Norcros plc (NXR) Earnings Call Transcript & Summary

So good morning. It's great to see you all here again. And on behalf of the Norcros team, a warm welcome to our prelim results presentation. As usual, before I hand over to James, who will take you through our financial highlights in a little bit more detail, I'll give a short overview of another strong set of results. There are really 3 key takeaways. We continue to take market share. We continue to make progress on the quality of our portfolio, and you can see that coming through on the operating margin side and also on the progress around ROCE and a record operating profit in our core U.K. and Ireland market, which now accounts for 90% of our profit. Our U.K. operating margin exceeded 15% for the first time. And that talks to this direction of travel that we've been on working towards a capital-light and cash-generative business. We built strong momentum in terms of the implementation of our strategy, including our focus on a more profitable and capital-light business, and we are the U.K. and Ireland's largest bathroom product business. We will continue to focus on growing and strengthening our positioning and leveraging our scale as we move forward. Some highlights from the numbers. The ahead of market organic growth, again, as demonstrated by our like-for-like revenue growth of 0.9%. Reported revenue was lower, and that's really talks to the exit from the tile business in the U.K., and that was in line with our strategic objectives around portfolio development. I've spoken to the operating margin, moving up 0.7% to 11.7%. Our cash conversion of 84% was marginally lower than our 90% target, but if you have a look at it over the 2 years, we're well ahead of target. And as I've mentioned, ROCE increased 0.9 percentage points to 17.3%. So we now are in a position where I think our operating margin and our ROCE, and our cash conversion are consistently moving in the right direction. I think what's really important to note, we will talk about our balance sheet quite a lot today, both from a financial perspective, but also from a strategic perspective, we have a strong balance sheet that can support our strategic objectives, and we are really confident about our continued progress towards our published medium-term targets. Looking at the 2 regions, a few small takeaways. Record profit in the U.K. and Irish markets. Like-for-like revenues up 1.1%. Operating margin moving from 13.6% to 15.5%, it's a material move. And that's just really been driven by a good portfolio development and strong progress in new product development, cross-selling and the operational efficiencies that we shared at the half. We'll talk to these a little bit later. We expect to continue making progress in the year ahead. At South Africa, revenue, like-for-like, up 0.5%, but operating margin down, speaks to some of the challenges at our Johnson Tiles business, but also, it's a lot more difficult for us to flex our cost base in our retail business in South Africa. The market remains challenging. We have much higher interest rates in South Africa, and we've had this challenge of new entrants in tile manufacturing, which has exacerbated already difficult supply situation there. The previously announced strategic review of the tile manufacturing business is nearing completion, and we expect to complete that in this month. Any improvements in the market will be gradual, and our focus will remain on growing market share. So all in all, a really strong performance, again, with the benefits of our focused strategy coming through. Our scale -- just a new slide upfront, our scale being the largest U.K. and Irish bathroom products business really counts for Norcros, and it counts in a couple of interesting places. And we will always leverage the scale and the balance sheet strength, as we spoke earlier, to grow market share and margins faster than our smaller competitors who cannot do some of the things that we can do. Our balance sheet strength and sustainability credentials have become key considerations for both our B2B and new-build partners. It's about our ability to track and keep record of their promises and ours and keep those. So when people are looking for who to award contracts to, who to engage with, you've seen a lot of smaller businesses not make it or not able to provide the kind of service levels that we can, and we're winning more business because of this. Later in the presentation, we will present you with our scale-enabled growth accelerators. You know them well; NPD, cross-selling, operational excellence and ESG. As the U.K. and Ireland's largest branded bathroom products business, we continue to leverage the competitive advantage of our scale that underpins our differentiated investment case. Norcros is not a typical building products business. We often get lumped in with the cement and roof trusses and heavy side because that's the sector we're lumped in. But what we do is we design and sell branded bathroom products into the more resilient mid-premium market segments, and this is a key differentiator in what is often a commoditized sector. We have market-leading brands, not commodities. We have the scale to drive growth faster and more efficiently than our smaller competitors in a fragmented market. We have a diversified and increasingly capital-light portfolio, and Norcros has a proven track record of through-cycle performance with strong and diversified organic and acquisition-driven growth drivers. We can grow organically or through M&A., that is a great place to be. The first page of the appendix, when this gets posted, best testament to the excellent track record over the last 10 years. While we have made strong progress, there is a long and rich theme of future growth opportunities available in what remain large and fragmented markets in our target geographies. We are not reliant on the market to continue making progress. James will now take you through our numbers in a little more detail.

