REG - Norcros PLC - Interim Results <Origin Href="QuoteRef">NXR.L</Origin> - Part 2
17/11/2016 07:20
- Part 2: For the preceding part double click ID:nRSQ4016Pa
(1.3) - (1.3)
Operating profit 5.8 3.0 8.8
Finance costs (net) (1.1)
Profit before taxation 7.7
Taxation 6 (1.6)
Profit from continuing operations 6.1
Net debt 10 (27.5)
Notes Continuing operations -6 months to 30 September 2015 (unaudited)
UK £m South Africa £m Group£m
Revenue 79.9 38.8 118.7
Underlying operating profit 8.0 1.9 9.9
IAS 19R administrative expenses (0.8) - (0.8)
Acquisition related costs 4 (2.6) - (2.6)
Exceptional operating items 4 2.3 - 2.3
Operating profit 6.9 1.9 8.8
Finance costs (net) (1.8)
Profit before taxation 7.0
Taxation 6 (1.6)
Profit from continuing operations 5.4
Net debt 10 (29.2)
Notes Continuing operations -Year ended 31 March 2016 (audited)
UK £m South Africa £m Group£m
Revenue 163.0 72.9 235.9
Underlying operating profit 17.2 4.1 21.3
IAS 19R administrative expenses (1.7) - (1.7)
Acquisition related costs 4 (5.2) - (5.2)
Exceptional operating items 4 2.3 - 2.3
Operating profit 12.6 4.1 16.7
Finance costs (net) (1.3)
Profit before taxation 15.4
Taxation 6 (2.4)
Profit for the year from continuing operations 13.0
Net debt 10 (32.5)
There are no differences from the last Annual Report in the basis of
segmentation or in the basis of measurement of segment profit or loss.
3. Non-GAAP measures
Condensed Consolidated Income Statement
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Profit before taxation from continuing operations 7.7 7.0 15.4
Adjusted for:
IAS 19R administrative expenses 0.9 0.8 1.7
Acquisition related costs 1.3 2.6 5.2
Exceptional operating items - (2.3) (2.3)
Amortisation of costs of raising debt finance 0.1 0.1 0.2
Net movement on fair value of derivative financial instruments (0.5) 0.5 (1.2)
IAS 19R finance cost 1.0 0.7 1.4
Underlying profit before taxation 10.5 9.4 20.4
Taxation attributable to underlying profit before taxation (2.4) (2.1) (3.1)
Underlying earnings 8.1 7.3 17.3
The Directors believe that underlying profit before taxation and underlying
earnings provide shareholders with additional useful information on the
underlying performance of the Group. Underlying profit before taxation is
defined as profit before taxation, IAS 19R administrative expenses,
acquisition related costs, exceptional operating items, exceptional finance
costs, 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.
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Operating profit from continuing operations 8.8 8.8 16.7
Adjusted for:
Depreciation 3.1 2.9 5.5
IAS 19R administrative expenses 0.9 0.8 1.7
Acquisition related costs 1.3 2.6 5.2
Exceptional operating items - (2.3) (2.3)
Underlying EBITDA 14.1 12.8 26.8
EBITDA is a measure commonly used by investors and financiers to assess
business performance. Underlying EBITDA has been provided which reflects
EBITDA as adjusted for IAS 19R administrative expenses, acquisition related
costs and exceptional operating items. The Directors consider that these
measures provide shareholders with additional useful information on the
performance of the Group.
Condensed Consolidated Statement of Cash Flow
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Cash generated from continuing operations (note 10) 13.8 12.9 18.5
Adjusted for:
Cash outflows/(inflows) from exceptional items and acquisition related costs 1.0 (0.7) (0.2)
Pension fund deficit recovery contributions 1.2 1.1 2.1
Underlying operating cash flow 16.0 13.3 20.4
Underlying operating cash flow is defined as cash generated from continuing
operations before cash outflows from exceptional items and pension fund
deficit recovery contributions.
The Directors believe that underlying operating cash flow provides
shareholders with additional useful information on the underlying cash
generation of the Group.
4. Acquisition related costs and exceptional operating items
An analysis of acquisition related costs and exceptional operating items is
shown below.
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Acquisition related costs
Deferred remuneration1 0.2 1.2 2.5
Intangible asset amortisation2 0.6 0.3 0.9
Staff costs and advisory fees3 0.5 1.1 1.8
1.3 2.6 5.2
1 Consideration payable to the former shareholders of Vado, Croydex and
Abode which is required to be treated as remuneration and, accordingly, is
expensed to the income statement as incurred.
2 Non-cash amortisation charges in respect of intangible assets recognised
following the acquisitions of Vado, Croydex and Abode.
3 Costs of maintaining an in-house acquisitions department and
professional advisory fees incurred in connection with the Group's business
combination activities.
