Norcros plc (NXR) Earnings Call Transcript & Summary

Good morning all. And on behalf of the Norcros team, a warm welcome to our prelim results presentation. I've met some of you, but there are quite a lot of new faces in the room, and I look forward to meeting you individually and getting to know you a lot better. By way of a short introduction, my name is Thomas Willcocks. I'm a retailer at heart and joined Norcros in 2006, following the acquisition of Tile Africa. In 2009, I was made Managing Director of Norcros South Africa and led the team that restructured and returned that business to profit and really to a position where it contributes meaningfully to the overall Norcros position today. About 2 years ago, I think in July, just post-COVID, I spent 10 days in a hotel at Heathrow, that was delightful, and then started a journey in the U.K., looking after the portfolio of brands that we have here. It's been a good 2 years. It's allowed me the time to learn and understand this market, which is different to the South African market, our teams, our businesses and importantly, the drivers of those businesses. I'm genuinely excited to be here. I love Norcros, and I love the opportunities that the business has. And we certainly have taken advantage of those opportunities, we look to continue growing the Norcros business. Before we start the formal presentation, I think it's only right -- and I would really like to recognize the immense contribution to the business of Nick Kelsall, my predecessor. He spent 30 years at Norcros. Having worked very closely with Nick since 2006 across the South African and U.K. businesses, I experienced firsthand how he's focused and determined -- and I think the word determined, that says a lot about how Nick's leadership helped place Norcros in the formidable position that we find ourselves today. Before I hand over to James, who's going to take you through the financial highlights, I'll give an overview and some context to what our record set of results for Norcros and our set of results that have come in at the upper end of market expectations. I will then share some of my own early observations and near- to medium-term priorities after my first 2 months in this role. The Norcros team has once again shown our ability to drive growth through unpredictable economic and geopolitical cycles, as demonstrated by the numbers you see ahead of you. Over the last 3 years, we have faced and successfully dealt with unprecedented and consistent supply chain challenges, extreme input cost inflation, cost of living pressures, skill shortages and more recently, much higher interest rates. All of these factors have contributed to challenging, and what remain, unpredictable markets. It is worth noting that many of the headwinds that we have successfully managed have been with us since around 2020, when the word corona moved from being a fashionable beer to something that we'd only seen in movies. So in this context, these numbers represent a really good set of results, including record revenue of GBP 441 million, a record operating profit of GBP 47.3 million, a balance sheet that is still in really good shape and will allow us to progress our growth strategy going forward. We have also, in the year, taken the difficult decision to exit the U.K. adhesive business, and I will cover this in more detail later. These record results build on a strong history of execution and progress, as demonstrated on the next slide. You'll have all seen the slide before, and it's normally sitting in the appendix. But I think it's important to put this up, as they demonstrate a long and sometimes understated track record of strategy execution, delivering the sustained revenue and profit growth and excellent cash conversion that we have. Norcros has consistently flexed our market-winning model through the economic cycle, and have the team and proven ability to continue to flex and develop our business going forward. In the next slide, which is a new slide -- and it will just be for this one time -- I will as an outside insider, having been in the business for a long time but fairly new in this role and in the U.K., share some of my initial observations and give some indication to the direction we'll take in the short- to medium-term. If we have a look at the left-hand side, it gives a short summary of where I see Norcros today. It is an excellent business with a proven business model, and has emerged from the external challenges that we faced since 2020 in a much stronger position than most of our competitors. Our focus on ROCE remains firmly embedded in our strategy and operational decision-making. And really, when we start looking from the left, we have reached the position we have by pursuing an acquisition-led strategy supported by focused, organic development initiatives. And I think Nick did a cracking job doing that. We have done this by acquiring and developing a focused portfolio of market-leading and complementary bathroom and kitchen product brands. I think it's really important to highlight the brands, we don't talk about it enough. But if you look at the brands in our portfolio, they are market-leading, they are cracking brands, and they all have a huge amount of runway ahead of them. They all fit our business model, and as I said, a strong organic growth potential once they've been acquired. We now have an excellent portfolio of market-leading brands, and importantly, critical mass for the first time. We're starting to get to the size that we will be able to take much better advantage of the group synergies, both on the supply side as we did with freight through the recent crisis in China, but also on the market side, where we are able to introduce different businesses into different projects as a collective. And that one-stop-shop piece is now becoming a reality. I would describe us as a design-led business with excellent in-house design. And I think that's a critical point. All of our businesses design their own products, and we're very proud to control both the design and the manufacture or sourcing of our goods. We don't just go and buy stuff off the shelf. And we have excellent customer service credentials. Our track record of resilience and organic growth speaks for itself over a long period and is grounded in our experienced management teams and evolved business model. We believe that it's crucial to have experienced hands on leaders at the rock face, not just managers, driving the development of our teams and brands. The management team has demonstrated a track record of consistent execution and growth, both organically and through M&A. So it really is a good business. We've managed this process very carefully, and this is reflected in the strength of our balance sheet. And that strength will ensure that we can continue to execute our growth strategy. The growth strategy put in place now -- a number of years ago now has worked, and we are now reaching the critical mass I referred to that will allow Norcros to take advantage of increased operational and market-related synergies. Our strategy development process will be evolutionary and remain focused on growth through our design-led proposition and remain focused on bathroom and kitchen products. Moving to the right and just some of the short- to medium-term areas of focus as we review our current strategy which is coming to the end of its cycle. Firstly, covered in the first 3 bullets, we will continue the development of our one-stop-shop portfolio of bathroom and kitchen product brands. The market remains fragmented, and there is an opportunity in the U.K. and internationally to build on our M&A track record of successfully targeting, acquiring and integrating businesses into our group. Secondly, we will drive the clear collective opportunities to deliver organic growth across our existing brands. We have, over the years, as we've grown, slowly but surely started working closer across our different and devolved businesses, but there are opportunities to take this further, and we'll speak to this in more detail later. The third topic I'd like to address is ESG. I know this is on everybody's agenda. But we have, and we will build on, what are already strong ESG credentials. And what we are finding is that by being ahead of the curve in businesses like Triton, we have a competitive advantage that makes it really difficult for competitors to dislodge us. We're making it easier for our customers to report on their own ESG initiatives and really grow market share. An excellent example, as I said, is our electric share portfolio at Triton, and you will see what we've done at Triton being replicated across the rest of the group. Supporting this will be an increased focus and investment on the operational excellence side of our business, where we will look to harness the synergies available, both inbound and outbound. And very close to my heart, talent. We can do more to leverage the benefit of our growing group scale. At the heart of this, there is always more that we can do collectively than we can do alone. And we can do this without changing the decentralized or devolved business model that has served us so well. And the initial focus areas would be supply chain systems, sales and importantly, talent. I think the last point to really pick up on -- and I'm not going to get into too much detail, but I think James will kick me, but I think our pension is in great shape. If we look back 3 or 4 years to where it was and where it is now, it is not the problem it once was. And I think that's about as much as I'm allowed to say on that one. So -- but it is really pleasing. I think the team has done a cracking job dealing with and managing what was a huge legacy issue. As we move forward, we will remain disciplined in terms of our capital allocation. We will not shy away from making difficult decisions as we did with Norcros Adhesives when required, and we'll not shy away from making the right decisions when the right opportunities arise. And this was demonstrated both at Merlyn and at Grant Westfield, where we made acquisitions at pretty tough times, and we had to fight hard to get them through. But both have really proved highly successful, and we'll talk further to Grant Westfield later. So in short, we have a focused business, an excellent track record and a proven platform from which to grow our share in existing and new markets. I'd like to hand over to James to take you through the financial highlights.

