REG - Norcros PLC - Final Results
15/06/2023 07:00
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RNS Number : 7706C Norcros PLC 15 June 2023
15 June 2023
Norcros plc
Results for the year ended 31 March 2023
Record revenue and underlying operating profit and a strong financial position
Norcros, a market leading supplier of high quality and innovative bathroom and
kitchen products, today announces its results for the year ended 31 March
2023.
Financial Summary
2023 2022 % change
2023 v 2022
Revenue £441.0m £396.3m +11.3%
Revenue constant currency LFL(1) +1.5%
Underlying operating profit(2) £47.3m £41.8m +13.2%
Underlying profit before taxation(2) £41.8m £39.3m +6.4%
Diluted underlying EPS(2) 37.4p 38.2p -2.1%
Underlying operating cash flow(2) £44.8m £28.6m +56.6%
Operating profit £27.5m £36.2m -24.0%
Underlying net (debt)/cash(2) (£49.9m) £8.6m
Dividend per share 10.2p 10.0p +2.0%
1 LFL - Like for like after adjusting for Grant Westfield, acquired 31 May
2022
2 Definitions and reconciliations of alternative performance measures are
provided in note 5
Highlights
· Resilience of the Group's business model in challenging market
conditions
· Strong execution of strategy
· Record full year revenue of £441.0m (2022: £396.3m), 11.3% higher
than prior year on a reported basis and 1.5% higher on a constant currency
like for like basis after adjusting for Grant Westfield
· Record underlying operating profit(2) of £47.3m, 13.2% higher than
prior year (2022: £41.8m)
· Underlying net debt(2) of £49.9m (2022: net cash of £8.6m)
· Underlying ROCE(2) of 18.5% (2022: 23.9%)
· Diluted underlying EPS(2) of 37.4p (2022: 38.2p)
· Progressive dividend at 10.2p for the year (2022: 10.0p)
· The acquisition of Grant Westfield completed in May 2022,
successfully integrated and performing strongly
Current trading
· Group revenue in the two months to the end of May 2023 was 1.3%
ahead of the strong prior year comparator on a reported basis and 3.6% below
on a constant currency like for like(3) basis (UK +1.3%, SA -12.7%) with South
Africa impacted by electricity supply interruptions, which are being actively
managed. Market conditions are likely to remain uncertain. However, the Board
is confident that our market leading brands and strong execution of strategy
will continue to deliver outperformance, leading to further progress and
market share gains in line with its expectations in the year ahead.
3 Adjusted for Grant Westfield and Norcros Adhesives
David McKeith, Chair, commented:
"I am pleased to report another record performance for the Group with results
at the top end of market expectations. Norcros has continued to demonstrate
resilience and growth in market share despite challenging conditions. The
Group's business model and strategy have proven to be highly effective through
a sustained period of macroeconomic uncertainty."
There will be a presentation today at 9.00am for analysts at the offices of
Hudson Sandler, 25 Charterhouse Square, London, EC1M 6AE. The supporting
slides will be available in the investor section of the Norcros website at
www.norcros.com (http://www.norcros.com) later in the day.
Enquiries
Norcros plc Tel: 01625 547700
Thomas Willcocks, Chief Executive Officer
James Eyre, Chief Financial Officer
Hudson Sandler Tel: 0207 796 4133
Nick Lyon
Charlie Jack
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:
o Triton - Market leader in the manufacture and marketing of showers in the
UK
o Merlyn - The UK and Ireland's No.1 supplier of shower enclosures and trays
to the residential, commercial and hospitality sectors
o Multipanel - Grant Westfield is a leading manufacturer of high-end
waterproof bathroom wall panels
o Vado - A leading manufacturer and supplier of taps, mixer showers,
bathroom accessories and valves
o Croydex - A market leading, innovative designer, manufacturer and
distributor of high quality bathroom furnishings and accessories
o Abode - A leading niche designer and distributor of high quality kitchen
taps, bathroom taps, and kitchen sinks
o Johnson Tiles - The leading manufacturer and supplier of ceramic tiles in
the UK
· Based in South Africa, Norcros operates under four brands:
o Tile Africa - Chain of retail stores focused on ceramic and porcelain
tiles, and associated products such as sanitaryware, showers and adhesives
o Johnson Tiles South Africa - Manufacturer of ceramic and porcelain tiles
o TAL - The leading manufacturer of ceramic and building adhesives
o House of Plumbing - Market leading supplier of specialist plumbing
materials
· Norcros is headquartered in Wilmslow, Cheshire and employs around
2,400 people. The Company is listed on the London Stock Exchange. For further
information please visit the Company website: www.norcros.com
(http://www.norcros.com)
Chair's Statement
Overview
I am pleased to report another record performance for the Group with results
at the top end of market expectations. Norcros has continued to demonstrate
resilience and growth in our markets despite challenging conditions. The
Group's business model and strategy have proven to be highly effective through
a sustained period of macroeconomic uncertainty.
Group revenue for the year was £441.0m (2022: £396.3m), 11.3% higher than
the prior year on a reported basis and 1.5% higher on a constant currency like
for like basis.
Underlying operating profit was at a record level of £47.3m (2022: £41.8m),
13.2% ahead of the prior year, reflecting the contribution from Grant
Westfield and further market share gains.
The Group finished the year with net debt of £49.9m (2022: net cash of
£8.6m), the year on year movement reflecting the successful acquisition of
Grant Westfield, partially offset by strong cash generation in the period.
Strategy
Notwithstanding the macro challenges in recent years of Brexit, COVID-19, the
war in Ukraine and the UK "mini budget" in September 2022, we have made strong
strategic progress, and our focused growth strategy continues to be valid and
relevant. Our performance during the period demonstrates our focus upon
sustaining a pre-tax return on underlying capital employed of 15% over the
economic cycle and this continues to be key in how we evaluate opportunities
and deploy capital. We made the decision to close our UK Adhesives business
during the year, and whilst this was a difficult decision, it will improve the
Group's financial performance going forward. Our business model, strategy and
core capabilities including sustainable product design and innovation, well
developed sourcing partnerships, and market leading customer service have
again delivered excellent results. The business will continue to drive market
share growth in our existing businesses while taking advantage of further
acquisition opportunities in what remain fragmented markets.
Dividend
For the year ended 31 March 2023, the Board is recommending a final dividend
of 6.8p (2022: 6.9p) per share. When combined with the interim dividend of
3.4p (2022: 3.1p) per share, which was paid on 10 January 2023, this will make
a total dividend for the year of 10.2p (2022: 10.0p) per share, a 2.0%
increase on the previous year whilst maintaining a prudent level of dividend
cover.
Environmental, social and governance (ESG)
The Board is committed to embedding sustainability within our business
strategy. We are proud of our history of environmental and social leadership,
our achievements in setting industry leading standards in our products, and
the support we provide to the communities in which we live and work.
I am pleased we have made significant progress this year. We have extensively
updated our ESG strategy around eight priority ESG themes which are commented
on in detail in the Annual Report and Accounts, finalised a 2040 Net Zero
Transition Plan and made enhancements to our emissions and energy data
collection process. We are pleased to have further developed our report
aligned to the recommendations of the Task Force on Climate-related Financial
Disclosures ("TCFD"), which outlines our approach to managing climate-related
risks and opportunities across the Group.
Pension scheme
The net position relating to our UK defined benefit pension scheme (as
calculated under IAS 19R) remains in a surplus of £14.9m at 31 March 2023
(2022: £19.6m). Deficit repair contributions were £3.8m in the year.
The pension scheme is mature, with an average member age of 78, and
experienced a reduction in member numbers in the year from 6,002 to 5,641. We
remain confident that our pension obligations continue to be appropriately
funded and well managed. The Group recognises that the pension scheme is a key
stakeholder, and the Group and the Trustee continue to work constructively
together.
Board changes and senior management appointments
In January 2023, I was appointed Acting Board Chair until the Group appoints a
new Non-executive Director as Board Chair and we are pleased to confirm that,
as announced, Steve Good will be appointed a Director from 1 July 2023 and
will become Board Chair Designate from that date. Steve Good will be seeking
election at the AGM and if elected he will assume the Board Chair role at the
conclusion of the AGM. I will not be seeking re-election at the AGM.