Thanks, Thomas. Good morning, everyone. Let's just move that out of the way. I'll start off on Page 8 with some key financial takeaways of this year's results. Firstly, U.K. and Ireland return on sales was 15.5%. That's a record performance. We're proposing a total dividend for the year of 10.4p, so that's up 0.2p on the prior year. We've reached a great result on the pension with company cash contributions of circa GBP 4.5 million per annum, ending within 24 months. Cash conversion remained strong at 84%. And as Thomas mentioned, we've almost completed our strategic review of Johnson Tiles South Africa. And as a reminder, that was breakeven in FY '25, but absorbed GBP 4 million of cash. We maintained a low leverage at 0.8x EBITDA, and we also now confirm our capital allocation framework in these results. So turning to Slide 9 in the deck and the income statement. Revenues totaled GBP 368.1 million, up 0.9% on a constant currency like-for-like basis against the prior year. The like-for-like adjustment removes Norcros Adhesives and Johnson Tiles U.K. from both years. And reported revenues were down 6.1%, largely as a result of the sale of Johnson Tiles U.K. In turn, reported underlying operating profit was GBP 43.2 million, and that was in line with the prior year. And pleasingly, the reported return on sales for the group increased to 11.7% compared to 11% in the prior year. The finance charges were GBP 6.7 million in the period, in line with prior year, and this includes bank interest of GBP 5 million. And the IFRS 16 finance charge was GBP 1.7 million. And therefore, the underlying profit before tax of GBP 36.5 million was in line with the prior year. Exceptional items of GBP 7.7 million, mainly comprised of restructuring costs in the relation to the depot consolidation at Grant Westfield and the warehouse consolidation at VADO. And group also incurred GBP 2 million of costs in relation to the implementation of new ERP systems at MERLYN and Tile Africa. And there were also costs of approximately GBP 1 million relating to an ongoing commercial legal case. Pension scheme admin expenses were GBP 1.8 million, slightly higher than the prior year due to the triennial actuarial valuation in the period. Acquisition and disposal related costs of GBP 25.4 million, mainly consists of GBP 22 million noncash loss on disposal associated with the sale of Johnson Tiles U.K., which completed in May 2024. Acquisition-related costs also include amortization of acquired intangibles of GBP 6.5 million, and that was in line with the prior year. Overall, this resulted in a reported profit before tax of GBP 2 million. So just moving on to Slide #10 and the underlying operating profit bridges and the revenue bridges. Starting with the top left, U.K. revenue on a like-for-like basis was GBP 2.7 million higher, reflecting a 1.1 million -- 1.1% increase on the prior year. And as Thomas indicated, trading in South Africa has been challenging in the year, but we recorded a GBP 0.6 million constant currency revenue increase year-on-year, and a marginal strengthening of the rand increased revenue by a further GBP 0.9 million compared to 2024. Overall, total revenues decreased by GBP 24 million, mainly driven by the disposal of Johnson Tiles U.K. in the year. In total, as shown in the bottom left chart, overall group constant currency like-for-like revenue increased by 0.9%. Looking at the underlying operating profit charts on the right -- top right, underlying operating profit was in line with prior year at GBP 43.2 million, with a strong U.K. performance, up GBP 1.5 million, offset by South Africa. And finally, looking at the bottom right chart, U.K. record profit of GBP 39.8 million and increase in return on sales to 15.5%, reflecting our investments in NPD, operational efficiency and the sale of Johnson Tiles U.K. Underlying operating profit in South Africa was GBP 1.4 million lower in the period of GBP 3.4 million on a reported basis. And overall, return on sales for the group was 11.7%. So just moving on to Slide 11 for earnings, dividend and tax. Regarding tax, the underlying effective tax rate was 20% compared to 20.9% in 2024. And applying the tax charge to the underlying PBT of GBP 36.5 million resulted in earnings attributable to shareholders of GBP 29.2 million compared to GBP 28.8 million in the prior year. And diluted underlying earnings per share was 32.4p. Turning to the dividend. We are pleased to announce that the Board is proposing a final dividend of 6.9p per share, bringing the total dividend for the year to 10.4p, 0.2p higher than 2024, and this reflects the Board's confidence in the business, the group's growth strategy, other key stakeholders, future cash flow generation and earnings growth. So just looking at the cash flow now on Slide 12. The group generated an underlying operating cash flow of GBP 38.9 million in the period, and this represented a solid conversion rate of 84% and in excess of 100% conversion over the 2-year period. The working capital outflow in the period was GBP 14.1 million and driven by an increase in inventories in the group to maintain our high levels of customer service given supply chain uncertainties and as a result of the inventory build at Johnson Tiles South Africa. Capital expenditure in the period was GBP 6.9 million. Cash tax paid was GBP 3.4 million, and interest paid was GBP 6.4 million. Overall, net cash inflow in the period was GBP 0.7 million, and that was post dividend payments of GBP 9.2 million in the year. So turning to Slide 13 and the balance sheet. Net debt at year-end was GBP 36.8 million. And importantly, with leverage at 0.8x, the balance sheet remains strong and in good shape, where we continue to have significant liquidity and funding headroom to invest in our strategic initiatives. The pension scheme remained in surplus on an IAS 19 basis at GBP 6.8 million. But more importantly, on to Slide 14 and the 2024 actuarial pension scheme triennial valuation, a watershed moment for the group. Deficit repair contributions of circa GBP 4.5 million per annum will end within 24 months. The actuarial deficit of GBP 11.7 million is expected to be fully funded in that time frame. And if earlier, contributions will then be directed into an escrow agreement, and this is a tremendous result. And finally, just turning to Slide 15. We set out to confirm our capital allocation framework. Our capital allocation priorities being, number one, organic investment; two, ordinary dividends; three, complementary acquisitions; and finally, supplementary distributions. And this will be done within the guardrails of maintaining leverage below 2x EBITDA and dividend cover of approximately 3x. This will be alongside our strategic targets of cash conversion in excess of 90% and moving towards a ROCE of 20% in the medium term. Thank you.

