Norcros Plc · LSE:NXR
Norcros — Investor Day (October 2013)
65 slides from Norcros's investor day presentation, Oct 3, 2013
Slide 1: Focus & Growth: Analyst & Investor Day
Focus & Growth Nick Kelsall, Group Chief Executive Analyst & Investor Day 3rd October 2013 Material Lab, 10 Great Titchfield Street, London WlW 8BB
Slide 2: Agenda
Agenda Trading and Strategy Update Nick Kelsall Chief Executive Johnson Tiles Stephen Dixon Managing Director Norcros SA Thomas Willcocks Managing Director Triton Lorna Fellowes Managing Director Vado Jim Williams Managing Director Q&A/Tour/Lunch Page 1
Slide 3: Business Overview - Focused and Market Leading Group
Business Overview - Focused and Market Leading Group 58% of Sales 37% of Sales 5% of Sales Market leader in Showers Market leading manufacturer of Leading Manufacturer Tile and Importer and supplier of of Ceramic and Building distributor of Ceramic Tiles Porcelain Tiles Adhesives Ceramic Tiles Growi
Slide 4: Trading Update - Summary
Trading Update - Summary Group H1 revenue growth of 15.5% (+0.9% LFL) at cc • Stronger Q2 in UK • Recovering from slow Q1 impacted by weather and destocking in UK • Momentum in SA maintained UK • Improved performance in Q2 • Trade segment outperforming retail • Triton Q2 strong revenue growth +1
Slide 5: UK markets c25% off peak and driven by housing transactions
UK markets c25% off peak and driven by housing transactions 180 Market Volume History 160 140 120 100 80 60 Tile Market 40 Shower Market 20 Housing Transactions 0 1998 2000 2002 2004 2006 2008 2010 2012 Source: OBR/Management Estimates Correlation between housing transactions and tile and shower m
Slide 6: SA tile market is stabilising, following a sharp decline
SA tile market is stabilising, following a sharp decline 200 Building Plans Approved/Completed v Tile Market 180 160 140 120 100 80 60 Building Approvals 40 Building Completions 20 Tile Market 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Stats SA/Management Estimates Correlatio
Slide 7: Recent Performance
Recent Performance Revenue (£m) 210.71 200.31 196.11 Fourth consecutive year of revenue and profit growth 169.61 154.21 Sustained investment in new products and operational efficiencies Decisive action to restructure tile manufacturing 09 10 11 12 13 businesses Underlying operating profit (£m)
Slide 8: Strategy – faster and focused growth agenda
Strategy – faster and focused growth agenda Key strategic targets: • Double Group revenues by 2018 • Organic revenue growth 5-10% per annum • Acquisitions to drive balance of growth targets (c£80m to c£120m of revenue required) • Achieve sustainable pre-tax ROCE 12-15% Focus on sectors with high
Slide 9: Vado acquisition – paradigm for future acquisitions
Vado acquisition – paradigm for future acquisitions CURRENT POSITION OPPORTUNITIES Vado PEX Triton Norcros UK Tiles Revenue Synergies Africa DIY Taps to UK DIY - "Triton" National Merchants N/A PEX range to merchants and Tile Africa Specification Combined approach in specifications Bathroom Boutique
Slide 10: Africa and Middle East – targeted and coherent approach
Africa and Middle East – targeted and coherent approach GDP growth in Sub-Saharan UAE Africa currently c6% 6 of the 7 fastest growth Nigeria countries globally are in this Ghana region Uganda Kenya Consumer spending will double in the next 10 years Zambia Mozambique 3 democracies in 1990, Na
Slide 11: Wide range of organic & acquisition opportunities
Wide range of organic & acquisition opportunities Organic Sharper focus on specification segment Vado revenue synergies Benefit from good medium term growth and demographic development in SA and Sub Saharan Africa Growth opportunities being evaluated • Nigeria and Kenya - adhesives and speci
Slide 12: Summary
Summary Investment in markets with attractive returns Restructuring of under-performing segments Clear strategy developed to accelerate growth Significant organic growth opportunities Acquisitions in complementary product/industry segments Experienced management team Norcros has delivered a robust p
Slide 13: Johnson Tiles
NOrcros JOHNSON -:TILES
Slide 14: Business Overview