Thanks, Thomas. Good morning, everybody. Good to see you. I just -- I'll probably use this. There we go. Yes, I'll start off today by running through the results, which, as mentioned, do represent another record level of revenue and underlying operating profit for the group. Throughout the presentation, we will compare to the prior year ending March 22, and we have also included the historical information so that you can see the progression. So turning to Slide 7 in the deck and the income statement. Revenues totaled GBP 441 million. That's up 11.3% on a reported basis and 1.5% higher on a constant currency like-for-like basis against the prior year. And like-for-like is adjusting for the 10 months of Grant Westfield, which was the acquisition completed in May 2022. Moving to reported underlying operating profit. This was a record performance at GBP 47.3 million and was 13.2% higher than the GBP 41.8 million achieved in 2022. And the reported return on sales for the group was 10.7% compared to 10.5% in the prior year. The finance charges were GBP 5.5 million in the period compared to GBP 2.5 million in the prior year, and this included bank interest of GBP 3.7 million, higher than 2022's GBP 0.8 million, and that reflects the debt from the acquisition of Grant Westfield and the increase in Bank of England base rates. The IFRS 16 finance charge of GBP 1.8 million was broadly in line with the prior year. Underlying profit before tax was GBP 41.8 million and was 6.4% higher than 2022. Exceptional items include a noncash impairment charge of GBP 5 million against the tangible and right-of-use assets at Johnson Tiles. And this was against the backdrop of uncertain short-term demand for our locally produced tiles. And just to confirm, this does not have any cash impact. In addition, as previously announced, we also made the difficult decision to close the U.K. Adhesives division in March '23. And this has resulted in a restructuring charge of GBP 4.8 million and is recognized as a current provision. Importantly, the net cash impact of that closure is not expected to be significant. Pension scheme admin expenses were GBP 1.6 million and in line with the prior year. Acquisition-related costs include amortization of acquired intangibles at GBP 6.2 million, and that's up from GBP 3.7 million. And this increase reflects the additional amortization from Grant Westfield. And we also had GBP 1.4 million of advisory costs and GBP 0.8 million of deferred remuneration in the year, and both of those relate to acquisition -- the acquisition of Grant Westfield. And the noncash finance charge totaled GBP 0.3 million in the year. So overall, this resulted in a reported profit before tax of GBP 21.7 million compared to GBP 33 million in 2022. So moving to Slide 8 and looking at the revenue and underlying operating profit bridges. Starting with the top-left chart. Total revenues increased by GBP 44.7 million from GBP 396.3 million in 2022 to GBP 441 million. U.K. revenue was GBP 39.1 million higher, and that reflects the robust sales across our divisions and the contribution from Grant Westfield. And overall, there was a resilient trade sector offsetting the softer retail markets. We also recorded GBP 6.5 million of constant currency growth in South Africa, reflecting increased demand and market share gains, particularly in the first half of the year, and all divisions delivered constant currency revenue growth. In total, as shown in the bottom left-hand chart, overall group constant currency revenue increased by 11.5%. So now looking at the charts on the right, starting with the top right. Underlying operating profit was GBP 5.5 million higher than 2022 at GBP 47.3 million and driven from the contribution by Grant Westfield. And finally, looking at the bottom-right chart, underlying operating profit in the U.K. was GBP 37.2 million and GBP 6.3 million higher than 2022 in the -- with the U.K. return on sales increasing from 12% to 12.6%. Underlying operating profit in South Africa was GBP 0.8 million lower in the period at GBP 10.1 million on a reported basis, and the return on sales was 7%. And overall, the return on sales for the group was 10.7% compared to 10.5% in the prior year. So just moving to Slide #9. Gives a little more color on the U.K. performance. And I think overall, our performance in the U.K. proved resilient. Revenues were broadly in line with the prior year. On a like-for-like basis, with the challenging first half, which was down 3.4%, reversed in the second half with robust growth of 3.3%, and Triton and Merlyn were the standout performers. How did this translate to profitability? As you can see on the right-hand side, underlying operating profit grew by 20.4% to a record level of 37.2% -- GBP 37.2 million. So turning to Slide 10 on South Africa. We have continued to make strong progress in South Africa, with all businesses delivering a growth in revenue on a constant currency basis and inevitably taking market share. The first half strong performance, which was up 9.7%, was partially offset by the challenging market conditions in the second half down 0.4% at constant currency, and in particular, in the fourth quarter, with electricity disruptions and the cost of living impacting. Whilst these headwinds remain, we are addressing locally and taking actions to mitigate accordingly. Underlying operating profit was still GBP 10.1 million and a significant contribution to the group, and that reflects our market-leading positions. So moving to Slide 11 to look at the tax, earnings and the dividend. Regarding tax, the underlying tax charge for the period was GBP 8.3 million, and the underlying effective tax rate was 19.9%, and that was in line with prior year. Applying the tax charge to underlying PBT of GBP 41.8 million resulted in earnings attributable to shareholders of GBP 33.5 million compared to GBP 31.5 million in 2022. Reported diluted underlying earnings per share was 37.4p, a small decrease on 2022, and that's largely as a result of the additional shares from the acquisition of Grant Westfield. Turning to the dividend. The Board has proposed a final dividend of 6.8p per share, bringing the total dividend for the year to 10.2p per share, a 2% increase year-on-year. So just moving now to Slide 12 and the cash flow. The group generated an underlying operating cash flow of GBP 44.8 million in the period compared to GBP 28.6 million in 2022. And this represented a strong conversion rate of 89%. The working capital outflow in the period was GBP 13.3 million compared to GBP 23.6 million outflow in 2022. CapEx in the period was GBP 6 million, and reflects an 11% increase against the prior year. Cash tax paid was GBP 7.7 million higher than the GBP 6.5 million in the prior year due to the strong profits in FY '22 and in the current year. Interest paid of GBP 5.5 million includes the GBP 1.8 million of IFRS 16 lease costs and bank interest of GBP 3.7 million. The most significant cash flow relates to the acquisition of Grant Westfield, GBP 78.3 million represents the debt-free cash-free consideration for the business, and this was partly offset by the GBP 18.1 million equity raise. Net cash outflow in the period was GBP 55.5 million, compared to a GBP 4.5 million outflow in 2022, and is after dividend cash payments of GBP 9.2 million in the period. So turning to Slide 13 on the balance sheet. Net debt was GBP 49.9 million compared to net cash of GBP 8.6 million at March '22, and the year-on-year movement reflects the acquisition of Grant Westfield and partially offset by the strong cash generation in the year. Importantly, the balance sheet remains really strong and in good shape as the group continues to have significant funding and liquidity headroom via its banking facility, which was extended for a further year in the period. And just as a reminder, that's a 130 million multicurrency revolving credit facility versus GBP 70 million uncommitted accordion, now with a maturity date of October 2026. Leverage at the year-end was circa 1x EBITDA. Net assets increased to GBP 210 million. And importantly, the pension scheme continues to be well managed and remains in surplus of GBP 15 million, details of which are recorded in the appendix, but we think that's a great position. And as Thomas mentioned, compared to 3 years ago, that's a big turnaround. Thank you very much. I'm going to hand back to Thomas.

