REG - Norcros PLC - Interim Results <Origin Href="QuoteRef">NXR.L</Origin> - Part 2
16/11/2017 07:06
- Part 2: For the preceding part double click ID:nRSP6469Wa
Amendment to IFRS 2 Share-based payments 1 April 2018
Amendment to IAS 40 Investment properties 1 April 2018
Annual improvements 2014-2016 Various 1 April 2018
Amendment to IAS 28 Investments in associates and joint ventures 1 April 2019
IFRS 16 Leases 1 April 2019
IFRS 17 Insurance contracts 1 April 2021
Other than for IFRS 15 and IFRS 16, the potential impacts of which are
currently being assessed by the Group, none of these standards or
interpretations are expected to have a material impact on the Group. Under
IFRS 16 the present distinction between operating and finance leases will be
removed, resulting in all leases being recognised on the Balance Sheet except
for those with a very low value. At inception, a right-of-use asset will be
recognised together with an equivalent liability reflecting the discounted
lease payments over the estimated term of the lease. Whilst the overall cost
of using the asset over the lease term should be the same, it is likely that
the weighting of the charge between periods may differ due to the requirement
to distinguish between the lease and non-lease elements of the agreement.
Adoption of this standard is likely to result in an increase in gross assets
and gross liabilities.
Risks and uncertainties
The principal strategic level risks and uncertainties affecting the Group,
together with the approach to their mitigation, remain as set out on pages 24
to 27 in the 2017 Annual Report, which is available on the Group's website
(www.norcros.com).
In summary the Group's principal risks and uncertainties are:
· loss of key customers;
· competition;
· reliance on production facilities;
· loss of key supplier, availability of raw materials/components/energy,
and supply chain failure;
· staff retention and recruitment;
· interest rate risk;
· performance against banking covenants;
· acquisition risk;
· market conditions;
· foreign currency exchange risk;
· pension scheme management;
· reliance on information technology; and
· uncertainty surrounding Brexit.
The Chairman's Statement in this interim statement includes comments on the
outlook for the remaining six months of the financial year.
Forward-looking statements
This interim statement contains forward-looking statements. Although the Group
believes that the expectations reflected in these forward-looking statements
are reasonable, it can give no assurance that these expectations will prove to
have been correct. Due to the inherent uncertainties, including both economic
and business risk factors underlying such forward-looking information, actual
results may differ materially from those expressed or implied by these
forward-looking statements.
The Group undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Accounting estimates and judgments
The preparation of condensed consolidated interim financial information
requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amount of assets and
liabilities, income and expense. Actual results may differ from these
estimates.
In preparing the condensed consolidated interim financial information, the
significant judgments made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
applied to the consolidated financial statements for the year ended 31 March
2017.
2. Segmental reporting
The Group operates in two main geographical areas: the UK and South Africa.
All inter-segment transactions are made on an arm's length basis. The chief
operating decision maker, which is considered to be the Board, assesses
performance and allocates resources based on geography as each segment has
similar economic characteristics, complementary products, distribution
channels and regulatory environments.
Notes Continuing operations -6 months to 30 September 2017 (unaudited)
UK £m South Africa £m Group£m
Revenue 94.3 50.7 145.0
Underlying operating profit 7.4 4.3 11.7
IAS 19R administrative expenses (0.7) - (0.7)
Acquisition related costs 4 (1.2) - (1.2)
Operating profit 5.5 4.3 9.8
Finance costs (net) (2.4)
Profit before taxation 7.4
Taxation 6 (1.9)
Profit from continuing operations 5.5
Net debt 10 (20.8)
Notes Continuing operations -6 months to 30 September 2016 (unaudited)
UK £m South Africa £m Group£m
Revenue 86.9 41.9 128.8
Underlying operating profit 8.0 3.0 11.0
IAS 19R administrative expenses (0.9) - (0.9)
Acquisition related costs 4 (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 -Year ended 31 March 2017 (audited)
UK £m South Africa £m Group£m
Revenue 182.3 88.9 271.2
Underlying operating profit 17.4 6.4 23.8
IAS 19R administrative expenses (2.0) - (2.0)
Acquisition related costs 4 (2.7) - (2.7)
Exceptional operating items 4 (2.3) - (2.3)
Operating profit 10.4 6.4 16.8
Finance costs (net) (5.3)
Profit before taxation 11.5
Taxation 6 (3.0)
Profit for the year from continuing operations 8.5
Net debt 10 (23.2)
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. Alternative performance measures
The Group makes use of a number of alternative performance measures to assess
business performance and provide additional useful information to
shareholders. Such alternative performance measures should not be viewed as a
replacement of, or superior to, those defined by Generally Accepted Accounting
Principles (GAAP). Definitions of alternative performance measures used by
the Group and, where relevant, reconciliations from GAAP-defined reporting
measures to the Group's alternative performance measures are provided below.
