TIDMNXR
RNS Number : 0010R
Norcros PLC
25 June 2020
25 June 2020
Norcros plc
Results for the year ended 31 March 2020
Norcros, a market leading supplier of high quality and
innovative bathroom and kitchen products, today announces its
results for the year ended 31 March 2020.
Financial Summary
2020(2) 2019 % change % change
as reported Constant
Currency
Reported Pre - IFRS16 Pre - IFRS16
(3)
---------- ------------- --------------
Revenue GBP342.0m GBP342.0m GBP331.0m +3.3% +5.0%
---------- ------------- -------------- ------------- ----------
Underlying operating
profit GBP32.3m GBP31.8m GBP34.4m -6.1%
---------- ------------- -------------- ------------- ----------
Underlying profit before
taxation(1) GBP28.8m GBP30.2m GBP32.6m -11.7%
---------- ------------- -------------- ------------- ----------
Diluted Underlying EPS(1) 28.2p 29.5p 31.7p -11.0%
---------- ------------- -------------- ------------- ----------
Underlying operating
cash flow(1) GBP38.4m GBP33.4m GBP39.8m -3.5%
---------- ------------- -------------- ------------- ----------
Operating profit GBP17.8m GBP17.3m GBP25.1m -29.1%
---------- ------------- -------------- ------------- ----------
Net debt(1) GBP36.4m GBP36.4m GBP35.0m
---------- ------------- -------------- ------------- ----------
Dividend per share 3.1p 3.1p 8.4p
---------- ------------- -------------- ------------- ----------
(1) Definitions and reconciliations of alternative performance
measures are provided in note 5
(2) Year to 31 March 2020: 53 weeks (Year to 31 March 2019: 52
weeks)
(3) See financial overview for more information on IFRS 16
impact
Year to 31 March 2020 Highlights
-- Resilient performance despite challenging markets and COVID-19
-- Eleventh consecutive year of revenue growth
-- COVID-19 significantly impacted the business in seasonally
important March; revenue reduced by GBP13.2m and underlying
operating profit by GBP4.6m
-- Underlying operating profit of GBP32.3m (2019: GBP34.4m),
ahead of previous guidance in April 2020
-- Operating profit of GBP17.8m (2019: GBP25.1m)
-- Underlying ROCE above hurdle rate at 16.8% (2019: 18.2%)
-- Strong cash generation maintained with net debt at GBP36.4m, Net Debt: EBITDA 0.9 times
COVID-19, liquidity and current trading
-- Decisive action taken to safeguard our employees, reduce
operating costs, minimise cash-burn and maximise liquidity
-- Covenant waivers at September 2020 and March 2021;
replacement maximum net debt covenant of GBP95m until June 2021
aligned with our operating scenario
-- Current trading is gathering momentum and ahead of our COVID-19 operating scenario
-- Year to date revenue to the end of May was 40% of last year,
with activity levels continuing to improve with month to date sales
in June running at c75% of last year
-- Net debt of GBP38.6m as at 7 June 2020
-- Strong balance sheet and current operating plan means Group
well positioned to withstand COVID-19 impact and to continue to win
market share
Martin Towers , Chair, commented:
"Norcros has recorded another year of revenue growth despite the
unprecedented and abrupt global impact of the COVID-19
(Coronavirus) pandemic and the continued uncertain economic and
political backdrop in our two main markets. The resilience of the
Group's business model and strategy is proving to be highly
effective as we operate in the most unpredictable trading
environment we have ever experienced . "
There will be a presentation today at 9.30 am for analysts via a
conference call. The supporting slides will be available on the
Norcros website at http://www.norcros.com later in the day.
Enquiries
Norcros plc Tel: 01625 547700
Nick Kelsall, Group Chief Executive
Shaun Smith, Group Finance Director
Hudson Sandler Tel: 0207 796 4133
Nick Lyon
Toby Andrews
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:
-- Triton - Market leader in the manufacture and marketing of showers in the UK
-- Merlyn - The UK and Ireland's No.1 supplier of shower
enclosures and trays to the residential, commercial and hospitality
sectors
-- Vado - A leading manufacturer and supplier of taps, mixer
showers, bathroom accessories and valves
-- Croydex - A market-leading, innovative designer, manufacturer
and distributor of high quality bathroom furnishings and
accessories
-- Abode - A leading niche designer and distributor of high
quality kitchen taps, bathroom taps, and kitchen sinks
-- Johnson Tiles - The leading manufacturer and supplier of ceramic tiles in the UK
-- Norcros Adhesives - Manufacturer of tile & stone adhesives, grouts and related products
-- Based in South Africa, Norcros operates under four brands:
-- Tile Africa - Chain of retail stores focused on ceramic and
porcelain tiles, and associated products such as sanitaryware,
showers and adhesives
-- Johnson Tiles South Africa - Manufacturer of ceramic and porcelain tiles
-- TAL - The leading manufacturer of ceramic and building adhesives
-- House of Plumbing - Market leading supplier of specialist plumbing materials
-- Norcros is headquartered in Wilmslow, Cheshire and employs
around 2,200 people. The Company is listed on the London Stock
Exchange. For further information please visit the Company website:
http://www.norcros.com
Chair's Statement
Overview
Norcros has recorded another year of revenue growth despite the
unprecedented and abrupt global impact of the COVID-19
(Coronavirus) pandemic and the continued uncertain economic and
political backdrop in our two main markets. The resilience of the
Group's business model and strategy is proving to be highly
effective as we operate in the most unpredictable trading
environment we have ever experienced.
Group revenue for the year was GBP342.0m (2019: GBP331.0m), 3.3%
higher than the prior year on a reported basis, 5.0% higher on a
constant currency basis and 2.3% lower on a like for like constant
currency basis. We estimate that the impact of COVID-19 on our
operations and customer demand in our key trading month of March
reduced revenue by GBP13.2m.
Underlying operating profit was GBP32.3m (2019: GBP34.4m),
reflecting the impact of COVID-19 which we estimate reduced
underlying operating profit by GBP4.6m, in part offset by the
first-year contribution from House of Plumbing acquired on 1 April
2019 and the beneficial impact of the implementation of IFRS
16.
It is pleasing that these results were ahead of our guidance
provided in our trading update of 1 April 2020.
COVID-19
The impact of COVID-19 has been significant, fast and
unprecedented. The safety and wellbeing of our staff has been
paramount in our considerations along with our key principle of
doing the right thing at the right time for all our key
stakeholders. Our operating model and business continuity plans
have proved to be highly effective during this period and our
people have responded admirably to this challenge.
We have responded swiftly after "lockdowns" designed to slow the
spread of the virus were announced in our major markets by
mothballing all of our facilities, safeguarding our employees and
operating our businesses with a skeleton staff working
predominantly from their homes. Whilst the majority of our customer
base suspended their operations, it is pleasing that all our
channels have now recommenced trading.
We have utilised all the relevant Government support in the UK,
Ireland and South Africa and moved immediately to implement a cost
reduction and cash conservation plan across the Group. The Group's
strong balance sheet coming into this crisis and the swift actions
taken to reduce costs and preserve cash, provide confidence that we
have sufficient liquidity to enable the Group to withstand an
extended period of reduced trading activity.
Dividend
Based on the unprecedented COVID-19 pandemic situation and the
lack of certainty in both the short term trading outlook and the
speed and timing of any longer term recovery, the Board believes
that preservation of cash needs to remain a priority at this time
and is therefore not proposing a final dividend for the year (2019:
5.6p per share).The interim dividend of 3.1p (2019: 2.8p) per
share, which was paid on 11 January 2020, makes a total dividend
for the year of 3.1p (2019: 8.4p) per share. The Board recognises
the importance of dividends to shareholders and intends to return,
at the appropriate time, to the progressive dividend policy that
was in place prior to the COVID-19 pandemic, and will take into
account the expectation of future cash flow generation and the long
term earnings potential of the Group.
Pension scheme
The net deficit relating to our UK defined benefit pension
scheme (as calculated under IAS 19R) has increased to GBP48.9m at
31 March 2020 from GBP31.6m at 31 March 2019, primarily as a result
of the impact of COVID-19 on the financial markets and asset
valuations.
We remain confident that our pension obligations continue to be
appropriately funded and well managed, with the Company due to pay
GBP3.3m this year into the scheme in accordance with the agreement
made with the Trustee in June 2019 based on the triennial valuation
dated 1 April 2018. The Company and the Trustee continue to work
constructively together at this uncertain time.
COVID-19 related impairment review
COVID-19 has significantly affected economic activity and
disrupted the business operations of the Group and of our customers
and suppliers. In line with Financial Reporting Council guidance
and as part of our year end processes we have undertaken an
assessment of the potential impact of COVID-19 on divisional
forecasts. Sensitivities have been applied which reflect the fact
that economic activity levels may remain subdued for some time, a
result of COVID-19 business disruption, ongoing social distancing
measures and business failures. As a result of this assessment it
has been necessary to recognise a GBP9m non-cash impairment charge
against the assets of Johnson Tiles UK. The business is the UK's
leading ceramic tile manufacturer and supplier and operates across
a broad range of distribution channels. This non-cash impairment
has no operational impact on the business and its ability to trade
and service its customers.
Governance
As Chair, one of my primary responsibilities is to ensure that
the Group operates to the highest standards in all aspects of
governance and risk management. Our aim at Norcros is to manage a
growing business effectively, while ensuring that proper operating
procedures and internal controls are maintained at all times.
Transparency is central to this objective and you will find more
detail about our approach and progress over the last year in the
Corporate Governance section of our Annual Report and Accounts.
This has been my last year as Chair of Norcros having served on
the board for nine years with eight of those as Chair. It has been
an immense pleasure and privilege to work with the board and the
management teams during this time. The Group has evolved
significantly over this period through the pursuit of a coherent
growth strategy encompassing both organic growth driven by new
product development and a series of successful and astute
acquisitions of market leading businesses which have complemented
the Group's stable of brands. It has also been particularly
pleasing to observe the development of our South African business
into a well-run, significantly profitable and cash generative part
of the Group.
Whilst leaving in a period of uncertainty, I am confident that
the Group is in a strong position to emerge from the current
situation and remains well positioned to deliver sustainable
growth. I would like to thank everybody at Norcros for the
dedication they have shown, with each and every one contributing to
the "Norcros DNA" that is such an important hallmark of our
business. I am confident that Mark Allen, in succeeding me as
Chair, will find the board and management team totally committed to
driving the growth strategy as soon as circumstance allows.
Acquisition of House of Plumbing
The Group's acquisition of the House of Plumbing business which
completed on 1 April 2019 is a further step in the Group's strategy
to expand its bathroom product portfolio and follows on from a
number of successful acquisitions in the last few years. During the
year the business has been successfully integrated and has
performed in line with our expectations, COVID-19 aside.
People
As is normal in my annual summary I would like to once more
thank the Group's employees who have helped to deliver upon the
Group's strategic objectives. However, this year I would like to
further thank and praise the staff for the way they have performed
throughout this unprecedented period that has thrown up new
challenges in performing the day-to-day job at a time of
significant uncertainty in their personal lives with the health of
family and co-workers of paramount importance.
Current trading
Current trading is gathering momentum and ahead of our COVID-19
operating scenario .Year to date revenues to the end of May were
40% of prior year with June month to date revenues running at c75%
of the same period last year. Net debt at 7June 2020 was GBP38.6m
(31 March 2020 GBP36.4m).
Summary
Prior to the impact of COVID-19 the Group had reported ten
consecutive years of revenue and underlying operating profit growth
to 31 March 2019, a testament to the strength of our businesses,
their market leading positions, strong brands, product offer,
well-established distribution channels and highly experienced
management teams. This was overlaid by a successful execution of an
ambitious and focussed growth strategy combined with a conservative
approach to funding and a resultant lowly leveraged capital
structure. The Group's conservative approach to funding its growth
strategy has ensured that we entered this period of uncertainty in
a strong financial position with sufficient liquidity to withstand
a significant period of reduced demand.