Thanks, James. A great set of numbers, and really, the result of consistent focus and really strong execution. When we look at our strategic priorities going forward, it's important to point out that we are having a review and a look at where we are as we approach the end of the current cycle. I think that our current strategy has delivered well. It sets a strong direction, has provided a really strong platform. Norcros does follow a structured and consistent approach to strategic planning and development. The approach has ensured the focus and execution that has driven the success of the current strategy. We will continue to develop the growth strategy after a fresh look as we start to approach the end of the cycle. The development of our future strategy will be evolutionary, as we drive future growth of the sound base that has been created in the bathroom and kitchen product market. Going back to the areas of focus on Slide 5, we have started to distill our initial near- to medium-term thinking. And the 5 areas of focus that we're currently working on are portfolio development, organic growth, our ESG piece, operational excellence and our talent. These focused areas are to a large extent interdependent, but there are important points and nuances that I will talk to you individually. Our competence and discipline in M&A are proven and backed by an experienced team that was initially led by James before he moved up to being CFO. So we have a strong team that understands how we've done it before, and understands how we're going to continue doing it. We will continue to be carefully guided by well-developed and proven acquisition criteria that we've summarized at the top right-hand side of this slide. Norcros has a well-developed and active pipeline focusing on filling the gap in our famous jigsaw by adding complementary bathroom and kitchen product brands in the U.K. and other attractive markets. The results of successful execution of our acquisition plans has seen the group starting to reach the meaningful scale I've referred to before that will allow further operational synergies to come into play for the group as a whole. Grant Westfield has been successfully integrated in FY '23, and is another good example of targeted capital allocation and a business that will benefit from and contribute to our drive to extract more value from our available group synergies and a one-stop-shop. As mentioned earlier, we will make both progressive and difficult decisions regarding our portfolio as we move forward, which leads into the next slide. Moving to the top left, which is where we have Grant Westfield. The business has settled down really well. It's positioned in an area that none of us particularly understood and -- or understood the size of. We are the market leader in the wall panel segment. We are positioned at the premium end of that segment. We have really high-quality product that is sustainable and have a strong innovation track record. The integration is complete and the business is performing well. We've delivered early synergies, including introduction to new customers like Wix and Tops. And really, those introductions have gone well. We started out with 10 stores with Tops and have just been awarded another 100. So really, again, proving our ability to bring businesses on and then grow them organically by linking them into our existing channels. We successfully launched the first new tile collection, which we'll show just now. We have strong growth opportunities in Europe. We already have a footprint, and we will keep supporting this business as we keep driving the efficiencies in operations, but also in terms of new product development. Moving to the top right of the slide. In addition to acquisitions, which we've done consistently, we'll focus more on managing the contribution from our existing businesses. Towards the end of the year, we took the difficult but correct decision to close our U.K. Adhesives business. The business was loss-making, and these losses were accelerating because of the sharp and sustained increases in raw material costs -- and I'm talking cement, dried sand, lithium carbonates -- that given our size, we really had very little power in terms of negotiating down. We also had a very concentrated customer base in an area that we don't really want to be in, and we're not able to recover these really, really significant increases. So I think, standing back, it didn't really fit our forward strategy, didn't fit our capital allocation requirements, and the right decision was made. I would like to thank the team, though, that worked so hard to move this business forward. And subsequently, we're equally committed to closing the business in a managed manner with a minimal disruption to our customers. The team have, almost without exception, found new employment. We will continue to review capital allocation across the group as we continue to further improve our returns. Our second strategic priority is new product development. And if we have a look at the slide that we have ahead, up on the left, we have the tile collection, which is the first wall panel tile collection in the U.K. This product was launched through the transaction and is performing well ahead of expectation. On the right-hand side is a not too pretty Triton electric shower, but a shower that won the first Screwfix Sustainability Award. So when we talk to sustainability, we've got to understand it's already well embedded in our business. And what these electric showers do is allow people to heat water using an increasingly decarbonized electricity grid as opposed to using fossil fuels. This is a really important part of what we're going to do -- is a wider business going forward. And really proud of 4 or 5 years of really, really deep and proper work by Triton that's paying off handsomely. One of our standout performers this year again was Triton, which is in a fairly mature electric market segment. It took growth backed based on a sustainable and aggressive new product development pipeline. The second area of our organic growth would really come from what is a very, very strong set of existing and new customers. The strength and depth of our customer base is remarkable and something that we don't take for granted. We are trusted by our partners. And I think, as Nick used to say, there's been talk about a flight to quality, and we've seen that. The disruptions to supply chains and quality through the COVID and post-COVID area has seen a lot of our end-customers and suppliers really focus on companies like Norcros that have strong balance sheets and can keep their promises both in terms of supply and quality. Our broad spectrum of well-established relationships, many of them blue-chip, includes Screwfix, Travis Perkins, Howdens and Barrett's, to name a few. But I think the important thing, when you look at that slide, as you can see, we are not over dependent on any single customer. The breadth of these channels and customers has and will continue to provide a key source of organic growth going forward. As we invest more in our key account relationships, there are opportunities to increase our individual and collective share of wallet with many of these customers as we cross-sell more. As will be shown in a couple of slides, our ability to cross-sell our group-wide range of brands into existing and new accounts, is a significant advantage and opportunity. We have continued to grow our customer base, with new customer wins contributing to the momentum we've seen in the U.K.'s H2 numbers. And we are making further progress in the current year. A good example of how we cross-sell is really in the U.K. house builders market. We have deliberately developed a market-leading position in this market. But even with that, you can see the kind of gaps that we still have. So although the outlook for house builders might be a little softer in the short term, there are still significant opportunities, and we are making great progress in terms of filling some of those gaps that you see on that slide. So we believe that our ability to cross-sell in house builders and other channels gives us a strong organic growth advantage that we'll continue to progress. Not up on this slide, but an excellent example would be our enclosure business, Merlyn, has used the Triton brand to enter new markets where the Triton brand is significantly stronger. So markets that we would not only take Merlyn into, we've used the Triton brand and gone in there and are driving very strong, cross-divisional growth. Our ability to grow the businesses that we bought or acquired is well illustrated by the work that we have done with Merlyn. We've had a great team at Merlyn. And together, we've accelerated the organic growth by linking them into our customer and product design networks. And in equal measure, this has been reciprocated to accelerate growth in our existing businesses where we used Merlyn's backbone in China to grow the shower enclosure business in South Africa. So I think you're picking up a common theme. There's a lot of opportunity in terms of getting our divisions to work closely together. We acquired Merlyn in 2017. And together with the management team, have doubled the size of this business while also delivering strong cash generation. Grant Westfield is following a similar path, as illustrated by the introduction to Wix and Tops, and we expect to see good and strong sustained organic growth going forward. Our third strategic priority is ESG, and I've touched on it in relation to Triton. We are not talking about a compliance-driven, box-ticking exercise. At Norcros, sustainability forms a core part of our strategic planning and decision-making processes, and is increasingly providing a competitive advantage. Over the year, we have identified 8 key ESG themes, because ESG, as we know, is not just about the E, and you can see them up on the left-hand side. These will carry a lot more detail in