The alternative performance measures used by the Group are:
Measure Definition
Underlying operating profit Operating profit before IAS 19R administrative expenses, acquisition related costs and exceptional operating items
Underlying profit before taxation Profit before taxation before IAS 19R administrative expenses, acquisition related costs, exceptional operating items, amortisation of costs of raising finance, net movement on fair value of derivative financial instruments, discounting of property lease provisions and finance costs relating to pension schemes
Underlying taxation Taxation before tax associated with those items listed as being excluded from underlying profit before taxation
Underlying earnings Underlying profit before tax less underlying taxation
Underlying operating margin Underlying operating profit expressed as a percentage of revenue
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
EBITDA EBITDA is a measure commonly used by investors and financiers to assess business performance and is derived from operating profit before depreciation and amortisation
Underlying EBITDA Underlying EBITDA reflects EBITDA as adjusted for IAS 19R administrative expenses, acquisition related costs and exceptional operating items
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 profit and 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 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
Condensed Consolidated Income Statement
(a) Underlying profit before taxation and underlying earnings
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Profit before taxation from continuing operations 7.4 7.7 11.5
Adjusted for:
IAS 19R administrative expenses 0.7 0.9 2.0
Acquisition related costs 1.2 1.3 2.7
Exceptional operating items - - 2.3
Amortisation of costs of raising finance 0.1 0.1 0.2
Net movement on fair value of derivative financial instruments 1.3 (0.5) 2.2
IAS 19R finance cost 0.8 1.0 2.0
Underlying profit before taxation 11.5 10.5 22.9
Taxation attributable to underlying profit before taxation (2.6) (2.4) (5.3)
Underlying earnings 8.9 8.1 17.6
(b) Underlying EBITDA
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Operating profit from continuing operations 9.8 8.8 16.8
Adjusted for:
Depreciation 3.1 3.1 6.4
IAS 19R administrative expenses 0.7 0.9 2.0
Acquisition related costs 1.2 1.3 2.7
Exceptional operating items - - 2.3
Underlying EBITDA 14.8 14.1 30.2
Condensed Consolidated Statement of Cash Flow
(a) Underlying profit before taxation and underlying earnings
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Cash generated from continuing operations (note 10) 12.9 13.8 25.5
Adjusted for:
Cash flows from exceptional items and acquisition related costs 2.0 1.0 1.8
Pension fund deficit recovery contributions 1.3 1.2 2.5
Underlying operating cash flow 16.2 16.0 29.8
4. Acquisition related costs and exceptional operating items
An analysis of acquisition related costs and exceptional operating items is
shown below.
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Acquisition related costs
Deferred remuneration1 0.2 0.2 0.4
Intangible asset amortisation2 0.6 0.6 1.2
Staff costs and advisory fees3 0.4 0.5 1.1
1.2 1.3 2.7
1 Consideration payable to the former shareholders of 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 acquired intangible assets.
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 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Exceptional operating items
Restructuring costs1 - - 2.3
- - 2.3
1 The Group commenced a restructuring of its UK tiles business in March
2017 at a cost of £2.3m in order to increase manufacturing flexibility and
reduce inventory.
