Norcros plc (NXR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the Norcros prelims presentation. I think most of you were at the Capital Markets Day, and it's good to see you all again. You all know our business fairly well. One or two new faces, welcome. And it was really good to have the Capital Markets Day and follow up here. At the Capital Markets Day, we were able to introduce you to what I think is the best team in the business. The quality of the team [ lowered ] down our business. We were able to take you through our updated strategy and also our new medium-term targets. So good to follow that up with the numbers. A year ago, that goes quickly, James and I stood here and laid out our growth strategy, driven by 4 key initiatives: portfolio development, organic growth and really ahead of market organic growth, operational excellence and the broad banner that is ESG. Over the last year, our team has made excellent progress against these 4 initiatives, and we have driven ahead of market growth. Before I hand over to James, because today is a numbers day and he will take you through the detailed financials, I'll give you a little bit of an overview of our highlights and some context to why we're able to deliver the kind of robust results that we do. And these results include a record set of numbers for the U.K. and Ireland markets, both at an operating profit level and also an operating margin level, which is great. Three key takeaways for you today. We have promised and taken action in terms of the quality of our portfolio. Our team, who most of you met, continues to leverage our scale-based growth accelerators to deliver ahead of market organic growth. And I think you've seen in the results today very good like-for-likes for last year in the U.K. and a very good start to the new year 2 months in. Probably the most important point, and it's a point we've been hammering wherever we go, is that Norcros isn't just another building products company. We don't sell cement and roof trusses. Our mid-premium position selling market-leading brands and our relatively low exposure to the new build sector really sets us apart. And I think it's really important to recognize that. The benefit of that is we're able to generate higher operating margins and we're definitely less cyclical than most of our peers, who have a bigger weighting towards new build. This more resilient mid-position -- mid-premium positioning is supported by exceptionally strong new product development, and I'll share the next important step in their process today, and our ability -- an increasing ability to leverage both demand and efficiency synergies to ensure that we grow profitably. We will not chase growth for growth's sake. In the last year, we had to manage exceptional energy-related challenges in South Africa. We appear to be through the worst. We've had a good election, where a liberation party, probably for the first time ever in the African context, has lost an election, accepted the results and essentially said, we need to work with the people that we need to work with for the good of the country. So we expect to see a gradual improvement there. In short, Norcros is well placed to continue growing profitable share in RMI and also benefit from the recovery in new build when it arrives. We have market-leading positions in that new build sector. Looking at the summarized numbers. Revenue for the year was GBP 392 million, with the highlight being the core U.K. and Ireland like-for-like numbers coming in only 3.2% lower than the prior year as we offset market conditions with strong share gains. Underlying profit was 8.7% lower, impacted largely by the exceptional energy challenges in [ SA ], and we'll talk a little bit more about [ SA ] through the presentation. The key takeaway, though, is what we've been doing in the U.K. in the record operating profit and margins. Excluding Johnson's U.K. and -- where we've completed the sale, operating margins are now just shy of 15%. So when you look at our medium-term targets and our ability to get to that 15%, we're pretty much there in the U.K. already. As I said earlier, we have an excellent team in business with strong market-leading positions. And the scale, and this is important, we are the largest bathroom product supplier in the U.K. to drive ahead of market organic growth and accelerate our market consolidation further through meaningful acquisitions. If we look at our 2 regions that we operate in, our U.K. and Ireland region, as we said, very, very strong performances from Triton, MERLYN and Grant Westfield. Our NPD remains strong, and we have exceptional service levels. Took a call earlier today asking about supply chain issues around the world. We've gone through COVID, we've gone through Suez 1, we've gone through Suez 2, our OTIFs have not moved. And that's why we're trusted by the people we supply. I think that resilience in RMI piece, very important. And for those of you at the Capital Markets Day, I hope that one of the key things you took away is how closely we work together in a non-transactional way, that the collaboration in Norcros is special. It isn't seen in many places. And together, we are able to do more. As we said earlier, we got rid of Adhesives, and we