our annual report. In summary, we have measured our carbon emissions baseline on Scope 1, 2 and 3 and have set a target of being net zero by 2040 or earlier, if we can. As part of this journey, we have also set near-term science-based emission targets for 2028 that are now in the process of being validated by SBTI. Most of the products that we design and sell have a strong association with water and energy or both. And as a result, sustainability is now a course -- at the core of our strategic and new product development plans. And this is an important point. Doing what is right is actually providing a competitive advantage to Norcros, especially once you get to the stage of being recognized as an engaged supplier, and we are generally a first mover in this regard. It really makes us sticky in the key accounts and difficulty dislodge purely on price. Our social engagement covers where we work, where we live and increasingly, the wider ecosystem as a whole. We do what we say without making a huge fuss about it, but we do believe in putting in more than we take out. This is an area very close to my heart. Key focus areas in the year ahead will be increased investments and group-wide coordination of our talent and DNI programs. Our annual report includes meaningful and authentic environmental and social responsibilities case studies that I encourage you to read. Finally, on the ESG front, at Norcros, for those who've known us for a while, we have and will always uphold the highest governance standards. In this slide, I will highlight one of our many social engagement projects up on the left-hand side, which is Project Yes. Every year, we take on around 60 young people from disadvantaged backgrounds and place them in the business for a year. They don't spend the year carrying people's briefcases. They are put into real jobs, trained up. And this not only results in a number of them remaining with the business, but it also covers the biggest hurdle most first-time job seekers face, and that is experience. Not being able to get through the front door because of experience as they look to enter the market. We are very, very proud of this program, and we'll continue to support it. Again, when you get to our annual report, you'll be able to read about many others. Our final 2 strategic priorities are operational excellence, and as I mentioned earlier, talent. And these underpin the effectiveness of what we currently do, and importantly, what we want to do going forward. On the operational excellence front, we are working to be more efficient and effective by increasing investments in our operational capabilities in our existing businesses, but also increasing collaboration across the group. The key focus areas will be in product design. You might ask why on the design side, but if you think of a bathroom, color matching is hugely important. And I'm not just talking about the white bath and the white toilet. It's increasingly seeing the finishes in bathroom as being really important. So we would have businesses like VADO and Merlyn working together to define and come up with a consistent finish in any of the colors that you can think of. The other areas will be sourcing, freight and warehousing, where we've already made some strong progress and where there are some really strong cost synergies available. IT and talent, good progress has been made in these areas already, but there's significantly more upside to take advantage of without losing the strength of our evolved business model. From a talent perspective, we have initiated a group-led coordinated approach to how we engage with and develop our teams. This will be driven by the first appointment I've made, which is the Chief People Officer. Our initial priorities will be reviewing and then investing in strengthening our talent management and diversity inclusion programs. I'm confident that these 5 areas of focus that will continue to be developed from the sound base of our proven business model will see Norcros build on the excellent progress that we have seen over the last decade. I will now take you through a short summary, including our view on the outlook, and then open the floor for questions. The economic and our sector outlook remains uncertain. This does not worry us or intimidate us. As I said earlier, we have a proven track record of growing the business through the economic cycle, and we are confident that our new product development programs and cooperation between our businesses will allow us to continue growing the market share that we have in both the U.K. and Ireland and South Africa. We will continue to leverage our financial strength to put further distance between our service offering and those of our weaker competitors who are not able to keep their inventory levels where they should. And looking further out, we all know that we need more homes and more infrastructure, and that we should see a recovery in renovations as energy costs and inflation start to moderate, albeit slowly. This, together with our focus on operational efficiencies, should work in our favor in terms of the year ahead in the U.K. The outlook in South Africa, which performed extremely strongly, up 9% in H1 against really strong comparators, has come off slightly in the last 3 to 4 months, driven -- and coming from South Africa, let me explain to you what is called load shedding. And load shedding is basically electricity provided by a single state-owned supplier called Eskom. They have not maintained the plants to the levels that they should have. And you go through these ups and downs. So load shedding has been with us for 5 or 6 years. We've developed the business through load shedding. We're well invested in terms of our own resilience and backup power. But what we've seen, specifically over the last quarter and the first 2 months of this year, is a spike in that load shedding with that two 11 hours a day of load shedding, sort of broken up into 2-hour pieces. South Africa is a very resilient place. That is a spike. We don't expect it to remain at that level. It's already come back in the first 2 weeks of June, and trading has picked up again in direct correlation to the availability of their power. Looking forward, there is an increasing amount of privately funded electrical power coming online. Most of that is clean and solar-driven given where South Africa is, and that makes a huge amount of sense. So I don't want us to be overconcerned by what is quite a remarkable spike and something that is a normal thing in the South African context. As James said, we will continue to monitor it carefully. We've got a team that's managed their way through these kind of challenges before, and we will keep our eye on that. While we do that, much like the U.K., we will continue to leverage our really strong business model and take share from weaker competitors. The key message is that we have proven our resilience in both the U.K. and SA over a sustained period of macroeconomic uncertainty. While the outlook remains softer than we would all like, I'm confident that our diversified and differentiated business model and the 5 areas of focus will continue to stand us in good stead as we look to grow the business forward. We have again posted a record set of results, and we should not take this lightly. Trading over the first 2 months of the year, as I said, has been broadly in line in the U.K. with last year, but in SA has been negatively impacted by the electricity rationing that I've spoken about, with like-for-like revenue levels down 12.7%. Electricity rationing has come off recent peaks and are more manageable at this stage. And we've seen an immediate correction in the first 2 weeks of June. The outlook in the very short term is hard to predict and probably will be a little bit up and down, and we are actively managing this with the team. So we'll be conservative in our expenditure and also conservative in our CapEx in the short term until we're sure where we are. But I think it's important to provide some context. South African revenue growth in P1 and P2 is still 16.5% higher than the same period in FY '20 and 45.8% up on FY '19. So I think it's really important to see this as a blip in a trajectory that is really good. Our business and team have extensive experience managing our business in SA. And as I said, we'll continue taking share, and indeed did take share, from the largest listed competitor we have in the last year. Norcros has a clear plan to drive further organic growth and operational efficiencies across the group in the years ahead. We have made further strategic process -- progress through the successful acquisition and integration of Grant Westfield. Norcros has an active acquisition program, and there remain excellent opportunities to further consolidate the fragmented bathroom and kitchen product markets. We will remain disciplined in our approach to capital allocation, and where we need to, we will be decisive in reallocating capital to more attractive investment opportunities. I think I've spoken enough about our ESG strategy. But again, just making it clear that this is not a compliance net exercise for us. We've also covered the strength of the pension position we now have. And I think it's really important to go away. It's been one of those things that's been a real lag and drag on us, and we're increasingly in a position to determine our own path in terms of our pensions. And I think to the team that has managed their pension, well done. In closing, we have a proven and developing business model that will continue to drive growth, both organically and when the right opportunities arise, through further acquisitions. We will grow the business with an increased focus on group efficiencies, margins and the allocation of our capital as we look to consolidate and grow our position in the attractive bathroom and kitchen product markets. Thank you. And after a sip of water, happy to take some questions.

