Norcros plc (NXR) Earnings Call Transcript & Summary

Good morning, everybody, and good to see you all. I think we know most of you now. So thank you for your support. I know it's quite a busy day out there today. So before I hand over to James, who's going to take you through the financial highlights. I'll just give you a short overview of our results which again are at the leading end of our sector. As we work through the set of results, there are probably 3 key takeaways. The first is that we continue to deliver strong organic growth and ahead of market organic growth. We are making ongoing progress on the implementation of our strategy. And despite the market being tougher than anticipated, there are further market share opportunities now. And as the market does eventually recover one fine day, who knows when that might be? But I think the key point is we're not reliant on a market recovery. As we work through this short presentation, we'll demonstrate our through-the-cycle resilience and continued focus on growing our position as the U.K. and Ireland's largest branded bathroom products designer and supplier. Just having a look at the highlights, I think there's a couple of key points here. But the ahead of market organic growth has really demonstrated. I'm going to claim that 0.1% on the like-for-like revenue growth, but the story is really on the U.K. side of our business where we grew 0.9%, which I think for the half year, again, was at the top end of the range in our sector. Reported revenue was lower year-on-year, reflecting the successful completion of the sale of our Johnson's U.K. Tiles business in line with our business and strategy objectives. And again, it's encouraging that we've managed to deliver these results outside of any market recovery. The focused implementation of our strategy strongly underpinned our like-for-like organic growth, and we will continue to really focus on this area. We've got a great team, really focused on a number of core principles, and we'll share some examples with you today with a focus on our entry into the U.K. and Ireland's bathroom and furniture -- bathroom furniture and sanitaryware markets and we've done that organically. And I think that's a big play. We've done that at Vado. And we'll also talk about progress on the operational front, where we have consolidated our warehouse and depot footprint from 26 to 15 warehouses. This is the first major step towards driving improved efficiencies and customer service as we leverage our scale. Operating profit was 7.9% lower year-on-year, primarily reflecting additional investment in operations. So as we transitioned these warehouses, we ran, we had dual running costs. We completed these projects on time with absolutely no disruption to our customers, which I think is a great complement to our team. And it also includes a noncomp 5-week manufacturing shutdown in South Africa. So it's quite important to pick up those 2 points in those half year results. Our balance sheet remains strong with debt at circa 1x underlying EBITDA. And also interestingly, is increasingly a deciding factor when awarding long-term supply arrangements now. Our customers in the market are looking at this a lot tighter. They need people they can trust, they need people they know are going to be there for the next couple of years and people with a strong track record. Our interim dividend is increasing, reflecting our confidence in the group's prospects and all being equal in this strange world. We maintain our full year operating profit forecast and this will demonstrate progress towards our medium-term targets. Looking regionally. And starting in the U.K., the ahead of like-for-like -- ahead of market like-for-like revenue growth was driven by ongoing market share gains, as I said, strong new product launches and increased selling collaboration across our brands. We are definitely leveraging the scale of our business more effectively with every passing month. The market remains challenging, and we don't expect a sudden rebound in the new build recovery that's been long anticipated. Given that we are able to grow revenue and share in these conditions, it means that we are very well placed for any recovery in both the RMI and new build markets. People often ask me, are we a recovery player? Well, when new build recovers, it doesn't mean RMI doesn't recover. So we placed to recover on both and I think that's going to be a good accelerator for us. As I said, I'll talk more to our strategy implementation, covering operations and also ESG. And just interestingly, on the ESG front, you guys know it's core to what we do. Triton received the King's award, which is not something that's easily won in H1 this year, and kudos to the team at Triton. South Africa, as you know, my home country has seen a stabilization in the energy grid, around 6 months of no energy interruptions, but the market recovery will take some time. Interest rates are still around 11.5%. People are still feeling the impact of what happened. But it is still a good market. It's a market we've made a lot of money in before but it will recover slower. I think the first signs of any potential recovery will be at the start of the new build cycle, which happens after the summer holidays in South Africa, and that would be in February and March, if we were looking for an early indicator there. So in short, a really impressive performance by our U.K. team with further strategic progress coming through in our market share gains and a resilient performance in South Africa, and we are well positioned in South Africa for the recovery when it does come. Finally, before I hand over to James, I just want to keep reiterating this part of the Norcros story, and this is the key to why we outperform many people in our market segment. Firstly, we're not a heavy side supplier of building products. We get lumped in with building products, but we actually sell bathroom brands -- branded bathroom products. We sell those products into the mid-premium part of the RMI market, which is resilient and has remained resilient. The RMI segment accounts for around 80% of the demand in bathrooms. And we continue to take share in that space, both through our existing business and can continue to grow share there as we add new categories as we have in bathroom furniture and also in sanitaryware. In summary, our teams have done what we set out to do in H1, and I'm particularly pleased with the continued progress being made to leverage our scale across our broader business. Now I'd like to hand over to James.