Thanks, James. You guys know this slide well. And as I pointed out in the introduction, our in-play strategic initiatives and growth accelerators are driving strong progress towards the delivery of our published medium-term targets. Our 4 strategic pillars are portfolio development, and you've seen the work that we've done reshaping, reshaping the business there. Organic growth, we're going to take you through a couple of examples showing how we grow ahead of the market. And operational excellence, I'll give you an update on some of the key projects we shared at the half. ESG, we're well on track to delivering our verified 2028 SBTi carbon reduction targets with sustainability becoming increasingly associated with our brands, as shown in the demand for our products and the kind of industry awards we're getting, including the King's Award. So starting with portfolio development. For those of you who've been around a while, welcome back to an old friend, the puzzle. It's been updated a little bit, popular demand. This is something James, I think, invented back in the day. And I think it just does tell the story and shows the level of the opportunities that we have. We've completed most of the heavy lifting with regards to exiting our lower-yielding capital-intensive assets following the exits of the tile adhesive and tile manufacturing businesses in the U.K., and we are now nearing completion of the strategic review of our South African tile manufacturing operation. We will continue to look for opportunities to develop the quality of our existing portfolio, but are now in a position to increase our focus on sensibly growing this capital-light portfolio through aligned acquisitions in our target markets. So there's a pivot now from maintenance to growth. From a portfolio development perspective, strong focus on our core U.K. and Irish markets, but we will consider opportunities in our neighboring markets as we mentioned at our Capital Markets Day. We already do business in most of the European countries specifically. We have an active acquisition pipeline, including both our traditional-sized acquisitions and smaller bolt-ons, as we continue to consolidate the mid-premium bathroom markets. The key point is that the significant growth opportunities that are out there can be engaged either organically or through acquisition. And when you look at this slide, we have entered furniture and sanitary ware through VADO. Our share is still small. If the right acquisition came along to accelerate it, we would do that. An example of filling the gaps organically, we spoke about the Cameo bathroom range launch last year. It's performed exceptionally well. We've accelerated our rollout of subsequent brands with the second brand Safari launching in April 2025 recently at Clerkenwell Week. This has had a very strong collaboration between VADO, MERLYN and the Grant Westfield brands. And again, strong sustainability credentials with water and saving energy features, FSC certified varieties, that's really around the forestries and where the wood comes from, and our packaging is 100% recycled. So with each iteration here, we continue to make sensible progress. And I really -- the thing that pleases me the most is this non-transactional collaboration across our brands. It is something that is fairly special and unique to Norcros. Promised to put this slide back up following the Capital Markets Day, and again, an excellent story here. This is our top 20 customer slide from our Capital Markets Day, and you will see that we've made excellent progress with increased focus on leveraging our scale to cross-sell. Cross-selling has accelerated our market share growth. Good examples here would be VADO channel diversification, just been introduced to Victorian Plumbing and working with MERLYN, to grow our share of the Irish markets are 2 examples. And looking at our acquired businesses, Grant Westfield, we've listed in 5 of the top 20 group-wide customers, including Wickes, Topps and Screwfix. The best part of those sticks is most of them are quite immature at this stage. So there's a lot of growth to be had, although we've secured placements with those customers. As I've said, we operate in a non-transactional collaboration -- collaborative manner. And when we win, we all win, and we win together. It's great working in a business with that kind of culture. Our growing group position in the bathroom industry was recognized, and this is Norcros, and it's the first time this has happened. For this first time by Wickes, who awarded Norcros for the best range review, support and innovation award. We've always had brand awards, first Norcros award, and it speaks volumes to level of collaboration and growing equity in the Norcros brand. It is worth noting, as I said that many of these new customer wins are nowhere near mature and that our market share is growing. And as we grow it, we are growing it more efficiently. So a really good story. You'll remember this slide. Consolidation of our warehouse footprint in the U.K. I'm really pleased to report that the VADO 1 has really settled down well now, OTIF improving on lower stock days. It enabled us to do this