Good morning. Andy Murphy from Edison. Just a couple of quick questions. On Page 19, you put up that nice slide with your customer base. I was just wondering, is there anybody actually missing from there? Or is it just the case of sort of broadening the -- sort of the spread of all of your brands across all of those names? And the second question, that was on Grant Westfield and other businesses like that, that might come in. Can you just talk a little bit about how you go about doing that cross-selling? How you sort of pervade that kind of growth across the group for incoming brands?

Sure. When we have a look at this, you can see that there's a strong lean towards trade and specification. We have some gaps, as you see on the house builder slide, and we're working hard and making actually really good progress in terms of filling those gaps. And we'll continue to focus really on trade and specification and specialist areas, specialist customers. The cross-selling really works through our sales forums, intergroup sales forums, where -- I think you all know sometimes it's really difficult to get through the door and get to the right decision makers. And what we do across the business is if you look in -- sort of at trade customers, is help facilitate introductions. Or use, as we have with Merlyn and Triton, each other's brands in the different customers. The cross-sell piece works really well on the spec and house builders side because we're able to have a single point of contact with the end-customer and offer them a one-stop-shop really, basket with -- and this is really important, because we are a fashion-led business with coordinated finishes. So that's really what we've done. I mean, the Grant Westfield introduction to Tops came from Johnson Tiles. As I said, a 10-store trial, now up to 100 stores, we'll be getting up to 100 stores as we roll out our displays.