Thanks, Thomas. Good morning, everybody. Good to see you all again. So throughout the presentation, we'll compare to September 2023, which included Johnson Tiles U.K. and in part, Norcros adhesives. Results are also shown on a like-for-like basis and to make comparison where appropriate. And we also include the full year March '24 numbers for information. So turning to Slide #7 and the income statement. H1 revenues totaled GBP 188.4 million. That's 0.1% higher on a constant currency like-for-like basis. And like-for-like means we take the current year and prior year comparator and adjusted for Johnson Tiles UK, which was disposed of and Norcros Adhesives, which we closed. In turn, reported underlying operating profit of GBP 19.7 million was GBP 1.7 million below the prior year. And the reported return on sales for the group was 10.5%, in line with prior year. The finance charges were GBP 3.3 million in the period, and that was the same as last year. And this includes bank interest of GBP 2.5 million and the IFRS 16 finance charge, which was GBP 0.8 million. And underlying PBT of GBP 16.4 million was 9.4% lower than last year. An exceptional cost of GBP 2.1 million was recognized in the period, and that was largely due to the depot consolidation, which Thomas mentioned at Grant Westfield. And I think Thomas is going to talk in more detail about that later on. Acquisition and disposal-related costs primarily relates to the previously disclosed noncash loss on disposal of Johnson Tiles U.K. in May 2024, which was GBP 21.4 million. And also included in this line is the amortization of acquired intangibles of GBP 3.3 million, which was in line with last year. There's also a noncash finance income, which totaled GBP 0.2 million. And overall, this resulted in a reported loss before tax of GBP 11.7 million compared to GBP 11.7 million profit before tax last year. So if we move now to Slide #8 and looking at the revenue and underlying operating profit bridges to give a bit more color. Starting with the top left, First half total revenue decreased by GBP 13.2 million from last year to GBP 188.4 million, with GBP 13.7 million of that reduction driven from portfolio development activities. U.K. revenue was GBP 1.1 million higher on a like-for-like basis, and that reflects market share gains. Constant currency revenue reduced by GBP 1 million in South Africa and despite a more stable macro and energy environment, consumer confidence remains subdued. And to note, reported revenue was GBP 0.6 million lower than the prior year. In total, as shown in the bottom left-hand chart, overall group like-for-like constant currency revenue increased by 0.1% and with the U.K. plus 0.9% and S.A. down 1.7%. So now looking at the underlying operating profit chart on the right, Top right, underlying operating profit was GBP 19.7 million. This was GBP 1.7 million below prior year and reflected, one, the removal of Johnson Tiles U.K.; two, the investment at Grant Westfield; and three, a 4-week shutdown at Johnson Tiles S.A., which took into account the subdued demand environment. So now looking at the bottom right chart, Underlying operating profit in the U.K. was GBP 17.8 million, GBP 0.9 million lower than the prior year, with the U.K. return on sales increasing from 13% to 13.6% benefiting from the impact of disposing of Johnson Tiles U.K. Underlying operating profit in South Africa was GBP 0.8 million lower in the period at GBP 1.9 million and the return on sales of 3.3% compared to 4.7% in the prior year. And overall, the return on sales for the group was 10.5%. So moving on to Slide 9 to look at earnings, dividends and tax. The underlying tax charge in the period was GBP 3.7 million and the underlying effective tax rate was 22.6% slightly higher than the FY '24 rate. We expect the full year tax rate to be in line with this in the low 20s. Applying the tax charge to underlying PBT resulted in underlying earnings attributable to shareholders of GBP 12.7 million and diluted underlying earnings per share of 14.1p. And just turning to the dividend. In light of this resilient first half performance, the strong financial position and the confidence in the group's prospects, the Board has declared an interim dividend of 3.5p per share, an increase of 0.1p. So now looking at the cash flow on Slide 10. The group generated an underlying operating cash flow of GBP 14.8 million in the period compared to GBP 27.4 million in the prior year. This represented a conversion rate of 69% of underlying EBITDA and the reduction against last year reflected an investment in working capital in the first half of the year of GBP 9.6 million, with increased inventory and debtors, particularly offset by an increase in creditors and the increase in debtors was largely due to the 26-week accounting period ending on the 29th of September compared to the standard payment date of the 30th of September. CapEx was GBP 4.4 million in the first half with investment in new product development and projects focused on further driving operational excellence. Cash tax paid was GBP 1.8 million and exceptional cash costs largely reflected the depot consolidation costs at Grant Westfield and the cash impact of prior year projects. Overall, the net cash outflow in the period was GBP 7.9 million compared to GBP 4.3 million inflow last year. And to note, this payment -- this was post the payment of the full -- FY '24 full year dividend of GBP 6.1 million. So just turning to Slide 11 and the balance sheet. Net debt was GBP 44.9 million, excluding finance lease liabilities compared to net debt of GBP 37.3 million at March '24 and in part reflects the investment in working capital in the period. Importantly, the balance sheet remains strong and in a good shape with leverage around 1x underlying EBITDA. And to note, the group continues to have significant liquidity and funding headroom via its GBP 130 million banking facility, which is committed to 2027. As you can see from the right-hand chart, the pension scheme continues to be appropriately funded and well managed and remains in an accounting surplus of GBP 16.5 million at September '24. And just finally, turning to Slide 12 and everyone's favorite subject, pensions. A reminder on the pension scheme. We've come a long way, the chart in the top right corner shows the significant progress that has been made from an accounting deficit in 2017 of GBP 63 million to an accounting surplus in the last 3 years in excess of GBP 15 million. At the last triennial actuarial valuation in 2021 showed a deficit of GBP 36 million, resulting in company additional contributions of GBP 3.8 million per annum plus CPI until 2027. Importantly, we now have the 2024 triennial actuarial valuation that is underway and is progressing well with the company and the scheme's trustee continuing to work constructively together. We envisage reaching conclusion early next year, and we are confident of making further progress. And with that, I hand back to you, Thomas.

