6)




Cash at bank and in hand and bank overdrafts at the end of the year


 


28.3


47.2




 
 
 
 
 
Consolidated statement of changes in equity
Year ended 31 March 2021
 
 





 




Ordinary
share
capital
£m




Share
premium
£m




Treasury
reserve
£m




Hedging
reserve
£m




Translation
reserve
£m




Retained
earnings
£m




Total
equity
£m





At 1 April 2019


8.0


29.9


(0.3)


-


(12.5)


100.6


125.7




Comprehensive income:


 


 


 


 


 


 


 




Profit for the year


-


-


-


-


-


10.9


10.9




Other comprehensive (expense):


 


 


 


 


 


 


 




Actuarial loss on retirement benefit obligations


-


-


-


-


-


(14.8)


(14.8)





Foreign currency translation adjustments




-




-




-




-




(9.2)




-




(9.2)





Total other comprehensive expense for the year


-


-


-


-


(9.2)


(14.8)


(24.0)




Transactions with owners:


 


 


 


 


 


 


 




Shares issued


0.1


-


-


-


-


-


0.1




Dividends paid


-


-


-


-


-


(7.0)


(7.0)




Purchase of treasury shares


-


-


(0.9)


-


-


-


(0.9)




Settlement of share option schemes


-


-


0.8


-


-


(1.3)


(0.5)





Value of employee services




-




-




-




-




-




0.1




0.1





At 31 March 2020


8.1


29.9


(0.4)


-


(21.7)


88.5


104.4




Comprehensive income:


 


 


 


 


 


 


 




Profit for the year


-


-


-


-


-


15.0


15.0




Other comprehensive (expense)/income:


 


 


 


 


 


 


 




Actuarial gain on retirement benefit obligations


-


-


-


-


-


24.1


24.1




Fair value loss on cashflow hedges


-


-


-


(1.5)


-


-


(1.5)





Foreign currency translation adjustments




-




-




-




-




5.3




-




5.3





Total other comprehensive income for the year


-


-


-


(1.5)


5.3


24.1


27.9




Transactions with owners:


 


 


 


 


 


 


 




Shares issued


-


0.3


-


-


-


-


0.3




Dividends paid


-


-


-


-


-


-


-




Settlement of share option schemes


-


-


0.3


-


-


(0.5)


(0.2)





Value of employee services




-




-




-




-




-




1.0




1.0






At 31 March 2021




8.1




30.2




(0.1)




(1.5)




(16.4)




128.1




148.4





 
 
 
 
 
 
Notes to the preliminary statement
Year ended 31 March 2021
1. Basis of preparation
The principal activities of Norcros plc ("the Company") and its subsidiaries (together "the Group") are the design, manufacture and distribution of a range of high quality and innovative bathroom and kitchen products mainly in the UK and South Africa. The Company is a public limited company which is listed on the London Stock Exchange market of listed securities and is incorporated and domiciled in the UK. The address of its registered office is Ladyfield House, Station Road, Wilmslow, SK9 1BU.

 
The financial information presented in this preliminary announcement is extracted from, and is consistent with, the Group's audited financial statements for the year ended 31 March 2021. The financial information set out above does not constitute the Company's statutory financial statements for the periods ended 31 March 2021 or 31 March 2020 but is derived from those financial statements. Statutory financial statements for 2021 will be delivered following the Company's annual general meeting. The auditors have reported on those financial statements; their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.



The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. 
 
Going concern
In adopting the going concern basis for preparing the financial statements, the Directors have considered the Group's business activities and the principal risks and uncertainties in the context of the current operating environment. 
A going concern financial assessment was developed on a bottom-up basis by taking the output of the annual budgeting process built up by individual businesses and then subjected to review and challenge by the board. The financial model was then stress tested by modelling an extreme but plausible scenario, one of further national lockdowns as a result of a resurgent COVID-19 pandemic. This has been based on the actual impact of the COVID-19 pandemic on the Group, which at its peak saw a revenue reduction of 25% on the prior year over a 6 month period. The scenario also incorporates management actions the Group has at its disposal including a number of cash conservation and cost reduction measures including capital expenditure reductions, dividend decreases and restructuring activities.
The Group continues to exhibit sufficient and prudent levels of liquidity and headroom against our facilities and key banking financial covenants during the 12-month period under assessment with net cash of £10.5m as at 31 March 2021. Reverse stress testing has also been applied to the financial model, which represents a further decline in sales compared with the reasonable worst case. Such a scenario, and the sequence of events which could lead to it, is considered to be unplausible and remote.
As a result of this detailed assessment, the Board has concluded that the Company is able to meet its obligations when they fall due for a period of at least 12 months from the date of this report. For this reason, the Company continues to adopt the going concern basis for preparing the Group financial statements. In forming this view, the Board has also concluded that no material uncertainty exists in its use of the going concern basis of preparation.
 