May I just jump in? I used to chair that forum for the specification guys. And the collaboration working together, the culture is fantastic, and that's the kind of spirit that comes down from Thomas, myself, from group. And I think it really has got momentum, and we see further growth. Just coming back to your question on the Slide 19, Andy, I think it's important to look at that in the context of Slide 20, which is the kind of house builder slide. We might have one of those products in each of those kind of outlets or retailers, but it's about then leveraging that contact to bring in the other portfolio of products as well. So we still see plenty of opportunity.

Rob Chantry at Berenberg. Just a couple of questions. Firstly, could you just provide a bit more color on U.K. trading, specifically the success of the trade specification business model versus retail, high- versus low-end, et cetera? And then secondly, clearly, you've gone through a period of the industry, quite a bit of cost inflation in the different business models have recovered that cost at different degrees. Can you just give us an update on the kind of cost inflation at a high level and your ability to recover those at the moment? Any kind of recent dynamics in the past couple of months that might have changed?

Sure. I think if we go back to the first question and have a look at progress in the U.K. on the trade side, being led by new product development, really strong, key account management. And cross-selling being one of the other key drivers. And I think really encouraging, the big part of those numbers came from Triton, which a lot of people look at as a business that can't grow. We are proving we can grow with the strategy that we're following through sustainability. On the retail side, trading remains pretty much like it has in Q4, across different businesses, slightly different. I mean in the U.K. businesses, you've got Triton on one side, which is a replace -- generally been a replacement model. When it breaks, you've got to replace it. Increasingly now, people are putting it in as a product of choice with some of our other businesses are a lot more impacted by whatever is happening in retail and how that's going up and down. Our view is that retail levels will stay broadly at the levels they currently are where volumes are negative, and that has been offset by price. That leads into your second question. I think we've seen cost inflation on the raw material side moderating, specifically any raw materials or products that are imported. We're working extremely hard to get those down, but we still face local inflation challenges, especially around labor and energy. I think what's really important is we've demonstrated the ability to recover inflationary cost increases consistently. And we can do that because we've got really strong brands that people want and that we can support. So going forward, whether it's up or down 2% or 3%, left or right, 2% or 3%, that's not going to impact what we're doing or how we perform.

Was there a question on the mid- to high-end split as well, or...

Yes, I think I was just referenced the kind of retro you have in the market in performance to a higher customer maybe price point [indiscernible]?

We talk about it quite a lot. Most of our brands are mid- to upper-, but you take Triton, which is more of a retail -- mid- to lower-brand at the moment. And what we're seeing, we get good EPOs from a wide number of different customers. The top end is largely unaffected. There is pressure in the mid- to lower sectors. And I think you have seen, not just in Norcros, but in other businesses, they're impacting purchasing decisions. We are not overly exposed at all to the mid- to lower-market segments. We've always targeted our businesses to the more premium side of the market. And that served us well and continues to serve us well.

Christian York from Numis. 2 questions for me. So first of all, on the commentary around portfolio development, I suppose portfolio development from an M&A point of view has been a key focus for Norcros for a while. Should we look at the Norcros Adhesives closure as a slightly new way of looking at the existing portfolio, a closer eye ensuring that the existing business units are appropriate going forward? And the second one, just on the commentary around business units working more closely together. Clearly, a lot of revenue synergies to go after. And as you mentioned, potentially cost synergies, how do you balance that with the decentralized nature of the business? I assume it's quite a difficult thing to balance with some of those individuals and businesses as well?

I think on the M&A side, I said -- acquiring businesses, we're disciplined. We know what we do, we know how to bring them in. We are definitely and we'll continue to look at the existing businesses and the performance coming from the existing businesses. And the options we have around those, whether they -- let's say, the laggards, as we do have 1 or 2 underperforming assets, whether they can be turned, which we've done before as we have in South Africa, or whether we should reallocate that capital. I think you need to give me another 3 or 4 months to really get my feet under the table. But James and I have those discussions regularly, and we know that we've got to generate the best returns we can. And if we don't think we can, then we shouldn't sit on something. The revenue synergies are interesting. I've come from running a business, Tile Africa. And then running Norcros, it's actually increasingly pushed by the divisions. So when we look at synergies, we will always be specialists in the areas where I don't see us saying, let's take Abode and VADO and let's try and be a kitchen and bathroom business. They're very different things. And if you look at the design side of the Abode business and the specialist nature of that business, we should leave those as they are. So the design the sourcing and the customer service around that, we should leave alone the marketing. But what we should be focusing on are the things that they can't do on their own. Or they might be able to do on their own, but if they did it with someone else, they could get much better rates, freight being something too. So we are now able to directly talk to shipping lines by putting all of our freight requirements together. And that's very positive both from a cost perspective, but also in terms of predictability, which is one of the toughest challenges when we went through the last crisis. So we'll talk more to these revenue synergies, but it's not being forced on anybody. We have an MD forum that we get together and shoot the breeze and talk about where we should work together and where we shouldn't and our role from the centers to facilitate the right areas of cooperation without breaking and taking away that entrepreneurial spirit that really differentiates our businesses. I've always said I love competing with big multinational conglomerates, especially in the sort of noncore markets, because their people keep changing, their relationships keep changing. They're trying to copy and paste. The fact that we have leaders and not managers running our businesses in the areas that they operate gives us a huge advantage and we shouldn't ever walk away from there.

