21 November 2024

Norcros plc

Results for the six months ended 30 September 2024

Resilient trading and market share gains in a challenging demand environment

Norcros plc, the market-leading designer and supplier of high-quality sustainable bathroom and kitchen products, today announces its interim results for the six months ended 30 September 2024.

Financial summary

Highlights

·      Market share growth in a challenging demand environment (Group revenue +0.1% LfL):

o  UK (revenue +0.9% LFL): share gains - new product development ("NPD") and cross-selling

o  SA (revenue -1.7% constant currency): macro (inc. energy) stabilising but subdued consumer confidence

o  Well-positioned for market recovery in new house build and RMI

·      Continued strong progress on delivering strategic initiatives:

o  Portfolio Development - completed disposal of Johnson Tiles UK

o  Organic Growth - cross-selling, NPD and service levels

o  Operational Excellence - consolidating UK warehouse footprint

o  ESG - net zero transition - investment in sustainable products

·      Reported revenue of £188.4m (2023: £201.6m). Underlying operating profit of £19.7m (2023: £21.4m)⁴

·     UK underlying operating margin at 13.6% (2023: 13.0%) with Group underlying operating margins flat at 10.5% (2023: 10.6%)

·      Strong balance sheet - low leverage at 1.0x underlying EBITDA

·      Interim dividend of 3.5p per share, an increase of 0.1p

·      The Board expects full year underlying operating profit to be in line with market expectations⁵

Thomas Willcocks, CEO, commented:

"In a weak market during the first half of the year Norcros has again grown share and made further strategic progress. While the demand environment is expected to remain challenging, we remain focused on the significant market opportunities available and are confident that our leading positions and strategic implementation will continue to deliver market share gains. The Board therefore expects full year underlying operating profit to be in line with market expectations⁵ showing further progress towards achieving our medium-term targets."

There will be an in-person presentation and Q&A session today at 9.30am GMT for analysts at the offices of Hudson Sandler, 25 Charterhouse Square, London, EC1M 6AE. There will also be a live audio webcast of the event (without Q&A), available at https://brrmedia.news/NXR_IR_24/25. The supporting slides and webcast playback will be available in the investors section of the Norcros website at www.norcros.com later in the day.

¹ LFL (like for like) revenues at constant currency adjusted for Johnson Tiles UK and Norcros Adhesives

² Definitions and reconciliations of alternative performance measures are provided in note 3

³ The operating loss in the period is post the non-cash cost of £21.4m, as a result of the disposal of Johnson Tiles UK. Further detail is provided in note 4

⁴ Year on year movement reflects disposal of Johnson Tiles UK, investment in operational efficiencies, and the challenging demand environment in South Africa

⁵ Norcros compiled market consensus for the year to 31 March 2025, as at 21 November 2024, is for an underlying operating profit of £43.1 million

Enquiries

Notes to Editors

Norcros is a market-leading group of brands specialising in design-led, sustainable bathroom and kitchen products across the UK, Ireland, South Africa, and select export markets. Each of our brands offers mid-premium product ranges distinguished by their innovation, design, and commitment to sustainability, all backed by industry-leading service to our trade and retail customers.

Through a strategic blend of acquisitions and organic growth, Norcros has become the UK and Ireland's number one bathroom products group. We see significant potential for further expansion within this large and fragmented market, accelerating growth and capturing market share through continued acquisitions, organic development, operational excellence, and meaningful ESG capabilities.

Norcros encompasses the renowned brands, Triton, Merlyn, Grant Westfield, VADO, Croydex, and Abode in the UK, and Tile Africa, TAL, Johnson Tiles South Africa, and House of Plumbing in South Africa.

Norcros is headquartered in Wilmslow, Cheshire and employs around 2,100 people. The Company is listed on the London Stock Exchange. For further information please visit the Company website: www.norcros.com

Overview of results

The Board is pleased to report another resilient performance for the six months ended 30 September 2024 driven by the strength of our brands, their mid-premium market positioning, and the benefits of our ongoing investment in new product development. This enabled the Group to deliver further market share gains.

UK market share growth and a resilient performance in South Africa, despite the challenging demand environment, have led to a Group revenue of £188.4m (2023: £201.6m) and an underlying operating profit of £19.7m for the period (2023: £21.4m). Group operating margins at 10.5% were in line with the prior year (2023: 10.6%). Good cash generation at 69% of underlying EBITDA, was below the prior year largely due to an increase in debtors arising from the 26 week accounting period ending on the 29 September 2024.

In the UK, revenue growth was 0.9% on a like for like basis, adjusted for the disposal of Johnson Tiles UK and the closure of Norcros Adhesives. On a reported basis, revenue of £131.3m (2023: £143.9m), was down 8.8%. Market-leading brands such as Triton, Merlyn, and Grant Westfield continued to demonstrate market share growth and attract new customers in our target mid-premium market segments, leveraging our strong new product development pipeline, scale-based collaboration and cross-selling initiatives and exceptional customer service.