2. Segmental reporting
Continuing operations - year ended 31 March 2021




 


UK 
£m


South
Africa
£m


Group
£m




Revenue


220.2


104.0


324.2




Underlying operating profit


26.9


6.9


33.8




IAS 19R administrative expenses


(1.4)


-


(1.4)




Acquisition related costs


(3.5)


(0.2)


(3.7)




Exceptional operating items


(3.6)


(0.2)


(3.8)




Operating profit


18.4


6.5


24.9




Finance costs (net)


 


 


(6.4)




Profit before taxation


 


 


18.5




Taxation


 


 


(3.5)




Profit for the year from continuing operations


 


 


15.0




Net cash


 


 


10.5




Segmental assets


221.4


90.8


312.2




Segmental liabilities


(125.6)


(38.2)


(163.8)




Additions to property, plant and equipment


1.6


0.9


2.5




Depreciation and amortisation 


8.5


4.6


13.1




 
 
 
Continuing operations - year ended 31 March 2020




 


UK
£m


South
Africa
£m


Group
£m




Revenue


225.4


116.6


342.0




Underlying operating profit


24.4


7.9


32.3




IAS 19R administrative expenses


(1.5)


-


(1.5)




Acquisition related costs


(4.5)


0.5


(4.0)




Exceptional operating items


(9.0)


-


(9.0)




Operating profit


9.4


8.4


17.8




Finance costs (net)


 


 


(2.8)




Profit before taxation


 


 


15.0




Taxation


 


 


(4.1)




Profit for the year from continuing operations


 


 


10.9




Net (debt)


 


 


(36.4)




Segmental assets


270.8


68.7


339.5




Segmental liabilities


(209.4)


(25.7)


(235.1)




Additions to property, plant and equipment


2.7


1.3


4.0




Depreciation and amortisation


10.2


4.8


15.0




 
The split of revenue by geographical destination of the customer is below:




 


2021
£m


2020
£m




UK


189.4


197.7




Africa 


105.8


118.9




Rest of World


29.0


25.4




 


324.2


342.0




 
No one customer had revenue over 10% of total Group revenue. 
 
 
3. Acquisition related costs and exceptional operating items
An analysis of acquisition related costs and exceptional operating items is shown below:




Acquisition related costs


2021
£m


2020
£m




Deferred remuneration1


-


0.6




Intangible asset amortisation2


3.7


3.7




Release of provision for contingent consideration 3 


-


(1.1)




Advisory fees4 


-


0.8




 


3.7


4.0




 
1     In accordance with IFRS 3R, a proportion of the deferred consideration payable to the former shareholders of certain acquired businesses is required to be treated as remuneration, and, accordingly, is expensed to the Income Statement as incurred over the period of the related agreement.
2     Non-cash amortisation charges in respect of acquired intangible assets.
3     Contingent consideration in relation to the acquisition of House of Plumbing was fair valued under IFRS 9 on 31 March 2020 with a subsequent release of the provision.
4     Professional advisory fees incurred in connection with the Group's business combination activities.




Exceptional operating items


2021
£m


2020
£m




COVID-19 related restructuring1


3.8


-




COVID-19 related impairment2


-


9.0




 


3.8


9.0




 
1.    Exceptional costs of £3.8m were incurred in the period in relation to COVID-19 related restructuring programmes across the Group as a result of the impact of COVID-19 on the economies we trade in. The costs consist of £2.3m cash costs and £1.5m non-cash costs. 
2.    As at 31 March 2020 a one-off, non-cash impairment charge of £9.0m was recognised in relation to the impact of COVID-19 on the assets of Johnson Tiles UK.
 