Just one of the live example of that. One of the other forums we've run is a marketing forum. And for instance, the people from the businesses will come together, and they'll share each of their expertise on, say, search engine optimization, web development, digital assets, and they will help each other out and they will all benefit and all gain from that. So there's a willingness to come together and it works.

Yes. Good. 2 for me, one for each of you. I think. So first one on inventory. So at the group level, cash inflow in the second half, tick for that. Just wondering if you want to add any comments on that, James, detail-wise regarding where you think group inventories are currently? I think historically, you've held higher than normal to make sure the market gets served and what have you. And if there's any variation of interest between the U.K. and South Africa?

You said there were 2. Are you going to go? I'll answer that one first. So I think -- yes, I think, first of all, the inventory, we have got the balance sheet to invest into our inventory. I think that's served us well. It's enabled our businesses to maintain their service proposition, have excellent OTIF levels. And I think that is a sensible use of capital. Leverage at 1x is obviously a good performance. However, you're right, inventory has increased. We're not complacent. It's a key focus when we go to our operating boards. Have we got the right amount in our inventory? We don't want to be overstocked. I think at the moment, we've got the right balance. I don't see that materially increasing, or indeed materially decreasing, but it's an ongoing discussion point because it is a -- making sure we get the right balance.

Both of that come into place to U.K. and South Africa?

U.K. and South Africa, exactly the same.

Okay. And should we expect then -- sorry, that's the third question. Should we expect then, a sort of normal operating cash conversion around 90% this year as well, then?

Broadly, yes, I think we were at, what, 80% -- 89%, yes. So I think that is as a sensible way of looking at it for FY '24.

I'd like to add something on the inventory. When you look into the inventory numbers, don't forget the inflationary impact in the value of that inventory.

Sure. Good point. South Africa, in the last 2 or 3 years, if not longer than that, TAF has been the star performer in terms of revenue growth. Slightly role reversal this year because JT site has done pretty well despite the load shedding issues. Let's talk about how it's developed. It's done a bit better than the market, I think, in that respect.

I think, again, if we go back 10 years, it was a cash and carry business, really begin to tiles when we acquired it. We moved the brand upmarket. It's mid-upper, it is a 40% exposure to commercial and spec. So rebranded, invested in all of the stores. And if you ever get out to South Africa, go and have a look at a Tile Africa store, there are absolutely fabulous stores. I think the next really important step -- again, leveraging off the group synergy piece, which I hope I'm not overplaying -- was the growth in the bathroom store-within-a-store concept. So a huge amount of the growth at Norcros South Africa and Tile Africa has come from bathrooms, where we've been able to plug into the supply chain networks of VADO and Merlyn, specifically. And we've also worked very closely on the tile side with Johnson Tiles on the spec side. So if you go into a modern Tile Africa, late store, there's probably more than half of them now, they have a full bathroom-within-a-bathroom concept because we're sourcing that directly, we're also doing that at significantly higher margins. So I think we're clear on our position. We have, again, a really great team, the general manager of that business is almost a founder member of Tile Africa, having been at the very first store, understands the culture. We've got a clear purpose, well understood by all of the business. And really, really pleased to see that after an initial struggle, that has really, really come home and delivered the goods. The other key point, the better Tile Africa does, the better Johnson Tiles does.

Sorry, a supplementary while I've got the mic, if you don't mind. Good increase in house plumbing revenue in the period. It's perhaps -- Cullen commented on, really. I know there's some new outlets. Last year, is all the growth from the new outlets? Is there any like-for-like growth? And is the business, overall, contributing profit terms now?

Yes, it is contributing. We're seeing the full year impact of some of the new branches that we -- that really, what we did is one of the businesses had failed. We picked up a couple of new branches, plugged it into the business. It's heavily exposed currently to large civil projects. Their expertise lies in taking specs, costing them and supplying into large projects. Had an issue with large projects in South Africa over the last number of years. We have recently appointed a new general manager, we call them general managers in South Africa with really good experience in the more maintenance side of the plumbing market. And we will not roll out stores at a crazy rate. We will build a national footprint, but we will also diversify our customer base, so we've got more balance. A bit like Tile Africa between major commercial, and then the convenience piece. And we see big upside there, both in terms of revenue and margins. The other thing, just to then finish, is we're doing exactly with house of plumbing and what we did with Tile Africa in terms of sourcing. So they've traditionally sourced through agents and wholesalers. And again, we are now starting to direct source, and that will drive margins and similarly over the next 2 to 3 years. So I think we've got some really strong potential in that business.

Tom Fraine from Shore Capital. You've talked a lot in the past about your stockholding and sourcing capabilities helping to gain share from smaller competitors. How difficult is it going to be to continue to gain market share or maintain market share as supply chain disruptions alleviate?

I think the supply chain pieces has actually changed. So it's not just an alleviation. A lot of the smaller, less well-funded competitors don't have the wherewithal to buy from where they want to. We can, and we also preferred a customer now in places like China and elsewhere because right through this difficult cycle, we paid on time and we kept buying. So as it normalizes, I think the history and our long-term relationships and the way we've treated our suppliers and also the fact that we're very, very active on the new product development side will just keep us ahead. It might catch up on some of our old ranges in terms of price, if they've got the scale. But by the time they get there, we would have moved and the market would have moved as well.