During the year the Group has continued to win market share in
its major markets despite conditions remaining challenging and up
until the impact of COVID-19 in March, remained on track to record
another year of revenue and underlying profit growth.
The current financial year will remain challenging as the Group
continues to navigate the exit from lockdown as our markets
recover. Notwithstanding, Norcros has a strong balance sheet and a
highly experienced management team that together with the Group's
leading market positions, strong brands, broad distribution
channels and the swift action taken in response to COVID -19 gives
the board confidence that the Group will return to growth as soon
as practicable.
Group Chief Executive's Statement
Overview
The unprecedented COVID-19 pandemic negatively impacted the
revenue and underlying operating profit of the business in the year
to 31 March 2020 due to the significant drop-off in customer demand
in the last two weeks of our key final period. Revenue for the year
to 31 March 2020 increased 3.3% to GBP342.0m (2019: GBP331.0m) on a
reported basis. This reflected the first-time contribution of the
acquired House of Plumbing business in South Africa alongside
robust revenue growth in particular at Merlyn and Croydex, offset
by an estimated GBP13.2m revenue reduction in March as our
customers reacted to government "lockdowns" designed to slow the
spread of the virus. Underlying operating profit decreased 6.1% to
GBP32.3m on the prior year (2019: GBP34.4m). We estimate that
COVID-19 held back underlying operating profit by an estimated
GBP4.6m in the final period due to the lost revenue and the costs
involved in mothballing our operations.
Year to March 2020
Group revenue for the year increased by 3.3% to GBP342.0m (2019:
GBP331.0m) on a reported basis, 5.0% on a constant currency basis,
and decreased 2.3% on a like-for-like constant currency basis.
Group underlying operating profit was GBP32.3m, 6.1% lower than the
GBP34.4m recorded in the prior year.
The impact of the COVID-19 pandemic on our seasonally important
month of March was significant with demand, almost immediately,
reducing to minimal levels, as our customers focussed on the safety
of their staff and on how they could best mitigate the impact of
COVID-19 on their business. We estimate that the financial impact
on the year to 31 March 2020, and specifically the month of March
2020, was a reduction in revenue of GBP13.2m and in underlying
operating profit of GBP4.6m. Positively though, our cash
collections remained strong and we finished the year with net debt
of GBP36.4m and a leverage ratio of 0.9 times.
Revenue in the UK was GBP225.4m for the year (2019: GBP228.1m)
down 1.2% on prior year principally reflecting the impact of
COVID-19. We estimate the impact in relation to COVID-19 in the UK
was to reduce revenue by GBP9.4m, a reversal of which would have
resulted in a 2.9% increase on prior year. The year on year
increase to the end of February, excluding the final COVID-19
impacted month of March, was 1%. This 1% underlying increase
reflected a robust performance in Merlyn, Croydex and Vado mainly
offset by the customer destocking and restructuring which impacted
Triton's first half performance, the impact of which was gradually
being recovered prior to March.
UK underlying operating profit for the year was lower than the
prior year at GBP24.4m (2019: GBP26.5m) mainly due to the COVID-19
impact that we estimate reduced profit by GBP3.0m. The underlying
operating margin was 10.8% (2019:11.6%) as a consequence.
Revenue in South Africa grew by 19.3% in constant currency and
by 13.3% on a sterling reported basis to GBP116.6m (2019:
GBP102.9m) reflecting the acquisition of the House of Plumbing
business at the start of the year, and decreased 4.9% on a like for
like constant currency basis (excluding House of Plumbing). We
estimate the impact in relation to COVID-19 in South Africa was to
reduce revenue by GBP3.8m, a reversal of which would have resulted
in a 23.3% increase on prior year at constant currency, with a 1.4%
decrease on a like for like constant currency basis.
Johnson Tiles South Africa, our tile manufacturing business,
performed robustly and has grown market share following the
successful investment in additional capacity and plant improvements
in the first half of the year. Tile Africa, our leading retailer of
wall and floor tiles, adhesives, showers, sanitaryware and bathroom
fittings and TAL, our market leading adhesive business suffered
from lower market activity as the South African economy slowed
during the year, in addition to the impact of the COVID-19 lockdown
measures in March.
The acquisition of the House of Plumbing business which
completed on 1 April 2019 for an initial consideration of ZAR 172m
(GBP9.1m) on a debt and cash free and normalised working capital
basis, further reinforces the Group's strong positions in the
commercial and specification segments of the South African market.
The business operates from three branches in South Africa located
in Johannesburg (which is also where the head office is based),
Pretoria and Lephalale and is led by an experienced management team
who have remained with the business. House of Plumbing reported
revenue for the year 1% higher than the prior year
(pre-acquisition) on a constant currency basis which is a strong
performance against the backdrop of COVID-19 disruption and the
overall market challenges in South Africa.
South African underlying operating profit for the year was in
line with the prior year performance, reflecting the first-time
profit contribution of House of Plumbing (GBP1.8m) and the effect
of IFRS 16 (GBP0.4m) offsetting the impact of COVID-19 (estimated
to be GBP1.6m), weaker rand (GBP0.4m) and other market challenges.
Underlying operating margin was 6.8% (2019:7.7%) reflecting the
COVID -19 impact and the more competitive market for TAL with a
number of new market entrants and the challenging market and
economic conditions experienced in the retail and commercial
sectors impacting TAF in particular.
The Group has a strong balance sheet with net debt of GBP36.4m
(2019: GBP35.0m), and leverage of 0.9 times underlying EBITDA
(2019: 0.8 times). This reflected a strong cash performance as the
Group self-funded the GBP9.1m acquisition of House of Plumbing in
the year.
COVID-19 and trading impact
In February and March 2020, COVID-19 spread and became a
worldwide pandemic that affected not only the ability of businesses
to source and supply goods and services but also global demand for
products, as experienced in our main markets of the UK and SA, as
unprecedented lockdowns were actioned by governments across the
world.
The UK Government ordered a lockdown on 23 March that is still
partly in place today. Many of the retailers we sell to promptly
closed their stores and the vast majority of the UK's house
building sites were closed, including all of those of the national
developers we trade with. Virtually all of the commercial contract
building sites were also closed with social housing refurbishment
also coming to a complete standstill. Initial trading was minimal,
with some limited internet-based trading and construction related
sales. Year to date revenues to the end of May were 40% of prior
year with June revenues running at c75% of the same period last
year. The lockdown is now in the process of being eased and our
operations have been reopening since May.
The South African Government issued a directive on 23 March 2020
requiring a 21-day national lockdown, effective midnight 26 March
2020 to midnight 16 April 2020 in order to contain the spread of
COVID-19. This was extended to 1 May 2020 and has subsequently
started to ease restrictions which has allowed us to reopen our
manufacturing and retail operations. The country still remains on
partial lockdown with movement and trade restricted to certain
activities, with sales of our products and services currently
unrestricted.
We are therefore currently in a "restart" phase in both of our
main markets and we are working with our employees, customers and
suppliers to ensure we can continue to operate safely and in
accordance with the relevant guidelines. We also remain focussed on
cost alignment and cash preservation and are reopening our
facilities and capacity as demand recovers.
Due to the sharp decline in revenue across our businesses in
late March a number of immediate actions were implemented which are
described below.
People and Operations
The safety and wellbeing of our staff has been paramount in our
considerations along with our key principle of doing the right
thing at the right time for all our key stakeholders. Comprehensive
business continuity plans were enacted swiftly and mitigated the
immediate impacts of COVID-19, including ensuring that those
employees who could fulfil their jobs from home were able to do
so.
In both the UK and South Africa we suspended our main
manufacturing and assembly operations during March in a controlled
way to safeguard our employees. During this time over 80% of the
Group's workforce were furloughed (or the equivalent in SA and
Ireland) and senior management teams across the Group volunteered
temporary salary reductions. We are grateful for their continuing
support and contribution at this time of great uncertainty.
Cash preservation and cost reduction
Once the severity of the pandemic in our major markets was
apparent, we took immediate action across the business to preserve
cashflow and reduce costs. We have taken advantage of the
Government furlough schemes, tax payment deferrals and rent
deferrals totalling over GBP10m in the first quarter of this year.
Additionally, we have withdrawn the final year-end dividend and
have ceased all non-essential capital expenditure. At the same
time, we have been focussed on minimising the rate of cash burn by
reducing costs and eliminating any discretionary expenditure. We
have also frozen all pay throughout the Group with reviews deferred
and secured voluntary reductions of 20% in the fees or salaries of
the plc board members, Group leadership and senior management teams
for the first quarter to end June 2020. The result of these
measures is that the current cash burn in our operating scenario is
approximately GBP5m per month compared to the unmitigated initial
estimate of broadly double this level.
Direct Government support
We have accessed the coronavirus job retention scheme (CJRS) in
the UK with circa GBP2m of support received in April and May in
respect of approximately 70% of UK staff. Further claims are
expected to be made as staff remain furloughed in the coming months
as we continue to align our cost base commensurate with the level
of demand. The South African Government support for the employed
scheme and a similar scheme in Ireland have also been accessed and
we will continue to utilise these support measures as
appropriate.
We have deferred VAT and PAYE liabilities in the UK due for
payment in April, May and June and will agree a revised payment
date with HMRC at the end of June. We have also deferred the
payment of UK business rates due in May and June.
We are keeping under review the Group's eligibility for the
COVID-19 Corporate Finance Facility (CCFF) and Coronavirus Large
Business Interruption Loans Scheme (CLBILS) but have held back from
progressing any submissions in respect of either funding scheme as
we have sufficient liquidity available based on our current
operating scenario.
Funding and Liquidity
The Group is in a strong financial position and has access to a
GBP120million committed RCF financing facility, maturing in
November 2022, plus a GBP30million accordion facility and local
facilities in SA. The Group has run a number of financial scenarios
and is confident that it has sufficient liquidity to withstand an
extended downturn in the coming year. Whilst the Group has
significant liquidity headroom, it is possible that the economic
recovery out of lockdown will be both slow and protracted and could
in such circumstance lead to a significant reduction in
profitability. In this scenario it is possible that the financial
covenants, Net Debt: EBITDA and interest cover, in our RCF facility
could be breached. As a result, we have had constructive
discussions with the UK banking group who have agreed to covenant
waivers at September 2020 and March 2021. We have agreed a
replacement Maximum Net Debt covenant of GBP95m to be tested
quarterly until June 2021. We believe this will provide the
necessary headroom to allow us to continue to operate the business
without damaging its market positions and to accommodate a slower
than expected recovery. We are appreciative of the strong and
prompt support received from our banking group at this time.
Strategy
In April 2018 we launched a refreshed strategy for growth and a
2023 vision for the Group, including an updated set of strategic
targets. During the year we continued to make good progress against
the strategic targets which were: to increase Group revenue to
GBP600m 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.
Group revenue in the current year in constant currency increased
by 5.0% to GBP342.0m. Our progress against the strategic targets
benefited from the first-time contribution of House of Plumbing
(HoP) acquired on 1 April 2019 which added revenues of GBP23.7m in
the year. This acquisition is a further step in the Group's
strategy to expand its bathroom product portfolio and follows on
from a number of successful acquisitions in the last few years. The
most significant event in the final quarter of the year has been
the impact of COVID-19 which initially impacted the Group's supply
chain in January/February followed by the sharp reduction in
revenues in March as our customers responded as governments around
the world imposed lockdowns designed to slow the spread of the
virus. We estimate that this reduced revenues by GBP13.2m.