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Exceptional operating items
Legal claim1 - (1.9) (1.9)
Pension scheme settlement gain2 - (0.4) (0.4)
- (2.3) (2.3)
1 A legal claim relating to the land at the Highgate site in Tunstall, UK
was settled in the prior year. Under the terms of the settlement with Wm
Morrison Supermarkets plc the Group received a payment of £2.0m. Costs in
connection with the claim of £0.1m were incurred in the prior year.
2 The Group undertook a number of liability management exercises in 2015
in connection with its principal UK defined benefit pension scheme. This
resulted in a settlement gain of £0.4m being recognised in the prior year.
5. Earnings per share
Basic and diluted earnings per share
Basic earnings per share (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.
The calculation of EPS is based on the following profits and numbers of
shares:
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Profit for the period 6.1 5.4 13.0
6 months to30 September2016(unaudited)Number 6 months to30 September2015(unaudited)Number Year ended31 March2016(audited)Number
Weighted average number of shares for basic earnings per share 60,962,939 60,126,284 60,590,559
Share options and warrants 1,719,646 1,902,048 1,639,137
Weighted average number of shares for diluted earnings per share 62,682,585 62,028,332 62,229,696
6 months to30 September2016(unaudited) 6 months to30 September2015(unaudited) Year ended31 March2016(audited)
Basic earnings per share:
From profit for the period 10.0p 9.0p 21.4p
Diluted earnings per share:
From profit for the period 9.7p 8.7p 20.8p
Basic and diluted underlying earnings per share
Basic and diluted underlying earnings per share have also been provided which
reflect underlying earnings from continuing operations divided by the weighted
average number of shares set out above.
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Underlying earnings for the period (note 3) 8.1 7.3 17.3
6 months to30 September2016(unaudited) 6 months to30 September2015(unaudited) Year ended31 March2016(audited)
Basic underlying earnings per share 13.2p 12.2p 28.5p
Diluted underlying earnings per share 12.9p 11.8p 27.8p
6. Taxation
Taxation comprises:
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Current
UK taxation 1.1 0.5 (0.8)
Overseas taxation 0.5 - -
Deferred
Origination and reversal of temporary differences - 1.1 3.2
Taxation 1.6 1.6 2.4
Current tax expense is recognised based on management's estimate of the
weighted average annual income tax rate expected for the full financial year.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority.
Deferred tax is calculated in full on temporary differences under the
liability method.
The movement on the deferred tax account is as shown below:
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(restated)£m
Deferred tax asset at the beginning of the period 10.0 13.8 13.8
Charged to the income statement - (1.1) (3.2)
Credited/(charged) to the statement of comprehensive income 6.2 (0.4) 1.1
Acquisitions - (0.8) (1.3)
Exchange movement - (0.3) (0.4)
Deferred tax asset at the end of the period 16.2 11.2 10.0
At30 September2016(unaudited)£m At30 September2015(unaudited)£m At31 March2016(restated)£m
Accelerated capital allowances 0.6 2.6 0.9
Tax losses 0.7 2.5 1.1
Other timing differences (1.7) (2.4) (2.0)
Deferred tax asset relating to pension deficit 16.6 8.5 10.0
16.2 11.2 10.0
7. Finance income and costs
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Finance costs
Interest payable on bank borrowings 0.5 0.5 0.9
Amortisation of costs of raising debt finance 0.1 0.1 0.2
Movement on fair value of derivative financial instruments - 0.5 -
Finance costs 0.6 1.1 1.1
Finance income
Movement on fair value of derivative financial instruments (0.5) - (1.2)
Total finance income (0.5) - (1.2)
8. Borrowings
At30 September2016(unaudited)£m At30 September2015(unaudited)£m At31 March2016(audited)£m
Non-current
Bank borrowings (unsecured):
- bank loans 34.0 33.0 36.0
- less: costs of raising finance (0.3) (0.5) (0.4)
Total non-current 33.7 32.5 35.6
Current
Bank borrowings (unsecured):
- bank overdrafts 1.8 4.5 2.8
Total borrowings 35.5 37.0 38.4
The fair value of bank loans equals their carrying amount as they bear
interest at floating rates.
The repayment terms of borrowings are as follows:
At30 September2016(unaudited)£m At30 September2015(unaudited)£m At31 March2016(audited)£m
Not later than one year 1.8 4.5 2.8
After more than one year:
- between one and two years - - -
- later than two years and not later than five years 34.0 33.0 36.0
- costs of raising finance (0.3) (0.5) (0.4)
33.7 32.5 35.6
Total borrowings 35.5 37.0 38.4
In July 2014 the Group agreed an unsecured £70m revolving credit facility with
a £30m accordion facility with Lloyds Bank plc, Barclays Bank plc and HSBC
Bank plc. The banking facility is in force for five years to July 2019.