4. Finance costs and income 
 




 


2021
£m


2020
£m




Interest payable on bank borrowings


(1.5)


(1.6)




Interest on lease liabilities


(1.7)


(1.9)




Movement on fair value of derivative financial instruments


(2.0)


-




Amortisation of costs of raising debt finance


(0.2)


(0.2)




Finance costs


(5.4)


(3.7)




Movement on fair value of derivative financial instruments


-


1.7




Finance income  


-


1.7




Net finance (costs)


(5.4)


(2.0)




 
5. Alternative performance measures
The Group makes use of a number of alternative performance measures to assess business performance and provide additional useful information to shareholders. Such alternative performance measures should not be viewed as a replacement of, or superior to, those defined by Generally Accepted Accounting Principles (GAAP). Definitions of alternative performance measures used by the Group and, where relevant, reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures are provided below.
The alternative performance measures used by the Group are:




Measure


Definition




Underlying operating profit


Operating profit before IAS 19R administrative expenses, acquisition related costs and exceptional operating items




Underlying profit before taxation


Profit before taxation before IAS 19R administrative expenses, acquisition related costs, exceptional operating items, amortisation of costs of raising finance, net movement on fair value of derivative financial instruments, discounting of property lease provisions and finance costs relating to pension schemes




Underlying taxation


Taxation on underlying profit before tax 




Underlying earnings


Underlying profit before tax less underlying taxation




Underlying capital employed


Capital employed on a pre-IFRS 16 basis adjusted for business combinations where relevant and the average impact of exchange rate movements.




Underlying operating margin


Underlying operating profit expressed as a percentage of revenue




Underlying return on capital employed (ROCE)


Underlying operating profit on a pre-IFRS 16 basis expressed as a percentage of the average of opening and closing underlying capital employed.




Basic underlying earnings per share


Underlying earnings divided by the weighted average number of shares for basic earnings per share




Diluted underlying earnings per share


Underlying earnings divided by the weighted average number of shares for diluted earnings per share




Underlying EBITDA


Underlying EBITDA is derived from underlying operating profit before depreciation and amortisation excluding the impact of IFRS16 in line with our banking covenants.




Underlying operating cash flow


Cash generated from continuing operations before cash outflows from exceptional items and acquisition related costs and pension fund deficit recovery contributions




Underlying net debt/cash


Underlying net debt/cash is the net of cash, capitalised costs of raising finance and total borrowings. IFRS16 lease commitments are not included in line with our banking covenants.




Pro-forma underlying EBITDA


An annualised underlying EBITDA figure used for the purpose of calculating banking covenant ratios




Pro-forma leverage


Net debt expressed as a ratio of pro-forma underlying EBITDA




 
Underlying profit and underlying earnings per share measures provide shareholders with additional useful information on the underlying performance of the Group. This is because these measures are those principally used by the Directors to assess the performance of the Group and are used as the basis for calculating the level of the annual bonus and long-term incentives earned by the Directors. Underlying ROCE is one of the Group's strategic key performance indicators and is therefore provided so that shareholders can assess the Group's performance in relation to its strategic targets. Underlying EBITDA and underlying operating cash flow are also used internally by the Directors in order to assess the Group's cash generation. The term 'underlying' is not recognised under IFRS and consequently the Group's definition of underlying may differ from that used by other companies. 
Reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures
Consolidated Income Statement 
(a) Underlying profit before taxation and underlying earnings




 


 


2021
£m


2020
£m




Profit before taxation from continuing operations


 


18.5


15.0




Adjusted for:


 


 


 




- IAS 19R administrative expenses


 


1.4


1.5




- acquisition related costs (see note 3)


 


3.7


4.0




- exceptional operating items (see note 3)


 


3.8


9.0




- amortisation of costs of raising finance


 


0.2


0.2




- net movement on fair value of derivative financial instruments


 


2.0


(1.7)




- IAS 19R finance cost


 


1.0


0.8




Underlying profit before taxation


 


30.6


28.8




Taxation attributable to underlying profit before taxation


 


(5.5)


(6.0)




Underlying earnings


 


25.1


22.8




 
(b) Underlying EBITDA




 


 


2021
£m


2020
£m




Operating profit from continuing operations


 


24.9


17.8




Adjusted for:


 


 


 




- depreciation and amortisation (owned assets)


 


5.4


6.8




- depreciation of leased assets


 


4.0


4.5




- lease costs 


 


(5.3)


(5.0)




- IAS 19R administrative expenses


 


1.4


1.5




- acquisition related costs


 


3.7


4.0




- exceptional operating items (see note 3)


 


3.8


9.0




Underlying EBITDA


 


37.9


38.6




 
Consolidated Cash Flow Statement
(a) Underlying operating cash flow




 
 


 


2021
£m


2020
£m




Cash generated from operations (see note 7)


 


60.0


34.8




Adjusted for:


 


 


 




- cash flows from exceptional items and acquisition related costs (see note 7)


 


2.5


0.3




- pension fund deficit recovery contributions (see note 7)