On a sterling reported basis, Group revenue derived outside of
the UK was 43.1% (2019: 41.7%), reflecting a full year of House of
Plumbing's revenues in South Africa and in constant currency terms,
from when the targets were set, 44.8%.
We continue to focus on the Group's underlying return on capital
employed which this year was 16.8% on a reported basis and 16.4% on
a pre-IFRS 16 basis (2019: 18.2%), exceeding our strategic target
of 15% despite the impact of COVID-19. Adding back our estimate of
the COVID-19 impact on underlying operating profit of GBP4.6m, the
reported underlying return on capital employed would have been
19.2% (18.8% on a pre-IFRS 16 basis), ahead of last year's
performance.
The Group's strategy remains valid and whilst the timing of its
full delivery may, in light of the COVID-19 disruption need to be
reassessed, we remain committed to it and are convinced that more
opportunities to leverage our market positions and knowledge of the
sector will emerge in the medium term. We are focussed in the short
term on navigating the Group through these turbulent and
extraordinary times but looking forward, the combination of our
successful record of targeting, acquiring, integrating and
subsequently growing quality businesses within the Group, together
with our leading customer service, best in class quality and
innovative product development, gives the board confidence that our
strategic targets remain relevant in the context of creating value
for our shareholders.
Summary and outlook
The Group was on course to deliver its eleventh consecutive year
of revenue and underlying operating profit growth despite the
slowdown experienced in the second half in South Africa.
Unfortunately, the significant impact of COVID-19 in the final
quarter changed the trading outlook materially, particularly for
Norcros in March, its key trading month.
We reacted swiftly to adapt our businesses to operate safely and
as cost effectively as possible in an extended period of reduced
activity as government's around the world imposed lockdowns which
reduced customer demand for our products significantly, almost
overnight, as our customers temporarily closed their operations to
safeguard their staff and mitigate the impact of COVID-19 on them.
We are confident that the actions we have taken to reduce all
non-essential expenditure, utilising in full all relevant
Government support, including the furloughing (or equivalent) of
more than 80% of our total workforce around the world, have ensured
that the Group has sufficient resources available to it to ensure
we can withstand an extended period of reduced trading.
We promptly moth-balled all of our manufacturing facilities both
in the UK and South Africa where the lockdown was total and
continued to service any customer demand using a skeleton
workforce. As the lockdowns are now slowly being relaxed we are
monitoring customer demand and are re-opening our facilities as
demand builds. We will be cautious as to how we manage this, with
employee safety paramount, ensuring that we align operational
capacity with demand, with continued focus on cost and cash
preservation until the outlook becomes more certain. Accordingly,
we are currently considering a number of restructuring programmes
across the Group which are likely to lead to a reduction in
employee numbers of up to 10% of our worldwide headcount.
From a funding perspective, the drawing down of cash from our UK
bank facilities has ensured an appropriate level of liquidity both
in the lockdown period and as we emerge into the recovery stage.
Subsequent to this we have renegotiated our banking covenants which
will provide the necessary headroom and flexibility to continue to
operate the business optimally and in pursuit of our strategic
aims.
Norcros has a strong balance sheet and a resilient business
model. The board is confident that these attributes, in conjunction
with the benefit of the management actions taken to date and to be
implemented in response to the impact of the global COVID-19
pandemic, will ensure Norcros successfully navigates through the
current uncertainty and emerges from it in a strong competitive
position. Furthermore, the board continues to believe that the
Group's strategy remains valid, is underpinned by its leading
market positions, strong brands and broad distribution channels,
and will enable the Group to return to growth as soon as
practicable.
Business performance
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
-------------------------------- -------- ---------
Revenue 342.0 331.0
-------------------------------- -------- ---------
Operating profit 17.8 25.1
IAS 19R administrative expenses 1.5 1.5
Acquisition related costs 4.0 3.8
Exceptional operating items 9.0 4.0
-------------------------------- -------- ---------
Underlying operating profit 32.3 34.4
-------------------------------- -------- ---------
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
-------------------------------------------------- -------- ---------
Revenue - UK 225.4 228.1
Revenue - South Africa 116.6 102.9
-------------------------------------------------- -------- ---------
Revenue - Group 342.0 331.0
-------------------------------------------------- -------- ---------
Underlying operating profit - UK 24.4 26.5
Underlying operating profit - South Africa 7.9 7.9
-------------------------------------------------- -------- ---------
Underlying operating profit - Group 32.3 34.4
-------------------------------------------------- -------- ---------
Underlying operating profit margin - UK 10.8% 11.6%
Underlying operating profit margin - South Africa 6.8% 7.7%
-------------------------------------------------- -------- ---------
Underlying operating profit margin - Group 9.4% 10.4%
-------------------------------------------------- -------- ---------
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
-------------------------------------------------------- -------- ---------
Underlying operating profit 32.3 34.4
Depreciation of right of use assets 4.5 -
Lease payments (5.0) -
Depreciation and underlying amortisation (owned assets) 6.8 6.9
-------------------------------------------------------- -------- ---------
Underlying EBITDA 38.6 41.3
Net working capital movement (4.8) (2.1)
Share-based payments 0.1 1.2
Operating profit impact of IFRS16 0.5 -
Depreciation of right of use assets 4.5 -
Cash settlement of share options (0.5) (0.6)
-------------------------------------------------------- -------- ---------
Underlying operating cash flow 38.4 39.8
-------------------------------------------------------- -------- ---------
Lease payments (5.0) -
-------------------------------------------------------- -------- ---------
Underlying operating cash flow (pre-IFRS 16) 33.4 39.8
-------------------------------------------------------- -------- ---------
2020 2019
IFRS 16 Pre-IFRS
Basis 16 basis
-------------------------------------- -------- ---------
Basic underlying earnings per share 28.4p 32.1p
Diluted underlying earnings per share 28.2p 31.7p
-------------------------------------- -------- ---------
Business review - UK
In the UK, revenue was 1.2% lower than the prior year at
GBP225.4m (2019: GBP228.1m) and underlying operating profit also
lower by GBP2.1m to GBP24.4m (2019: GBP26.5m). These results were
impacted by the COVID-19 related slowdown in customer demand and
the closure of our UK operations in the important final two weeks
of March estimated to have reduced revenue by GBP9.4m and
underlying operating profit by GBP3.0m. We estimate UK revenue
would have grown by 2.9% on prior year, adjusting for the impact of
COVID-19, a resilient performance in an already challenging
market.
UK revenue to the end of February, prior to the COVID-19
impacted March, was up 1% on prior year with domestic revenues 2.9%
higher driven by strong performances in Merlyn, Croydex, Vado,
Johnson Tiles and Norcros Adhesives, only marginally less than the
first half like for like domestic revenue growth of 3.4%. This was
a resilient domestic performance and reflected share gains in a
number of important distribution channels.
Triton
Revenue at Triton, the UK's market leader in showers, was 14.1%
lower in the year at GBP48.6m (2019: GBP56.6m). The COVID-19 impact
on revenue in March was estimated as GBP4.3m. Revenue to the end of
February, prior to the COVID-19 impact, was 9% lower than the prior
year mainly due to the major customer destocking and restructuring
programmes which significantly impacted revenues in the first half.
Despite this, Triton maintained its electric shower market share
and leadership position in the UK.
For the full year, UK revenue was 15.3% lower, with trade sales
down 23% and retail down 10.9%.
Export revenue was 8.7% below last year reflecting a softer
trading environment in Eire in the first half, Triton's main
international market and the COVID-19 impact on revenue in
March.
New products continue to be a key driver in maintaining Triton's
long term leading market position. During the year the most notable
new product launch was that of the AS2000R silent running power
shower, awarded the international Quiet Mark approval in
recognition of its low noise and high performance and developed to
meet growing consumer demand for powerful showering products that
won't wake up family members during their morning routine.
During the past year Triton continued to see growth in the
specification and contract market sector, investing in attending
some of the country's leading trade exhibitions. Triton was a
sponsor partner at the CIH Housing conference in June 2019,
(Europe's largest housing event), and Future-Build at London's
ExCeL and Homes exhibition in early March 2020. As part of its
ongoing drive to be the supplier of choice Triton has also
continued to look at improvements to minimise its environmental
impact with programmes focussed on reducing water, electricity and
gas usage and initiatives on packaging, paper and plastics
reduction.
Triton also continued to improve and extend the technical
training offered to the trade professional, increasing the number
of free courses delivered at its Nuneaton headquarters whilst also
working with colleges around the UK to support young people.
Triton has a robust and supportive supply chain, good levels of
finished goods and raw materials and will respond quickly as the
COVID-19 lockdown lifts.
Triton again delivered strong underlying operating profit
margins along with excellent cash conversion in the period and we
are confident that Triton's brand strength and product offering
will continue to deliver excellent returns in the post-COVID-19
market.
Merlyn
Merlyn, the UK and Ireland's No. 1 supplier of shower enclosures
and trays to the residential, commercial and hospitality sectors
performed strongly and recorded revenue of GBP42.5m (2019:
GBP39.5m), growth of 7.6% on the previous year despite the impact
of COVID-19 that reduced revenue in March by an estimated GBP0.9m.
The business provides a quality product offering and customer
centric service with the brand well placed to benefit from the
growing emphasis on bathrooms and the premiumisation trend within
the home.
UK revenue grew by 8.4% with a particularly strong performance
in the retail sector where revenue grew 15.6% driven by strong
sales of the new Arysto 6 and 8 and MBox product ranges, supported
by new product launches of the IQ / Easy, Merlyn Black and the
Arysto 8 Infold and Inline ranges which were instrumental in
achieving strong growth in the independent retailer and buying
group segments. The ongoing investment in customer and staff
training and targeted investment in the UK Sales team has supported
this growth during the year.
The UK Trade sector contracted by 0.7%, reflecting destocking
and restructuring programmes in a number of the National Merchants
in the period
Merlyn won a number of new major specification contracts in the
year including London & Quadrant, Vistry Homes, Avant Homes and
Stay City and retained a number of contracts which included Redrow,
among others.
Exports grew by 2.0% year on year with the Irish market
continuing to recover following strong growth last year whilst the
French market also recorded good growth.
New product development remains a core component of Merlyn's
growth strategy and this has continued in the current year with new
product vitality of 28% (2019: 23%) being achieved with a number of
new product introductions including Arysto X, Arysto Colour, Revo,
slip resistant trays and a new bath screen which were all launched
at KBB in March 2020.
Merlyn has continued to invest in its workforce during the year,
with additional sales resource recruited to target the
specification and housebuilder segments, and in customer service
and training. Merlyn also achieved ISO14001:2015, ISO9001: 2015 and
ISO45001: 2018 in the period, further enhancing its quality
credentials.
Merlyn recorded a strong performance with an underlying
operating profit ahead of last year and strong cash conversion
maintained despite the impact of COVID-19.
Vado
Vado, our leading manufacturer of taps, mixer showers, bathroom
accessories and valves, recorded revenue of GBP42.3m for the year
(2019: GBP41.4m), 2.2% higher than the previous year despite the
March impact of COVID-19 which we estimate reduced revenue by
GBP1.1m, as a result of the sharp decline in demand in the last few
weeks of the year.
UK revenue grew by 5.6% on prior year with growth mainly in the
retail sector, up 11.8%, with strong performances in the existing
client base being augmented with some new customer wins. We
continue to see the benefits of the successful roll out of market
leading point of sale material whilst the award of an OEM supply
contract from the Fortis Buying Group further accelerated growth on
prior year.
In the trade sector revenue was 1.7% higher with new contract
wins at Everything Water, Countryside and CALA Homes. Investment in
new product ranges generated additional revenue and margins in the
year, particularly the successful launch of the 'Individual' range
of coloured finishes. This range enabled us to win new
specification contracts for new build projects, both in the year
and rolling forward into the current year.