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 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Profit for the period 5.5 6.1 8.5
6 months to30 September2017(unaudited)Number 6 months to30 September2016(unaudited)Number Year ended31 March2017(audited)Number
Weighted average number of shares for basic earnings per share 61,458,138 60,962,939 61,098,476
Share options and warrants 1,921,999 1,719,646 2,042,900
Weighted average number of shares for diluted earnings per share 63,380,137 62,682,585 63,141,376
6 months to30 September2017(unaudited) 6 months to30 September2016(unaudited) Year ended31 March2017(audited)
Basic earnings per share:
From profit for the period 8.9p 10.0p 13.9p
Diluted earnings per share:
From profit for the period 8.7p 9.7p 13.4p
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 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Underlying earnings for the period (note 3) 8.9 8.1 17.6
6 months to30 September2017(unaudited) 6 months to30 September2016(unaudited) Year ended31 March2017(audited)
Basic underlying earnings per share 14.5p 13.2p 28.8p
Diluted underlying earnings per share 14.0p 12.9p 27.8p
6. Taxation
Taxation comprises:
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Current
UK taxation 0.8 1.1 2.0
Overseas taxation 1.4 0.5 1.6
Total current taxation 2.2 1.6 3.6
Deferred
Origination and reversal of temporary differences (0.3) - (0.6)
Total tax charge 1.9 1.6 3.0
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 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Deferred tax asset at the beginning of the period 11.0 10.0 10.0
Credited to the income statement 0.3 - 0.6
(Charged)/credited to the statement of comprehensive income (1.9) 6.2 0.3
Exchange movement - - 0.1
Deferred tax asset at the end of the period 9.4 16.2 11.0
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Accelerated capital allowances 1.1 0.6 1.2
Tax losses - 0.7 -
Other timing differences (0.6) (1.7) (0.9)
Deferred tax asset relating to pension deficit 8.9 16.6 10.7
9.4 16.2 11.0
7. Finance income and costs
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Finance costs
Interest payable on bank borrowings 0.2 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 1.3 - 2.2
Finance costs 1.6 0.6 3.3
Finance income
Movement on fair value of derivative financial instruments - (0.5) -
Total finance income - (0.5) -
8. Borrowings
At30 September2017(unaudited) £m At30 September2016(unaudited)(restated)£m At31 March2017(audited) £m
Non-current
Bank borrowings (unsecured):
- bank loans 30.0 34.0 30.0
- less: costs of raising finance (0.1) (0.3) (0.2)
Total non-current 29.9 33.7 29.8
Current
Bank borrowings (unsecured):
- bank overdrafts 8.8 26.0 30.9
Total borrowings 38.7 59.7 60.7
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 September2017(unaudited) £m At30 September2016(unaudited)(restated)£m At31 March2017(audited) £m
Not later than one year 8.8 26.0 30.9
After more than one year:
- between one and two years - - -
- later than two years and not later than five years 30.0 34.0 30.0
- costs of raising finance (0.1) (0.3) (0.2)
29.9 33.7 29.8
Total borrowings 38.7 59.7 60.7
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, though
the Group is seeking to amend and extend this facility as explained in note
15.
Net debt
The Group's net debt is calculated as follows:
At30 September2017(unaudited) £m At30 September2016(unaudited)(restated)£m At31 March2017(audited) £m
Cash and cash equivalents (17.9) (32.2) (37.5)
Total borrowings 38.7 59.7 60.7
Net debt 20.8 27.5 23.2
9. Called up share capital
At30 September 2017 (unaudited) £m At30 September2016(unaudited)£m At31 March2017(audited)£m
Issued and fully paid
61,653,134 ordinary shares of 10p each 6.2 6.1 6.1
In 2009 the Company executed a warrant instrument in favour of its principal
banks of the day over 5% of its fully diluted ordinary share capital excluding
any shares issued as part of a capital raising. The remaining warrants were
exercised during the period resulting in the Company issuing 371,030 ordinary
shares of 10p each. A further 22,438 ordinary shares of 10p were issued
during the period to satisfy vestings of options under the Company's Approved
Performance Share Plan and SAYE schemes.
