Norcros Plc · LSE:NXR
Norcros — H1 2018 Earnings Presentation
39 slides from Norcros's earnings presentation, November 2017
Slide 1: Interim Results Six Months to 30 September 2017
Interim Results Six Months to 30 September 2017
Slide 2: Introduction
Introduction Nick Kelsall Group Chief Executive 2
Slide 3: Highlights
Highlights Revenue1 ➢ Revenue increased by 7.2% on a constant £145.0m +7.2% currency basis Underlying operating profit ➢ Underlying operating profit increased by +6.4% 6.4% to £11.7m £11.7m Underlying Profit before tax ➢ Underlying profit before tax increased by 9.5% to £11.5m £11.5m +9.5% Underlyin
Slide 4: Financial Review
Financial Review Shaun Smith Group Finance Director 4
Slide 5: Income Statement
Income Statement H1 H1 +/- +/- FY Sept 2017 Sept 2016 Reported Constant Mar 2017 £m £m Currency £m Revenue 145.0 128.8 +12.6% +7.2% 271.2 Underlying1 operating profit 11.7 11.0 +6.4% 23.8 Return on Sales 8.1% 8.5% 8.8% Finance charges – cash (0.2) (0.5) (0.9) Underlying1 PBT 11.5 10.5 +9.5% 22.9 Exc
Slide 6: Income Statement – Key Bridges
Income Statement – Key Bridges Revenue Underlying operating profit 2.3 - - 21.3 0.5 0.6 0.8 7.4 6.5 145.0 11.7 £m £m 11.0 128.8 Sept '16 Currency UK SA Sept '17 Sept '16 Currency UK SA Sept '17 Revenue1 Underlying operating profit / ROS% 8.5% 8.1% 145.0 11.7 135.3 11.0 9.2% 7.8% 94.3 8.0 86.9 7.4 £m
Slide 7: Tax, Earnings and Dividends
Tax, Earnings and Dividends Underlying1 Reported Diluted underlying EPS H1 H1 FY H1 H1 FY Sept Sept Mar Sept Sept Mar 27.8 2017 2016 2017 2017 2016 2017 £m £m £m £m £m £m 14.0 12.9 Sep-17 Sep-16 Mar-17 FY Profit before Tax 11.5 10.5 22.9 7.4 7.7 11.5 Tax charge (2.6) (2.4) (5.3) (1.9) (1.6) (3.0) Di
Slide 8: Cash Flow
Cash Flow H1 H1 FY Sept 2017 Sept 2016 Mar 2017 £m £m £m Cash conversion1 Underlying EBITDA 14.8 14.1 30.2 Working capital 0.7 1.2 (1.8) 113% 109% Share based payments 0.7 0.7 1.4 99% Underlying operating cash 16.2 16.0 29.8 Sep-17 Sep-16 Mar-17 FY Capital expenditure (4.1) (4.0) (8.0) Pension defic
Slide 9: Balance Sheet
Balance Sheet £m IAS 19 Gross UK Pension Deficit ➢ IAS19R deficit reduced to £52.1m (March 17: £62.7m, 97.8 September 16: £97.8m) 62.7 52.1 Sep-17 Sep-16 Mar-17 £m Net debt (IFRS) 27.5 ➢ Strong cash generation reduced net debt to £20.8m (March 17: 23.2 20.8 £23.2m, September 16: £27.5m) Sep-17 Sep-1
Slide 10: Merlyn Financial highlights & Funding structure
Merlyn Financial highlights & Funding structure Financial Highlights ➢ Revenue £30.7m,EBIT £6.4m,EBITDA £6.8m (Y/E 31 March 2017) ➢ Expected to be earnings accretive in first full year to 31 March 2019 ➢ Targeted to deliver pre-tax ROCE in excess of 13% in Y/E 31 March 2019 Funding structure ➢ Consi
Slide 11: UK Pension Scheme
UK Pension Scheme ➢ IAS 19R deficit £52.1m (March 17: £62.7m, UK Pension IAS 19R Assets & Liabilities September 16: £97.8m) Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 500 ▪ Assets reduced by £1.8m to £402.6m ▪ Liabilities reduced by £12.4m to £454.7m 450 primarily as a result of a highe
Slide 12: Operating Review
Operating Review Nick Kelsall Group Chief Executive 12
Slide 13: Business Overview
Business Overview UK SA Group Group Revenue (6 months to 30 September 2017) £94.3m £50.7m ££145.0m Triton £ 24.5m Vado £ 20.8m Croydex £ 12.3m Abode £ 6.5m Johnson Tiles £ 25.8m Adhesives £ 4.4m Johnson JohnsonTiles Tiles £ 5.9m TAL TAL £ 12.3m Tile TileAfrica Africa £ 32.5m Group Revenue (constant
Slide 14: UK Operations
UK Operations Nick Kelsall Group Chief Executive 14
Slide 15: Solid H1 Performance
Solid H1 Performance ➢ Overall Revenue + 7.0% ▪ UK + 4.8% ▪ Exports +16.7% ➢ Robust performance despite customer destocking & rationalisation ➢ Market leading position maintained ➢ UK Trade – more stable off take ➢ UK Retail – growth in online channels offset by lacklustre DIY ➢ Strong Export growth