Business Overview Respected and Trusted • Established 1901 • The leading trade brand • Longest and most established player Forward thinking and innovative • Material Lab • Inkjet printing • Absolute Excellent Quality Manufacturing • World class, well invested facility • EN ISO 9001/14001 • 5th
Slide 15: Key Customers
Key Customers Commercial Specification Multiples Housebuilder Specification • Marks & Spencer • B&Q • Barratt / David Wilson • Whitbread • Wickes • Redrow • London Underground • Homebase • Persimmon • London 2012 • Topps Tiles • McCarthy & Stone • Hilton Hotels (incl Hawaii • Tile Giant • Telford Ho
Slide 16: UK Tile Market
UK Tile Market 65 Total market splits circa 53% wall 60 tile, 47% floor tile 55 Significant medium term growth Volume - Mm² potential - currently very low per 50 capita consumption. UK (0.7m²/ person) Germany (1.4), France 45 (1.9), Poland (2.5), Italy (2.2), Spain (2.7) 40 35 Market correlate
Slide 17: Consumer Segmentation (by end user value)
Consumer Segmentation (by end user value) Consumer Market (65% of market) Consumer market dominated by B&Q, Topps, Wickes, Homebase and Tile Homebase / Giant (64% share) Tile Giant 11% B&Q Remainder of market very fragmented Wickes 24% 8% Significant degree of cross over between independent re
Slide 18: Trade Segmentation (by end user value)
Trade Segmentation (by end user value) Trade Market (35% of market) Trade segment dominated by Distribution Tile Giant Wickes 3% 4% Professional fixers generally shop at B&Q Distributors because 4% • Stock availability Porcelanosa • Branded adhesive 7% • Credit account • Significant discount giv
Slide 19: Revenue Performance - Historic
Revenue Performance - Historic 50% net revenue growth 80,000 2008/9 to 2012/13 70,000 Growth driven by significant 60,000 share gain in B&Q 50,000 £'000 5% share gain in trade, 40,000 increased specification 30,000 generation 20,000 Export broadly static, emphasis 10,000 historically on UK g
Slide 20: Revenue Performance – H1 2013/14
Revenue Performance – H1 2013/14 25,000 Total net revenue down 11.4% Trade sales up 0.1% in a 20,000 marginally declining market (down 2%) 15,000 £'000 Multiples sales down 23.8%, prior year B&Q range change 10,000 coupled with destocking in 2013 5,000 Export sales up 30.4%, increased focus
Slide 21: Strategy
Strategy Revenue growth Grow Increased ROCE Specification Protect UK Multiples On-going Cost Reduction Grow Continental Multiples Page 20
Slide 22: Product
Product Strong in house design team lead by experienced commercial Creative Director High quality, well managed portfolio • Established industry standard ranges • Innovative, leading edge ranges • Good, Better, Best structure Combine world class manufacturing with focused sourcing Authoritat
Slide 23: Multiples
Multiples Unrivalled strength and authority in UK Multiples • Supply 85% of B&Q’s stock keeping units (sku’s) • Supply 50% of Wickes portfolio Position built on • Market knowledge • Product and trend authority • Excellent logistics and supply chain • Embedding ourselves in our customers Beginn
Slide 24: Specification Growth Drivers
Specification Growth Drivers Innovative and focused product portfolio continually reviewed by in-house design team New specification focused website launched September 2013 • Simple to navigate • Fully transportable to tablets and smart phones Strong showroom presence - Material Lab, Dubai, Ba
Slide 25: Summary
Summary Experienced, customer focused management team World class, well invested production facility Solid Base Excellent logistics and product sourcing Established customer base and routes to market Excellent Lucrative UK and Middle East specifications Growth Continental European multip
Slide 26: Norcros South Africa
NOrcros NOFCFOS” SA (PTY) LTD JOHNSON:TILES* MATILERERICR
Slide 27: Business Overview
Business Overview Leading manufacturer of Number two ceramic tile Leading retailer of local Tile Adhesive, Pourable manufacturer in South and international tiles, Floor Coverings and Tiling Africa bathroom and kitchen Tools fittings 25.0% 14.6% 60.4% R259 Million* R152 Million* R626 Million* 3rd Par
Slide 28: Business Overview
Business Overview 79% 21% 44% 56% R259M R626M R152M R1,037M Page 27
Slide 29: TAL: addressable market, competitors and customers