10. Consolidated Cash Flow Statements
(a) Cash generated from continuing operations
6 months to30 September2017(unaudited)£m 6 months to30 September2016(unaudited)£m Year ended31 March2017(audited)£m
Profit before taxation 7.4 7.7 11.5
Adjustments for:
- IAS 19R administrative expenses included in the above 0.7 0.9 2.0
- acquisition related costs included in the above 1.2 1.3 2.7
- exceptional operating items included in the above - - 2.3
- cash flows from exceptional items and acquisition related costs (2.0) (1.0) (1.8)
- depreciation 3.1 3.1 6.4
- pension fund deficit recovery plan contributions (1.3) (1.2) (2.5)
- finance costs 1.6 0.6 3.3
- finance income - (0.5) -
- IAS 19R finance cost 0.8 1.0 2.0
- share-based payments 0.7 0.7 1.4
Operating cash flows before movements in working capital 12.2 12.6 27.3
Changes in working capital:
- increase in inventories (2.9) (4.9) (5.1)
- decrease/(increase) in trade and other receivables 0.2 (1.2) (3.7)
- increase in trade and other payables 3.4 7.3 7.0
Cash generated from continuing operations 12.9 13.8 25.5
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 2016 3.1 (35.6) (32.5)
Cash flow 1.8 6.0 7.8
Other non-cash movements - (0.2) (0.2)
Exchange movement 1.7 - 1.7
At 31 March 2017 6.6 (29.8) (23.2)
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)
At 1 April 2017 6.6 (29.8) (23.2)
Cash flow 3.5 - 3.5
Other non-cash movements - (0.1) (0.1)
Exchange movement (1.0) - (1.0)
At 30 September 2017 9.1 (29.9) (20.8)
11. Dividends
A final dividend in respect of the year ended 31 March 2017 of £3.0m (4.8p per
10p ordinary share) was paid on 3 August 2017. On 16 November 2017 the Board
declared an interim dividend in respect of the year ended 31 March 2018 of
2.6p per 10p ordinary share. This dividend will be paid on 12 January 2018 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 the
Group's UK 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 2017. Scheme
assets are stated at their market value at 30 September 2017.
(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 September2017 At30 September2016 At31 March2017
Discount rate 2.70% 2.25% 2.60%
Inflation rate (RPI) 3.15% 3.00% 3.15%
Inflation (CPI) 2.15% 2.00% 2.15%
Salary increases 2.40% 2.25% 2.40%
The amounts recognised in the Condensed Consolidated Balance Sheet are
determined as follows:
At30 September 2017 (unaudited) £m At30 September 2016 (unaudited) £m At31 March2017(audited)£m
Total market value of scheme assets 402.6 403.7 404.4
Present value of scheme liabilities (454.7) (501.5) (467.1)
Pension deficit (52.1) (97.8) (62.7)
13. 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 2018.
14. 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 2017 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 2017 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 2017 At 30 September 2016 At 31 March 2017
Assets Liabilities Assets Liabilities Assets Liabilities
(unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited)
£m £m £m £m £m £m
Forward foreign exchange contracts:
- current 0.3 (1.7) 3.1 (0.4) 0.7 (0.8)
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.
15. Post balance sheet events
Acquisition of Merlyn Industries Limited, capital raising and amendment of
banking facilities
On 2 November 2017, the Group provisionally agreed the acquisition of Merlyn
Industries Limited (Merlyn), a manufacturer and distributor of shower
enclosures, screens and trays based in the UK and Republic of Ireland, for
total consideration of £60.0m on a debt free, cash free basis (subject to
certain adjustments). Legal completion of the acquisition is subject to
shareholder approval at a general meeting of the Company to be held at the
offices of Addleshaw Goddard LLP, One St Peter's Square, Manchester M2 3DE on
22 November 2017 at 10.00 am.
If approved, the transaction will be part-funded by a £31.4m firm placing,
placing and open offer of 18,254,161 ordinary shares at 172 pence per share.
Additionally, if the transaction is approved, the Company will enter into an
amendment and restatement agreement with its bankers to increase the existing
unsecured £70m revolving credit facility (with a £30m accordion facility) to
an unsecured £120m revolving credit facility (with a £30m accordion facility).
If entered into, the new facility would have a four year tenure with an
optional fifth year (subject to bank approval). The increased facility would
be used to fund the balance of the consideration payable for Merlyn, together
with fees associated with the proposed transaction and funding structure which
are expected to be approximately £4.0m.
Should the resolutions at the general meeting be passed, it is expected that
legal completion of the acquisition of Merlyn, admission of new shares to
trading on the main market and amendment and restatement of the banking
facilities will be effective from 23 November 2017.
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 2017 Annual Report.
By order of the Board
N. P. Kelsall S. M. Smith
Group Chief Executive Group Finance Director
16 November 2017 16 November 2017
This information is provided by RNS
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