bathroom rollout. So this was a dual project that had to be very carefully sequenced, and we are busy launching our semi-automated picking line, which is another big movement for us. The Grant Westfield distribution center, change has also been completed. It did take us longer to complete this project in terms of the dual running costs. We had to run longer with dual, and James has referred to those exceptionals, but we will always urge to making sure that we do the kind of levels of customer service to protect that as much as possible. We've improved our OTIF, and our lead time or order to delivery has improved by 46%. Right now, this is our fastest-growing business in the U.K., and it really talks to the fact that these projects were put together with growth in mind. The efficiency comes as well, but these are growth-driven projects. In terms of our carbon footprint, I've spoken about our SBTi targets. We will deliver Scope 1 and 2 ahead of target. We've delivered 22% of the 33% that we've targeted by the end of FY '25 -- by 2028. And we just continue to do sensible things. We have identified lots of practical common sense initiatives and are working with like-minded partners. On this slide, we show how we are reducing our carbon emissions, working with Maersk. The fact that we are as big as we are means we can deal directly with a shipper like Maersk. A lot of our competitors can't. Our first eco-fuel vessel shipped to the U.K. in FY '25, and we expect to ship 20% of all our ocean freights in the year ahead using eco-vessels. Every time we use an eco-vessel, it reduces our shipping emissions by 85%. I won't often do this, but a shout out to Maersk, who have taken a long view on this, and I think they will be well rewarded going forward. It's great to work with partners who think in the same way. I keep referring to how we work together at Norcros. And at the heart of what we do and our sustainability journey is really about doing the right thing. As we migrate Norcros from a portfolio business to a more endorsed brand model, with design, sustainability and service at our core, we have further distilled our purpose and our keys. And this is really the common purpose that binds us together. Our purpose is to create products and connections that offer sustainable choices for better living. You can see a very strong sustainability underlay here. It is just plain common sense, okay? We've all got to do better, and there's a very strong commercial rationale for doing this, and it's working for us. Our keys or values reflect who we are. And the only difference between keys and values is that keys are applied in order. That provides a decision-making framework that ensures a consistent approach in customer experience and also consumer experience. If you think about purpose, that's like your arrowhead, and your keys are like the fletchings on the arrow, keep you on track. We launched a purpose in keys through 8 big roadshow events right across the U.K. Every one of our staff attended unless they were sick. And at the same time, we launched our Be Someone staff and employee proposition. You can follow that on LinkedIn. It is an absolutely tremendous -- a tremendous thing that we've done, and it's come from the bottom up. A lot of people stick stuff on walls about purpose and values, this was distilled from the bottom of our business upwards and just really reflects who we are. Some great stuff following through later in July and August on the Be Someone initiative, and follow us on LinkedIn. It would be good for you to see it. 81% of our employees say they are proud to work for Norcros. 93% of all employees, who took place in our Great Place to Work survey, can't wait for that to go north of 90% and then 95%. You know this slide well. It just talks to the fact that we are progressing towards our medium-term targets. We have a really successful and scalable platform, significant opportunities to grow and a clear strategy that we continue to implement against. But the key accelerator is our people. Most of what we do comes from the brilliant people on the rock phase of our business, and our best people are out there, and they have not only participated in, but inspired the vision of the business that we are now becoming. So thank you to them all. Wrapping up, we are on track as we develop and scale a high-quality, capital-light and cash-generative bathroom business. Turning to current trading. We saw slightly mixed April and early May trading, but it's nothing to read into, nothing to be worried about. Over the last 4 weeks, like-for-like revenues averaged just above 2.5% with both regions growing. And that's an important point. People seem to jump up and down about short-term data. We overreact to short-term data. The holidays were very different. The weather was different. You got to look at stuff over 3 and 6 months. I'd encourage everybody to do that. We remain really confident about the prospects going forward. So as we continue to make progress in the markets that remain large and fragmented, we have a proven and differentiated and winning model, and we are confident about the outlook in the year ahead. Thank you. Questions.