Thomas Willcocks was appointed to the Board as Chief Executive Officer with
effect from 1 April 2023 following Nick Kelsall's retirement. Thomas joined
Norcros in 2006 and was promoted to Managing Director of Norcros South Africa
in 2009 and has overseen the sustained and profitable growth of our South
African business. On 1 August 2021, Thomas became our Group Business Director
- UK before joining the Board. I have worked closely with both Nick and Thomas
as we have developed and grown the Norcros business, and it has been a
pleasure to be able to stand back and recognise the success achieved. I would
like to thank Nick for his focused and determined leadership over this time
and wish him and his family the very best in his retirement. Nick has handed
over to an experienced team led by Thomas and James Eyre (CFO), which is
testament to his development of the Norcros business and team throughout his
tenure.
Stefan Allanson was appointed to the Board on 1 January 2023 as a
Non-Executive Director and Chair (Designate) of the Audit and Risk Committee.
Stefan is the Chief Financial Officer of MJ Gleeson plc and has held senior
finance roles at Keepmoat Ltd, Tianhe Chemicals Ltd, The Vita Group Ltd and
Honda Motor Company.
The Board composition can be found in our Annual Report and Accounts.
The Group executive committee comprises our CEO (Thomas Willcocks), CFO (James
Eyre) and Group Counsel and Company Secretary (Richard Collins). The search
for a replacement Group Business Director - UK, who will also join the
executive committee, is well advanced.
Governance
As Acting Board Chair, one of my primary responsibilities is ensuring that the
Group continues to operate to the highest standards in all governance and risk
management aspects. 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
always maintained. Transparency is central to this objective, and you will
find more detail about our approach and further progress over the last year in
the Corporate Governance section in our Annual Report and Accounts.
People
Our employees are our most valuable asset. Given our entrepreneurial, design
and service led business model, the Group remains committed to ensuring a safe
and positive working environment within an open, transparent and
entrepreneurial culture and de-centralised operating model. On behalf of the
Board, I would like to specifically thank the teams in each of our businesses
who have helped to deliver on the Group's strategic objectives over the last
twelve months. Recognising the central part that our people at all levels
play, I am pleased to announce that we have also created the position of Chief
People Officer. The position will help accelerate the Group and individual
businesses' development of our internal talent and future recruitment. In
further developing our talented team, we remain committed to being the
employer of choice in our markets, including increasing our focus on ensuring
that our businesses attract and retain diverse and inclusive teams.
Current trading
Group revenue in the two months to the end of May 2023 was 1.3% ahead of the
strong prior year comparator on a reported basis and 3.6% below on a constant
currency like for like basis (UK +1.3%, SA -12.7%) with South Africa impacted
by electricity supply interruptions, which are being actively managed.
Summary and outlook
The Group has delivered another record performance despite the ongoing
economic challenges. The Board remains confident that our highly experienced
management teams, leading customer service propositions and strong financial
position, will drive further market share growth in line with its expectations
in the year ahead.
Chief Executive Officer's Statement
Overview
I was delighted to join the Board from 1 April 2023 and would like to thank my
predecessor, Nick Kelsall, for his outstanding commitment and leadership over
a Norcros career spanning 30 years. This well managed transition comes at a
time when the business is financially sound and has once again delivered
record levels of revenue and underlying operating profit.
Norcros has continued to build on the progress of recent years. The
performance in the current year reflects the strength of our leading brands,
supply chain infrastructure, stock availability, and financial strength.
Group revenue at £441.0m (2022: £396.3m) increased by 11.3% on a reported
basis and by 1.5% on a constant currency like for like basis. The strong
trading performance in the first half of the year continued into the second
half with further revenue growth in the UK and a robust full year performance
in South Africa.
Group underlying operating profit for the year increased by 13.2% to a record
level of £47.3m (2022: £41.8m) reflecting the increased revenue in the year
and an operating margin slightly ahead of last year at 10.7% (2022: 10.5%).
UK
Revenue in the UK was £295.8m for the year (2022: £256.7m), 15.2% higher
than the prior year on a reported basis and broadly in line on a like for like
basis. A resilient trade sector in the period offset softer demand in the
retail sector, which was particularly impacted by customer destocking in the
first half of the year.
All businesses, other than the UK Adhesives division, performed well in the
year with particularly strong performances at Triton and Merlyn. Our UK
businesses continued to capitalise on their strong market positions and
excellent customer service. We have successfully developed our portfolio in
the year. On 31 May 2022, we completed the acquisition of 100% of the share
capital of Granfit Holdings Limited and its subsidiaries including Grant
Westfield Limited, trading as Multipanel. Grant Westfield is a quality
business with a strong track record of profitability and cash generation.
Since the acquisition, the business has been successfully integrated and made
a strong contribution to the Group through its complementary range of
waterproof bathroom panels. In addition, we have also taken decisive action at
our UK Adhesives division, announcing the closure of this small but loss
making business. Against a backdrop of lower current and uncertain short-term
demand for our locally produced tiles, we have made the decision to impair the
carrying value of the assets at Johnson Tiles. Further detail can be found in
the Financial overview.
UK underlying operating profit for the year was another record at £37.2m
(2022: £30.9m) with an improved underlying operating margin of 12.6% (2022:
12.0%). Underlying operating profit growth was supported by the contribution
from Grant Westfield.
Operating cash flow was higher than the prior year driven by the increased
level of operating profit and higher underlying operating cash conversion
supported by our continued focus on working capital.
South Africa
Revenue in South Africa increased by 4.7% on prior year on a constant currency
basis, and by 4.0% on a Sterling reported basis, to £145.2m (2022: £139.6m).
All divisions delivered revenue growth on the prior year.
This revenue growth was mainly driven by robust demand in the housebuilding
sector and the full year impact of the expansion of our House of Plumbing
branch portfolio. An exceptional performance over the first half was diluted
by heightened levels of loadshedding (electricity rationing), especially in
the fourth quarter and we continue to manage this in the current year. The
breadth of our revenue channels once again benefitted our performance.
South African underlying operating profit for the year was robust at £10.1m
(2022: £10.9m), reflecting our market leading positions and share growth in a
difficult market, particularly in the second half of the year. Underlying
operating margin was 7.0% (2022: 7.8%). We are accustomed to the higher levels
of variability in this developing market and have a proven experienced team
with a track record in this region.
Operating cash flow was lower than prior year largely as a result of continued
investment into working capital (primarily inventory) to support our service
levels and stock availability.
Strong financial position
The Group continues to have a strong balance sheet with net debt of £49.9m
(2022: net cash of £8.6m). The year on year movement reflects the acquisition
of Grant Westfield and planned investment into working capital in the year of
£13.3m to further support business growth and customer service, with a
resultant underlying operating cash inflow of £44.8m (2022: £28.6m) in the
year.
The Group has extended its £130m multicurrency revolving credit facility
("RCF") for a further year. The facility has a three year and seven month term
to October 2026, with a further year extension available. It also includes the
option for an uncommitted accordion facility of £70m. The Group therefore
remains well positioned to progress its growth strategy.
Following the acquisition of Grant Westfield in May 2022, leverage at the 2023
year end is circa 1.0x EBITDA on a pre-IFRS 16 basis.
Strategy
In April 2018 the business 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. The previous timescale of 2023 was extended to 2025 reflecting
the COVID-19 disruption. This growth strategy has delivered strong organic and
acquisition driven growth at above targeted returns:
· Group revenue increased by 11.3% to £441.0m, supported by the
acquisition of Grant Westfield on 31 May 2022.
· On a Sterling reported basis, Group revenue derived outside of the
UK was 40.6%.
· Group underlying return on capital employed was 18.5% on a pre-IFRS
16 basis.
The Group's strong performance and the decisive response to the inflationary
and supply chain challenges and market conditions continue to demonstrate the
resilience of our business model and the effectiveness of our strategy.
Norcros has a strong and scalable position in the bathroom and kitchen product
markets. The markets in our existing and adjacent geographies remain 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 further acquisitions or organic growth opportunities as they
arise. Norcros' proven record of growing existing and carefully selected
acquired businesses remains a core business strength.
Sustained investment in our in-house new product development programmes 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) remained high at 24% (2022: 29%) but short of our demanding target of
30% mainly due to the COVID-19 related disruption to supply chains. Our
vitality rates are nonetheless market leading and we continue to invest in our
pipeline as new product launches return to pre-COVID-19 levels.