Net debt
The Group's net debt is calculated as follows:
At30 September2016(unaudited)£m At30 September2015(unaudited)£m At31 March2016(audited)£m
Cash and cash equivalents (8.0) (7.8) (5.9)
Total borrowings 35.5 37.0 38.4
Net debt 27.5 29.2 32.5
9. Called up share capital
At30 September 2016 (unaudited) £m At30 September2015(unaudited)£m At31 March2016(audited)£m
Issued and fully paid
61,259,666 ordinary shares of 10p each 6.1 6.1 6.1
10. Consolidated Cash Flow Statements
(a) Cash generated from continuing operations
6 months to30 September2016(unaudited)£m 6 months to30 September2015(unaudited)£m Year ended31 March2016(audited)£m
Profit before taxation 7.7 7.0 15.4
Adjustments for:
- IAS 19R administrative expenses included in the above 0.9 0.8 1.7
- acquisition related costs included in the above 1.3 2.6 5.2
- exceptional operating items included in the above - (2.3) (2.3)
- cash inflows/(outflows) from exceptional items and acquisition related costs (1.0) 0.7 0.2
- depreciation 3.1 2.9 5.5
- pension fund deficit recovery plan contributions (1.2) (1.1) (2.1)
- loss on disposal of property, plant and equipment - - 0.1
- finance costs 0.6 1.1 1.1
- finance income (0.5) - (1.2)
- IAS 19R finance cost 1.0 0.7 1.4
- share-based payments 0.7 0.7 1.2
Operating cash flows before movements in working capital 12.6 13.1 26.2
Changes in working capital:
- increase in inventories (4.9) (4.4) (7.2)
- increase in trade and other receivables (1.2) (1.0) (4.9)
- increase in payables 7.3 5.2 4.4
Cash generated from continuing operations 13.8 12.9 18.5
Cash flows from exceptional items includes expenditure charged to exceptional
provisions relating to onerous lease costs, acquisition related costs
(excluding deferred remuneration) and other business rationalisation and
restructuring costs.
(b) Analysis of net debt
Cash andoverdrafts£m Debt£m Total£m
At 1 April 2015 4.2 (18.4) (14.2)
Cash flow (0.1) (17.0) (17.1)
Other non-cash movements - (0.2) (0.2)
Exchange movement (1.0) - (1.0)
At 31 March 2016 3.1 (35.6) (32.5)
At 1 April 2015 4.2 (18.4) (14.2)
Cash flow (0.1) (14.0) (14.1)
Other non-cash movements - (0.1) (0.1)
Exchange movement (0.8) - (0.8)
At 30 September 2015 3.3 (32.5) (29.2)
At 1 April 2016 3.1 (35.6) (32.5)
Cash flow 2.0 2.0 4.0
Other non-cash movements - (0.1) (0.1)
Exchange movement 1.1 - 1.1
At 30 September 2016 6.2 (33.7) (27.5)
11. Dividends
A final dividend in respect of the year ended 31 March 2016 of £2.7m (4.4p per
10p ordinary share) was paid on 28 July 2016. On 17 November 2016 the Board
declared an interim dividend in respect of the year ended 31 March 2017 of
£1.5m (2.4p per 10p ordinary share). This dividend will be paid on 12 January
2017 and is not reflected in this condensed consolidated interim financial
information.
12. Retirement benefit obligations
(a) Pension costs
Norcros Security Plan
The Norcros Security Plan (the "Plan"), the principal UK pension scheme of
Norcros plc subsidiaries, is funded by a separate trust fund which operates
under UK trust law and is a separate legal entity from the Company. The Plan
is governed by a Trustee board which is required by law to act in the best
interests of the Plan members and is responsible for setting policies together
with the Company. It is predominantly a defined benefit scheme with a modest
element of defined contribution benefits.
The valuation used for IAS 19R disclosures has been produced by KPMG, a firm
of qualified actuaries, to take account of the requirements of IAS 19R in
order to assess the liabilities of the scheme at 30 September 2016. Scheme
assets are stated at their market value at 30 September 2016.
(b) IAS 19R, 'Retirement benefit obligations'
The principal assumptions used to calculate the scheme liabilities of the
Norcros Security Plan under IAS 19R are:
At30 September2016 At30 September2015 At31 March2016
Discount rate 2.25% 3.80% 3.55%
Inflation rate (RPI) 3.00% 3.00% 2.90%
Inflation (CPI) 2.00% 2.00% 1.90%
Salary increases 2.25% 2.25% 2.15%
The amounts recognised in the Condensed Consolidated Balance Sheet are
determined as follows:
At30 September 2016 (unaudited) £m At30 September 2015 (unaudited) £m At31 March2016(audited)£m
Total market value of scheme assets 403.7 367.8 365.9
Present value of scheme liabilities (501.5) (410.2) (421.6)
Pension deficit (97.8) (42.4) (55.7)
13. Business combinations
On 31 March 2016, the Group acquired 100% of the ordinary share capital of
Abode Home Products Limited (Abode), a leading niche designer and distributor
of high quality kitchen taps, bathroom taps and kitchen sinks. Full details
of the acquisition are provided on the Group's website (www.norcros.com) and
on page 104 of the Group's 2016 Annual Report.
