Norcros : Results for the year ended 31 March 2023

15 June 2023

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

			% change
	2023	2022	2023 v 2022
Revenue	£441.0m	£396.3m	+11.3%
Revenue constant currency LFL1			+1.5%
Underlying operating profit2	£47.3m	£41.8m	+13.2%
Underlying profit before taxation2	£41.8m	£39.3m	+6.4%
Diluted underlying EPS2	37.4p	38.2p	-2.1%
Underlying operating cash flow2	£44.8m	£28.6m	+56.6%
Operating profit	£27.5m	£36.2m	-24.0%
Underlying net (debt)/cash2	(£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 profit2 of £47.3m, 13.2% higher than prior year (2022: £41.8m)
• Underlying net debt2 of £49.9m (2022: net cash of £8.6m)
• Underlying ROCE2 of 18.5% (2022: 23.9%)
• Diluted underlying EPS2 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 like3 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.comlater in the day.

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Enquiries
Norcros plc	Tel: [phone]
Thomas Willcocks, Chief Executive Officer
James Eyre, Chief Financial Officer
Hudson Sandler	Tel: [phone]
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

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.

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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 decentralised 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.

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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

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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.

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