ESG
Sustainability is a key priority for the Group and we continue to work closely
with our businesses to drive progress in line with our previously mentioned
updated ESG strategy.
Further progress was made in the year as we continue the journey to net zero.
For the first time, we have set scope 1, 2 and 3 carbon emissions targets.
Data collection, measurement and visibility will continue to be developed
internally and with our partners. Further details of our ESG strategy can be
found in our Annual Report and Accounts.
Our well developed social and governance programs are detailed in the Annual
Report and Accounts, with a notable example being our SAFE bathrooms
initiative in underprivileged South African schools.
Summary and outlook
Norcros has made excellent progress in our markets despite the challenging
conditions and again delivered record results. Our Group performance
demonstrates the strength of our business model and the calibre and support of
all our employees. Our businesses, both in the UK and South Africa, continue
to make strong progress, gain market share and benefit from the ongoing
development of our leading brands, supply chain infrastructure and stock
availability. Grant Westfield has been an excellent addition to our portfolio
and has performed well in the year.
Our UK businesses performed well with strong second half growth year on year.
The market leading positions and continuing excellent service levels, ensured
that key retail customers were retained with new account wins. The trade and
specification sector demonstrated ongoing resilience and continues to
represent an important opportunity for the group, including the recently
acquired Grant Westfield business, going forward.
Our South African business has continued to deliver revenue growth,
notwithstanding the challenging market conditions experienced in the second
half of the year. The business remains in a strong competitive position to
grow market share, particularly in bathrooms.
The markets in which we operate in the UK and South Africa remain fragmented
and attractive for organic and acquisitive growth opportunities. Our
acquisition in the year of Grant Westfield demonstrates the Group's ability to
capitalise on growth opportunities and leverage off the existing Group
businesses, and especially our broad and well established distribution
channels.
In summary, we have ended the year strongly, outperforming our markets and,
once again, delivered record levels of revenue and underlying operating
profit. While market conditions remain uncertain, especially in South Africa,
the Board believes that the Group's proven business model and highly
experienced management teams will continue to deliver market share growth in
line with its expectations in the year to 31 March 2024.
Business performance
2023 2022
£m £m
Revenue 441.0 396.3
Operating profit 27.5 36.2
IAS 19R administrative expenses 1.6 1.7
Acquisition related costs 8.4 4.8
Exceptional operating items 9.8 (0.9)
Underlying operating profit 47.3 41.8
2023 2022
£m £m
Revenue - UK 295.8 256.7
Revenue - South Africa 145.2 139.6
Revenue - Group 441.0 396.3
Underlying operating profit - UK 37.2 30.9
Underlying operating profit - South Africa 10.1 10.9
Underlying operating profit - Group 47.3 41.8
Underlying operating profit margin - UK 12.6% 12.0%
Underlying operating profit margin - South Africa 7.0% 7.8%
Underlying operating profit margin - Group 10.7% 10.5%
2023 2022
£m £m
Underlying operating profit 47.3 41.8
Depreciation of right of use assets 4.6 4.1
Lease costs (6.4) (5.7)
Depreciation and underlying amortisation (owned assets) 5.0 5.2
Underlying EBITDA (pre-IFRS 16) 50.5 45.4
Net working capital movement (13.3) (23.6)
IFRS 2 charge 1.2 1.1
Operating profit impact of IFRS 16 1.8 1.6
Depreciation of right of use assets 4.6 4.1
Underlying operating cash flow 44.8 28.6
2023 2022
Basic underlying earnings per share 38.0p 38.9p
Diluted underlying earnings per share 37.4p 38.2p
Business review - UK
In the UK, full year revenue was 15.2% higher than the prior year on a
reported basis at £295.8m (2022: £256.7m) reflecting the contribution from
Grant Westfield, market share gains and selling price increases to recover
higher input costs.
On a like for like basis, full year revenue was broadly in line with the
strong prior year comparator with growth in the second half of the year of
3.3%.
Over the year, our UK businesses delivered a strong performance, benefiting
from the diverse customer base and an increased focus on the trade and
specification sector. Compared to the strong prior year comparator, the retail
sector was impacted by softer demand and some customer destocking in the first
half. The market did improve in the second half of the year and we are well
positioned to continue to grow market share.
The trade sector, where we enjoy market leading positions, proved resilient
with a particularly strong fourth quarter. Sales to national and independent
merchants and housebuilders were robust. Representing a smaller proportion of
our revenue, export was lower year on year reflecting softer first half demand
in our export markets.
New product development remains a focus at all of our UK businesses. This core
in-house strength is a key driver in our strategy to grow our brands'
long-term leading market positions.
Strong progress has been made on our ESG strategy with a number of businesses
achieving the Environmental Management Standard ISO 14001 in the year, a key
milestone on the path to net zero. We have also set targets and KPIs to align
our businesses to our ESG strategic priorities. Further detail is included in
the ESG section of our Annual Report and Accounts.
Underlying operating profit for the year grew by £6.3m to a record level of
£37.2m (2022: £30.9m) with an operating margin of 12.6% (2022: 12.0%). This
increase in profitability mainly reflected the contribution from Grant
Westfield and the return to profitability at Johnson Tiles in the period.
Operating cash conversion was significantly ahead of the prior year supported
by our continued focus on working capital.
Triton
Revenue at Triton, the UK's market leader in showers, was £63.7m (2022:
£60.1m), 6.0% higher than the prior year reflecting market share gains in the
period driven by our market leading sustainability programme.
Triton has benefited from strong retail sales over the last three years by
ensuring excellent product availability and maintaining high customer service
levels. Second half retail revenue was particularly strong after experiencing
some destocking in the first half from larger retail customers. Full year
retail sector revenue was up by 4.6% compared to the prior year.
Trade sector revenue was 11.7% higher than the prior year, reflecting the
strengthening of our team in this market segment, with growth continuing in
contract business and Triton taking share in the social housing and local
authority market. Export revenue also recovered in the second half albeit full
year revenue was 2.5% behind the prior year reflecting first half customer
destocking.
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 the
DuElec(®) range of dual outlet electric showers and the introduction of new
finishes.
Proud to be manufactured in Britain for almost 50 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 its environmental credentials. Investment in
brand and marketing campaigns continued with the "Every Drop Makes a
Difference" theme, raising awareness about the efficiency and sustainability
benefits of electric showers. The campaign achieved a Special Recognition in
Driving Behaviour Change Award from the Bathroom Manufacturers Association and
was Highly Commended at the HVAC Industry Energy Savings Awards. Triton's
Enrich electric shower also won the inaugural Screwfix sustainability award.
During the year Triton achieved Carbon Neutral status and continued to work
towards its target to be net carbon zero by the end of 2035.
Triton again delivered an underlying operating profit ahead of the prior year.
Merlyn
Merlyn, the UK and Ireland's number one supplier of shower enclosures and
trays to the residential, commercial and hospitality sectors, performed
strongly and recorded revenue of £57.5m (2022: £58.3m), slightly behind the
strong prior year comparator. The business continued to grow its market share,
leveraging its leading position in the UK through its leading design, quality
product offering, stock availability and exceptional customer service.
UK revenue was in line with the prior year. The retail sector improved in the
second half, driven by new customer wins and organic growth, with revenue
finishing the year broadly in line with the prior year.
Trade revenue increased by 2.0% with growth across a number of existing
customers, in addition to a number of new contracts including Vistry and
Larkfleet, offset by slightly reduced sales to national merchants. Merlyn
renewed agreements with all of the major buying groups and national merchants
in the year. Exports decreased by 12.7% in the year reflecting customer
destocking in Ireland and France.
New product development remains an integral component of Merlyn's growth
strategy with the successful launch of the Sleek modern shower enclosure
range. Further investment in Merlyn's online presence was reflected in the
launch of the new Merlyn website with a new "find your perfect solution"
feature. Recognising the strength of the brand, Merlyn was shortlisted at the
BKU Awards for Shower Brand of the Year after winning the prestigious award
plus Best Sales Representative in 2022. Merlyn has further developed its
environmental credentials during the year and has now, amongst other
initiatives, eliminated the use of single use plastics with fully recyclable
alternatives.
Merlyn recorded underlying operating profit ahead of the prior year.