Estimated Size of our addressable market In South Africa • R1.064 Billion Key Competitors • Saint Gobain • Eeze Tile Key Customers • Tile Africa • Builders Warehouse (Walmart) • Malls Tiles “TAL continues to build on its strong and trusted • Tiletoria brand in both the retail and trade sectors
Slide 30: Johnson Tiles SA: tile market, competitors and customers
Estimated Size of the Tile Market in South Africa • 51 Million m2 Key Competitors • CIL • Imports Key Customers • Tile Africa • Builders Warehouse (Walmart) • Malls Tiles • Tiletoria • Union Tiles “Recent investment in manufacturing processes and new management make this business a key turnaro
Slide 31: Tile Africa: footprint, competitors and customers
Strong regional footprint • 35 retail showrooms • National Contracts Division • Supply & Fit Division Tile & Bathroom Split • 90% Tile & Accessories • 10% Bathrooms • Vado Key Competitors • Italtile Group • Builders Warehouse • Tiletoria • Union Tiles “A well respected mid to upper end retaile
Slide 32: Average Revenue Growth for Last 3 Years
Average Revenue Growth for Last 3 Years 13.6% 17.2% 44.6% 7.4% Page 31
Slide 33: Revenue Growth from Continuous Operations – H1 FY2014
Revenue Growth from Continuous Operations – H1 FY2014 18.4% 19.5% 30.7% 15.0% Page 32
Slide 34: Business Strategy
Business Strategy Growth strategy based on product range expansion, geographic diversification and targeted acquisitions Key Targets Revenue to double over next 5 years • Organic – range expansion /geographic diversification • Acquisitions • Tile adhesive and pourable floor coverings • Bathroom co
Slide 35: Growth Plans
Growth Plans Evaluate new plants in Sub- Introduction of Inkjet 15 new stores in Southern Saharan Africa Africa over next 5 years • West Africa Accelerated growth into • East Africa specifications market Evaluating opportunity to expand our Contracts Business into Africa by Grow our Pour
Slide 36: Growth Drivers: LSM Movement
Growth Drivers Living Standard Measurement Movement 25 % of Households in each LSM Group 20 Target Market 15 AMPS 2010 AMPS 2011 AMPS 2012 10 5 0 LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 Strong growth in the LSM 6 & 7 segments, driven by higher levels of government employment.
Slide 37: New Technology / Product Themes
New Technology / Product Themes Improved production Inkjet (digital printing) Improved customer technologies experience • Automated recipe • Store model management Larger formats • Transaction • Increase throughput interactivity Increased factored range NPD adhesives Direct sourcing •
Slide 38: New Geographic Markets
New Geographic Markets TAL Southern Africa • Mozambique • Angola Sub-Saharan Africa • Western Gateway • Eastern Gateway Johnson Tiles 3 Southern Africa • Mozambique Eastern Western Gateway Gateway • Angola 2 Tile Africa 4 Central Gateway Southern Africa • Eastern Gauteng • Southern Gauteng 6
Slide 39: Summary
Summary Favourable economic growth and demographics in SA Excellent Geographic Growth Potential • Sub-Saharan Africa (2014 GDP Growth Forecast 6.1%) Rapid Urbanisation • Significant housing shortages in most sub-Saharan countries Infrastructure Development • Major investment in infrastructur
Slide 40: Norcros South Africa
Norcros South Africa Page 39
Slide 41: Triton
NOrcros TRITON The Great British Shower Company oe
Slide 42: Business Overview: Total UK Branded Shower Market
Business Overview Total UK Branded Shower Market Product Mix – Aug 2013 MAT (volume) March 2007 Aug 2013 Total 2.6 million units Total 1.9 million units 35% 43% 0.7 mil 1.09 mil Mixer Showers Mixer Showers Electric showers have an increased share of the market Source: BSRIA/GfK Page 41
Slide 43: Total UK Branded Shower Market
Business Overview Total UK Branded Shower Market % Growth MAT Volume -1.8 -2.2 MAT -1.0 MAT Aug ‘13 -3.3 -2.4 July ‘13 -3.9 MAT -4.3 -4.8 MAT June ‘13 MAT MAT May ‘13 Apr ‘13 Mar ‘13 Total UK shower market is steadily improving Jun-13 Page 42
Slide 44: Total UK Branded Shower Market
Business Overview Total UK Branded Shower Market Segment Mix (volume) Retail mix: 71% Electric/29% Mixer/Power Trade mix: 60% Electric/40% Mixer Source: Triton Page 43
Slide 45: Total UK Branded Shower Market
Total UK Branded Shower Market Segment Mix (volume) Electrical Wholesale MO/Others 13% National Distributors 24% Merchants 76% 47% 17% 23% DIY Independent Merchants Retail mix: 71% Electric/29% Mixer/Power Trade mix: 60% Electric/40% Mixer Source: Triton Page 44