managed to sell Johnson Tiles to management, and it was really great to see that sale go through and keep that business going. On the South African side, profit pretty much halved, and that was due in the main to the load shedding in the first half of the year, we had up to 12 hours of energy interruptions a day. That said, our South African business in the previous 2 years generated operating profit north of GBP 10 million in each of those years, and we shouldn't forget that. Strong management team in South Africa, you would have seen Kevin at the Capital Markets Day, that massive guy that you saw there. Got in early, made all the right decisions and are well set as the market starts to recover. Spoken about the elections. And I think that the markets and people ask me what's going to happen after the elections, I will answer it before we get your questions. We expect a slow drift to a more cohesive coalition government setup. I'm careful about talking about politics. The elections could have gone horribly wrong when the ANC lost the majority that they did, but they seem to be leaning the right way. And as I said, you can see it in the currency, it was a good indicator of what's really going on and what's happening there. So we potentially could end up with just a better version of the ANC. Same kind of policies would be at the implementation. A little bit more about South Africa. Just to remind you, this is a large and attractive market. It's not much smaller than the U.K.'s market, and that's just the formal piece. There is a massive informal South African market piece that is not measured or seen anywhere, and that is reflected both in South Africa and the surrounding economies. I remember in 2017, standing up in London, it's a [indiscernible] saying that it was our biggest export market, and people said, "How can that be?" Just how business happens there. So we have now become the largest economy in Africa. Again, Nigeria and South Africa seem to [ flick flex ]. So between now and the Capital Market's Day, it's changed again, and there are broad-based economic drivers and a growing population. So this is not an economy built on only one thing, very good mining, raw materials, tourism, reasonably strong industry still and strong service sector, so quite different from a lot of emerging markets. Very strong brands in the market. We have a complete bathroom offer there already. We have a semi-integrated model. And again, focused on the mid-premium market share -- market space. Challenging start to '24, stabilized back end of '24. And we're starting to see and hope to see post the elections a gentle move back to where we need to go. But I'll just keep reminding you of the strength of that region's contribution over the 2 years prior to FY '24. Coming back to the -- being a differentiated model and being different, I don't think I need to say anymore. You were all at Capital Markets Day. We spent quite a lot on this very point, but we have market-leading bathroom and kitchen products brands. Our mid-premium position is [ deliberate ] and will remain there. We are differentiated by very, very strong product design and customer service setups, and we're increasingly capital light and cash generative, and James will take you through the cash flow. If we go to our sweet spot, again, from the Capital Markets Day in the U.K., RMI is around 80% of bathroom demand, 20% comes from house builders and other. The house builders get a disproportionate amount of press, okay? And everybody reads the segment based on what's happening to a large extent in the house builders. Actually, most of it comes from RMI. And if you go to the right-hand side of that chart again and having a look at the economy, middle and premium, we're sitting in the mid-premium space and people continue to spend money in that mid-premium space. Not only do they continue to spend money there, we are launching fantastic new products in there, and that is what's driving the ahead of market organic growth. So looking forward, we are very well positioned for accelerated growth. We have a successful and scalable platform, as I've spoken to market-leading brands, very diversified products and channels but targeted, strong design and customer service, and we have an excellent M&A and organic track record. Significant opportunity to grow. Back to Capital Markets Day, took you through where that might be and can be, and we'll talk today about the U.K.'s entry into bathroom ware and sanitary ware for the first time, which is one of our key gaps. And Norcros' strategic drivers remain the same. And just to remind you about the new-term and new medium-term targets, these are ambitious, but they are also deliverable, and they set us apart from most of our peers. Organic growth of 2% to 3% above the market, we have been doing that already. So that's not something new. Our operating margin is at 15%, well on track. ROCE above 20%, achievable for us as well. Cash conversion, we've delivered around that number or better almost every year. And in the past, you're well above it. And again, on the science-based carbon emission targets, something we take really seriously, making excellent progress. James, if you want to come up and take us through the details?