Thanks very much, James. Let me just whip you through our strategy. It's well published. We spent a lot of time on this on the Capital Markets event, and I'm going to just try and get some highlights through to you. Just a covering slide with our medium-term targets on it. We do have a successful and scalable platform. There are still significant opportunities to grow, as I've pointed out, and our 4 pillars of our strategy, which are portfolio development or M&A, organic growth, operational excellence and ESG are all in play and are delivering, as you can see in the results that we've pushed out. We also remain confident of making progress towards our medium-term targets by year-end. When we have a look at those 4 strategic pillars, there's really 3 things I want to pull out here. And the first is in and around our first full bathroom offer that includes bathroom furniture and Sanitaryware, and that was the Cameo range launched by Vado. I'm very pleased to be able to do that. That is a strength of ours. We can either do stuff through M&A or do it through our existing business organically. We'll talk a bit more about that. The U.K. and Ireland warehouse consolidation under operational excellence. I mean, I think at the end of last year, we had a good question here about what exactly are we doing there? And I said we'd report back. That is the first step and an important first step. And I'll also share an example of another very important sustainable product launch, which is a Naturepanel by Grant Westfield. So just reminding you on portfolio development, our target themes really are filling gaps in the U.K. and Ireland, adding new capabilities, specifically around sustainable products, which we continue to do and looking very carefully at new markets which would really be adjacent markets in all likelihood. We have not made any acquisitions in the period and people often ask us when the next one will happen. I think you know us well. We're conservative. We look for the right ones. We look for ones that will be strategically aligned. We've got a good team working on it. And I'm sure when we find the right one, we'll make the right decision. But again, moving on to the organic growth slide, we have this ability to keep growing, getting into new sectors and new capabilities using our organic growth accelerators. And here are the 2 key ones that really want to talk about is new product development and our cross-selling. So on the new product development side, our vitality levels remain around 25%, which means 25% of the products we sold were launched in the last 3 years. So it remains healthy, and our excellent pipeline remains intact and continues to be developed with more and more collaboration across the group as we do that, especially in terms of putting this complete bathroom offer together. The second driver, specifically labeled by scale is cross-selling and we've spoken previously about the work we've been doing, including the work with Grant Westfield, which continues to flow and flourish. Just having a look at the Cameo bathroom range that was launched by Vado. This is a very, very important move for us. We've done this in South Africa, making it a lot easier for our customers to put a new bathroom in by helping them match and source from a single point of supply. And when you look at this picture, everything other than the floor comes from Norcros. You've got matched bathroom furniture from Vado, matched taps, matched mirrors, matched showers, matched toilets, matched flush plate with a Grant Westfield panel on the back and a stunning Merlyn shower and shower tray on the floor. So we've had some really good progress and interest in this range, some early wins in key retail and spec accounts. And really important to point out, again, this was done through in-house design, leveraging off our experience in South Africa as well. Given the success of this launch, we are accelerating the rollout of additional ranges to ensure we reach the critical mass that we need to really compete in this area. But between Sanitaryware and bathroom furniture, you're looking at a GBP 1 billion market. So even if we get the smaller share initially in it, it's meaningful in terms of our numbers. So really, really pleased with that. A key enabler of this launch has been the work that was done at group operations to ensure that we were able to handle these new categories in an accurate and efficient manner. When we look at operational excellence today, I want to talk about coordinated logistics and warehousing and supply chain collaboration and efficiencies. And really, 2 major projects across the business, the one in one specific business and that being Vado which traditionally had 1 warehouse in Ireland, 5 in the U.K. In the U.K., we've reduced that to 1. We have built a -- not built, taken over a really good warehouse down in Bridgewater. It's a modern new warehouse. We've got all of our stock in a single place. It means we can hold less stock. We can move stock around more efficiently and more accurately. And in this specific business, we've always had an issue where we had the product available, but our OTIF was significantly lower than the product availability. That gap has almost gone. That warehouse was also purpose designed to take in our new bathroom wear ranges, and we've done that seamlessly. So again, excellent project, no