Grant Westfield
Grant Westfield, our recently acquired market leading manufacturer of high end
waterproof bathroom wall panels, recorded revenue for the ten months post
acquisition in line with expectations at £39.5m, ahead of the equivalent
prior year period.
The business was successfully integrated in the first half of the year and has
continued to develop, working with other Norcros businesses on several
customer and channel opportunities. This collaboration has resulted in a new
and developing relationship with Topps Tiles. The majority of Grant
Westfield's revenue is through the trade channel with a small level of export
revenue. Sales through the national merchants such as City Plumbing, Wolseley
Group and Travis Perkins were strong. The online channel is growing and has
performed well.
The Multipanel Tile collection, which was successfully launched post
acquisition, has been well received and has reinforced the reputation of Grant
Westfield for product innovation and quality. It is the only tile effect panel
manufactured in the UK. The business achieved the Environmental Management
standard ISO 14001 in the year.
Grant Westfield delivered an underlying profit performance in line with
expectations.
Vado
Vado, our leading manufacturer of taps, mixer showers, bathroom accessories
and valves, recorded revenue of £42.3m for the year (2022: £43.9m), 3.6%
lower than the strong prior year comparator.
In the UK, our retail sector revenue was impacted in the period with revenue
14.7% lower than the prior year, albeit performance improved significantly in
the second half of the year. The trade sector performed robustly, with revenue
up 9.4% on prior year. This was driven by continuing to work with all existing
key customers along with several contract wins, particularly in the second
half of the year, such as The Cocoa Works, apartments at Silverstone and with
Berkeley Homes. Export revenue was broadly in line with the prior year.
Reduced sales in Ireland were offset by strong sales in the Middle East in the
second half of the year.
Following the successful launch of the Arrondi range which was created in
partnership with Conran and Partners and won a Red Dot Design award, the
business continued to invest in new product development with further market
leading launches in the flush plate, frames, and cistern markets.
Vado generated an underlying operating profit ahead of prior year.
Croydex
Croydex, our market leading, innovative designer, manufacturer, and
distributor of high quality bathroom furnishings and accessories, recorded
revenue of £25.5m (2022: £27.0m) for the period, 5.6% lower than the strong
prior year comparator. Pleasingly, performance in the second half was ahead of
prior year as a result of operational improvements.
Retail sector revenue in the first half of the year was significantly impacted
by customer destocking and whilst the second half improved significantly, full
year revenue was 22.1% behind the prior year. E-commerce sales were soft in
the first half against a strong comparator of the prior year but were stronger
at the end of the year including new listings with Dunelm online. The trade
sector continued to perform well with strong sales across the national and
independent merchants. Revenues were 16.3% ahead of the prior year. Export
sales were below prior year by 7.7% largely as a result of reduced demand from
the USA.
Underlying operating profit was marginally behind the prior year albeit the
second half was ahead of the prior year.
Abode
Abode, our leading designer and distributor of high quality hot water taps,
bathroom mixers, kitchen sinks and taps, recorded revenue of £17.7m for the
year (2022: £18.9m), a 6.3% decrease on prior year largely reflecting a
strong prior year comparator and the exit from some low margin business in the
year.
The business continued to benefit from its strong market positions with key
customers, which were further developed in the year with the launch of the
loyalty scheme "Abode Accumulate". The business has continued to grow market
share over the period and retail growth has been supported by MasterChef
champion Shelina Permalloo who became a brand ambassador in the year. Her
"Cook with Pronteau" features have increased awareness of the Abode Pronteau
hot water taps helping drive market share gains in this attractive segment.
Abode celebrated its 20th anniversary in the year and achieved Carbon Neutral
status as a result of its focus on developing sustainable products that
provide customers with "water the way you want it", sustainably. Abode has a
strong new product pipeline going into the new financial year.
Underlying operating profit was higher than prior year as a result of an
improved customer mix and a strong focus on operational efficiencies.
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 £35.3m (2022: £34.2m), 3.2% higher than the prior year.
Trade sector revenue was up 14.0% on the prior year. Johnson Tiles' strong
relationships with the national house developers continued, including Barratt,
David Wilson, Persimmon, Charles Church, Redrow and Countryside. Major
projects in the commercial and public specification sectors included
Buckingham Palace and the National Portrait Gallery. Retail sector revenue was
down 9.3% on the prior year, driven primarily by the continued exit of lower
margin product categories. Export revenue, a small contributor to the overall
business, was 25.0% below prior year due to reduced revenues on low margin
products in the Middle East and France.
Johnson Tiles has developed a market leading position on sustainability over
many years focusing strongly on recycling energy, water, and waste. The
business achieved Gold status at the Supply Chain Sustainability School and
became the first tile factory in the world to achieve BES 6001 (Responsible
Sourcing in Construction).
The business returned to profitability in the year after incurring a
significant energy related loss in the prior year, testament to the experience
and focus of our team's early intervention. However, against a backdrop of
uncertain and potentially lower demand for our locally produced tiles, a
decision has been taken to impair the carrying value of the associated assets.
Further detail can be found in the Financial overview.
Norcros Adhesives
Norcros Adhesives, our UK manufacturer and supplier of tile and stone
adhesives and ancillary products recorded revenue of £14.3m (2022: £14.3m),
in line with prior year.
As mentioned earlier, we have taken the difficult but necessary decision to
close the business. The revenue of £14.3m (2022: £14.3m) and the loss in the
year of £2.7m have been included in the underlying results for the current
and prior year. An exceptional restructuring cost of £4.8m has also been
recognised in the year in relation to the costs associated with the closure.
Further detail can be found in the Financial overview.
Business review - South Africa
Revenue for the year increased by 4.7% on prior year on a constant currency
basis, and increased by 4.0% on a Sterling reported basis to £145.2m (2022:
£139.6m) compared to the strong prior year comparator.
Revenues on a constant currency basis increased year on year across all South
African divisions, and the business continued to take market share by
capitalising on its leading market positions and excellent customer service.
Market conditions in the second half of the year were more challenging as
energy supply constraints increased. The local management team have actively
managed the impact of these energy interruptions. The businesses are well
invested in terms of backup power generation. Market share growth continues to
be driven by new product development and accelerated growth into the bathroom
and plumbing channels.
Underlying operating profit for the year was £10.1m (2022: £10.9m), the
reduction largely reflecting a record prior year comparator and reduced retail
demand as consumer renovation spend has been replaced in the short term by
domestic energy backup and saving projects. Cash generation was below prior
year due to lower underlying operating profit and further investment in both
working capital and capital expenditure. The business remains in a strong
competitive position and is 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 £17.9m (2022: £16.5m), an 8.5% increase on a reported basis and 9.1%
higher on a constant currency basis.
Strong levels of manufacturing output continued during the year as
productivity and efficiency initiatives delivered a good performance against a
backdrop of energy and water supply challenges. Whilst demand in the retail
sector has reduced in the second half of the year, this has been offset by
resilient demand in the housebuilding sector, where the business holds a
leading market position.
The new product development pipeline remains an important growth driver, with
an increasing focus on sustainability. Products were specified and installed
in leading developments across the country, including in a number of quality
residential developments developed by national market leaders Central
Development Properties and Balwin Properties in Johannesburg, Cape Town, and
Durban.
Underlying operating profit was ahead of the prior year.
Tile Africa
Tile Africa, our leading retailer of wall and floor tiles, sanitaryware and
bathroom fittings, recorded revenue of £75.5m (2022: £75.5m), in line on a
reported basis and 0.5% higher on a constant currency basis.
Market share gains were driven though further improvements in operations
leading to better than market stock availability. The business also continues
to benefit from the focus on the bathroom sector, offering a compelling
one-stop-shop for retail and commercial customers. The two private label
bathroom ranges, Nuvo and Evox, continue to grow revenue at higher margins,
benefitting from the international supply chain synergies. The introduction of
quality bathroom furniture is performing well.
A growing number of alternative floor covering installations were completed in
the year and the appeal and demand for our alternative coverings continues to
grow. The larger commercial contracts sector remains subdued but we continue
to make progress supplying national and regional housebuilders and growing our
position as the specialist partners of choice for commercial customers in
retail and hospitality.