In South Africa, we have encouragingly seen six months without energy interruptions albeit consumer sentiment remains subdued, with revenue of £57.1m (2023: £57.7m) down 1.7% on a constant currency basis. The business, led by an experienced management team, has proved resilient and is well-positioned to benefit as consumer confidence recovers.

The half year performance demonstrates the strength and positioning of our market-leading businesses. Although our brands operate separately, we do collectively take advantage of our scale to deliver revenue and cost synergies, helping to drive market share growth. Given the strength of and continued investment in our model, we are confident that we will continue to make further progress given the significant opportunity in the fragmented and attractive bathroom and kitchen product markets in which we operate.

Strategic progress

Significant progress has been made across the Group's four strategic initiatives in the period with ongoing momentum for the second half of the year.

Portfolio development - continued with successful completion of the disposal of Johnson Tiles UK to the management team in May 2024. We have a well-developed M&A pipeline and continue to evaluate a number of strategically aligned opportunities that could accelerate our growth and be accretive under our ownership.

Organic growth - the Group's collaborative approach to cross-selling and new product development continues to deliver revenue synergies, driving sustainable and profitable growth across our product portfolio. In addition, our scale enables significant investment in our new product development, people and service levels, which help our businesses drive organic growth faster under our ownership and is a key differentiator versus peers.

In the UK, we continue to develop new business through our structured cross-selling program, with significant short and medium term opportunities. Successful H1 product launches included a first strategic move towards offering a complete and matched bathroom offer through VADO's Cameo range and Grant Westfield's Naturepanel, our FSC-certified wall panel that can also be used outside of the bathroom. Both have been well-received and are demonstrating positive momentum.

In South Africa, TAL, in particular, has made share gains through new product development, including in complementary product categories. TAF and TAL also continue to grow their directly sourced private label ranges, and will be increasingly working together to drive scale-based sourcing benefits.

Operational efficiencies - during the period we delivered two key projects as part of our drive to leverage the scale-based opportunities by successfully completing the consolidation of the Merlyn and Grant Westfield warehousing and distribution functions. We also completed the warehouse consolidation at VADO. These initiatives have reduced the UK warehouse footprint from 26 to 15 sites and will drive continued improvement in accuracy, efficiency and customer service. Further scale-based collaboration on our supply chain and freight continues to help the Group successfully navigate ongoing challenges in the freight industry.

ESG - Norcros views corporate responsibility and sustainability as a distinct source of competitive advantage. As we set out in our 2024 Annual Report, our key ESG focus is around our people, product and planet themes which underpin our strategic growth and operational plans. We have continued momentum in these areas in the first half of the year and our ESG credentials are key to our larger customers buying decisions.

On the People front, we have strengthened our skills base and made further DE&I progress. In our Product theme, we have published our Supply Chain Policy and increased investment in sustainable product development with new launches through FY25 from Grant Westfield (Naturepanel) and Triton (ENVi).

In our Planet theme, we have a published Net Zero Transition Plan (in line with Transition Plan Taskforce guidelines). We have set carbon targets to reduce scope 1 and 2 GHG emissions by 33.6% by 2028 (2023 base year) and these targets were validated by SBTi in January. We made good progress on this in the last financial year with a reduction in scope 1 and 2 emissions of c. 9%. As we continue to focus on a range of emissions reduction initiatives, and following the disposal of Johnson Tiles UK, we are making further progress towards our 2028 targets through the current financial year.

Norcros UK operating review

Our UK business delivered another excellent first half result with like for like revenue growth of 0.9%. On a reported basis, revenue of £131.3m (2023: £143.9m) was 8.8% lower than the prior year largely reflecting the disposal of Johnson Tiles UK in May 2024.

Our businesses again demonstrated their ability to grow share driven by new product launches, excellent stock availability and outstanding customer service. Our new product development pipeline is strong with a focus on leading in the design of market-leading products with clear sustainability benefits. Triton was once again recognised as the industry leader in this area, winning the King's Award for Enterprise in May, in recognition of its outstanding commitment to Sustainable Development.

In addition to market share growth, meaningful first steps were taken to drive improve operational performance with the consolidation of part of our warehousing footprint in the UK with a reduction from 26 to 15 facilities across VADO and Grant Westfield. Both projects were completed ahead of schedule and are an important step in our wider group operations strategy.

The RMI (Repair, Maintenance and Investment) sector remains the largest component in our UK market. Our market-leading brands are positioned in the mid-premium segment which has remained more resilient in the period and well-placed to benefit as the market recovers.

The UK government is targeting 1.5 million new homes in its first term (300,000 homes per year) which alongside changes in building regulations, such as the Future Homes Standard, means that there is a significant growth opportunity in housing. Through our long-standing existing relationships and our alignment with new building regulations particularly regarding energy and water, we are well-placed to capitalise as new build activity develops.