delays and no real impact to our customers. So we'll report more on that as we go forward. The second project, for Grant Westfield work with Merlyn and again showing how we collaborate. And after we bought and have been in the group a while, they went and had a look at the Merlyn approach, which is a cap-light 3PL warehousing logistics approach out of a single site. Merlyn are able to move big shower enclosures anywhere in the U.K. in 48 hours through our distribution hub at Grant Westfield, it could take up to 7 days. The teams work closely together, put together a really careful plan and then they delivered this complex project and reduced the number of Grant warehouses by 6, moving into the same facility as Merlyn. And it's a facility and distribution set up that has been in place for many years and is market-leading. So really, really pleased that both these projects were completed ahead of schedule with no disruption to our customers. And although we have incurred some one-off additional dual running costs, we've done that to make sure that those service levels are protected. I'm pleased to announce that we are already seeing early evidence of demand, efficiency and customer service benefits that will help progress our medium-term targets. More importantly, this again bears testament to the quality and nontransactional nature of the collaboration between our broader teams that defines the way Norcros runs our business. It is fairly unique. On the ESG front, we have 3 key focus areas: people, product and planet. I know a number of companies use those, but this is a really important part of what we're doing. As part of our journey, what we're really looking to do is provide our customers with a powerful choice for better living. We're not saying to our customers, you have to buy this or you have to buy that, but we're going to give you the choice to make a difference. And we have an increasing and growing portfolio of products that allow our customers to do this. Measuring our progress here, we have validated near-term SBTi targets, we're making good progress towards those. We've got great tailwinds from the future home standard. And over the last 12 months, we've reduced our Scope 1 and Scope 2 emissions by 9%, which means we're on track to meet our 2028 obligations. Doing what is right, does make money to the shareholders. And the people that are not doing this are going to get left behind. It's as simple as that. I'm now going to just move on to a sustainable alternative to tiles, which is Grant Westfield, one of the reasons we bought this business. When you look at building going forward, our panels is going to be one of the fastest, it's already and will continue to be one of the fastest-growing areas in building products. We have a leading position here, and we will continue to build on that position. We have a very strong new product development pipeline. And this particular product, which some of you would have seen at the Capital Markets event has launched well. The production is run using carbon-free electricity. The materials are sourced from sustainable sources, as you can see from the Forestry Service Council and the end product is almost fully recyclable. As I've said, panels are a fast-growing part of the coverings market and will play a growing and very important role in sustainable building products market, both in and outside of the bathroom. So the panels have moved outside of the bathroom. So again, another area for natural growth for us. Naturepanel has been well received by the market and is already an award-winning product. We had to bring in another CNC machine to look after demand here, and that really talks to the actual results. Looking forward, I think these are another set of ahead of market results. Our market-leading brands continue to grow share in the more resilient mid- to premium RMI market segments and we're well placed to benefit from the market recovery in both RMI and New build. At the start, I spoke about 3 key takeaways. I think we've shown that we continue to deliver on the organic growth story in what remains a difficult market. Our focus on strategic implementation continues to deliver demonstrable progress across our 4 strategic pillars, driving organic growth efficiently and we are really strongly positioned for any recovery in the market, as I said. There are share growth opportunities, both organic and through M&A that are not dependent on any market recovery, and we will continue to focus on the right opportunities to take advantage of these. The timing of the long-awaited market recovery is up in there, who knows? I'm not going to guess, but I think the key message is that we don't -- we are not reliant on it. And really to close, there's a lot of gloom and doom out there, a lot of bad news. I can't use the sporting analogy. But when you play a game of rugby, you can't always choose the weather, but you have to play to win. And a bit like my local rugby team, we've developed a proven track record of finding a way to win regardless of the market conditions. And I believe that the clarity of our game plan and the quality of our team and especially the people that run our businesses out in the market and manage the relationships with our suppliers and customers has set us apart and will continue to make the difference going forward. Thank you for your time. Questions?