Just to expand on that, I think share gains are now more than just supply chain. It's the investment in inventory that we spoke about. It's the customer service proposition as well. How many talented individuals, if you got taking technical calls or deal with sales queries, I think we pride ourselves on that. I mean it's your distribution promise as well in terms of how do you get it to the customers on time and in full. And I think that customer service, whole proposition, I think that is something we're very proud of, and I think that is certainly when it is.

And it's become a lot more complex. And we're investing in -- ahead of a lot of our competitors. So I mean, you take your shower enclosure, it's glass and aluminum, right? And anybody should be able to do it really well, but we just do it a lot better because our design teams are ahead of anybody else's. If we take the new sleek series that was launched in Ireland last June, has been launched across the U.K. this year, performing exceptionally well and bringing in new business, new accounts. That's just part of our model, and that's why I probably used for the first time that we're a design-led business, really very important. We're not chasing the data trade at all. We're chasing the mid- to upper segments of the market, where people are looking, whether it be in bathrooms or kitchens, really good-looking product that matches and performs really well and increasingly as sustainable as well.

Great. And in terms of the margin, you've obviously done very well to grow the margin, given the cost inflation. Do you expect that you may be able to maintain a margin close to that level or potentially grow it? And what impact will things like volumes potentially recovering and potential further price increases have on that margin?

Okay. A couple of questions there. I think when it comes to pricing, the fact that we positioned in the mid- to upper and premium segments means that we've always been a price leader. We don't wait for anybody else. Got strong brands, and we have been able to get the price increase into the market over a sustained period of time. I think when you operate at the bottom end of the market, it's a lot harder to do that. Our customers trust us. We are transparent with them on pricing and what's going on in the pricing space. So I don't think that's an issue for us. In fact, it's something that we see as a strength. Forgive me, the second part was on volumes? I don't see volumes recovering strongly over the balance of the year, but -- and I also don't see significant new price increases. I think most of the price increases in our sector that you will see over the balance of the year would be the full-year effect of price increases made up until this point. And that's really because of the moderation in raw material and freight costs. The key piece we just got to keep watching is local inflation in the U.K. and SA, outside of pure product inflation. Does that help?

Yes, that's great. So just to be clear, so if you're talking about volumes potentially not recovering this year and no further significant price increases, you might see the margin sort of come back a little bit towards where it was previously?

I want to be careful in what I say, but I'm confident in terms of our ability to manage our margins going forward.

Sam Cullen from Peel Hunt. I've got 3, if possible. The first one is just in terms of your numbers around, I think, volumes and prices were in the U.K. last year and then what the annualization of price might be this year? Give us an idea of what we might imply for the volumes and the cost base. That's the first one. The second one is on the growth strategy and the kind of the jigsaw puzzle you have on Slide 16. Do you feel, kind of capital allocation-wise, going forward, in terms of the cross-selling strategy, you're better served to kind of try and go broader in terms of offer more products to potential customers or deeper and offer a broader suite of products within a range, i.e., more of a good, better, best-type product portfolio range in showers or enclosures or whatever it might be? And then the last one is just on the dividend. And the yield is pretty chunky at the moment. How do you think about the kind of balance between dividends and potential buybacks if you're happy with where the balance sheet is?

Do you want me to handle the first 2 and you pick up... Look, if we go back last year, broadly, it was 10 and 10. Volumes down 8 to 10, prices up 8 to 10. Obviously, variations through the different businesses. I think in the year ahead, both of those will narrow. Is that enough on that, directionally?

Just give us an idea in terms of, if price is flat going forward from now, what the annualization -- this versus...

I don't think prices will be flat in the year ahead because of the full year impact of the price increases that have flowed through all the way up until this point. So I think you will still see some price benefit. And going back to our operational efficiency margins, I think we'll find... On the second one, in terms of the jigsaw, I think you've got to do both. We've got gaps in terms of our one-stop-shop, but we also have the opportunity to have a good, better, best. We don't really want to go to the bottom end, but there's definitely an opportunity. And if we took somewhere like Grant Westfield, there's an opportunity there where -- to do a better and best strategy. And we will be doing that increasingly because we do want to actively target the premium end of the kitchen and bathroom market. Does that cover the first 2 for you?

Sorry, can you do that organically?

Both. So the gaps in the jigsaw, we would probably do through acquisition because you want to buy in some of the specialty skills. If we think we've got them in-house, we will do that organically. So if you take the Tile Africa business, we did it organically. So South Africa has a compelling full bathroom offer with no gaps. I'm talking furniture, ceramics. And we did that all organically because we had some in-house expertise in that area. So it could be a combination of the 2, depending on the specific businesses.

I think as well, when we do look at acquisition opportunities, we look at it with a lens of what value can we add? How do we add to what we're acquiring? And I think that would be an ongoing approach in terms of what are the synergies, how do we drive growth faster in our ownership than it would do as a stand-alone?

Yes.

Just on the dividends, I think, yes, 10.2p, obviously very pleased. I think that's 24% up over a 2-year period. I think it's always a balance on where we strike the dividend. I think the Board are very, very happy with where we've landed. In terms of potential share buybacks, I don't think that's on the table. I think given where we are with the pension scheme, we've got a very supportive -- trustees who support the strategy, and I don't think share buyback would be necessarily the right thing to do. So it's a signal of confidence in our cash position, but we have to be careful about how we manage against the -- with the pension trustees.

Okay. Any further questions?

Are there people online as well, so? No. Okay, everyone's here.

Thank you, really. Thank you for taking the time to come out today. It was great meeting you. Look forward to seeing you at the next round, and feel free to reach out at any time if you'd like some one-on-one time to discuss the business further. So thank you very much.

Thanks, everyone. Thank you.