Export revenue declined by 10% on the prior year.
Notwithstanding, revenues grew in Africa through the year although
lower sales of PEX plumbing products in the Middle East held back
progress.
Vado launched three major products in the year that contributed
to its new product vitality rate of 32.1% (2019: 35.7%). The launch
of the 'Individual' range which capitalises on the significant
demand for bathroom products in coloured finishes significantly
exceeded expectations. Vado launched "Booth and Co", a new
sub-brand aimed at the growing trend in "traditionally styled"
brassware which won a number of new trade contracts as well as
growing in retail. Vado also launched the "Axces" range which
contains five new ranges aimed at the higher-volume mid-market
sector, which has been well received in its target retail sector
and is now opening up opportunities in social housing, student
housing and care homes and on new construction projects. Further to
these key successful launches, Vado continues to drive new product
development with further product launches planned for the first
half of the current year which will reinforce Vado's position at
the forefront of market trends.
Vado successfully implemented a new Warehouse Management System
in the year which significantly reduced picking errors and improved
stock accuracy with the development of a new suite of KPIs to
better monitor and track operational efficiencies in warehousing,
assembly and packing.
Underlying operating profit was in line with the prior year and
cash generation remained strong despite the impact of COVID-19.
Croydex
Croydex, our market leading, innovative designer, manufacturer
and distributor of high-quality bathroom furnishings and
accessories, recorded revenue of GBP23.7m (2019: GBP21.7m) for the
period, which was 9.2% higher than the prior year despite the
impact of COVID-19 in March which reduced revenue by an estimated
GBP0.4m.
UK revenue was 10.9% higher than the prior year with both the
Retail and Trade channels showing growth. The UK retail market
remains challenging, particularly in DIY where the Kingfisher
unification programme and Homebase transformation with continued
lack of credit insurance support continued to impact. Despite this
and the March COVID-19 impact, retail sales were up 10.1% on prior
year driven by a number of new listings and active promotions,
including new category wins with Argos and range growth with John
Lewis and The Range.
Revenue in the UK trade sector grew strongly again,13.8% ahead
of prior year. The UK trade sector, although challenging, provides
opportunities in both specification and increased on-line activity
with growth driven by additional listings with Screwfix, category
rollouts into Toolstation, a new category win with Selco and
additional online trade penetration through Plumbworld. The
business continues to invest in its digital strategy to support
sales growth both domestically and internationally.
Export sales were in line with the prior year with some
continued growth in Europe, however this has been negated by a
decline in revenue in the US where sales were impacted by the
introduction of trade tariffs and some customer destocking,
particularly at Home Depot and Amazon. We continue to supply toilet
seat promotions to Germany via Toom and have commenced supply to
OBI and Leroy Merlin in Italy via our distribution partner,
utilising our unique IP that helps win new market share.
Further new product development has played a major role in
driving new sales opportunities, particularly around patented
innovations with product vitality at 33.4% (2019: 41.4%). The new
Flexi-fix toilet seat range is performing well with interest now
being shown on an international level and e-Commerce sales also
benefitting. The "Rust-Free" storage solutions, "Flexi-Fix"
accessories and "Hang & Lock" cabinet collections have
supported several new international retail initiatives in both
Europe and the US. This year's development activity focussed on new
cabinet hanging systems (surface and recessed mounting) targeted at
the US market, new "StickNLock" shower rod technology and unique
reversible grab bars to meet the ADA (American Disability
Association) and housebuilding standards.
Croydex has very good relationships with its suppliers, many of
them in China, which helped to minimise the disruption when
COVID-19 first impacted during the Chinese New Year, with suppliers
now back to full operational levels.
Underlying operating profit was ahead of the prior year and cash
generation remained strong despite the impact of COVID-19.
Abode
Abode, our leading designer and distributor of high-quality hot
water taps, bathroom brassware, kitchen taps and sinks, recorded
revenue of GBP14.8m for the year, 8.6% lower than the prior year
(2019: GBP16.2m). The COVID-19 revenue impact in March was
estimated at GBP0.8m, resulting in a 3.7% estimated decline in
revenue disregarding COVID-19.
Abode's strong year on year revenue growth since its acquisition
in 2016 was impacted this year by the un-winding of some of the
Brexit related stock build into key customers in the prior year and
the sharp decline in March. Despite this the business continues to
make good progress and the Pronteau range was significantly
strengthened by the launch of a 'slimline' tap family at a lower
price-point than comparable competitor products and further
strengthened by a second generation boiler which provides greater
simplicity of installation and maintenance augmented by an
installation service offered in conjunction with Triton. These
designs are aimed at the mass market and have potential to
re-define the category with the combined proposition launched at
the KBB exhibition in March 2020.
Underlying operating profit and cash performance were both lower
than the previous year, reflecting the second half challenges and
the impact of COVID-19.
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 GBP41.7m (2019: GBP41.4m), 0.7%
higher than the prior year. This result was significantly impacted
by COVID-19 in March, estimated to have reduced revenue by GBP1.4m,
without which Johnson Tiles would have recorded a 4.1% increase in
revenue on the prior year.
UK revenue was 4.6% ahead of the prior year reflecting share
gains and a robust performance in a market that we believe has
declined by circa 5%. UK retail revenue was 10.5% higher than the
previous year with strong growth in Wickes driven by the full year
effect of the highly successful Rigid Luxury Vinyl Tiles range, and
the introduction of four new UK manufactured tile ranges in B&Q
(Urban Concrete, Lofthouse, Perla and Haver) more than offset the
decline from the One Kingfisher product unification programme.
UK trade sector revenue was in line with prior year with the
result being impacted by COVID-19 in March due to the rapid closure
of building sites severely impacting the purchases made by our
distributors. This again reflected a strong performance in a market
that continues to be affected by the significant slowdown in the
social housing refurbishment market.
The Johnson Tiles customer focused service model coupled with
market leading specification expertise has led to good progress in
the house builder and specification market. This has resulted in
gaining specifications to supply a number of major contracts
including: London and Quadrant, Hilton Garden Inn in Hanley, UPS
East Midlands Airport Hub, Quest Hotel in Liverpool, Balfron Tower
in London, South Thames College, Riverside Housing (national deal),
BUPA, LNPG (a national purchasing deal for private landlords),
Kelaty House student accommodation in London and Clayton Hotel in
Manchester . Additionally, the business continued to supply a
number of national house builders including Barratt David Wilson,
Persimmon Charles Church, Redrow, St Modwen Homes, Lovell Homes and
Telford Homes.
Export revenue, which accounts for approximately 8% of overall
revenue, was 30.4% below last year. This was partly due to weak
trading conditions and the impact of COVID-19 on Leroy Merlin in
France and partly our decision to exit the low margin markets in
the Middle East. Encouraging progress is being made with Bauhaus in
Germany with new product introductions delivering year on year
growth and with Kesko in Scandinavia where new ranges were
introduced for the first time.
We have set ourselves the objective of taking the market leading
position of removing all single use plastics from our products.
This has significant environmental and commercial benefits and is
highly valued by our customer base as it makes our products plastic
free, reducing our plastic usage from 100 tonnes per annum to zero
and saving around 260 tonnes of CO2 emissions every year.
The business reacted swiftly to COVID-19 and closed its
manufacturing operations whilst actively promoting the message that
we are still open for business, fulfilling orders from stock and
maintaining contact with both existing and potentially new
customers. We will continue to monitor demand levels now that UK
house building and DIY retailers continue to open up as the
lockdown is lifted. The key decision about when to re-start
manufacturing will be dependent on the sustainability of demand
levels.
Cash generation remained strong in the year with profit impacted
by the COVID-19 impact in March.
Norcros Adhesives
Revenue at Norcros Adhesives, our UK manufacturer and supplier
of tile and stone adhesives and ancillary products, was 4.4% higher
at GBP11.8m (2019: GBP11.3m) despite the impact of COVID-19 that
negatively impacted revenue by an estimated GBP0.5m in March. The
revenue growth reflected higher domestic revenues offset by a
weaker performance in the Middle East.
Revenue in the UK was up 14.4% on prior year. UK Retail revenue
was 24.5% ahead of prior year reflecting the benefit of new product
lines introduced into a number of key customers during the second
half of the prior year, which also carried an improved margin. UK
Trade revenue was 5.0% ahead of last year, reflecting improvement
from the Resilient channel combined with growth in the established
Fixer accounts. Revenue to distributors declined by 3.9% on last
year reflecting a shift in market share, however we have continued
to develop our specification activity which underpins this sector
and pleasingly we have successfully renewed the Barratt Homes
contract until 2021.
Our Middle East operation was impacted by restructuring during
the period, and a new General Manager was appointed in November
2019. The disruption affected revenues and new business
development, however we are now well placed to move the business
back into growth. Despite this, the business supplied some major
projects in the region including the prestigious Mall of Oman.
New product initiatives include several formulation improvements
which are designed to optimise product performance whilst
delivering improvements to gross margin. The business has also
developed a new range of products for external application which we
are in the process of launching. These new products support the
growing tiling trend in garden areas following developments in
porcelain tile manufacture that require a more complex adhesive
system.
In terms of environmental performance, the business has
successfully renewed both its ISO9001 and ISO14001 accreditations
to the latest (2015) standards and maintained Gold Standard from
the Supply Chain Sustainability School (which is partnered with the
housebuilder Barratt).
Despite the overall revenue growth, the restructuring and
resulting disruption in the Middle East meant the business made a
small loss in the year in line with last year. The investments made
in the business and the actions taken in the Middle East operation
leave the business better positioned to return to profitability as
markets recover post-COVID-19.
Business review - South Africa
Revenue grew by 19.3% in constant currency and by 13.3% on a
Sterling reported basis to GBP116.6m (2019: GBP102.9m) reflecting
the acquisition of the House of Plumbing business at the start of
the year, offset by the impact of COVID-19 in March estimated at
GBP3.8m. Like for like constant currency revenue decreased by 4.9%
with the business performance to the end of February, pre the COVID
19 impact, 4.4% behind prior year on a like for like constant
currency basis reflecting the difficult economic environment and
lower levels of activity.
Underlying operating profit was in line with prior year
performance of GBP7.9m (2019: GBP7.9m) reflecting the first-time
profit contribution of House of Plumbing and the GBP0.4m effect of
IFRS 16 offsetting the impact of COVID-19, estimated at GBP1.6m,
and other market challenges, which included a sharp contraction in
the Tile Africa contracts business, a decrease in TAL exports and
national power rationing (load shedding) in the second half. The
rand depreciated against sterling in the year with the average
exchange rate 5.7% weaker at ZAR 18.97 (2019: ZAR 17.95) which had
an adverse GBP0.4m impact on underlying operating profit. The
return on sales of 6.8% compared to 7.7% in the prior year.
Market conditions have remained challenging in the past year,
with the construction sector having been in recession since late
2017. COVID-19 is likely to slow any economic recovery in 2020/21
and as such there is a key focus on efficiencies, productivity,
cost reduction and cash preservation. A restructuring programme
which has recently been announced is likely to result in a
reduction in employees by circa 10%, the cost of which will be
incurred in the current year.
Johnson Tiles South Africa
Johnson Tiles South Africa, our tile manufacturing business,
recorded revenue of GBP14.0m (2019: GBP15.0m) a 6.7% decrease on a
reported basis and 1.4% lower on a constant currency basis. The
COVID-19 impact in March is estimated to have reduced revenue by
GBP0.7m. In the year to February, prior to the COVID-19 impacted
March, the business recorded 0.4% constant currency growth on the
prior year following the investment in additional capacity and
plant improvements in the first half of last year. Despite the
weaker second half the overall performance for the year was
resilient in the context of a challenging market environment,
ongoing load shedding and competitor capacity increases which came
online during the year.