Rob Chantry at Berenberg. Yes, 3 questions from me. Firstly, could you just give us some more detail on the kind of competitive environment? Are there any notable exits of larger players or any kind of change in structure. Secondly, you've clearly pointed to kind of market share gains over recent periods. Where do you think end market volumes are versus 2019? And then thirdly, on the U.K. EBIT margin point, is there any more granularity on the spread of margin between different operating units both in absolute terms and versus prior years? I mean I assume that the bigger units have high margins have maintained them, but any more color on the divisional split would be useful.

Competitive environment has remained tough. We haven't seen a massive improvement. We've seen in some segments, some fairly big closures, CTD in the old tile space is gone, who would ever believe that IDS is gone and a lot of our direct competitors under a lot of pressure. And again, back to this point about having a strong balance sheet. We're winning business because people know we're going to be around in 3 years. That married with our outstanding product design and outstanding service means we're gaining share. So it's tough out there and there's a lot of businesses you can't actually fund the growth of the business at this moment. James, I don't know if you want to add anything to that.

Yes. We monitor a lot of our competitors' accounts. And as you know, it's a fragmented market and a lot of competitors are smaller than us. And some of those accounts look very fragile with leverage, maybe not generating cash, maybe going backwards in terms of overall margin and revenues. There have been failures. There will be more failures and it's a strategic priority for our businesses to focus and target those struggling businesses because as Thomas said before, customers are increasingly looking at that surety of supply. They need to make sure that, that supply chain is solid and need to make sure that whoever is supplying them is going to be around in 3, 4, 5 years to want to guarantees and all that kind of extra customer service piece. So it's a really important piece.