It's Rob Chantry from Berenberg. 3 questions from me. So firstly, U.K. EBIT margins, great to see them 15.5%. Could you talk about the spread of margin from the companies within the division, i.e., what's north of 20%, what's still below and then some of the further levers to move that forward? Secondly, various firms noting an uptick in the new build sector. I get that Norcros products are more related to the finishing of the housing stock than at the start. And -- but could you just comment on what order books or sentiment looks like on the new build side? And then thirdly, on Johnson Tiles South Africa, how well integrated is that business with the other 3? So does the review you're undertaking impact the thinking on the remaining 3 assets there? Just interested in the thought process.

Okay. So if you look at the U.K. operating margins, we have a spread. We have a number of businesses that are well ahead of target. We have cleared out the biggest drags in terms of our portfolio. And we have a number of businesses progressing well, but every one of our business in the U.K. has made really good progress in the year ahead. So just for commercial reasons, not wanting to name and go anywhere, but all of our businesses are following a very clear and well-understood business model of internal design and really good customer service, and the leverage that the collective scale gives them is driving really strong growth. James, do you want to add to that?

Just to add very briefly on that, I think all of our businesses, they benefit in terms of where they can take that margin, where they can invest in new product development, where they can invest in efficiencies, where they can invest in infrastructure. So I think supporting those businesses for growth help margin progression.

And just worth remembering that when we set our target of 15%, it's always been that the U.K. would be ahead of 15% and South Africa lower than because it's more of a retail-driven business. On the new build side, that's around 20% of the bathroom markets, a lot more coverage because of a lot more listings. There will definitely be more houses built this year than last year. You can see it in the infrastructure activity. You can see it in the brick activity. And again, the kind of reactions around the stock that I find quite remarkable. The long term is there are going to be more bricks made and sold and more houses built. Remember, we're more on the finishing side. We haven't built in any meaningful recovery into our numbers this year. So whatever happens, if we get some good stuff in H2, that would be good for us. We have a number of businesses with leading positions in both the national and regional house builders, and we continue to take share in that sector. So again, a nice multiplier for Norcros. We're doing really well in RMI. RMI doesn't stop when new build starts because when somebody buys a new house, people who buy the old house will renovate it. So if it really kicks, we should have the benefit of the progress in RMI and new build. I think it's going to be a nonlinear recovery for new build. So take a medium-term view on that looking forward. In terms of the integration of our businesses in South Africa, we do run a semi-integrated business model. We've traditionally been very careful around having our own local tile manufacturing because for many years, there was only one other who was our direct competitor. There are now 4 manufacturers or 5 manufacturers in Southern Africa itself. So any risks in terms of local supply no longer apply. And the rest of the integration is stuff that we could deal with depending on what we decide to do at the end of this strategic review. So no material risk in terms of the integration or non-integration aspects of that business. Yes. Good stuff. Christen?