Slide 46: Business Drivers
Business Drivers Top brand/great awareness Strong consumer franchise Great distribution Product innovation Best industry service First class quality Key customer category management Experienced management Marketing led company Page 45
Slide 47: Historic Revenue Performance
Historic Revenue Performance Page 46
Slide 48: Historic Revenue Performance
Historic Revenue Performance Page 47
Slide 49: First Half Performance
First Half Performance Page 48
Slide 50: First Half Performance
First Half Performance Page 49
Slide 51: Sales Productivity
Sales Productivity *2011 = 53 weeks Page 50
Slide 52: Strategy
Strategy Take advantage of uplift in expected housing transactions/Shower market growth Grow Trade through “Specification business” 35% Growth by acquisition 0.7 mil Mixer Showers Growth by demand synergy with Vado Digital interaction Page 51
Slide 53: Technology and NPI
Technology and NPI New product development is key Affordable technology IP patent-box Page 52
Slide 54: Summary
Summary Triton is a successful business underpinned by:- • Great consumer brand/franchise • Strong blue chip customer base • Innovative NPI/IP • Excellent quality and customer service • Leading marketing and digital marketing • Strong profitability and cash generation in a declining market Growt
Slide 55: Synergy with Vado
Synergy with Vado “Stylish” “Digital” Range of electric Showers by “Simplicity” “Colours” Page 54
Slide 56: Vado
NOrcros
Slide 57: Business Overview
Business Overview • Founded in 1988 as a distributor • Business evolved to focus on own designed and branded ranges of: • Taps • Showers • Bathroom accessories • Plumbing valves • Majority of manufacturing is outsourced allowing excellent flexibility • Assembly operations and distribution centre loc
Slide 58: Business Overview
Business Overview UK • Total addressable market £350m*: - Taps: £160m Export UK - Accessories: £110m 45% 55% - Mixer Showers: £80m • Current market share 4% Export • Global market for taps and showers in excess of £10bn** • Current market share 0.1% * Based on VADO analysis of AMA market research *
Slide 59: Business Overview
Business Overview • Continual turnover growth • CAGR 16% over the last 3 years £30.0 £25.6m £25.0 £23.4m £21.8m £20.0 £16.4m £m £15.0 £10.0 £5.0 £0.0 2009 1 2010 2 2011 3 2012 4 All figures shown as reported in Jan-Dec results Page 58
Slide 60: Business Overview
Business Overview • H1 +14% increase on 2012 • Strong pipeline for H2 £16.0 £14.7m £14.0 £12.9m £12.0 £10.0 £m £8.0 £6.0 £4.0 £2.0 £0.0 H1 2012-13 H1 2013-14 Page 59
Slide 61: Business Strategy
Business Strategy UK • Focused on 3 key channels: - Specialist retailers - Specification work - Plumbers merchants • Addressable market in excess of £350m* • 4% market share gives huge growth opportunities • Further enhanced by synergies as part of Norcros Export • Global market for taps and showers
Slide 62: Market Opportunities
Market Opportunities UK • Capitalising on existing channel opportunities • Expansion of sales team • Increased levels of Aftersales service • Significant growth in UK merchant buying groups • Legislation continues to present opportunities: - The Code for Sustainable Homes - Part G of Building Regula
Slide 63: Market Opportunities
Market Opportunities Export • Maintain focus: don’t spread too thin • Sales growth in existing Middle East and African markets: • New distributors in Saudi Arabia, Iraq, Libya, Nigeria • Team expansion to support new territory growth • Key new territories for focus: - South Africa - North Africa - R
Slide 64: Product development
Product development • Production methodology allows rapid new product development • Vado introduces 50+ new products annually Imminent projects: • 2 new ranges set to launch later this month: - Altitude: High end - Ascent: Mid range - A re-launch of Digital showering Future major initiatives • Flags
Slide 65: Summary
Summary • Continual sales growth in a challenging market • VADO remains a developing brand • Modest market share leaves substantial growth potential • Recovering construction markets in the UK and overseas territories will aid further growth • Major synergistic opportunities within Norcros will give