Yes. I think the second question on the volumes in 2019 versus now, I think across the market in the different segments, it's quite different. I think if you heavy side, it's more pronounced. So businesses that are dealing with heavy commodities and that are reliant on -- more reliant on new build, high teens, anywhere 15%, 20%. I think businesses that are not -- where we are on the RMI side, it's probably high single digits in terms of volume. For us, it's been low single digits, offset by the ability to recover inflationary increases through price. And then on the spread of margins, I think in our U.K. businesses, we had 2 businesses that were struggling a little bit more last year. I'm pleased to announce very strong progress at Vado and Croydex. And Croydex in particular, who are taking advantage of the opportunities in the sustainable product sector with some really exciting announcements coming up in the next couple of weeks there. So yes, I don't know what more to say on the margin piece, Rob. We're really focused on growing it. And in all of the businesses, they're all equally focused. And as we said, we are aiming to have made progress by year-end.

And just to jump in there. The 3 bigger businesses in the U.K., Triton, Merlyn, Grant Westfield do have stronger margins, which we've spoken about previously. I think maybe the thing to note, that Grant Westfield temporary gone backwards a little bit in margin due to the dual running costs through the depot consolidation. We wanted to maintain customer service, wanted to maintain stock availability. That was a deliberate decision. But Grant Westfield coming back to historical levels in a short period and then hopefully, kicking on from there. So hopefully that gives you a bit of a flavor.

Johnny [ Huber ] from [ DB Numis ]. A couple of follow-up questions from Rob's questions there would be -- the first one in terms of the margin dynamics, when you're entering into the bathroom furniture market, how do you expect margins there to differ to your core business and also working capital dynamics of entering that market? And the second one would be where you see e-commerce penetration in the market today and if that is growing significantly, how that's impacting your business?

Sure. I think let's just look at the new categories. We'll just start -- we're in the mid-premium space. And on the South African side of our business, we've been sourcing these products for a long time. So it's not margin dilutive at all. In fact, it's probably -- some of these products are higher margins. What you find, if you took bathrooms from the very top end of the premium side, the more premium a bathroom, the more furniture it has in it. And we obviously just match the sanitaryware to that. So all good on the margins. Working cap, not an overinvestment in it. It's a tight, very clear and narrow range with lots of interchangeable parts in terms of the first launch, which is Cameo. So we've been very deliberate on that. We have near-sourced a number of components of this range. So although there is an investment we wouldn't happen in working capital in any new launch, it's been considered and is not excessive.

I mean just to add on that as well. It's also a function of the strong balance sheet. We are able to make those capital decisions. And we invest where we can think we can get a decent return and with leverage being low at 1x, it means we can look at those organic opportunities and decide to invest, which we have done and we'll continue to assess in terms of other organic opportunities.

And we'll be -- I mean, as I think we said earlier, we'll be accelerating the rollout of our furnitures to get -- make sure we can cover each of the styles. So we're on to that. E-com continues to grow. We know the Victorian Plumbing guys well. We deal with them. So they're obviously the standout guys at the moment that everybody is talking about. I think they've got a good business. And the business plays into specific channels and specific parts of the market of this space. E-com going forward will just become a bigger part of the business, not necessarily as pure play. People sometimes want to do both. So it's part of a wider customer experience. And I think it's really important for any business is going to be relevant going forward to be able to either support the customers who sell to the end consumers like us to be able to compete using the right kind of dates and the right kind of assets, digital assets that they need. So our focus on operational excellence includes lots and lots of work in and around that. So yes, it's a growing segment, whether it's direct or indirect.

It's Andrea Collins from Davy. I have 2 questions, if that's okay. So the first is on M&A. And I guess, I'm just wondering how are valuations in the market at the moment? You mentioned that competitors who are struggling with the every acquisition opportunities. And I guess then what's the kind of ideal size of deal that you'd like to complete? And then the second question then is just in terms of the working capital investment, are there any particular brands where you've been kind of focused, any particular products? Is it more of the mid-range or the premium range for your focus there? Or any color would be great.