Tile Africa currently operates from thirty-three owned stores and two
franchise stores. No new Tile Africa stores were opened in the year as we
focused on store upgrades (bathrooms and alternative flooring) and investing
in our value for money stores under the HomeXpress sub-brand. This process has
been completed with five stores moving into this category. A full upgrade of
our Tile Africa Store in Nelspruit was successfully completed incorporating a
full bath store within a store and alternative floor section.
Tile Africa's underlying operating profit was in line with the prior year.
TAL
TAL, our market leading adhesives business, recorded revenue of £22.5m (2022:
£22.5m), in line with the prior year on a reported basis and a 0.9% increase
on a constant currency basis.
TAL has retained all its key accounts albeit large commercial new build
projects remained subdued, which impacted demand for TAL's high specification
rapid setting adhesives and system-driven construction products. Retail sales
were impacted by lower consumer confidence and considerable competitor
activity, including new capacity, in the market.
Notwithstanding market conditions, TAL remains the leading brand in South
Africa, with the business supplying market leading products and technical
expertise to several construction projects during the year, including a new
mall in Pretoria North, Marino Mall in Ermelo, Midlands Mall in Kwazulu-Natal,
refurbishment of schools and hospitals in Mahikeng and Kwazulu-Natal and the
Setari residential apartments in Cape Town.
TAL's underlying operating profit was below the prior year.
House of Plumbing
House of Plumbing, our market leading supplier of specialist plumbing
materials into the specification and commercial sector, recorded full year
revenue of £29.3m (2022: £25.1m), 16.7% higher than the prior year on a
reported basis and 17.7% higher on a constant currency basis.
The business has leveraged its increased national footprint to deliver revenue
growth despite the softer commercial projects sector. House of Plumbing now
operates eight branches with focus on providing expert technical advice and
consistent stock availability with the business planning to continue to extend
its geographical footprint.
During the year, House of Plumbing supplied several landmark projects,
including Unilim Student Housing in Mankweng, Coca Cola Factory in Durban,
Ekangala Housing Project, Frimax Factory in Tongaat and the University of
Venda.
House of Plumbing's underlying operating profit was marginally lower than the
prior year.
Financial overview
2023 2022
£m £m
Revenue 441.0 396.3
Underlying operating profit 47.3 41.8
IAS 19R administrative expenses (1.6) (1.7)
Acquisition related costs (8.4) (4.8)
Exceptional operating items (9.8) 0.9
Operating profit 27.5 36.2
Net finance costs (5.8) (3.2)
Profit before taxation 21.7 33.0
Taxation (4.9) (7.3)
Profit for the year 16.8 25.7
Revenue
Group revenue at £441.0m (2022: £396.3m) increased by 11.3% on a reported
basis and by 1.5% on a constant currency like for like basis after adjusting
for Grant Westfield, acquired on 31 May 2022.
Underlying operating profit
Underlying operating profit increased by 13.2% to £47.3m (2022: £41.8m). Our
UK businesses recorded an underlying operating profit of £37.2m (2022:
£30.9m), and our South African businesses recorded an underlying operating
profit of £10.1m (2022: £10.9m). Group underlying operating profit margin
was 10.7% (2022: 10.5%).
IAS 19R administrative costs
These costs represent the costs incurred by the Trustee of administering the
UK defined benefit pension scheme and are reflected in the Income Statement
under IAS 19R. Costs of £1.6m are lower than the prior year (2022: £1.7m)
largely as a result of the additional fees incurred in the prior year relating
to the triennial actuarial valuation.
Acquisition related costs
A cost of £8.4m (2022: £4.8m) has been recognised in the year and is
analysed as follows:
2023 2022
£m £m
Intangible asset amortisation 6.2 3.7
Advisory fees 1.4 1.1
Deferred remuneration 0.8 -
8.4 4.8
Intangible asset amortisation has increased from £3.7m to £6.2m following
the acquisition of Grant Westfield.
The advisory fees relate to the costs incurred in relation to acquisition
activity.
In accordance with IFRS 3, a proportion of the contingent consideration is
treated as remuneration, and, accordingly, is expensed to the Income Statement
as incurred. In the current year this represents a cost of £0.8m in relation
to the Grant Westfield acquisition.
Exceptional operating items
An exceptional operating charge of £9.8m (2022: credit of £0.9m) has been
recognised in the year.
2023 2022
£m £m
Restructuring costs 4.8 -
Impairment 5.0 -
Release of UK property provision - (0.9)
9.8 (0.9)
Norcros Adhesives
The exceptional restructuring cost charge of £4.8m was incurred in relation
to the aforementioned restructuring programme implemented at Norcros
Adhesives. £4.8m (of which circa £2m represents the gross cash cost)
represents a provision for the costs associated with closure including the
write down of current and non-current asset values and costs such as
redundancy. As a result of realisations on assets, the net impact on cash is
not expected to be material.
The revenue of £14.3m, representing approximately 3% of Group revenue (2022:
£14.3m) and the loss in the year of £2.7m (following a small loss in the
prior year) have been included in the underlying results for the current and
prior year.
Johnson Tiles
The Group reviews all cash generating units to determine whether any of the
assets related to our operations are impaired. These reviews are performed by
comparing the estimated future cash flows generated by the divisions with the
carrying value of the assets generating those cash flows. The future cash
flows are sensitised for items including reduced margins, increasing energy
costs and working capital variances to illustrate a value in use for the
business. As a result of these reviews and a reduction in demand for our
locally produced tiles, tangible and right of use assets within the Johnson
Tiles UK business have been impaired with a non-cash impairment charge of
£5.0m recognised as an exceptional item in the income statement.
During the prior year, the release of UK property provision related to the
settlement of a legacy onerous property lease and the release of the surplus
provision.
Finance costs
2023 2022
£m £m
Interest payable on bank borrowings 3.7 0.8
Interest on lease liabilities 1.8 1.7
Amortisation of costs of raising debt finance 0.3 0.2
Discounting of contingent consideration 0.6 -
Discounting of property lease provisions - 0.1
Finance costs 6.4 2.8
IAS 19R finance (credit)/cost (0.6) 0.4
Net finance costs 5.8 3.2
Net finance costs for the year of £5.8m compares to £3.2m in 2022. This
movement is mainly due to the increase in the level of borrowings in the year
relating to the Grant Westfield acquisition and the increase in Bank of
England base rates in the UK.
The Group has recognised a £0.6m IAS 19R interest credit in respect of the UK
defined benefit pension scheme surplus (2022: cost of £0.4m) due to the
surplus throughout the year.
Underlying profit before tax
Underlying profit before tax was £41.8m (2022: £39.3m), mainly reflecting
the increase in underlying operating profit noted above, partially offset by
the increased interest costs.
Taxation
The tax charge for the year of £4.9m (2022: £7.3m) represents an effective
tax rate for the year of 22.6% (2022: 22.1%). The increase in the effective
tax rate mainly relates to the increase in non-deductible acquisition related
costs in 2023.
The standard rates of corporation tax in the UK, South Africa and Ireland in
the period were 19% (2022: 19%), 28% (2022: 28%) and 12.5% (2022: 12.5%)
respectively.
Dividends
In light of the strong performance in the year, the Board recommends a final
dividend of 6.8p per share (2022: 6.9p). This, combined with the interim
dividend of 3.4p per share (2022: 3.1p) results in a total dividend of 10.2p
per share (2022: 10.0p). The total dividend is equivalent to a dividend cover
of 3.7 times, broadly in line with the year ended 31 March 2022 (3.8 times).
The cash cost of the total dividend is £9.1m.
This final dividend, if approved at the Annual General Meeting, will be
payable on 4 August 2023 to shareholders on the register on 30 June 2023. The
shares will be quoted ex-dividend on 29 June 2023. 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 14 July
2023.
Balance Sheet
The Group's Balance Sheet is summarised below.
2023 2022
£m £m
Property, plant and equipment 24.8 29.0
Right of use assets 20.0 19.9
Goodwill and intangible assets 167.1 90.3
Deferred tax (15.0) (9.4)
Net current assets excluding cash and borrowings 80.6 68.2
Pension scheme surplus 14.9 19.6
Lease liabilities (24.7) (24.0)
Other non-current assets and liabilities (7.4) (1.9)
Net (debt)/cash (49.9) 8.6
Net assets 210.4 200.3
Total net assets increased by £10.1m to £210.4m (2022: £200.3m). Net
current assets increased by £12.4m largely reflecting the cash investment
into working capital to support business growth.