Johnson Tiles South Africa continued to perform well in retail
as well as the commercial housing project market, having secured
specifications in leading developments including De Zicht (432
units) in Cape Town and Amberfield 47 (590 units) in Pretoria. The
business continues to develop a new product pipeline and expects
that new product launches will help drive improved yields in the
year ahead.
Underlying operating profits were in line with prior year.
Tile Africa
Tile Africa, our leading retailer of wall and floor tiles,
adhesives, showers, sanitaryware and bathroom fittings had a
challenging year with revenue of GBP56.8m (2019: GBP63.9m) a 11.1%
decrease on a reported basis and 6.4% lower on a constant currency
basis. The COVID-19 impact in March is estimated to have reduced
revenue by GBP1.7m.
The commercial contracts part of the business has been
particularly impacted in the year because of lower market activity
levels rather than the loss of any key customers. Despite the lower
overall market activity, Tile Africa nevertheless supplied a number
of prestigious projects during the year including the Sasol
Boulevard Mall (3,000 m(2) ), Emperor's Gate Montana Housing
Development (20,000m(2) ) and the "55" on Southdale Housing
Development (3,500m(2) ).
The retail business was also held back by range management
decisions and our imported stock availability. However, our ability
to offer a full basket of wall and floor coverings, including
luxury vinyl & laminates and bathroom products continues to
drive ongoing and sustainable market share growth. Tile Africa
relocated and upgraded the Port Elizabeth store during the period
and currently operates 32 owned stores and 2 franchise stores. Our
flagship Greenstone store is in the process of being upgraded to
display a full range of alternative floor and wall coverings. We do
not plan to open any new stores in the year ahead as we focus on
driving improved performance through our existing base.
The revenue decline saw operating profit levels decline in the
year which was partially offset by early cost management
interventions. In anticipation of the economic recovery in SA being
potentially slow and protracted, management is continuing to review
the cost base and a number of further interventions are actively
being considered.
TAL
TAL, our market leading adhesive business recorded revenue of
GBP22.1m (2019: GBP24.0m) a 7.9% decrease on a reported basis and
3.1% on a constant currency basis with the decline attributable to
lower export sales mainly due to the ongoing economic downturn in
Zimbabwe, a decline in our domestic South African market and the
COVID-19-related shutdown in March. The COVID-19 impact in March is
estimated to have reduced revenue by GBP1.0m.
Despite this, TAL was the preferred partner in a number of major
construction projects during the period, including the new Deloitte
head office (3,500m(2) ), the 1,512-unit Polofields residential
development and the Gateway building in Waterfall (2,500m(2) ). TAL
is making good progress on the product development front, with a
strong focus on providing integrated fixing solutions in the
adjacent and growing non-tile, floor and wall covering product
categories. In this regard, TAL provided a bespoke fast track
terrazzo-look floor, durable enough to accommodate the high volume
of traffic for the food court at Greenstone Mall, one of South
Africa's biggest shopping malls in Edenvale, Gauteng.
Increased competition, mainly from new entrants, and raw
material cost increases negatively impacted margins in the year
which together with the revenue decline resulted in lower operating
profits in the year, however cash generation was in line with prior
year.
House of Plumbing
On 1 April 2019, Norcros South Africa completed the acquisition
of House of Plumbing. House of Plumbing is a market leading
supplier of specialist plumbing materials focused on the
specification and commercial segments of the market. This
acquisition complements the Group's strong positions and enhances
our product offer to the important commercial and specification
segments, where we have been successfully building our
business.
During the year the House of Plumbing business has been
successfully integrated and recorded revenue of GBP23.7m, 1% up on
the prior year on a constant currency basis when it was not under
Norcros ownership. The COVID-19 impact in March is estimated to
have reduced revenue by GBP0.4m. Following the smooth completion of
the integration process, the management team has been preparing an
accelerated growth plan through an expansion of the geographic
coverage of the business in South Africa. House of Plumbing
currently operates out of three branches located in Johannesburg,
Pretoria and Lephalale. House of Plumbing completed work on a
number of landmark projects including The ABSA Towers in
Johannesburg, Tlhabane Square Shopping Centre in Rustenburg, The
Pretoria Head & Neck Hospital and The Southern Sun Ridgeway
Hotel in Zambia.
Underlying operating profit and cash generation were slightly
behind expectations mainly due to the impact of COVID-19.
Financial overview
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
-------------------------------- -------- ---------
Revenue 342.0 331.0
-------------------------------- -------- ---------
Underlying operating profit 32.3 34.4
IAS 19R administrative expenses (1.5) (1.5)
Acquisition related costs (4.0) (3.8)
Exceptional operating items (9.0) (4.0)
-------------------------------- -------- ---------
Operating profit 17.8 25.1
Net finance (costs)/income (2.8) 0.3
-------------------------------- -------- ---------
Profit before taxation 15.0 25.4
Taxation (4.1) (6.0)
-------------------------------- -------- ---------
Profit for the year 10.9 19.4
-------------------------------- -------- ---------
IFRS 16 Implementation
On 1 April 2019 Norcros implemented IFRS 16 Leases on a modified
retrospective basis where the comparatives for 2019 have not been
restated. The impact of the implementation of IFRS 16 is reviewed
further in the section below.
Revenue
Group revenue at GBP342.0m (2019: GBP331.0m) increased by 3.3%
on a reported basis, by 5.0% on a constant currency basis, and
decreased 2.3% on a constant currency like for like1 basis. The
current year had 53 weeks, (2019: 52 weeks) however due to the
significant impact of COVID-19 on revenue in March this has not
been adjusted for the purposes of any comparative analysis.
Underlying operating profit
Underlying operating profit decreased by 6.1% to GBP32.3m (2019:
GBP34.4m). Our UK businesses delivered underlying operating profit
of GBP24.4m (2019: GBP26.5m), and our South African businesses
generated an underlying operating profit of GBP7.9m (2019:
GBP7.9m). Group underlying operating profit margin was 9.4% (2019:
10.4%).
IAS 19R administrative costs
These costs represent the costs incurred by the Trustee of
administering the UK pension scheme and are reflected in the Income
Statement under IAS 19R. Costs of GBP1.5m are in line with prior
year (2019: GBP1.5m).
Acquisition related costs
A cost of GBP4.0m (2019: GBP3.8m) has been recognised in the
year and is analysed as follows:
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
-------------------------------------------------- -------- ---------
Deferred remuneration 0.6 0.2
Intangible asset amortisation 3.7 3.5
Release of provision for contingent consideration (1.1) -
Advisory fees2 0.8 0.1
-------------------------------------------------- -------- ---------
4.0 3.8
-------------------------------------------------- -------- ---------
1 Like for like is defined as constant currency (2019 at 2020
monthly average rates) impact being GBP5.2m and excluding House of
Plumbing revenue of GBP23.7m in 2020.
2 Professional advisory fees incurred in connection with the
Group's business combination activities.
In accordance with IFRS 3R, a proportion of the deferred
consideration payable to the former shareholders of certain
acquired businesses is required to be treated as remuneration, and,
accordingly, is expensed to the Income Statement as incurred which
amounts in the current year to a cost of GBP0.6m in relation to the
House of Plumbing acquisition (2019: GBP0.2m in relation to
Abode).
The House of Plumbing acquisition on the 1 April 2019 increased
the amortisation charge in the year by GBP0.2m.
On acquiring the House of Plumbing, GBP1.1m of contingent
consideration was provided for in relation to expected future
payments to former shareholders of House of Plumbing subject to the
business achieving certain financial performance targets. As at 31
March 2020, under IFRS 9, the expected fair value of the provision
is nil and therefore this amount has been released to the income
statement.
The advisory fees in the current year relate to the costs
incurred in relation to acquisition activity that did not
conclude.
Exceptional operating items
A net exceptional operating charge of GBP9.0m (2019: GBP4.0m)
has been recognised this year.
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
--------------------------------------- -------- ---------
COVID-19 related impairment 9.0 -
Onerous property lease provision costs - 3.0
GMP equalisation costs - 1.0
--------------------------------------- -------- ---------
9.0 4.0
--------------------------------------- -------- ---------
COVID-19 has significantly affected economic activity and
disrupted the business operations of the Group. In response to
this, and in line with guidance from the Financial Reporting
Council, the Group has reviewed 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 in relation to potential future COVID-19
impacts including depressed economic activity from further business
disruption, social distancing measures and business failures. As a
result of these reviews, tangible, intangible and right of use
assets within the Johnson Tiles UK business have been impaired with
a non-cash impairment charge of GBP9.0m recognised as an
exceptional item in the income statement.
Exceptional costs of GBP3.0m were incurred in the previous year
to increase the provision in relation to an onerous and surplus
legacy property lease following the reappraisal of the likely
future cash flows. The property is the only remaining legacy lease
the company has which will expire in June 2022. Exceptional past
service costs of GBP1.0m were expensed in the prior year in
relation to a UK High Court ruling that trustees of UK defined
benefit pension schemes must equalise guaranteed minimum pensions
(GMP).
Net finance costs
2020 2019
GBP m GBP m
IFRS 16 Pre-IFRS
basis 16 basis
----------------------------------------------------------- -------- ---------
Interest payable on bank borrowings (1.6) (1.8)
Interest on lease liabilities (1.9) -
Amortisation of costs of raising debt finance (0.2) (0.2)
Finance costs (3.7) (2.0)
Movement on fair value of derivative financial instruments 1.7 3.6
----------------------------------------------------------- -------- ---------
Finance income 1.7 3.6
----------------------------------------------------------- -------- ---------
IAS 19R finance cost (0.8) (1.3)
----------------------------------------------------------- -------- ---------
Net finance (costs)/income (2.8) 0.3
----------------------------------------------------------- -------- ---------
Net finance costs for the year of GBP2.8m compare to a GBP0.3m
income in 2019. This decrease is partially due to the movement in
the fair value of foreign exchange contracts reflecting a lower
level of income in the year of GBP1.7m (2019: GBP3.6m income).
Additionally, the current year finance costs include a GBP1.9m IFRS
16 lease liability interest charge in relation to the IFRS 16 lease
liabilities recognised on 1 April 2019. Bank interest payable of
GBP1.6m (2019: GBP1.8m) was lower than the previous year due to a
lower level of debt across the year.
The Group has recognised a GBP0.8m interest cost in respect of
the defined benefit pension scheme liability (2019: GBP1.3m) which
reduced by GBP0.5m principally reflecting the lower deficit at the
start of the year.
Underlying profit before tax
Underlying profit before tax was GBP28.8m (2019: GBP32.6m),
mainly reflecting the decreased underlying operating profit of
GBP2.1m noted above. Underlying profit before tax is reconciled as
shown below:
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
----------------------------------------------------- -------- ---------
Profit before taxation from continuing operations 15.0 25.4
Adjusted for:
- IAS 19R administrative expenses 1.5 1.5
- acquisition related costs 4.0 3.8
- exceptional operating items 9.0 4.0
- amortisation of costs of raising finance 0.2 0.2
- net movement on fair value of derivative financial
instruments (1.7) (3.6)
- IAS 19R finance cost 0.8 1.3
----------------------------------------------------- -------- ---------
Underlying profit before taxation 28.8 32.6
----------------------------------------------------- -------- ---------
Taxation
The tax charge for the year of GBP4.1m (2019: GBP6.0m)
represents an effective tax rate for the year of 27.3% (2019:
23.6%). This increase in effective tax rate is mainly due to the
impact of the Johnson Tiles UK impairment where the majority of the
assets impaired do not have a tax base.
The standard rates of corporation tax in the UK, South Africa
and Ireland were 19% (2019: 19%), 28% (2019: 28%) and 12.5% (2019:
12.5%) respectively.