Okay. I mean, on the M&A side, we have an internal team of 2 working on that all the time. James used to head it up, so we're strong. We probably know the market as well as anybody, have seen [indiscernible] than anybody else in the market. So we're highly selective in that space. Ideal size for us is probably 40 to 60, but we would go higher if it made sense. The key thing for us is, is it a business that we can grow as part of Norcros. We're not into bringing business in and stripping a whole lot of costs out. It's a business that can grow faster, and there's a strong case for bringing it in and it fits our other criteria. Those are the kind of businesses that we would buy. James, I don't know if you want to add anything to add.

Just on the valuation point, probably not seen a big shift in multiples. There have been distressed assets out there, which we've looked at. We might take on a brand, but we won't take on a distressed business. That's not our bag. We're not a turnaround outfit. Probably the bigger question is not valuation multiple, it's what is the underlying EBIT and what's the underlying cash flow of the business, which is an ongoing head scratcher book. We don't take a flyer on these things. We do a lot of DD and I think we've got a good skilled team that knows what they're doing. And we're not going to do deals for deal's sake. Just on the working capital question, do we prioritize working capital investment, mid or premium? Not particularly we take each of those potential decisions on its own merits. Does it generate a return, and we've got the balance sheet to invest where we think we can generate a decent return. So I think no particular focus, whether it's the midrange or the premium range.

Tom Fraine from Shore Capital. Are you able to quantify the efficiencies that you're hoping to get from the footprint rationalization?

I'm going to say it like this, Tom. So it's a first important step. There will be more to follow in terms of operational excellence, it might not be warehouse consolidation, but across our operations that would get us towards the medium-term target. So too early to really quantify, but it wouldn't be insignificant. The second part of that point is I wouldn't be looking for them in the second half of this year necessarily. I got to bed them down.

So would it be a reasonable chunk of the margin uplift target then?

Well, I think if you remember the slide that we held up previously, it's a chunk alongside other developments as well, whether that's portfolio development or M&A activity. So it's meaningful but it's not the sole part of that margin development piece.

And in terms of new product sales, how is ENVi and other products being getting on? Are you able to provide any values at this stage? Or is it a little bit early?

I wouldn't want to put the value. ENVi is running well ahead of forecast as is [indiscernible] and Abode tale of 2 quarters, I think you probably would have noticed the kitchen market has been a bit more depressed than the bathroom market. So a tougher first quarter but a strong second quarter, again, driven by really strong new product development at Abode.

Maybe the other one as well is Cameo, that's come out of the blocks, it's flying. It's now a multimillion pound category, and we're investing and reassessing further ranges in the furniture piece. So MPD continues to drive organic growth.

And just finally, related to that. Do you need further M&A to kind of scale up the furniture and sanitaryware?

Not necessarily. If we found the right one, we would do it for sure. But we've grown this organically into a significant category in South Africa. So we know how to grow it organically. So there's a decision for us. We can't find the right piece of M&A, then we'll just invest more in the organic program. But I suspect it might be a combination of the 2, Tom.

Toby Thorrington from Equity Development. One or 2 from me, please. Can you just confirm for the record that you're not backing off on any of the Capital Markets Day targets? I'm thinking, in particular, the medium-term 15% EBIT margin and the sort of backstop to that question is, obviously, NAICs have gone up post the budget. So the first instance, confirming the margin target? And secondly, perhaps one for James, should we expect a flatter near-term margin progression because of things like that?

Yes. So absolutely not backing away from those strategic targets. I think what you've seen from the investment piece, we're not looking at it in terms of 3-, 6-, 9-month turnaround to get there. We're investing for the medium term, particularly with like the Grant Westfield depot consolidation. Probably the market recovery a bit longer than what everyone was anticipating 6 months ago, but that doesn't affect where those targets are and where we hope to progress to. In terms of the national insurance point, probably a value of less than GBP 1 million impact for us. So we'll take that in the round as we go into 2025 with other inflationary pressures. It's not helpful, but we'll deal with it like we've dealt with other inflationary issues in the past, whether that be containers or aluminum or glass prices or whatever it might be. So it's not helpful, but it's not material.

Can you -- I suspect you're a bit reluctant, but can you shed any more light on sort of future operational efficiency programs? Obviously, you're keeping Helene quite busy at the moment. What's next on the block?