Thanks Thomas. Good morning, everyone. Thanks for taking time out to come and listen to us today. So I'll start off by running through the numbers. And as mentioned, reflects a robust performance for the group and a record result in the U.K. and Ireland. So turning to Slide #10 and the income statement. Revenues totaled GBP 392 million. That's down 11.1% on a reported basis and 6% lower on a constant currency like-for-like basis against prior year. And like-for-like means that we adjust for Norcros Adhesives and for Grant Westfield. In turn, reported underlying operating profit was GBP 43.2 million and was 8.7% lower than the prior year. And pleasingly, the underlying operating profit margin was 11%, and that compared to 10.7% last year. The finance charges were GBP 6.8 million in the period, and this includes bank interest of GBP 5.2 million, and the IFRS 16 finance charge was GBP 1.6 million. Underlying profit before tax was GBP 36.4 million, and that was 12.9% lower than 2023. Just moving on to the exceptional items, and that includes a reversal of a noncash impairment charge of GBP 4 million against land and buildings at Johnson Tiles U.K., and that followed a valuation exercise that was done as part of the sale process. And we also include the GBP 1.7 million of restructuring to do with restructuring programs at Johnson Tiles U.K. and the move to new premises at VADO. And just to note with that sale on Johnson Tiles U.K., that completed in May after the year-end. So in the next financial year, we will expect to recognize a noncash exceptional cost of around GBP 20 million. And a reminder that the cash costs associated with that transaction were less than GBP 1 million. Pension scheme admin expenses, they were at GBP 1.3 million and slightly lower than the prior year. And acquisition-related costs, that includes acquired intangibles of GBP 6.5 million, and that was in line with the prior year. And to note, we have also released a GBP 3 million release of the Grant Westfield deferred contingent consideration. And finally, the noncash finance charge totaled GBP 0.5 million. So overall, this resulted in a reported profit before tax of GBP 32.6 million compared to GBP 21.7 million in 2023. So now looking at the revenue and underlying profit bridges on Slide #11. Starting with the top left chart. Total revenues decreased by GBP 48.9 million to GBP 392.1 million, U.K. revenue was GBP 13.9 million lower, and that largely reflected the closure of the Norcros Adhesives business. As Thomas indicated, the challenges in South Africa impacted our results, and there was a GBP 15.5 million constant currency revenue reduction in South Africa, and a weakening of the rand further decreased revenue by GBP 19.5 million compared to 2023. In total, as shown in the bottom left chart, overall group constant currency revenue decreased by 7% in the period. So now looking at the underlying operating charts on the right. Top right, underlying operating profit was GBP 4.1 million lower than 2023 at GBP 43.2 million, and that was largely impacted by the conditions in South Africa. And finally, looking at the bottom-right chart, underlying operating profit in the U.K. was at GBP 38.4 million and was GBP 1.2 million higher than prior year, with the U.K. operating margin increasing to 13.6%, and that in part benefited from the closure of Norcros Adhesives. Underlying operating profit in South Africa was GBP 5.3 million lower in the period at GBP 4.8 million, with an operating margin of 4.4%. And overall, the group's operating margin, as I mentioned before, was up 0.3% to 11%. And just further to note, when you adjust out Johnson Tiles U.K., this improves overall group margin by approximately 0.8%. So moving on to Slide 12 to look at the earnings, the dividends and the tax. The underlying tax charge for the period was GBP 7.6 million, and the underlying effective tax rate was 20.9%, and that compares to 19.9% in 2023. Applying the tax charge to the underlying PBT resulted in earnings attributable to shareholders of GBP 28.8 million, and that compared to GBP 33.5 million in the prior year. And reported diluted underlying EPS was 32.1p, and that was a 14.2% decrease. Turning to the dividends. In light of the robust FY '24 performance, the strong financial position and the confidence in the group's prospects, despite the fall in EPS, the Board has proposed a final dividend of 6.8p per share, and that brings the total dividend for the year to 10.2p, and that's the same as 2023. So now looking at the cash flow, and this is on Slide 13. The group generated an underlying operating cash flow of GBP 56.4 million in the period, and that compared to GBP 44.8 million in 2023. This was another excellent performance and that's a conversion rate of 123% of underlying EBITDA. We continue to focus on working capital management, and the working capital inflow in the period was GBP 3.3 million, and that compared to an outflow of GBP 13.3 million in 2023. CapEx in the period was GBP 7.3 million, and we continue to invest in our new products, our systems and our facilities. Interest paid was GBP 6.8 million, and that includes GBP 1.6 million of IFRS 16 lease costs and bank interest of GBP 5.2 million. Overall, net cash flow in the period was GBP 14.3 million, and that's after dividend payments of GBP 9.1 million. And just to note, in the prior year, the GBP 55 million outflow, that includes the acquisition of Grant Westfield. So turning now to Slide 14 and the balance sheet. Net debt was GBP 37.3 million, and that excludes finance lease liabilities, that compares to GBP 49.9 million at March '23, and this improvement reflects the strong cash generation in the year. Importantly, the balance sheet remains strong and in really good shape. And the group continues to have significant liquidity and funding headroom via its banking facility, which was extended for a further year through to October 2027. As you can see that leverage at the year round was 0.8x EBITDA, and that's a reduction from circa 1x EBITDA in the prior year. And finally, to the pension scheme, the accounting surplus increased to GBP 16.5 million. And then just finally, to note, the 2024 triennial valuation is now underway. Thank you very much. Thomas?