Christen Hjorth from Deutsche Numis. 3 for me. Just to get a bit of a sense of the performance in the U.K. and what you think the market did, and therefore, your outperformance last year in volume terms probably the most helpful. Second, thanks to the reiteration of the capital allocation. I know that leverage is well below 2x, right? And there's no sort of supplementary distribution. So should I read into that, that you're feeling much more confident around executing on M&A in the short term? And then finally, I know some of your product categories, particularly electric showers, Grant Westfield wall panels, they have sort of sustainability angles to them as well. I'm just wondering where conversations have been going with house builders about how they sort of fit into their thinking around sustainability.

I'll take 1 and 3, and James can jump into 2. So it's quite interesting, we've always tracked CPA really closely in terms of the market. They've obviously put out a note saying that the information they've been receiving from the statistics are not good. I mean, they've been talking about private RMI at 7%, 8%, 9%, which is we just know is wrong and it's good of them to put their hands up. But if you look at the other key places that measure this kind of data, I would say the market was down between 5% and 10% on an RMI basis, and it just depended, again, which sector of the RMI you were in, it's not one being blob. The bottom end to the mid and then the mid-premium are different. So for us, volumes last year were low double-digit negative, offset by price increases, and we're able to get price increase because we sell branded products, and we've done that again -- low single digit. Thank you, James, for correcting me. On the third one, sustainability house builders, we work very closely with them. We know that they are looking very, very closely. They're watching what's happening on the regulatory front, and we're in front of them all the time really with specifically Grand Westfield and also with Triton. We have the electric shower that is -- uses less water. It's cheaper to run. And we've just launched HeatRepeat, which means that you use even less electricity to run your electric shower. So we continue to make good progress. There's always an inflection, it's slowly, slowly suddenly. We're still in the slowly would be the answer, but making some progress. James?

Yes. So just on capital allocation, leverage below 2x. So that gives us about GBP 60 million, GBP 70 million of debt firepower for acquisitions and indeed organic investment. We always have an active portfolio -- an active M&A, sorry, pipeline. And it's no different at the moment, but your observation is correct, Christen. There are a number of things that are moving at the moment in various stages and some are in due diligence. And we don't do deals for deal's sake, and we do a lot of due diligence, and we do a lot of preparing to make sure that they are the right things to add to the portfolio. So we'll keep you updated on where we get to on some of those opportunities.

Toby Thorrington from Equity Development. Just following on the U.K. profitability first, please. And the full year margin was a record level, obviously, but the second half was particularly strong. Is there anything exceptional one-off non-recurring, anything of that nature in the second half?

Traditionally, the second half is always stronger than the first half anyway, but there was nothing unusual in the second half result that would skew that, but you'd always expect H1 margin to be slightly lower and H2 margin to be slightly higher.

Sure. Just replaying Thomas' words back to him, expecting margin improvement in the U.K. in FY '26?

Yes. Yes. Definitely. But I think what I'd just keep saying to you guys, take a medium-term non-linear view on these things. We can't control the timing. But just going back to, if the housing recovery, for instance, happens quicker than we think, and it's a little bit more robust than we're hoping, that accelerates it. If it's a bit slower, it slows it down. But move forward, we will. Yes.

Perhaps slightly relatedly to that, there's obviously been a lot of good work behind the scenes to us, but front and central for you guys in terms of warehouse consolidation, distribution improvements, those kind of things. Are there any more things of that nature you can do in the U.K?

Yes. We're looking at it all the time. And it really starts with the customer working backwards for us. It's not a spreadsheet about costs because that's a short-term one-off gain. So we've got ongoing group projects with all of our businesses involved. And where it makes sense, we talk about together or aligned or apart. And we'll -- once we've made that determination, aligned to what the customer wants, but the answer would be we do believe that there's more to go.

Okay. And I can't let you go without asking a question on Slide 20, which is your company and customer top 20 matrix. You gave us a couple of names there, Wickes and Vic Plumbing, I think you mentioned particularly as winning additional listings in there. Interested to know what type of competitors you're winning business from because a lot of the sort of messaging is we can do a lot better than smaller companies in the way we do it. Is it mainly smaller companies you're winning from? Or is it...