Property, plant and equipment decreased by £4.2m to £24.8m and included
additions of £5.4m (2022: £5.3m) and acquired assets of £1.1m. The Group
recognised an impairment charge of £4.1m (2022: £nil), the depreciation
charge was £4.9m (2022: £5.1m) and foreign exchange losses were £1.7m
(2022: gain of £0.8m) relating to assets held in South Africa.
Right of use assets increased by £0.1m to £20.0m (2022: £19.9m), reflecting
the acquisition of Grant Westfield offset by the impairment of Johnson Tiles
assets. Lease liabilities of £24.7m (2022: £24.0m) increased by £0.7m.
The deferred tax liability increased by £5.6m to a liability of £15.0m
(2022: liability of £9.4m). The increase is mainly the result of the deferred
tax arising on acquired intangibles.
Pension schemes
On an IAS 19R accounting basis, the gross defined benefit pension scheme
valuation of the UK scheme showed a surplus of £14.9m compared to a surplus
of £19.6m last year. The present value of scheme liabilities decreased by
£83.3m primarily due to an increase in the discount rate to 4.90% (31 March
2022: 2.75%) and benefit payments made in the period. The value of scheme
assets decreased by £88.0m largely due to benefit payments made in the period
and reduced asset valuations.
As agreed at the 2021 triennial valuation, deficit repair contributions are
£3.8m per annum from 1 April 2022 to March 2027 (increasing with CPI, capped
at 5%, each year).
The Group's contributions to its defined contribution pension schemes were
£4.0m (2022: £3.7m).
Cash flow and net debt
Underlying operating cash flow was £16.2m higher than in the prior year at
£44.8m (2022: £28.6m).
2023 2022
£m £m
Underlying operating profit 47.3 41.8
Depreciation and underlying amortisation (owned assets) 5.0 5.2
Depreciation of right of use assets 4.6 4.1
Lease costs (6.4) (5.7)
Underlying EBITDA (pre-IFRS 16) 50.5 45.4
Net working capital movement (13.3) (23.6)
IFRS 2 charge add-back 1.2 1.1
Lease costs 6.4 5.7
Underlying operating cash flow 44.8 28.6
Underlying operating cash conversion 89% 63%
The main drivers of the improvement in underlying operating cash flow were the
increased level of underlying operating profit and a continued focus on
working capital. Underlying operating cash conversion in the year was 89% of
underlying EBITDA (2022: 63%).
2023 2022
£m £m
Underlying operating cash flow 44.8 28.6
Cash flows from exceptional items and acquisition related costs (3.3) (1.7)
Pension fund deficit recovery contributions (3.8) (3.3)
Cash flow generated from operations 37.7 23.6
Net interest paid (5.5) (2.5)
Taxation (7.7) (6.5)
Net cash generated from operating activities 24.5 14.6
Acquisition of subsidiary undertaking (net of cash acquired) (78.3) -
Capital expenditure (6.0) (5.4)
Dividends (9.2) (9.1)
Share transactions 18.1 0.1
Principal element of lease payments (4.6) (4.7)
Exchange movement (2.9) 1.6
Movement in costs of raising finance (0.1) 1.0
Net cash movement (58.5) (1.9)
Opening net cash 8.6 10.5
Closing net (debt)/cash (pre-IFRS 16) (49.9) 8.6
Cash generated from operating activities was £9.9m higher than the prior year
at £24.5m, largely due to the £16.2m increase in underlying operating cash
flows, partially offset by higher interest payments.
Cash flows from exceptional items and acquisition related costs in the current
year primarily relate to the advisory fees for the acquisition of Grant
Westfield.
Capital expenditure at £6.0m (2022: £5.4m) includes investment in new
product programmes, store upgrades, IT systems and manufacturing facilities.
The Group ended the year with net debt of £49.9m (2022: net cash of £8.6m)
on a pre-IFRS 16 basis after a net cash outflow of £58.5m. Net debt inclusive
of IFRS 16 lease liabilities was £74.6m (2022: £15.4m).
Funding and liquidity
The Group extended its multicurrency revolving credit facility by a further
year in the period. The Group has committed banking facilities of £130m (plus
a £70m uncommitted accordion) with a maturity date of the facility of October
2026 with a further year extension available.
Principal Risks and Uncertainties
Risk management remains 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 objective of our risk management framework is to support the business in
meeting its strategic and operational objectives through the identification,
monitoring and mitigation of risks within clearly defined risk appetite levels
for each risk category.
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 they do not comprise all the risks
that the Group may face, and are not listed in any order of priority.
· Strategic risks, include the risks associated with a 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 information technology
and cyber security.
· Financial risks, include the risks associated with exchange rates,
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 UK-adopted
international accounting standards, 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 (Acting Board Chair and Non-Executive Director),
Thomas Willcocks (Chief Executive Officer), James Eyre (Chief Financial
Officer), Alison Littley (Non-Executive Director) and Stefan Allanson
(Non-Executive Director).
Thomas Willcocks
Chief Executive Officer
James Eyre
Chief Financial Officer
Consolidated income statement
Year ended 31 March 2023
Notes 2023 2022
£m £m
Continuing operations
Revenue 2 441.0 396.3
Underlying operating profit 47.3 41.8
IAS 19R administrative expenses (1.6) (1.7)
Acquisition related costs 3 (8.4) (4.8)
Exceptional operating items 3 (9.8) 0.9
Operating profit 27.5 36.2
Finance costs 4 (6.4) (2.8)
IAS 19R finance credit/(cost) 0.6 (0.4)
Profit before taxation 21.7 33.0
Taxation (4.9) (7.3)
Profit for the year to equity holders of the Company 16.8 25.7
Earnings per share attributable to equity holders of the Company
Basic earnings per share:
From profit for the year 6 19.1p 31.8p
Diluted earnings per share:
From profit for the year 6 18.8p 31.2p
Weighted average number of shares for basic earnings per share (millions) 88.1 80.9
Alternative performance measures
Underlying profit before taxation (£m) 5 41.8 39.3
Underlying earnings (£m) 5 33.5 31.5
Basic underlying earnings per share 6 38.0p 38.9p
Diluted underlying earnings per share 6 37.4p 38.2p
Consolidated statement of comprehensive income
Year ended 31 March 2023
2023 2022
£m £m
Profit for the year 16.8 25.7
Other comprehensive income and expense:
Items that will not subsequently be reclassified to the Income Statement
Actuarial (losses)/gains on retirement benefit obligations (5.6) 27.5
Items that may be subsequently reclassified to the Income Statement
Cash flow hedges - fair value (loss)/gain in year (2.9) 3.0
Foreign currency translation of foreign operations (8.3) 3.6
Other comprehensive (expense)/income for the year (16.8) 34.1
Total comprehensive result for the year attributable to equity holders of the - 59.8
Company
Items in the statement are disclosed net of tax.