Slide 16: Strong Revenue Growth - Profitability Maintained
Strong Revenue Growth - Profitability Maintained ➢ Overall Revenue +25.3% ▪ UK +18.0% ▪ Exports +50.0% ➢ Strong progress across all channels: ▪ Retail – growth in existing accounts ▪ Specification – strong growth and new housebuilder accounts ▪ New Glastonbury warehouse to facilitate growth ▪ VADO l
Slide 17: Strong Profitability & Cash Generation
Strong Profitability & Cash Generation ➢ Overall Revenue + 0.8% ▪ UK - 10.8% ▪ Exports +118.2% ➢ UK Retail – H1 customer destocking and soft DIY ➢ UK Trade – robust performance and focus for growth: ▪ “Metlex” trade brand relaunch ▪ New ranges of specification focussed products ➢ Outstanding export
Slide 18: Strong H1 Performance
Strong H1 Performance ➢ Overall Revenue + 16.1% ➢ Excellent H1 revenue performance – increasing momentum ➢ Major new account wins: Travis Perkins, Benchmarx and Wickes ➢ Branded revenue growth across all product categories ➢ NPD momentum maintained: ▪ Strong sales of PRONTEAU “3-in-1” hot water tap
Slide 19: Revenue Growth and Restructuring On Plan
Revenue Growth and Restructuring On Plan ➢ Overall Revenue + 1.6% ▪ UK + 4.0% ▪ Exports - 16.7% ➢ Improved UK Retail & robust Trade offset challenging Export ➢ UK Retail + 9.8% – improved performance despite challenging market ➢ UK Trade - 0.8% – robust specification and housebuilder channel offset
Slide 20: Strong Export Momentum
Strong Export Momentum ➢ Overall Revenue + 4.8% ▪ UK 0.0% ▪ Exports +66.7% ➢ UK performance impacted by exit of low margin retail account in H2 FY17 ➢ Robust trade revenues in a subdued market ➢ Middle East – revenue momentum: ▪ Warehouse established; shared office facility with VADO ▪ Increased sal
Slide 21: Compelling Strategic Fit
Compelling Strategic Fit Product(1) ➢ Leading position in growing shower enclosure market ➢ Premium branded proposition Doors & Enclosures 81% ➢ Culture of innovation and product development Trays 10% Bath screens 9% ➢ Successful multi-channel sales strategy Geography(1) ➢ Track record of organic gr
Slide 22: Compelling strategic fit - Multi Channel Strategy
Compelling strategic fit - Multi Channel Strategy % revenue (1) Independent Largest and most established of Retail / Regional Merlyn's sales channels, with the Business serving this market since inception in 2000. 62% Merchants Recognising the opportunity to develop in the new build market, Specific
Slide 23: Compelling Strategic Fit
Compelling Strategic Fit ➢ Market leader in the UK and Ireland: ▪ Multi-brand/channel sales strategy ▪ Culture of innovation and design led product development ▪ Operational excellence – 99% OTIF and Stock Availability ▪ Award winning customer service ➢ Attractive channel mix: ▪ Independent retailer
Slide 24: UK – Revenue Growth in Challenging Markets
UK – Revenue Growth in Challenging Markets Revenue Underlying Operating Profit £182.3m £17.4m 7.9 53.2 10.6 £94.3m 24.7 £86.9m 4.4 4.2 £8.0m 25.8 £7.4m 25.4 37.2 9.2% 9.5% 6.5 7.8% 5.6 12.3 12.2 20.8 16.6 48.7 22.9 24.5 H1 Sept 16 H1 Sept 17 FY Mar 17 H1 Sept 16 H1 Sept 17 FY Mar 17 Triton Vado Croy
Slide 25: SA Operations
SA Operations Nick Kelsall Group Chief Executive 25
Slide 26: Strong Performance Constrained by Capacity
Strong Performance Constrained by Capacity R ➢ Overall revenue - 3.3% at constant currency1 ➢ Growth constrained by current plant capacity: ▪ Plan to deliver 10% increase ➢ Focus on servicing demand from Tile Africa ➢ Market remains soft; subdued housebuilding activity ➢ Export revenues – impact of