Thanks, James. Really a good set of numbers, and we don't take for granted. Really strong financial team, both at Wilmslow and right through our business, is something we're really proud of. I'm now going to take you through some of the examples of the strategic initiatives and the progress we're making on those initiatives. Some of them covered in the Capital Markets Day. And where that -- where we did that, I'll tread lightly. But there are the 4 drivers that we've spoken about for the last year and a bit now. M&A/portfolio development, our organic growth focus, operational excellence and our ESG drivers, I'll just work through an example of each. On the portfolio development side, really considered approach to what we do on the M&A side, Grant Westfield acquired, very strong; closed Norcros Adhesives, closed or sold Johnson. And through those movements, we're starting to, especially in the U.K. now, have a very clear and tight portfolio of products that align in terms of our strategic targets. They all have similar business models, and we're able to work collectively to do a whole lot more. I'm not going to get into the details of Johnson, but I think a very good decision for us and for the business. Organic growth program, and this is always, for me, the real health of any business, is what's happening with your organic growth. And 2 key drivers here. The first being new product development. What sets us apart here, again, is very strong in-house design, well-developed NPD pipeline that continues to deliver. We have an increased focus on sustainability. We collaborate across the group, and we have great NPD vitality. We actively measure that across all of our businesses. And this is one of the key drivers in driving ahead of market organic growth. Really pleased, we touched on this at the Capital Markets Day, to announce that we've formally launched our first range of bathroom furniture and sanitary ware in the U.K. market. This is called Cameo, designed in-house, you have the furniture, you have the basins, you have the [ tech ], you have the mirrors, all coordinated. Fantastic design. And if you've got the time. Go onto the website, it's well worth a look. So again, following our usual way, in-house design, very strong collaboration with the South African team, who already do a complete offer. The introduction of some nearshore sourcing in this range. And I think the really important point is it demonstrates, as we've said before, that we're able to enter new categories or adjacencies organically or through M&A. We're not restricted to one or the other. Slide from the Capital Markets Day, again, just showing how we collaborate, how we cross-sell in existing businesses and in businesses that we buy, this being the Grant Westfield example and 3 of the major accounts introduced to Grant Westfield. And we're making great progress in all 3 of those accounts. On the operational excellence side, this is how we keep our promise, and we do it efficiently and more effectively than our smaller competitors. Very strong work together on the freight side, where we consolidate freight across the group. It allows us to talk directly to the major shipping lines. It allows us to be more predictable in terms of bookings, allows us to also be more stable in terms of our costs. Freight remains fragile. We're going through another spike at the moment in freight. And again, we are going to be a lot more stable and a lot more controlled than a lot of our smaller competitors. And we pick up quite a lot of business because we can keep our promises. We are 90% complete in terms of consolidating 4 VADO warehouses into a single modern facility that will take costs out but also make us more efficient in terms of keeping our promises through improved OTIF levels. So very, very pleased about that project, brilliantly executed by one of our young ops directors and kind of talks the talent we have in the group. Grant Westfield, same-size products as MERLYN. We have moved their warehouse in with MERLYN's. So operating out of the exact same space using the same last-mile distribution, which was handling big and fragile stuff. Grant Westfield would average up to 7 days to get stuff around the country. We're able to do it in 48 hours for MERLYN and sometimes quicker. As part of that process, we've also partnered with Maersk in Dublin and opened a new warehouse there that will operate as a group warehouse. So we're moving away from having this multiple of warehouses all over the place. We will move stock less and we will move it more accurately at lower costs. Significant investment in systems to make it a lot easier right through our value chain for our suppliers, for our staff, for our customers and for us at the middle as well, of course. ESG underpins really everything we do, and we've spoken a lot about this. I think Dave gave you a really good flavor of this during the Capital Markets Day. But it's really about our people, our products and our planet. We take this seriously, and this is driving competitive advantage. So part of the organic growth that we see in our business, especially in that RMI space, comes from somewhere like Triton, where not only are we replacing units of our 5 million installed base, we're adding, we're encouraging people now to put things like ENVi in. People who would never put an electric shower in are starting to do because we've got it fashionable, we've got it behind the wall and it has very strong sustainability credentials. And Triton, who we've been at this for some time, have just won the Kings Award for Enterprise in this space. That is a really high accolade, and I'm really pleased for Dave and his team. So well done to them. Just a short piece about Norcros. I've spoken about our collaborative nature, but we also believe in doing what's right in the communities we live and work in. We put back. This is a project in South Africa called Project SAFE. A lot of rural schools don't actually have toilets, they have pit latrines. Children drown in them every year. We partnered with the government about 6, 7 years ago. And every year, we build 1 full and new SAFE set of toilets in water-scarce rural areas using our technology. Our staff were actively involved. We're very proud of this. We've just opened this facility at Rwantsana at primary school, deep in the Eastern Cape. So very important. ESG is not only about carbon footprint. Coming back to some of our key strategic initiatives, they're all aimed at driving a high-quality business. So we're driving growth. But as we drive growth, we want to make sure that growth is delivered through enhanced earnings. As James has pointed out, and if you look on the right-hand side of the slide, we have sold Johnson Tiles, that's worth about [ 0.8 ]. And we have 3 other key areas we're driving. One is the operational excellence that I've spoken about, again, in play, progressing well. The organic growth ahead of market organic growth, which we've demonstrated again and continue to demonstrate at the start of this year, and then the operational leverage side as the SA and U.K. markets start to recover. If you just think about a little bit of a housebuilding recovery and South Africa even getting halfway back to where they were, you can see that this -- there's a clear path to where we're going. And that is before we add any margin-enhancing M&A that would accelerate the margin progression in terms of our mix. If you look at our last 2 business that we've bought, Grant Westfield and MERLYN, both very high operating margin businesses. So in summary and having a look outwards, we've had a good start to the year with revenue growth of 2.2% like-for-like constant currency revenue growth. And then really pleasingly, we're growing in our core U.K. and Ireland market but also in South Africa again. Not many businesses right now are doing that, and we're doing that at higher operating margins, which is really good. The new strategy, including our growth and operating margin targets, have been launched and are in play. Therefore, I'm not going to repeat them again. They are all being led by really experienced and strong teams, and we'll continue to drive the business forward. So we have a successful, very differentiated and scalable platform with the opportunity to grow in what remain large and fragmented markets. And the Board's expectations for FY '25 remain unchanged at this stage. So really pleased with that, and we're ready for any questions. James, you can come up.