It's really divided into 2 areas. The one is infrastructure and the other is in and around data and systems and simplifying compressing our transaction process and customer experience. So it will be split between those 2 things, systems and infrastructure, where it makes sense. So don't read into this. We're just going to crash everything together. That's not how we use stuff. We do a lot of work and a lot of prep looking at the market, looking at the routes to market and identifying clear opportunities to collaborate or do something in specific businesses. So we've invested quite a lot in upgrading our ERPs. We're working on quite a lot now on our customer services. And if you're going to ask about AI, we are working -- AI, such a broad project. The main areas that we focused on with that at the moment is in and around replenishment and stock control and customer services. So those gives you a flavor of where it's at. And it's an incremental journey is really the...

So nothing major to flag in terms of program or projects initiated before the end of this financial year then?

No.

Only tough really is only the only sort of direct consumer-facing or end customer-facing business. I mean consumer sentiment, I agree with what you said about it being subdued, but measures are certainly improving, I think both South Africa and U.K., I mean Norcros typically operates on relatively short order cycles, strength of the business. Are you seeing post period end, are you seeing any kind of indication that consumers are getting a bit more interested or supply chain getting a bit more interested in volumes?

Too early to say. So the answer is not yet.

Peter Ashworth. Just a simple one, any China sourcing issues highlighting at the moment?

Not at all. And I think this is, again, important. This is where scale counts. So we've got another -- last 2 months, we've had another massive price spike in containers and availability of containers. Our scale allows us to deal directly with the shippers. We have access to containers. We're able to lock pricing forward. We may have the odd surcharge coming, but it's a lot lower. And just for us, we've got 30 people on the ground. We understand it backwards, and we're able to flex and back to our ability, we're deliberate about holding more stock because it has never actually returned to normal post-COVID. And we're at the finishing end of what anybody does in their projects, and we will be in stock. It's a promise we make and a promise we'll keep. But scale working for us both in terms of availability and rates.

Andy Edmond, Equity Development. Thomas, can we draw on your South African depth of experience, I'm not talking about rugby. Good news on the load shedding, very good news. And obviously, significant political changes in the government. And on the other side of that, as you referred to, still high interest rates. So what's the broader top-down view on consumer confidence? And is the load shedding down to the new political environment? Or is it down to Eskom, et cetera, et cetera?

I think let's just go the load shedding was such a big thing. What you've had is deregulation of the industry. So a lot of private power coming on but also a lot of skills being returned to Eskom, proper maintenance being running. So I'm not saying we will have none, but it should be manageable from here out if they stay with that program. A lot of the -- most South African consumers post-COVID high interest rates are quite heavily indebted. I think they're paying down the debt, need interest rates to come off before they really start spending in a big way. On the new build side, and again growth's strong position in housebuilders, they've had quite a tough time in the high interest rate environment. And first early indications would be, as I said, in February or March. So sentiment starting to improve a little, but I think people have been whacked quite hard and they need to pay down their debt. So our view on South Africa still good upside, but it's going to take a while, better than where it could have been.

Good. And James, M&A, you've already outlined no real change in pricing. But is there anything happening given all the market challenges. I'm not talking about distressed businesses here. But again, look at the NII burden that will fall on the U.K. businesses. Are there more quality businesses thinking it is such hard work, it would be much better to be part of a large well-financed, successful group, and you're getting a few more inbound inquiries.

I think that is a very pertinent observation. The momentum in terms of entrepreneurs or owners wanting to explore a sale post-Brexit, post pandemic, all that stemming back a number of years. There's a lot of guys who are tired and want to sell. And we have an excellent reputation in the industry. And for them to come into a well-financed business, still keep control on their business, their baby, but also to derisk and take some cash off the table is quite attractive to a number of potential sellers. So we do see that as an increasing amount of people exploring sales.

And those entrepreneur more privately owned businesses will have a greater long-term concern for their employees, et cetera, et cetera.

Yes, absolutely. And...

Coming into a safe family has...

And as we spoke about before, we buy businesses to grow them faster under our ownership we don't buy businesses to strip a load of costout. It's about driving that demand and driving the revenue number through the cross-selling piece.