Consolidated balance sheet
At 31 March 2023
2023 2022
£m £m
Non-current assets
Goodwill 107.9 61.2
Intangible assets 59.2 29.1
Property, plant and equipment 24.8 29.0
Pension scheme asset 14.9 19.6
Right of use assets 20.0 19.9
226.8 158.8
Current assets
Inventories 103.9 100.6
Trade and other receivables 83.3 71.1
Derivative financial instruments - 1.6
Cash and cash equivalents 29.0 27.4
216.2 200.7
Current liabilities
Trade and other payables (99.2) (102.4)
Lease liabilities (6.1) (5.7)
Current tax liabilities (0.9) (2.7)
Derivative financial instruments (2.0) -
Provisions (4.5) -
(112.7) (110.8)
Net current assets 103.5 89.9
Total assets less current liabilities 330.3 248.7
Non-current liabilities
Financial liabilities - borrowings (78.9) (18.8)
Lease liabilities (18.6) (18.3)
Deferred tax liabilities (15.0) (9.4)
Other non-current liabilities (6.2) (0.3)
Provisions (1.2) (1.6)
(119.9) (48.4)
Net assets 210.4 200.3
Financed by:
Share capital 8.9 8.1
Share premium 47.6 30.3
Retained earnings and other reserves 153.9 161.9
Total equity 210.4 200.3
Consolidated cash flow statement
Year ended 31 March 2023
Note 2023 2022
£m £m
Cash generated from operations 7 37.7 23.6
Income taxes paid (7.7) (6.5)
Interest paid (5.5) (2.5)
Net cash generated from operating activities 24.5 14.6
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets (6.0) (5.4)
Acquisition of subsidiary undertakings net of cash acquired 8 (78.3) -
Net cash used in investing activities (84.3) (5.4)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 18.1 0.1
Principal element of lease payments (4.6) (4.7)
Drawdown of borrowings 114.0 25.0
Repayment of borrowings (54.0) (23.0)
Dividends paid to the Company's shareholders (9.2) (9.1)
Net cash generated from/(used in) financing activities 64.3 (11.7)
Net increase/(decrease) in cash and cash equivalents 4.5 (2.5)
Cash and cash equivalents at the beginning of the year 27.4 28.3
Exchange movements on cash and cash equivalents (2.9) 1.6
Cash and cash equivalents at the end of the year 29.0 27.4
Consolidated statement of changes in equity
Year ended 31 March 2023
Ordinary Share Treasury Hedging Translation Retained Total
share premium reserve reserve reserve earnings equity
capital £m £m £m £m £m £m
£m
At 1 April 2021 8.1 30.2 (0.1) (1.5) (16.4) 128.1 148.4
Comprehensive income:
Profit for the year - - - - - 25.7 25.7
Other comprehensive income:
Actuarial gain on retirement benefit obligations - - - - - 27.5 27.5
Fair value gain on cash flow hedges - - - 3.0 - - 3.0
Foreign currency translation adjustments - - - - 3.6 - 3.6
Total other comprehensive income for the year - - - 3.0 3.6 27.5 34.1
Transactions with owners:
Shares issued - 0.1 - - - - 0.1
Dividends paid - - - - - (9.1) (9.1)
Value of employee services - - - - - 1.1 1.1
At 31 March 2022 8.1 30.3 (0.1) 1.5 (12.8) 173.3 200.3
Comprehensive income:
Profit for the year - - - - - 16.8 16.8
Other comprehensive expense:
Actuarial loss on retirement benefit obligations - - - - - (5.6) (5.6)
Fair value loss on cash flow hedges - - - (2.9) - - (2.9)
Foreign currency translation adjustments - - - - (8.3) - (8.3)
Total other comprehensive expense for the year - - - (2.9) (8.3) (5.6) (16.8)
Transactions with owners:
Shares issued 0.8 17.3 - - - - 18.1
Dividends paid - - - - - (9.2) (9.2)
Value of employee services - - - - - 1.2 1.2
At 31 March 2023 8.9 47.6 (0.1) (1.4) (21.1) 176.5 210.4
Notes to the preliminary statement
Year ended 31 March 2023
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 premium segment of 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 statement is extracted
from, and is consistent with, the Group's audited financial statements for the
year ended 31 March 2023. The financial information set out above does not
constitute the Company's statutory financial statements for the periods ended
31 March 2023 or 31 March 2022 but is derived from those financial statements.
Statutory financial statements for 2023 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 UK-adopted
International Accounting Standards and with the accounting policies set out in
the Annual Report and Accounts consistently applied to all periods.
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 including current macroeconomic factors in
the context of the current operating environment.
The Group, in acknowledging its TCFD requirements, has also considered
climate risks in the financial statements. 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 acquisition of Grant Westfield was
also reflected in the assessment. The financial model was then stress tested
by modelling the most extreme but plausible scenario, that being a global
pandemic similar in nature to COVID-19. 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 six-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
headroom against our key banking financial covenants during the twelve-month
period under assessment. 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 implausible 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 twelve 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
Year ended 31 March 2023
UK South Group
£m Africa £m
£m
Revenue 295.8 145.2 441.0
Underlying operating profit 37.2 10.1 47.3
IAS 19R administrative expenses (1.6) - (1.6)
Acquisition related costs (8.2) (0.2) (8.4)
Exceptional operating items (9.8) - (9.8)
Operating profit 17.6 9.9 27.5
Finance costs (5.8)
Profit before taxation 21.7
Taxation (4.9)
Profit for the year 16.8
Net debt excluding lease liabilities (49.9)
Segmental assets 340.5 102.5 443.0
Segmental liabilities (195.6) (37.0) (232.6)
Additions to goodwill 47.7 - 47.7
Additions to tangible, intangible and right of use assets 5.9 3.7 9.6
Depreciation and amortisation 10.8 5.0 15.8
Year ended 31 March 2022
UK South Group
£m Africa £m
£m
Revenue 256.7 139.6 396.3
Underlying operating profit 30.9 10.9 41.8
IAS 19R administrative expenses (1.7) - (1.7)
Acquisition related costs (4.6) (0.2) (4.8)
Exceptional operating items 0.9 - 0.9
Operating profit 25.5 10.7 36.2
Finance costs (3.2)
Profit before taxation 33.0
Taxation (7.3)
Profit for the year 25.7
Net cash excluding lease liabilities 8.6
Segmental assets 252.9 106.6 359.5
Segmental liabilities (116.9) (42.3) (159.2)
Additions to tangible and right of use assets 4.0 4.4 8.4
Depreciation and amortisation 8.0 5.0 13.0
The split of revenue by geographical destination of the customer is below:
2023 2022
£m £m
UK 262.0 222.4
Africa 147.5 141.9
Rest of World 31.5 32.0
441.0 396.3
No one customer had revenue over 10% of total Group revenue (2022: none).
3. Acquisition related costs and exceptional operating items
An analysis of acquisition related costs and exceptional operating items is
shown below:
Acquisition related costs 2023 2022
£m £m
Intangible asset amortisation(1) 6.2 3.7
Advisory fees(2) 1.4 1.1
Deferred remuneration(3) 0.8 -
8.4 4.8
1 Non-cash amortisation charges in respect of acquired intangible
assets.
2 Professional advisory fees incurred in connection with the Group's
business combination activities.
3 In accordance with IFRS 3, a proportion of the contingent
consideration is treated as remuneration, and, accordingly, is expensed to the
Income Statement as incurred. In the current year this represents a cost of
£0.8m in relation to the Grant Westfield acquisition.
Exceptional operating items 2023 2022
£m £m
Restructuring costs(1) 4.8 -
Impairment(2) 5.0 -
Release of UK property provision(3) - (0.9)
9.8 (0.9)
1 The exceptional restructuring cost charge of £4.8m was incurred in
relation to the restructuring programme implemented at Norcros Adhesives.
£4.8m represents a provision for the costs associated with closure including
the write down of current and non-current asset values and costs such as
redundancy. Due to realisations of assets, the net impact on cash is not
expected to be material.
2 As a result of demand uncertainty, the Johnson Tiles tangible and
right of use assets have been impaired with a non-cash impairment charge of
£5.0m recognised as an exceptional item in the income statement.
3 The UK property provision related to the only remaining surplus and
legacy onerous property lease at Groundwell, Swindon. In the prior year, the
Group reached agreement with the landlord to exit the lease early. A cash
settlement payment of £1.3m including dilapidation obligations was made in
the prior year and the remaining £0.9m of the related provision was released
as an exceptional operating item.