Robert Chantry, Berenberg. Just three questions for me. So firstly, U.K. competitive environment, I guess, part A, can you give some color on the year-to-date like-for-like growth versus the market? And secondly, is there any kind of more anecdotal evidence points around how you guys are kind of performing versus the local competition or versus how other people are getting on in the market? Second question on U.K. EBIT margin. Could you just give a bit more granularity, I guess, on the spread of margin between different operating units, both in absolute terms and versus prior year? So how about MERLYN and Grant Westfield, if they expanded and done really well, is there anything lagging? And I guess, thirdly, in terms of digital, I guess, there's been some consolidation of players on the digital bathroom market. Is that relevant to you guys? Does that change anything for you? Is that an opportunity? Is it -- basically, is there any more detail or color you can provide around the digital market in the U.K. and how relevant that is?

Sure. So if we jump into the U.K. and just have a look at our growth, our like-for-like growth through last year and the start of this year, I think the story is very much about RMI and new build. So obviously, strong in the RMI side versus maybe [indiscernible] got a stronger new build slant. And on top of that, we've got the new product developments. So people have kept spending in the top part of the RMI segment. And on top of that, we've got strong new product development that is driving that forward. And I think best compare it at the moment, just have a look at our peers' results that have been published over the last 2 or 3 months, and It'll tell you pretty much everything you want to know, I think. So again, [indiscernible]. Operating margin, we have -- it's something we look at very closely as part of portfolio development. And if we look at the biggest businesses in the U.K., higher operating margins, and they've maintained those high operating margins. We have an opportunity with some of our smaller businesses to get those margins higher. And some of that will come through the organic growth that we've spoken about and also the operational efficiencies that we're driving forward. So nothing major to note there, Rob, really in terms of that. On the digital side, Victorian Plumbing being the obvious company maybe to talk about, and I don't really like talking to you specifically about businesses, we do business with them. There are other less well-publicized businesses out there. The route to market continues to change and evolve and as -- [ while ] operational efficiencies is up there for us. Absolutely key focus for us on the B2B side, making sure we're able to support what is a blue chip customer base as they develop their channels. So we do very well [ D2C ]. We work with our partners at this stage predominantly.