Dividends
The Group responded swiftly to the impact of COVID-19 and the
need to preserve cash. The board has therefore taken the decision
not to recommend the payment of a final dividend (2019: 5.6p). The
interim dividend of 3.1p (2019: 2.8p), makes a total dividend of
3.1p (2019: 8.4p) in respect of the year ended 31 March 2020. The
board recognises the importance of dividends to shareholders and
intends to return, at the appropriate time, to the progressive
dividend policy that was in place prior to the COVID-19 pandemic,
and in setting the dividend level will take into account the
expectation of future cash flow generation and the long term
earnings potential of the Group.
Balance Sheet
The Group's balance sheet is summarised below.
2019
2020 GBPm
GBPm Pre-IFRS
IFRS 16 basis 16 basis
------------------------------------------------- -------------- ---------
Property, plant and equipment 29.0 42.3
Right of use assets 20.6 -
Goodwill and intangible assets 96.5 94.9
Deferred tax 4.7 0.8
Net current assets excluding cash and borrowings 67.5 61.0
Pension scheme liability (48.9) (31.6)
Lease liabilities (25.1) -
Other non-current assets and liabilities (3.5) (6.7)
Cash and borrowings (36.4) (35.0)
------------------------------------------------- -------------- ---------
Net assets 104.4 125.7
------------------------------------------------- -------------- ---------
Total net assets decreased by GBP21.3m to GBP104.4m (2019:
GBP125.7m).
Property, plant and equipment reduced by GBP13.3m, and included
additions of GBP4.0m (2019: GBP5.8m) and acquisition additions of
GBP0.1m (2019: nil) related to the House of Plumbing acquisition. A
net impairment charge of GBP7.6m was recognised in relation to the
Johnson Tiles impairment. The depreciation charge was GBP6.6m
(2019: GBP6.6m) and exchange differences were GBP3.2m (2019:
GBP1.9m). The disposals in the year had no impact on net book value
which was the same in the prior year.
The deferred tax asset increased by GBP3.9m to GBP4.7m (2019:
GBP0.8m). The increase mainly relates to a GBP3.5m increase in the
pension deferred tax asset reflecting the current year actuarial
losses in the pension scheme.
Pension schemes
On an IAS 19R accounting basis, the gross defined benefit
pension scheme valuation of the UK scheme showed a deficit of
GBP48.9m compared to a deficit of GBP31.6m last year. Whilst the
present value of scheme liabilities fell by GBP17.2m mainly due to
a fall in long-term inflation expectations, the value of scheme
assets fell by GBP34.5m primarily due to the negative impact of
COVID-19 on the financial markets.
The triennial actuarial valuation for the Group's UK defined
benefit pension scheme as at 1 April 2018 reported an actuarial
deficit of GBP49.3m (2015: GBP73.5m) representing an 89% funding
level (2015: 84%). The deficit recovery plan was agreed with the
scheme Trustee, with a cash contribution of GBP3.3m per annum plus
CPI, payable for the 6.5 years to 30 September 2025.
In line with the above agreement the Group made deficit recovery
contributions of GBP3.3m (2019: GBP2.6m) into its UK defined
benefit pension scheme during the year.
The Group's contributions to its defined contribution pension
schemes were GBP3.5m (2019: GBP3.3m).
Cash flow and net debt
Underlying operating cash flow was GBP1.4m lower than in the
prior year at GBP38.4m (2019: GBP39.8m).
2020 2019
GBPm GBPm
IFRS 16 Pre-IFRS
basis 16 basis
--------------------------------------------- -------- ---------
Underlying operating profit 32.3 34.4
Depreciation and amortisation 6.8 6.9
Net working capital movement (4.8) (2.1)
Share-based payments 0.1 1.2
Depreciation of right of use assets 4.5 -
Cash settlement of share options (0.5) (0.6)
--------------------------------------------- -------- ---------
Underlying operating cash flow 38.4 39.8
--------------------------------------------- -------- ---------
Lease payments (5.0) -
--------------------------------------------- -------- ---------
Underlying operating cash flow (pre-IFRS 16) 33.4 39.8
--------------------------------------------- -------- ---------
Underlying operating cashflow benefitted in the year from
GBP5.0m of lease costs, being reclassified to interest costs and
lease payments. The GBP5.0m of lease costs were replaced by GBP4.5m
of depreciation in underlying operating profit. This was more than
offset by a GBP2.1m reduction in underlying operating profit and an
increased net working capital outflow of GBP2.7m. Underlying
operating cash conversion in the year was 99.5% of underlying
EBITDA (2019: 96.4%).
2019
2020 GBPm
GBPm Pre-IFRS
IFRS 16 basis 16 basis
------------------------------------------------------ -------------- ---------
Underlying operating cash flow 38.4 39.8
Cash flows from exceptional items and acquisition
related costs (0.3) (1.9)
Pension fund deficit recovery contributions (3.3) (2.6)
------------------------------------------------------ -------------- ---------
Cash flow generated from operations 34.8 35.3
Net interest paid (3.5) (1.8)
Taxation (5.3) (4.6)
------------------------------------------------------ -------------- ---------
Net cash generated from operating activities 26.0 28.9
Capital expenditure (4.8) (5.6)
Proceeds on disposal of property, plant and equipment - 0.1
Acquisitions (9.2) (2.1)
Dividends (7.0) (6.4)
Share transactions (0.8) (0.9)
Principal element of lease payments (3.8) -
Other items (1.8) (1.9)
------------------------------------------------------ -------------- ---------
Movement in net debt (1.4) 12.1
Opening net debt (35.0) (47.1)
------------------------------------------------------ -------------- ---------
Closing net debt (36.4) (35.0)
------------------------------------------------------ -------------- ---------
Cash generated from operating activities was GBP2.9m lower than
the previous year at GBP26.0m, largely due to the GBP1.4m decrease
in underlying operating cash flows and the GBP1.9m lease liability
interest costs in relation to IFRS 16 included in net interest
paid. Cash flows from exceptional items and acquisition related
costs in the current year primarily relate to costs of
restructuring at Triton and Johnson Tiles, whilst in the prior year
they mainly relate to the Johnson Tiles restructuring costs.
Capital expenditure at GBP4.8m (2019: GBP5.6m) includes GBP0.6m
of manufacturing equipment at Johnson Tiles and GBP0.5m in relation
to Tile Africa store upgrades.
Acquisition expenditure of GBP9.2m relates to the GBP8.8m net
outflow in relation to the House of Plumbing acquisition and
GBP0.4m being the final deferred consideration payment in relation
to the Abode acquisition in 2016. In the prior year the GBP2.1m
mainly relates to the payment of deferred consideration in relation
to Croydex and Abode acquisitions.
Net debt increased by GBP1.4m in the year to GBP36.4m (2019:
GBP35.0m).
Funding and Liquidity
The Group increased the amount of its committed banking
facilities to GBP120m (plus a GBP30m accordion) at the time of the
Merlyn acquisition in November 2017. The maturity date was
originally November 2021 with an option to extend for a further
year and the Group exercised this option in the prior year and has
extended the maturity date of the facility to November 2022. We
also have an unsecured overdraft facility in South Africa.
As a result of the COVID-19 pandemic, the Group implemented a
number of immediate actions that are described in detail in the
Group Chief Executive's statement. In relation to funding and
liquidity, whilst the Group has significant liquidity headroom, it
is possible that the recovery out of the COVID-19 lockdowns could
be both slow and protracted and could in such circumstance lead to
a significant reduction in profitability. In this scenario it is
possible that the financial covenants, Net Debt: EBITDA and
interest cover, in our RCF facility could be breached. Accordingly,
we have had constructive discussions with the UK banking group and
agreed a number of covenant waivers at September 2020 and March
2021. We have agreed a replacement Maximum Net Debt covenant of
GBP95m to be tested quarterly until June 2021. We believe this will
provide the necessary headroom to allow us to continue to operate
the business without damaging its market positions and to
accommodate a slower than expected recovery.
We are appreciative of the strong and prompt support received
from our banking group.
IFRS 16 Implementation Impact
The adoption of IFRS 16 in the current year to 31 March 2020 has
resulted in an asset (right of use asset) of GBP24.7m and financial
liability to pay lease rentals of GBP27.7m being recognised on the
balance sheet as at 1 April 2019. Instead of recognising a rental
expense of GBP5.0m in the period a depreciation charge of GBP4.5m
has been recognised on the right of use asset and a GBP1.9m
interest charge on the lease liability. This has increased
operating profit by GBP0.5m and decreased profit before tax by
GBP1.4m. The overall impact of the implementation of IFRS 16 on the
income statement over the life of the lease is neutral but will
result in a higher charge in the earlier years following
implementation and a lower charge in later years. Implementation of
IFRS 16 has also impacted the underlying return on capital employed
which is 16.4% pre-IFRS 16 impact and 16.8% on a reported
basis.
The cash flows associated with the lease payments which were
previously classified as operating cashflows are now classified as
interest costs and financing cash flows and have increased net cash
generated from operations by GBP5.7m, net cash used in financing
activities by GBP3.8m and interest costs by GBP1.9m. Underlying
operating cashflow has increased by GBP5.0m with GBP0.7m of the
increased financing activities cashflow attributable to an onerous
lease payment, hence deemed as non-underlying, and excluded from
underlying operating cashflow. There is no impact on Norcros's
existing banking covenants as a result of the implementation.
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 IFRS,
as adopted by the European Union, 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.
Directors: Martin Towers (Chair), Nick Kelsall (Group Chief
Executive), Shaun Smith (Group Finance Director), David McKeith
(Non-Executive Director), Mark Allen (Non-Executive Director) and
Alison Littley (Non-Executive Director).
Nick Kelsall
Group Chief Executive
Shaun Smith
Group Finance Director
Consolidated income statement
Year ended 31 March 2020
2020 2019
Notes GBPm GBPm
-------------------------------------------------- ----- ----- -----
Continuing operations
Revenue 2 342.0 331.0
-------------------------------------------------- ----- ----- -----
Underlying operating profit 32.3 34.4
IAS 19R administrative expenses (1.5) (1.5)
Acquisition related costs 3 (4.0) (3.8)
Exceptional operating items 3 (9.0) (4.0)
-------------------------------------------------- ----- ----- -----
Operating profit 17.8 25.1
Finance costs 4 (3.7) (2.0)
Finance income 4 1.7 3.6
IAS 19R finance cost (0.8) (1.3)
-------------------------------------------------- ----- ----- -----
Profit before taxation 15.0 25.4
Taxation (4.1) (6.0)
-------------------------------------------------- ----- ----- -----
Profit for the year from continuing operations 10.9 19.4
-------------------------------------------------- ----- ----- -----
Earnings per share attributable to equity holders
of the Company
Basic earnings per share:
From profit for the year 6 13.6p 24.2p
-------------------------------------------------- ----- ----- -----
Diluted earnings per share:
From profit for the year 6 13.5p 23.9p
-------------------------------------------------- ----- ----- -----
Weighted average number of shares for basic
earnings per share (millions) 80.3 80.2
Alternative performance measures
-------------------------------------------------- ----- ----- -----
Underlying profit before taxation (GBPm) 5 28.8 32.6
Underlying earnings (GBPm) 5 22.8 25.7
Basic underlying earnings per share 6 28.4p 32.1p
Diluted underlying earnings per share 6 28.2p 31.7p
-------------------------------------------------- ----- ----- -----
Consolidated statement of comprehensive income
Year ended 31 March 2020
2020 2019
GBP m GBP m
------------------------------------------------- ------ ------
Profit for the year 10.9 19.4
-------------------------------------------------- ------ ------
Other comprehensive income and expense:
Items that will not subsequently be reclassified
to the Income Statement
Actuarial (losses)/gains on retirement benefit
obligations (14.8) 14.6
Items that may be subsequently reclassified to
the Income Statement
Foreign currency translation adjustments (9.2) (6.2)
-------------------------------------------------- ------ ------
Other comprehensive (loss)/income for the year (24.0) 8.4
-------------------------------------------------- ------ ------
Total comprehensive (loss)/income for the year (13.1) 27.8
-------------------------------------------------- ------ ------
Items in the statement are disclosed net of tax.