 


3.3


3.3




Underlying operating cash flow


 


65.8


38.4




 
 
 
Consolidated Balance Sheet 
(a) Underlying capital employed and underlying return on capital employed
 




 


 


2021
£m


2020
£m




Net assets 


 


148.4


104.4




Adjusted for:


 


 


 




- pension scheme liability (net of associated tax) 


 


14.8


39.7




- right of use assets (IFRS 16)


 


(19.6)


(20.6)




- lease liabilities (IFRS 16)


 


24.2


25.1




- Onerous lease provision (IFRS 16)


 


(0.8)


(1.4)




- cash and cash equivalents 


 


(28.3)


(47.3)




- financial liabilities - borrowings 


 


17.8


83.7




 


 


156.5


183.6




Foreign exchange adjustment 


 


0.8


9.6




Adjustment for acquisitions


 


-


7.2




Underlying capital employed


 


157.3


200.4




Average underlying capital employed


 


178.9


193.8




Underlying operating profit (pre-IFRS 16)


 


32.5


31.8




Underlying return on capital employed


 


18.2%


16.4%




 
6. Earnings per share
Basic EPS is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the Norcros Employee Benefit Trust.
For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. At 31 March 2021 the potential dilutive ordinary shares amounted to 201,781 (2020: 668,944) as calculated in accordance with IAS 33.
The calculation of EPS is based on the following profits and numbers of shares:




 


 


2021
£m


2020
£m




Profit for the year


 


15.0


10.9




 




 
 


 


2021
Number


2020
Number




Weighted average number of shares for basic earnings per share


 


80,575,242


80,300,209




Share options


 


201,781


668,944




Weighted average number of shares for diluted earnings per share


 


80,777,023


80,969,153




 




 


 


2021


 
2020




Basic earnings per share:


 


 


 




From profit for the year


 


18.6p


13.6p




Diluted earnings per share:


 


 


 




From profit for the year


 


18.6p


13.5p




Basic and diluted underlying earnings per share
Basic and diluted underlying earnings per share has also been provided which reflects underlying earnings from continuing operations divided by the weighted average number of shares set out above. 




 


 


2021
£m


2020
£m




Underlying earnings (see note 5)


 


25.1


22.8




 




 


 


2021


 
2020




Basic underlying earnings per share


 


31.2p


28.4p




Diluted underlying earnings per share


 


31.1p


28.2p




 
 
7. Consolidated cash flow statement
(a) Cash generated from operations
The analysis of cash generated from operations is given below:
Continuing operations




 


 


2021
£m


2020
£m




Profit before taxation


 


18.5


15.0




Adjustments for:


 


 


 




- IAS 19R administrative expenses included in the Income Statement


 


1.4


1.5




- acquisition related costs included in the Income Statement


 


3.7


4.0




- exceptional items included in the Income Statement


 


3.8


9.0




- finance costs included in the Income Statement


 


5.4


2.0




- IAS 19R finance cost included in the Income Statement


 


1.0


0.8




- cash flows from exceptional items 


 


(2.5)


(0.3)




- settlement of share options


 


(0.2)


(0.5)




- depreciation of property, plant and equipment 


 


5.2


6.6




- underlying amortisation


 


0.2


0.2




- depreciation of right of use asset 


 


4.0


4.5




- pension fund deficit recovery contributions


 


(3.3)


(3.3)




- share-based payments


 


1.0


0.1




Operating cash flows before movement in working capital


 


38.2


39.6




Changes in working capital:


 


 


 




- decrease/(increase) in inventories


 


3.8


(2.4)




- (increase)/decrease in trade and other receivables


 


(5.0)


3.6




- increase/(decrease) in trade and other payables


 


23.0


(6.0)




Cash generated from operations


 


60.0


34.8




 
(b) Analysis of underlying net cash/(debt)




 


Cash  
£m


Non-current
 borrowings
£m


Underlying net cash/(debt)
£m




At 1 April 2019


23.4


(58.4)


(35.0)




Cash flow


25.4


(25.0)


0.4




Other non-cash movements


-


(0.2)


(0.2)




Exchange movement


(1.6)


-


(1.6)




At 31 March 2020


47.2


(83.6)


(36.4)




Cash flow


(19.5)


66.0


46.5




Other non-cash movements


-


(0.2)


(0.2)




Exchange movement


0.6


-


0.6




At 31 March 2021


28.3


(17.8)


10.5




Other non-cash movements relate to the movement in the costs of raising debt finance in the year.
 
 

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