I'll just jump in on the first one as well, Rob, on that U.K. market piece. I think it's important to recognize that we do monitor a lot of our competitors, either anecdotally or through published accounts, and they are generally quite small in a fragmented market. And while the market has been tough generally, we see that in some of those competitors' accounts where cash flow is negative, leverage has increased and maybe they're not investing in CapEx. So I think that plays to our strength in terms of our scale. You saw the CapEx number of that, over GBP 7 million we've invested. And our competitors, the smaller ones, can't do that. So the nature of the fragmented market means we do see competitors struggling. Now, sometimes competitors take a long time to die, but they certainly won't be investing in CapEx facilities, new products, people, working capital like we're able to do.

Christen Hjorth from Deutsche Bank. Three questions from me. Just -- so starting on operational excellence, I know at the Capital Markets Day, you talked to lean as one of the things you were focused on. So just a little bit more color on that, please. And then also just generally around operational excellence. Do you have a savings target in mind that we should be thinking about sort of [ 10 ] million over the next sort of medium term? And then finally, just going back on the question on U.K. EBIT margins and the fact that there are variances between some of your business units. And clearly, the Tritons, MERLYN, Grant Westfield are very strong. But when you look at the businesses, what is the driver of that variance? Is it market -- that product market structure and where your market share is? Is it all about just building share in that category? Just trying to understand what would drive that?

Okay. On the ops excellence, there's probably of the 4, the one that is in its earlier stages, so I'm not going to give you a number, but it's fairly significant. If we just take the Grant Westfield, MERLYN piece and what we're doing at VADO, so it would be a key component of those 4 steps. But I'm going to say it's 0.8% to 1.2%, but it's a meaningful number. You would have noticed we brought [ Helene Roberts ] in with a very strong supply chain background, who is strong on the lean side of things. It is not my area of expertise, that's for sure. But if we just have a look at ultimately what we want to do, Christen, we want our businesses to focus on product development and service. We want to provide them with a highly efficient platform in terms of moving stuff around. And we know we can do that. We've got the scale to do it. We don't have to replicate what we're doing 6 or 7 times every time we do it. So I know that's a general answer, but that's what we'd like to keep it for now. Maybe in a year from now, we'll be a little bit more specific about that. And then on the U.K. variances, our bigger businesses benefit from scale, of course. But some of our smaller businesses that have the opportunity and will build the operating margins just learning from some of our best businesses on the things that drive it to organic growth, how they run their NPD, [ hooking ] in on the operational excellence side and not duplicating. So that's what we'll be doing with some of those smaller businesses. Yes?

Just one more question.

Shoot.

On the logistics piece, should we think that over time, it's just sort of like a Norcros, you could have fewer warehouses having all the products and then moving it across? Or is it that actually, MERLYN and Grant Westfield will stick together, but try to be slightly different?

I'll answer that in detail a year from now. What I can say, categorically, there will be less warehouses and we'll move stock fewer times. So we're looking at all the very best models out there, and they're evolving really quickly. And you've got different pieces. You've got the consolidation of the inbound stuff that's coming in. And then probably the more important part is the outbound where you're doing straight B2B full pallets versus doing marketplace for somebody or [ D2C ] for somebody, drop shipping for somebody. And it's really, really important in terms of being a relevant business going forward that you have the infrastructure to be able to do that. And that will become a clear differentiator for us. Yes. Toby?

Toby Thorrington from Equity Development. I've got three, I think, as well. All [ financial ], James, apologies. So strong second half cash flow in particular, can you give us some insight into how you might expect working capital and CapEx to develop going forward, i.e., is working capital is as tight as it can be, should we expect it to grow with revenue or something different and a CapEx guidance? That's the first one.