4. Finance costs
2023 2022
£m £m
Interest payable on bank borrowings 3.7 0.8
Interest on lease liabilities 1.8 1.7
Discounting of contingent consideration 0.6 -
Amortisation of costs of raising debt finance 0.3 0.2
Property lease discount - 0.1
Finance costs 6.4 2.8
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, discounting of contingent consideration, 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 to reflect the assets in both the opening and closing capital
employed balances, 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 IFRS 16 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. IFRS 16 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
2023 2022
£m £m
Profit before taxation 21.7 33.0
Adjusted for:
- IAS 19R administrative expenses 1.6 1.7
- acquisition related costs (see note 3) 8.4 4.8
- exceptional operating items (see note 3) 9.8 (0.9)
- amortisation of costs of raising finance 0.3 0.2
- property lease discount - 0.1
- discounting of contingent consideration 0.6 -
- IAS 19R finance (income)/cost (0.6) 0.4
Underlying profit before taxation 41.8 39.3
Taxation attributable to underlying profit before taxation (8.3) (7.8)
Underlying earnings 33.5 31.5
(b) Underlying EBITDA
2023 2022
£m £m
Operating profit 27.5 36.2
Adjusted for:
- IAS 19R administrative expenses 1.6 1.7
- acquisition related costs (see note 3) 8.4 4.8
- exceptional operating items (see note 3) 9.8 (0.9)
Underlying operating profit 47.3 41.8
- depreciation and amortisation (owned assets) 5.0 5.2
- depreciation of leased assets 4.6 4.1
- lease costs (6.4) (5.7)
Underlying EBITDA (pre-IFRS 16) 50.5 45.4
Consolidated Cash Flow Statement
(a) Underlying operating cash flow
2023 2022
£m £m
Cash generated from operations (see note 7) 37.7 23.6
Adjusted for:
- cash flows from exceptional items and acquisition related costs (see note 7) 3.3 1.7
- pension fund deficit recovery contributions 3.8 3.3
Underlying operating cash flow 44.8 28.6
Consolidated Balance Sheet
(a) Underlying capital employed and underlying return on capital employed
2023 2022
£m £m
Net assets 210.4 200.3
Adjusted for:
- pension scheme asset (net of associated tax) (11.2) (14.7)
- right of use assets (IFRS 16) (20.0) (19.9)
- lease liabilities (IFRS 16) 24.7 24.0
- cash and cash equivalents (29.0) (27.4)
- financial liabilities - borrowings 78.9 18.8
253.8 181.1
Foreign exchange adjustment 1.3 (1.7)
Adjustment for acquisitions 58.2 -
Underlying capital employed 313.3 179.4
Average underlying capital employed 246.3 168.3
Underlying operating profit (pre-IFRS 16) 45.5 40.2
Underlying return on capital employed 18.5% 23.9%
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 2023 the potential dilutive ordinary shares amounted to 1,370,679 (2022:
1,504,604) as calculated in accordance with IAS 33.
The calculation of EPS is based on the following profits and numbers of
shares:
2023 2022
£m £m
Profit for the year 16.8 25.7
2023 2022
Number Number
Weighted average number of shares for basic earnings per share 88,129,432 80,887,240
Share options 1,370,679 1,504,604
Weighted average number of shares for diluted earnings per share 89,500,111 82,391,844
2023 2022
Basic earnings per share:
From profit for the year 19.1p 31.8p
Diluted earnings per share:
From profit for the year 18.8p 31.2p
Basic and diluted underlying earnings per share
Basic and diluted underlying earnings per share have also been provided which
reflects underlying earnings from continuing operations divided by the
weighted average number of shares set out above.
2023 2022
£m £m
Underlying earnings (see note 5) 33.5 31.5
2023 2022
Basic underlying earnings per share 38.0p 38.9p
Diluted underlying earnings per share 37.4p 38.2p
7. Consolidated cash flow statement
(a) Cash generated from operations
The analysis of cash generated from operations is given below:
Continuing operations
2023 2022
£m £m
Profit before taxation 21.7 33.0
Adjustments for:
- IAS 19R administrative expenses included in the Income Statement 1.6 1.7
- acquisition related costs included in the Income Statement 8.4 4.8
- exceptional items included in the Income Statement 9.8 (0.9)
- finance costs included in the Income Statement 6.4 2.8
- IAS 19R finance (credit)/cost included in the Income Statement (0.6) 0.4
- cash flows from exceptional items (3.3) (1.7)
- depreciation of property, plant and equipment 4.9 5.1
- underlying amortisation 0.1 0.1
- depreciation of right of use asset 4.6 4.1
- pension fund deficit recovery contributions (3.8) (3.3)
- IFRS 2 charges 1.2 1.1
Operating cash flows before movement in working capital 51.0 47.2
Changes in working capital:
- increase in inventories (3.0) (22.7)
- increase in trade and other receivables (3.1) (5.1)
- (decrease)/increase in trade and other payables (7.2) 4.2
Cash generated from operations 37.7 23.6
(b) Analysis of underlying net cash/(debt)
Cash Current Non-current Underlying
£m borrowings borrowings net cash/(debt)
£m £m £m
At 1 April 2021 28.3 - (17.8) 10.5
Cash flow (2.5) - (2.0) (4.5)
Non-cash finance costs - - 1.0 1.0
Other non-cash movements - - - -
Exchange movement 1.6 - - 1.6
At 31 March 2022 27.4 - (18.8) 8.6
Cash flow 4.5 - (60.0) (55.5)
Non-cash finance costs - - (0.1) (0.1)
Other non-cash movements - - - -
Exchange movement (2.9) - - (2.9)
At 31 March 2023 29.0 - (78.9) (49.9)
Non-cash finance costs relate to the movement in the costs of raising debt
finance in the year.
8. Business combinations
On 31 May 2022, the Group acquired 100% of the ordinary share capital of
Granfit Holdings Limited and subsidiaries (Grant Westfield), a market leading
designer, manufacturer and supplier of waterproof bathroom panels in the UK.
The business was acquired due to its compelling strategic fit with our
existing portfolio of businesses and its opportunities for sustainable growth.
Full details of the acquisition are provided on the Group's website
(www.norcros.com (http://www.norcros.com/) ).
The following table summarises the consideration paid for Grant Westfield and
the fair value of the assets acquired and the liabilities assumed:
£m
Consideration
Net cash paid 78.3
Cash acquired 38.4
Contingent consideration 4.5
121.2
£m
Recognised amounts of identifiable assets and liabilities
Intangible assets 35.5
Property, plant and equipment 1.1
Right of use assets 2.0
Inventories 4.7
Trade and other receivables 11.0
Cash 38.4
Trade and other payables (7.8)
Current tax liabilities (0.3)
Deferred tax liability (9.1)
Lease liabilities (2.0)
Total identifiable net assets 73.5
Goodwill 47.7
Total 121.2
The Group has determined the fair values of Grant Westfield's assets and
liabilities with intangible assets (excluding goodwill) recognised of £35.5m
representing the brand and customer relationships. The values of these
intangibles are calculated using assumptions on the expected future
profitability of the acquired business. A deferred tax liability of £9.1m has
also been recognised mainly arising from the recognition of acquired
intangible assets.
In most business combinations there is an element of cost which cannot be
allocated against the individual assets and liabilities acquired. This
residual amount is recognised as goodwill and is supported by a number of
factors which do not meet the criteria required for them to be treated as
intangible assets. In this case the most significant elements relate to Grant
Westfield's unique product portfolio and its knowledgeable workforce. It is
not expected at this stage that any of the goodwill will be deductible for tax
purposes.
Total costs relating to the transaction of £3.0m have been expensed to the
Consolidated Income Statement and included within acquisition related costs of
£1.4m recognised in the year ended 31 March 2023 and the remaining £1.6m
recognised in prior years.
Trade and other receivables of £11.0m is the net of £11.2m of gross
contractual receivables and a £0.2m provision for doubtful debts.
The contingent consideration of £4.5m to the previous shareholders is
dependent on the financial performance of Grant Westfield over the next three
years. To the extent that certain profit and cashflow performance criteria are
met cash payments ranging from £nil to £7.0m (on an undiscounted basis) will
be paid in the year ended 31 March 2026.
In addition, as part of the transaction a long-term incentive scheme has been
put in place for key Grant Westfield management staff which is also dependent
on the financial performance of Grant Westfield over the next three years. The
maximum amount and current expectation is that £3.0m will be payable in cash
under this scheme which will be treated as deferred remuneration and included
within acquisition related costs in the Consolidated Income Statement.
The revenue and profit after tax included in the Consolidated Statement of
Comprehensive Income since 31 May 2022 contributed by Grant Westfield are
£39.5m and £3.4m respectively. On a pro-forma basis, Grant Westfield's
revenue and profit after tax contribution had it been part of the Group from
the beginning of the period, would have been £47.5m and £4.2m respectively.
The net cash outflow from the transaction reported within investing activities
was as follows:
£m
Cash consideration 116.7
Cash acquired (38.4)
Net cash outflow reported in the Consolidated Statement of Cash Flow 78.3
In addition to the above, a cash outflow of £3.0m relating to costs incurred
in respect of the transaction has been included within cash generated from
continuing operations, such that the total net cash outflow from the
acquisition in the period was £81.3m. Net proceeds from the equity raise were
£18.1m resulting in an overall impact of the acquisition on net debt of
£63.2m.
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