Consolidated balance sheet
At 31 March 2020
2020 2019
GBP m GBP m
-------------------------------------- ------- ------
Non-current assets
Goodwill 60.1 56.3
Intangible assets 36.4 38.6
Property, plant and equipment 29.0 42.3
Right of use assets 20.6 -
Deferred tax assets 4.7 0.8
--------------------------------------- ------- ------
150.8 138.0
-------------------------------------- ------- ------
Current assets
Inventories 78.9 79.5
Trade and other receivables 60.5 62.5
Derivative financial instruments 2.0 0.3
Cash and cash equivalents 47.3 27.2
--------------------------------------- ------- ------
188.7 169.5
-------------------------------------- ------- ------
Current liabilities
Trade and other payables (72.9) (79.6)
Lease liabilities (5.2) -
Current tax liabilities (1.0) (1.7)
Financial liabilities - borrowings (0.1) (3.8)
--------------------------------------- ------- ------
(79.2) (85.1)
-------------------------------------- ------- ------
Net current assets 109.5 84.4
--------------------------------------- ------- ------
Total assets less current liabilities 260.3 222.4
--------------------------------------- ------- ------
Non-current liabilities
Financial liabilities - borrowings (83.6) (58.4)
Pension scheme liability (48.9) (31.6)
Lease liabilities (19.9) -
Other non-current liabilities (0.3) (0.9)
Provisions (3.2) (5.8)
--------------------------------------- ------- ------
(155.9) (96.7)
-------------------------------------- ------- ------
Net assets 104.4 125.7
--------------------------------------- ------- ------
Financed by:
Share capital 8.1 8.0
Share premium 29.9 29.9
Retained earnings and other reserves 66.4 87.8
Total equity 104.4 125.7
--------------------------------------- ------- ------
Consolidated cash flow statement
Year ended 31 March 2020
2020 2019
Notes GBP m GBP m
------------------------------------------------------- ----- ------ ------
Cash generated from operations 7 34.8 35.3
Income taxes paid (5.3) (4.6)
Interest paid (3.5) (1.8)
------------------------------------------------------- ----- ------ ------
Net cash generated from operating activities 26.0 28.9
------------------------------------------------------- ----- ------ ------
Cash flows from investing activities
Purchase of property, plant and equipment and
intangible assets (4.8) (5.6)
Proceeds on disposal of property, plant and equipment - 0.1
Acquisition of subsidiary undertakings (including
payment of deferred consideration) net of cash
acquired (9.2) (2.1)
------------------------------------------------------- ----- ------ ------
Net cash used in investing activities (14.0) (7.6)
------------------------------------------------------- ----- ------ ------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 0.1 0.2
Principal element of lease payments (3.8) -
Purchase of treasury shares (0.9) (1.1)
Costs of raising debt finance - (0.2)
Drawdown/(repayment) of borrowings 25.0 (6.0)
Dividends paid to the Company's shareholders (7.0) (6.4)
------------------------------------------------------- ----- ------ ------
Net cash generated from/(used in) financing activities 13.4 (13.5)
------------------------------------------------------- ----- ------ ------
Net increase in cash at bank and in hand and
bank overdrafts 25.4 7.8
Cash at bank and in hand and bank overdrafts
at the beginning of the year 23.4 17.3
Exchange movements on cash and bank overdrafts (1.6) (1.7)
------------------------------------------------------- ----- ------ ------
Cash at bank and in hand and bank overdrafts
at the end of the year 47.2 23.4
------------------------------------------------------- ----- ------ ------
Consolidated statement of changes in equity
Year ended 31 March 2020
Ordinary
share Share Treasury Translation Retained Total
capital premium reserve reserve earnings equity
GBP m GBP m GBP m GBP m GBP m GBPm
-------------------------------------- -------- -------- -------- ----------- --------- -------
At 1 April 2018 8.0 29.7 - (6.3) 73.2 104.6
Comprehensive income:
Profit for the year - - - - 19.4 19.4
Other comprehensive income/(expense):
Actuarial gain on retirement
benefit obligations - - - - 14.6 14.6
Foreign currency translation
adjustments - - - (6.2) - (6.2)
-------------------------------------- -------- -------- -------- ----------- --------- -------
Total other comprehensive income
for the year - - - (6.2) 14.6 8.4
Transactions with owners:
Shares issued - 0.2 - - - 0.2
Dividends paid - - - - (6.4) (6.4)
Purchase of treasury shares - - (1.1) - - (1.1)
Settlement of share option
schemes - - 0.8 - (1.4) (0.6)
Value of employee services - - - - 1.2 1.2
At 31 March 2019 8.0 29.9 (0.3) (12.5) 100.6 125.7
Comprehensive income:
Profit for the year - - - - 10.9 10.9
Other comprehensive (expense):
Actuarial loss on retirement
benefit obligations - - - - (14.8) (14.8)
Foreign currency translation
adjustments - - - - (9.2) (9.2)
-------------------------------------- -------- -------- -------- ----------- --------- -------
Total other comprehensive expense
for the year - - - - (24.0) (24.0)
Transactions with owners:
Shares issued 0.1 - - - - 0.1
Dividends paid - - - - (7.0) (7.0)
Purchase of treasury shares - - (0.9) - - (0.9)
Settlement of share option
schemes - - 0.8 - (1.3) (0.5)
Value of employee services - - - - 0.1 0.1
-------------------------------------- -------- -------- -------- ----------- --------- -------
At 31 March 2020 8.1 29.9 (0.4) (12.5) 79.3 104.4
-------------------------------------- -------- -------- -------- ----------- --------- -------
Notes to the preliminary statement
Year ended 31 March 2020
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 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
announcement is extracted from, and is consistent with, the Group's
audited financial statements for the year ended 31 March 2020. The
financial information set out above does not constitute the
Company's statutory financial statements for the periods ended 31
March 2020 or 31 March 2019 but is derived from those financial
statements. Statutory financial statements for 2020 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
International Financial Reporting Standards (IFRS) as adopted by
the EU.
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 in the context
of the current operating environment. This includes the possible
impacts of the global COVID-19 pandemic on the Group and an
assessment of their effects on the Group's forecast liquidity and
banking covenants.
Due to the impact of COVID-19 and the financial scenario
planning that was developed it was evident that in certain stress
scenarios it was possible that the financial covenants, Net Debt:
EBITDA and interest cover, in our RCF facility could be breached.
We therefore approached our banking group to seek appropriate
amendments to certain covenants. As a result, the banking group has
agreed to waive the leverage covenant at September 2020 and March
2021 and also the interest cover covenant at March 2021. In return,
we have agreed a replacement maximum Group net debt covenant, of
GBP95m, to be tested quarterly until June 2021 when the performance
of the business is projected to return to more normal levels of
activity.
A going concern assessment was developed on a bottom-up basis
using key assumptions, the most important of which include
estimates of revenues, operating costs and future capital
expenditure. Sensitivities were applied to the model which were
informed by internal and external data sources, including a review
of the Group's current trading levels and a review of regional
macroeconomic forecasts. Further downside sensitivities were
applied in relation to potential future COVID-19 impacts including
depressed economic activity from causes such as further business
disruption, social distancing and customer failures.
This data was aggregated to model three scenarios to reflect the
potential impact of COVID-19 on the Group, (and its ability to
continue as a going concern) as summarised below:
-- Scenario 1: significant reduction in revenue, 62% of that
reported in the year to 31 March 2020.
-- Scenario 2: significant reduction in revenue, 57% of that
reported in the year to 31 March 2020 with the second half revenue
significantly weaker whereby lockdown is initially eased more
quickly which results in a COVID-19 "double dip" reduction in half
two revenues.
-- Scenario 3: significant reduction in revenue, 45% of that
reported in the year to 31 March 2020 whereby lockdown is initially
eased more quickly which results in a COVID-19 "double dip" and a
more severe reduction in half two revenues than Scenario 2. In this
Scenario 3 second half revenue would be 40% of revenue reported in
the COVID-19 impacted second half of the year to 31 March 2020.
In all three scenarios, the Group continues to exhibit
sufficient and prudent levels of liquidity headroom against the
amended RCF financial covenants during the 12-month period under
assessment particularly when considered against the actions the
group has already taken or has at its disposal including a number
of cash conservation and cost reduction actions such as:
-- Government furlough schemes, tax payment deferrals and rent deferrals;
-- No FY20 final dividend paid
-- Cessation of all non-essential capital expenditure; and
-- A freeze on all pay increases throughout the Group and
reduction in salaries of the plc board members, Group leadership
and senior management teams for the first quarter to the end of
June 2020.
The Directors note that in the event of a very severe downturn
as described in Scenario 3 above then covenants at September 2021
(which is beyond the 12 month going concern period) could be
breached unless further management action were taken. While the
Directors believe that this scenario is highly unlikely they note
that they have time to respond in such a scenario , and would take
additional actions such as further reductions in capital
expenditure and operating costs, and other cash conservation
measures which are within their control.
As a result of this detailed assessment, including the various
scenarios and mitigating actions available to the Group, and with
reference to its balance sheet and existing committed facilities,
whilst acknowledging the inherent uncertainty of the current
economic outlook, the Board has concluded that the Company is able
to meet its obligations when they fall due for a period of at least
12 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
Continuing operations - year ended 31 March 2020
South
UK Africa Group
GBP m GBP m GBP m
----------------------------------------------- ------- ------- -------
Revenue 225.4 116.6 342.0
----------------------------------------------- ------- ------- -------
Underlying operating profit 24.4 7.9 32.3
IAS 19R administrative expenses (1.5) - (1.5)
Acquisition related costs (4.5) 0.5 (4.0)
Exceptional operating items (9.0) - (9.0)
----------------------------------------------- ------- ------- -------
Operating profit 9.4 8.4 17.8
----------------------------------------------- ------- ------- -------
Finance costs (net) (2.8)
----------------------------------------------- ------- ------- -------
Profit before taxation 15.0
Taxation (4.1)
----------------------------------------------- ------- ------- -------
Profit for the year from continuing operations 10.9
----------------------------------------------- ------- ------- -------
Net debt (36.4)
----------------------------------------------- ------- ------- -------
Segmental assets 270.8 68.7 339.5
Segmental liabilities (209.4) (25.7) (235.1)
Additions to property, plant and equipment 2.7 1.3 4.0
Depreciation and amortisation 10.2 4.8 15.0
----------------------------------------------- ------- ------- -------
Continuing operations - year ended 31 March 2019
South
UK Africa Group
GBP m GBP m GBP m
----------------------------------------------- ------- ------- -------
Revenue 228.1 102.9 331.0
----------------------------------------------- ------- ------- -------
Underlying operating profit 26.5 7.9 34.4
IAS 19R administrative expenses (1.5) - (1.5)
Acquisition related costs (3.8) - (3.8)
Exceptional operating items (4.0) - (4.0)
----------------------------------------------- ------- ------- -------
Operating profit 17.2 7.9 25.1
----------------------------------------------- ------- ------- -------
Finance income (net) 0.3
----------------------------------------------- ------- ------- -------
Profit before taxation 25.4
Taxation (6.0)
----------------------------------------------- ------- ------- -------
Profit for the year from continuing operations 19.4
----------------------------------------------- ------- ------- -------
Net debt (35.0)
----------------------------------------------- ------- ------- -------
Segmental assets 236.9 70.6 307.5
Segmental liabilities (166.0) (15.8) (181.8)
Additions to property, plant and equipment 2.9 2.9 5.8
Depreciation and amortisation 8.2 2.2 10.4
----------------------------------------------- ------- ------- -------
The split of revenue by geographical destination of the customer
is below:
2020 2019
GBPm GBPm
-------------- ----- -----
UK 197.7 198.2
Africa 118.9 104.9
Rest of World 25.4 27.9
-------------- ----- -----
342.0 331.0
-------------- ----- -----
No one customer had revenue over 10% of total Group revenue.