Yes, in terms of CapEx guidance for next year, I think, we'll continue to invest in facilities, infrastructure, particularly IT as well. And so probably single -- high single-digit millions is probably a reasonable assumption for FY '25. And in terms of the second part, where are we in working capital, it's always something that is really key for us to monitor and discuss our operating boards because we recognize that the link between investment and use in the balance sheet into inventory then drives market share gains by that service and that ability to supply. And that surety of supply has been a really key driver for us versus, obviously, with my financial hat on, having a lean, efficient working capital. And driving cash is really important as well. So I think it's always a balance. We think we've got it okay, pretty good at the moment. So for this stage for FY '25, probably a flat working capital number.

Okay. And on the operational side of the business in both the U.K. and SA, there's been quite a lot of activity, investment in systems and obviously warehouse consolidation and those kind of things, which you flagged up. I think there's a small amount of -- sort of non-recurring for the VADO consolidation. My question really is, in both of those divisions, has there been sort of inefficiencies, double running costs absorbed above the line as part of that -- those processes?

I'd probably look at it slightly differently. Inefficiencies because of some of the systems have been old, we probably look at it in terms of investment in the systems are going to drive those efficiencies. And for instance, there's a -- Croydex had a big project with ERP, and then it got delivered in March this year. For instance, they were -- sorry, in April, it came in, didn't it? So they were essentially IT light for the first 2 weeks of April. So there will be some efficiencies to come in more sales for Croydex for April, for example. But overall, I think it's that investment driving efficiencies more than necessarily double cost.

And probably -- I mean, being a salesy guy, it's not just efficiencies. The better, the more efficient we are, the more we're going to sell. So one of the key things that happens when you get better at running your operations, you're better in stock. So if you took a business like VADO, the OTIF would be good couple of points off someone like MERLYN's. As that improves, each gets extra business, happens every time.

Okay. And final question for me. I can't let you go without asking you about pensions. I'd be pleased to hear. Seems pretty stable, actually improving, surplus on the balance sheet despite a lower discount rates, triennial's underway. Would you be optimistic for a better cash outcome? Or is it too early to cover it?

I think it is early, but let me try and answer the question as best I can. Obviously, the triennial valuations can take 12 months. So we won't be in a position to see where we land until the back half of this year, potentially early next year. Had a deficit of GBP [ 36 ] million. So I'll be confident that we're going to be improving on that deficit. But there's key kind of variables in that pension piece, which is, one, the mortality assumptions. But mortality, unfortunately, is increasing with life expectancy reducing. The other piece of that is an important part, is the equity returns and the assumption on as well. So they're 2 very big levers. But overall, as you can see, the accounting surplus is a good indicator. We're in really good shape. And I expect we'll be in a good position when the actuarial valuation comes through.

Andrew Murphy at Edison. Just to break with tradition, I'm going to ask you, too. You mentioned on the -- in the presentation nearshore sourcing. I mean, I can probably guess what it is. But I was wondering if you could elaborate a little bit and let us know sort of perhaps how important that is or could be to either the operations or contribution to margins, et cetera? And then secondly, on South Africa, but you can sort of guesstimate how on -- Thomas, you mentioned the business used to make 10, making 4 at the moment. What's your sort of glide path upwards to -- is it a year? Is it 2 years, 5 years? What's your feeling?

Okay. So I mean, nearshore sourcing is important for us. That's it. And I always say it, a lot of stuff that's made in Europe as widgets from China and the Eastern. So there's no magic piece here. We're always looking for new partners, making sure we have at least dual sourcing of product. And I don't see that materially changing. So it's more about dual sourcing than near sourcing for us, if that answers the question. So yes. I mean that Eastern Europe was really developing nicely ahead of all of the Ukraine issue. Turkey is good. It's volatile, but it's good. And interestingly, North Africa starting to develop a little bit, and quite a lot of manufacturing moving from China to India. So it's quite mobile. Sometimes the same companies own the businesses in the different geographies as well, which is quite interesting. The South African piece, hard to call, no reason for us to get somewhere back to where we were, but that's difficult to call us. It's [ not ] on a 1-year trip, that's for sure. So I would manage your expectations, I think the damage done to the new build cycle confidence and then just the lack of political implementation of programs, that needs to be restarted. And I think it's no different to the U.K. really. When those things stop and pause, switching them back on takes a bit of time. But in saying that, again, very strong business, no debt. The strong management team, weaker competitors. So even if the market goes a little slope, we're probably able to move it a little faster. So I'll manage expectation, gradual recovery. Any more questions, anybody? Thank you. Thank you very much.

Thanks for your time. Very appreciate it.

Thanks, everyone.