Overall, underlying operating profit for the period reduced by £0.9m to £17.8m (2023: £18.7m) largely reflecting investment to deliver future operational efficiencies in warehousing and logistic activities and the disposal of Johnson Tiles UK. UK underlying operating margin increased to 13.6% (2023: 13.0%).

Norcros SA operating review

Our South African business generated revenue of £57.1m (2023: £57.7m), reflecting a 1.7% reduction on a constant currency basis and a resilient overall performance in the period. Encouragingly, there have been no electricity supply interruptions in the last six months albeit consumer sentiment remains subdued.

TAL, our market-leading adhesive business in South Africa, posted a strong performance in the period, profitably growing share through targeted product launches, focused marketing activity and exceptional service levels. House of Plumbing performance was also marginally ahead of the previous year despite the tough commercial market environment.

Both Johnson Tiles and Tile Africa, with leading positions in the new house build market, were particularly impacted by the subdued market. Consequently, during the period, Johnson Tiles had a four-week shutdown in response to weak market demand which further impacted profitability.

Given the stabilising macro outlook, we remain well-placed as the market gradually recovers.

Underlying operating profit for the period was £1.9m (2023: £2.7m), with the operating margin at 3.3% (2023: 4.7%).

Financial summary

Group revenue for the 26 week first half was £188.4m (2023: £201.6m), 0.1% ahead of the prior year on a constant currency like for like basis and a 6.5% decrease on a reported basis.

Underlying operating profit was £19.7m (2023: £21.4m), largely reflecting the lower revenue in the period. The Group's underlying operating profit margin was in line with the prior year at 10.5% (2023: 10.6%).

The reported operating loss was £8.6m (2023: profit of £15.3m) after deducting acquisition and disposal related costs of £25.5m (2023: £3.9m), exceptional operating items of £2.1m (2023: £1.4m) and IAS 19R administration expenses of £0.7m (2023: £0.8m).

Acquisition and disposal related costs included the previously communicated non-cash loss on disposal of £21.4m relating to the disposal of Johnson Tiles UK in May 2024. Other acquisition and disposal related costs represent amortisation of acquired intangibles of £3.3m (2023: £3.3m) and advisory fees of £0.8m (2023: £0.1m). Exceptional operating items predominantly relate to the cash costs of investment in consolidating the warehousing and distribution sites at Grant Westfield.

Underlying profit before taxation was £16.4m (2023: £18.1m). Bank interest costs and IFRS 16 interest costs on lease liabilities were consistent with the prior year at £2.5m and £0.8m respectively. The application of IFRS 16 had no impact on underlying profit before taxation (2023: £0.1m improvement). The reported loss before taxation was £11.7m (2023: profit of £11.7m).

Diluted underlying earnings per share were 14.1p (2023: 15.6p), reflecting a reduction in underlying profit before taxation.

The Group generated an underlying operating cash inflow of £14.8m (2023: £27.4m). The reduction against last year reflected investment into working capital, predominantly from an increase in debtors due to the 26 week accounting period ending on 29 September 2024 compared to the standard due date for customer payments of 30 September.

Capital expenditure was £4.4m in the first half (2023: £4.2m), with investment in new product development and projects focused on further driving operational excellence.

Financial position

The Group remains in a strong financial position with net debt (pre-IFRS 16) of £44.9m (31 March 2024: £37.3m), the increase in part reflecting the investment in working capital in the period. Inclusive of IFRS 16 lease liabilities, net debt was £68.4m (31 March 2024: £59.5m). Leverage stands at 1.0x underlying EBITDA on a pre-IFRS 16 basis, with significant funding headroom in our committed £130m RCF financing facility, maturing in October 2027. IFRS16 has no impact on cash flow nor on the Group's bank covenants.

Dividend

The Board recognises the importance of dividends to shareholders and is declaring an interim dividend of 3.5p (H1 2024: 3.4p) per share, reflecting the resilient first half performance and its confidence in the Group's future prospects. The dividend is payable on 14 January 2025 to shareholders on the register on 29 November 2024. The shares will be quoted ex-dividend on 28 November 2024.

Pension scheme

The Group's pension scheme remains appropriately funded, with an IAS 19 surplus of £16.5m at 30 September 2024 (31 March 2024: £16.5m). The 1 April 2024 triennial actuarial valuation process is progressing well with the Company and the scheme's Trustee working constructively together, and we are confident of making further progress.

Summary and outlook

The continued implementation of our growth strategy means that we are well-placed for further share gains in our targeted mid-premium RMI market segments and any recovery in this and the new house build sector, where we hold leading positions. Market share growth is increasingly being delivered through a strong focus on sustainable new products and a more efficient and customer-focused operating platform.

In summary, there remain significant opportunities across our geographies and, despite market conditions, we look forward to further progress in the second half of the year. The Board therefore expects full year underlying operating profit to be in line with market expectations^. showing further progress towards achieving our medium-term targets.