3. Acquisition related costs and exceptional operating items
An analysis of acquisition related costs and exceptional
operating items is shown below:
2020 2019
Acquisition related costs GBP m GBP m
------------------------------------------------------ ------ ------
Deferred remuneration(1) 0.6 0.2
Intangible asset amortisation(2) 3.7 3.5
Release of provision for contingent consideration (3) (1.1) -
Advisory fees(4) 0.8 0.1
------------------------------------------------------ ------ ------
4.0 3.8
------------------------------------------------------ ------ ------
1 In accordance with IFRS 3R, a proportion of the deferred
consideration payable to the former shareholders of certain
acquired businesses is required to be treated as remuneration, and,
accordingly, is expensed to the Income Statement as incurred over
the period of the related agreement.
2 Non-cash amortisation charges in respect of acquired intangible assets.
3 Contingent consideration in relation to the acquisition of
House of Plumbing was fair valued under IFRS 9 on 31 March 2020
with subsequent release of the provision
4 Professional advisory fees incurred in connection with the
Group's business combination activities.
2020 2019
Exceptional operating items GBP m GBP m
------------------------------------------ ------ ------
COVID-19 related impairment(1) 9.0 -
Onerous property lease provision costs(2) - 3.0
GMP equalisation costs(3) - 1.0
9.0 4.0
------------------------------------------ ------ ------
1. As at 31 March 2020 a one-off, non-cash impairment charge of
GBP9.0m was recognised in relation to the impact of COVID-19 on the
assets of Johnson Tiles UK.
2. Exceptional costs of GBP3.0m were incurred to increase the
provision in relation to an onerous and surplus legacy property
lease following the reappraisal of the likely future cash flows.
The property is the only remaining legacy lease the company has
which expires in June 2022.
3. Exceptional past service costs of GBP1.0m were estimated in
relation to the UK High Court ruling on 26 October 2018 that
trustees of UK defined benefit pension schemes must equalise
guaranteed minimum pensions. The past service cost increased the
pension liability.
4. Finance costs and income
2020 2019
GBP m GBP m
----------------------------------------------------------- ------ ------
Interest payable on bank borrowings (1.6) (1.8)
Interest on lease liabilities (1.9) -
Amortisation of costs of raising debt finance (0.2) (0.2)
Finance costs (3.7) (2.0)
Movement on fair value of derivative financial instruments 1.7 3.6
----------------------------------------------------------- ------ ------
Finance income 1.7 3.6
----------------------------------------------------------- ------ ------
Net finance (costs)/income (2.0) 1.6
----------------------------------------------------------- ------ ------
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 Profit before taxation before IAS 19R administrative
taxation 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 on underlying profit before tax
---------------------------- ------------------------------------------------------
Underlying earnings Underlying profit before tax less underlying
taxation
---------------------------- ------------------------------------------------------
Underlying capital employed Capital employed adjusted for business combinations
where relevant and the average impact of exchange
rate movements
---------------------------- ------------------------------------------------------
Underlying operating margin Underlying operating profit expressed as a
percentage of revenue
---------------------------- ------------------------------------------------------
Underlying return on capital Underlying operating profit expressed as a
employed (ROCE) percentage of the average of opening and closing
underlying capital employed.
---------------------------- ------------------------------------------------------
Basic underlying earnings Underlying earnings divided by the weighted
per share average number of shares for basic earnings
per share
---------------------------- ------------------------------------------------------
Diluted underlying earnings Underlying earnings divided by the weighted
per share 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 IFRS16 in line with
our banking covenants .
---------------------------- ------------------------------------------------------
Underlying operating cash Cash generated from continuing operations
flow before cash outflows from exceptional items
and acquisition related costs and pension
fund deficit recovery contributions
---------------------------- ------------------------------------------------------
Net debt Net debt is the net of cash, capitalised costs
of raising finance and total borrowings. IFRS16
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
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
----------------------------------------------------- -------- --------- ---------
Profit before taxation from continuing operations 15.0 16.4 25.4
Adjusted for:
- IAS 19R administrative expenses 1.5 1.5 1.5
- acquisition related costs (see note 3) 4.0 4.0 3.8
- exceptional operating items (see note 3) 9.0 9.0 4.0
- amortisation of costs of raising finance 0.2 0.2 0.2
- net movement on fair value of derivative financial
instruments (1.7) (1.7) (3.6)
- IAS 19R finance cost 0.8 0.8 1.3
----------------------------------------------------- -------- --------- ---------
Underlying profit before taxation 28.8 30.2 32.6
----------------------------------------------------- -------- --------- ---------
Taxation attributable to underlying profit before
taxation (6.0) (6.3) (6.9)
----------------------------------------------------- -------- --------- ---------
Underlying earnings 22.8 23.9 25.7
----------------------------------------------------- -------- --------- ---------
(b) Underlying EBITDA
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
----------------------------------------------- -------- --------- ---------
Operating profit from continuing operations 17.8 17.3 25.1
Adjusted for:
- depreciation and amortisation (owned assets) 6.8 6.8 6.9
- depreciation of leased assets 4.5 - -
- lease costs (5.0) - -
- IAS 19R administrative expenses 1.5 1.5 1.5
- Acquisition Related costs 4.0 4.0 3.8
- exceptional operating items (see note 3) 9.0 9.0 4.0
----------------------------------------------- -------- --------- ---------
Underlying EBITDA 38.6 38.6 41.3
----------------------------------------------- -------- --------- ---------
Consolidated Cash Flow Statement
(a) Underlying operating cash flow
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
---------------------------------------------------- -------- --------- ---------
Cash generated from operations (see note 7) 34.8 29.1 35.3
Adjusted for:
- cash flows from exceptional items and acquisition
related costs (see note 7) 0.3 1.0 1.9
- pension fund deficit recovery contributions (see
note 7) 3.3 3.3 2.6
Underlying operating cash flow 38.4 33.4 39.8
---------------------------------------------------- -------- --------- ---------
Consolidated Balance Sheet
(a) Underlying capital employed and underlying return on capital
employed
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
--------------------------------------------------- -------- --------- ---------
Net assets 104.4 104.4 125.7
Adjusted for:
- pension scheme liability (net of associated tax) 39.7 39.7 26.3
- cash and cash equivalents (47.3) (47.3) (27.2)
- financial liabilities - borrowings 83.7 83.7 62.2
--------------------------------------------------- -------- --------- ---------
Capital employed 180.5 180.5 187.0
Foreign exchange adjustment 9.6 9.6 1.8
IFRS 16 net asset adjustment - 3.1 -
Adjustment for acquisitions 7.2 7.2 -
--------------------------------------------------- -------- --------- ---------
Underlying capital employed 197.3 200.4 188.8
--------------------------------------------------- -------- --------- ---------
Average underlying capital employed 192.1 193.8 188.7
--------------------------------------------------- -------- --------- ---------
Underlying return on capital employed 16.8% 16.4% 18.2%
--------------------------------------------------- -------- --------- ---------
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 2020 the potential dilutive ordinary
shares amounted to 668,944 (2019: 985,038) as calculated in
accordance with IAS 33.
The calculation of EPS is based on the following profits and
numbers of shares:
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
-------------------- -------- --------- ---------
Profit for the year 10.9 12.0 19.4
-------------------- -------- --------- ---------
2020 2020 2019
Number Number Number
------------------------------------------------------- ---------- ---------- ----------
Weighted average number of shares for basic earnings
per share 80,300,209 80,300,209 80,154,891
Share options 668,944 668,944 985,038
------------------------------------------------------- ---------- ---------- ----------
Weighted average number of shares for diluted earnings
per share 80,969,153 80,969,153 81,139,929
------------------------------------------------------- ---------- ---------- ----------
2020 2020 2019
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
---------------------------- -------- --------- ----------
Basic earnings per share:
From profit for the year 13.6p 14.9p 24.2p
---------------------------- -------- --------- ----------
Diluted earnings per share:
From profit for the year 13.5p 14.8p 23.9p
---------------------------- -------- --------- ----------
Basic and diluted underlying earnings per share
Basic and diluted underlying earnings per share has also been
provided which reflects underlying earnings from continuing
operations divided by the weighted average number of shares set out
above.
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
--------------------------------- -------- --------- ---------
Underlying earnings (see note 5) 22.8 23.9 25.7
--------------------------------- -------- --------- ---------
2020 2020 2019
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
-------------------------------------- -------- --------- ----------
Basic underlying earnings per share 28.4p 29.8p 32.1p
Diluted underlying earnings per share 28.2p 29.5p 31.7p
-------------------------------------- -------- --------- ----------
7. Consolidated cash flow statement
(a) Cash generated from operations
The analysis of cash generated from operations is given
below:
Continuing operations
2020 2020 2019
GBP m GBP m GBP m
IFRS 16 Pre-IFRS Pre-IFRS
basis 16 16
----------------------------------------------------- -------- --------- ---------
Profit before taxation 15.0 16.4 25.4
Adjustments for:
- IAS 19R administrative expenses included in
the Income Statement 1.5 1.5 1.5
- acquisition related costs included in the Income
Statement 4.0 4.0 3.8
- exceptional items included in the Income Statement 9.0 9.0 4.0
- finance costs/(income) included in the Income
Statement 2.0 0.1 (1.6)
- IAS 19R finance cost included in the Income
Statement 0.8 0.8 1.3
- cash flows from exceptional items (0.3) (1.0) (1.9)
- settlement of share options (0.5) (0.5) (0.6)
- depreciation of property, plant and equipment 6.6 6.6 6.6
- underlying amortisation 0.2 0.2 0.3
- depreciation of right of use asset 4.5 - -
- pension fund deficit recovery contributions (3.3) (3.3) (2.6)
- share-based payments 0.1 0.1 1.2
----------------------------------------------------- -------- --------- ---------
Operating cash flows before movement in working
capital 39.6 33.9 37.4
Changes in working capital:
- increase in inventories (2.4) (2.4) (7.6)
- decrease in trade and other receivables 3.6 3.6 0.1
- (decrease)/increase in trade and other payables (6.0) (6.0) 5.4
----------------------------------------------------- -------- --------- ---------
Cash generated from operations 34.8 29.1 35.3
----------------------------------------------------- -------- --------- ---------
(b) Analysis of net debt
Net cash
and current Non-current
borrowings borrowings Net debt
GBP m GBP m GBP m
------------------------- ------------ ----------- --------
At 1 April 2018 17.3 (64.4) (47.1)
Cash flow 7.8 6.2 14.0
Other non-cash movements - (0.2) (0.2)
Exchange movement (1.7) - (1.7)
------------------------- ------------ ----------- --------
At 31 March 2019 23.4 (58.4) (35.0)
Cash flow 25.4 (25.0) 0.4
Other non-cash movements - (0.2) (0.2)
Exchange movement (1.6) - (1.6)
------------------------- ------------ ----------- --------
At 31 March 2020 47.2 (83.6) (36.4)
------------------------- ------------ ----------- --------
Other non-cash movements relate to the movement in the costs of
raising debt finance in the year.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FLFITRRISFII
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