The consideration payable in respect of the acquisition was as follows:
£m
Consideration
Cash 3.7
Deferred consideration 1.1
4.8
In accordance with the sale and purchase agreement, an exercise to review the
completion balance sheet at the date of acquisition was undertaken and
following this a payment of £0.2m was made in line with the Group's
expectations. This payment has been disclosed in the Condensed consolidated
statement of cash flows within investing activities. There have been no
changes to the estimate of the remaining deferred consideration payable in the
period.
Due to the fact that the acquisition took place on the last day of the
previous accounting period it was not possible for the Group to finalise the
fair values of Abode's assets and liabilities. Accordingly, the amounts
stated in the 2016 Annual Report were provisional and principally reflected
the reported balances of Abode, as adjusted where possible to comply with the
accounting policies of the Group.
The Group has now reviewed the identifiable net assets of Abode and has
identified the following measurement period adjustments:
Provisional amounts recognised£m Measurement period adjustments£m Revised amounts recognised£m
Intangible assets - 2.6 2.6
Property, plant and equipment 0.4 - 0.4
Inventories 1.1 - 1.1
Trade and other receivables 2.5 - 2.5
Cash 0.6 - 0.6
Trade and other payables (2.5) - (2.5)
Current tax liabilities (0.2) - (0.2)
Deferred tax liability - (0.5) (0.5)
Total identifiable net assets 1.9 2.1 4.0
Goodwill 2.9 (2.1) 0.8
Total 4.8 - 4.8
The principal adjustment that has been made in the measurement period is to
recognise intangible assets of £2.6m. Deferred tax at the prevailing rate of
20% as of the date of acquisition has been applied where appropriate resulting
in the recognition of a deferred tax liability of £0.2m. Due to the complex
nature of these assets, it was not possible to reliably measure their value in
the time available before publishing the 2016 Annual Report, and for this
reason they have been recognised subsequent to the period of acquisition.
The impact of the measurement period adjustments in respect of prior periods
is as follows:
At 31 March 2016 as reported At 31 March 2016 as restated
Goodwill 32.5 30.4
Intangible assets 12.2 14.8
Deferred tax assets 10.5 10.0
Total non-current assets 93.4 93.4
Total assets less current liabilities 145.2 145.2
There was no impact on the Condensed consolidated statement of comprehensive
income and expense. As the acquisition took place on 31 March 2016 no
restatement of the comparative financial information at 30 September 2015 is
required.
14. Related party transactions
The remuneration of executive and non-executive Directors will be disclosed in
the Group's Annual Report for the year ending 31 March 2017.
15. Financial risk management and financial instruments
Financial risk factors
The Group's operations expose it to a variety of financial risks: market risk
(including currency risk, interest rate risk and energy price risk); credit
risk; and liquidity risk. An explanation of these risks and how the Group
manages them is set out on page 94 of the Group's 2016 Annual Report. The
interim financial information does not include all financial risk management
information and disclosures required in annual financial statements; they
should be read in conjunction with the Group's 2016 Annual Report. There have
been no changes in the risk management process or in any risk management
policies since the year end.
Derivative financial instruments carried at fair value through profit and
loss
At 30 September 2016 At 30 September 2015 At 31 March 2016
Assets Liabilities Assets Liabilities Assets Liabilities
(unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited)
£m £m £m £m £m £m
Forward foreign exchange contracts:
- current 3.1 (0.4) 1.0 (0.3) 2.5 (0.1)
The above financial instruments are classified as level 2 instruments based on
the hierarchy defined in IFRS 7. Consequently, fair value measurements are
derived from inputs other than quoted prices included in level 1 that are
observable for the assets or liabilities, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
The fair value of the following financial assets and liabilities approximate
their carrying amount:
· trade and other receivables;
· cash and cash equivalents; and
· trade and other payables.
Statement of Directors' responsibilities
The Directors confirm that this condensed consolidated interim financial
information has been prepared in accordance with International Accounting
Standard 34, 'Interim financial reporting', as adopted by the European Union
and that the Interim Report includes a fair review of the information required
by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the first
six months and their impact on the condensed consolidated interim financial
information and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related party transactions in the first six months and any
changes in the related party transactions disclosed in the last Annual
Report.
The Directors of Norcros plc and their respective responsibilities are as
listed in the Norcros plc 2016 Annual Report.
By order of the Board
N. P. Kelsall S. M. Smith
Group Chief Executive Group Finance Director
17 November 2016 17 November 2016
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