Slide 27: Strong Revenue and Profit Growth
Strong Revenue and Profit Growth ➢ Overall revenue + 5.1% at constant currency1 ➢ Market leadership maintained ➢ Tile adhesive – growth driven by long standing key customers ➢ Construction products – progress in large commercial projects ➢ Export revenues – impact of Zimbabwe financial & import rest
Slide 28: Retail Growth Driven by CX Format
Retail Growth Driven by CX Format ➢ Overall revenue + 6.2% at constant currency ➢ Retail revenue growth despite challenging macro environment ➢ CX format “store-within-a-store” continues to drive performance ➢ Contract division – project delays impacting growth ➢ Growth across all categories - taps,
Slide 29: South Africa – Strong H1 Profit Growth
South Africa – Strong H1 Profit Growth Revenue 1 Underlying Operating Profit £92.5m £6.4m 11.3 22.0 £4.3m £48.4m £50.7m 5.9 6.1 £3.0m 12.3 11.7 8.5% 59.2 7.2% 7.2% 30.6 32.5 H1 Sept 16 H1 Sept 17 FY Mar 17 H1 Sept 16 H1 Sept 17 FY Mar 17 Tile Africa TAL Johnson Tiles Underlying Operating Profit Retu
Slide 30: Group Outlook & Strategy
Group Outlook & Strategy Nick Kelsall Group Chief Executive 30
Slide 31: UK and South Africa market conditions
UK South Africa Subdued economic environment Remains challenging Housing Transactions GDP (% change) 200,000 Source: HMRC - October 2017 Source: Investec Q2 2017 2.5% 160,000 2.0% 120,000 1.5% 80,000 1.0% 40,000 0.5% 0 0.0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 Gradual recovery in transaction
Slide 32: Group Strategy – Key Targets
Group Strategy – Key Targets Growth Target Organic • Double revenues to £420m by 2018 Acquisition • Market leading - Organic and positions Returns Target acquisition • Complementary industry segments/ • Strong trade and geographical - Timeline to be consumer brands • Sustainable pre-tax reassessed i
Slide 33: Acquisition Track Record and Merlyn
Acquisition Track Record and Merlyn Vado Croydex Abode Merlyn 1 Revenue target strategy Group 2 Underlying ROCE of 12%-15% 3 Geographic fit Acquisition criteria 4 Complementary market 5 Preferred channel mix 6 Export potential 7 Growth potential
Slide 34: Strong Platform for Further Growth
Strong Platform for Further Growth ➢ Solid interim results in challenging market environments ➢ Clear and focused growth strategy ➢ Merlyn – compelling strategic fit: ▪ Step change in size & scale of the Group ▪ Pro-forma revenue £302m1 ▪ Pro-forma underlying operating profit £30.2m1 ▪ Meaningful sy
Slide 35: Appendix
NOFrCroOs Appendix 35
Slide 36: Acquisition Related Costs
Acquisition Related Costs Acquisition related costs H1 Sept H1 Sept FY Mar 2017 2016 2017 £m £m £m Acquisition related deferred remuneration (earn out) (0.2) (0.2) (0.4) Intangible asset amortisation (0.6) (0.6) (1.2) Staff costs and advisory fees (0.4) (0.5) (1.1) (1.2) (1.3) (2.7) 36
Slide 37: Net Debt Reconciliation
Net Debt Reconciliation H1 Sept H1 Sept FY Mar 2017 2016 2017 £m £m £m Net debt (IFRS) – opening (23.2) (32.5) (32.5) Net cash flow 3.5 4.0 7.8 Other non cash movements (0.1) (0.1) (0.2) Foreign exchange (1.0) 1.1 1.7 Net debt (IFRS) - closing (20.8) (27.5) (23.2) 37
Slide 38: UK Pension Scheme cashflows
UK Pension Scheme cashflows ➢ Cash outflow close to peak * Source: KPMG Fusion * Annual pensioner payroll, excludes non-predicted costs such as transfer out and early retirement payments 38
Slide 39: Please note: Provisional acquisition of Merlyn
PLEASE NOTE: On 2 November 2017, Norcros plc announced the provisional acquisition of Merlyn Industries Limited (“Merlyn”). A circular and prospectus relating to the acquisition and associated equity raising was issued by the Company on 2 November 2017, and a supplementary prospectus incorporating b