Well, shall I take the...

Yes, take the Wickes' piece. And then going back to the MERLYN example, MERLYN displaced a company that was doing GBP 20 million, GBP 30 million of revenue, had leverage on the balance sheet, a decline in credit rating. Not only was the MERLYN product and service outstanding, but equally, the surety of supply was really important. So increasingly, people like Wickes and others are looking at that balance sheet for longevity of supply to honor guarantees and just be around to make their supply chain more resilient.

Yes. So I mean small fragmented market. James is 100% right in terms of what's driving it. The people, again, it's my predecessor, he used to talk about a flight to quality, and we've been seeing that for 3 or 4 years post COVID. People want somebody who is going to help them keep their promises.

Okay. Just a couple of tidy up ones from me then. In that case, any other sort of ERP investment like this year? I know all the companies are different, and you're not doing a group wide thing.

Yes. I mean, we -- yes, the MERLYN one is halfway through. We -- so our first answer is yes. The second is for us, just so that you understand, you're never going to face us and have us sitting across the table saying we're doing a full-scale SAP implementation across the whole business. We see our ERP is almost a necessary evil. The key thing with the ERP is that it's got strong API capabilities, but the differentiation doesn't come from your ERP system. The quality and accuracy starts there. But what differentiates us and where we will invest is really in the customer experience.

Okay. Sorry, just 2 more. I know you're limited on what you can say about South Africa. But for modeling purposes, lots of moving parts, obviously, but should we be expecting an improvement in performance in South African contribution -- profit contribution this year?

I would stick with the numbers you've got, Toby, having looked at them yesterday for the time being. And then we will revisit with everybody as and when we get an outcome from the strategic review.

Okay. And final, final question. Effective tax or underlying tax rate was about 20%, which is a bit lower than it was at the interim stage, what's the guidance on that, please?

Yes. So guidance would be about 21% to 22% on the effective tax rate. There was a slight release from an over-prudent provision, which is well into the weeds of tax, but that's why it was slightly lower than at the half year.

Andy Edmond, Equity Development. Just one for me. You'd be glad to hear, James. You talked a little bit about the working capital and the buildup of inventory and concerns in certain areas over supply chain, and the answer may again be linked to the strategic review, I'm not sure. But just if you're seeing in recent months more risks on supply chain? You've talked about good deals on shipping. But clearly, the world is slightly more politically volatile place at the moment. And is this just sensible stocking up in case of going? So it might not come down going forward.

Yes, yes. Good question. I think, firstly, yes, the -- a good chunk of that working capital absorption was in Johnson Tiles, South Africa, which we spoke about separately. But yes, supply chain volatility, question marks about impact of tariffs, China and Taiwan. I think we're just -- we've got the balance sheet. We're using it. We're invested in working capital sensibly because we see it as a huge competitive advantage in holding inventory, and we saw it through the pandemic as well. It wins us market share. Equally, we do keep a very close watch on that. We know we won't go too far with it. There's a sensible limit, but while we've got the balance sheet capacity, it's something that we actively pursue.

Clients learn who their friends are in the difficult periods, don't they?

Yes. 100%. And I think maybe just to add to what James has said, we had a call -- 50% of what we do is with our Chinese suppliers. We had a call with them. I said, look, we know it's tough for you. We're not going to put undue pressure on you either. So that we take a medium, long-term approach on these things. So our suppliers look after us. We look after our suppliers. We look after our customers end-to-end in a very collaborative approach, and it stands us in great stead. Yes.

Sorry, just a quick follow-up. Rob Chantry, Berenberg. So -- yes, going back to Toby's question on Page 20, when you have the cross-selling opportunities. Could you give us a bit more color, I guess, on the ground insight into why the likes of VADO, you've managed to win 7, 8 new cross-selling wins this year, and the likes of Abode have got 1? And so is it because they're better...

Abode is mainly kitchen. So with VADO, traditionally, we've been mainly in housebuilding, and independent retail have been able to tag on to MERLYN's customer base, which is distributed across all channels, and we manage those channels with different sub-brands, but it's as simple as that.

If you just marry up the tech broadly, VADO -- Thomas said VADO has taken on MERLYN opportunities about working alongside those guys. We are good.

Thank you very much, everybody.

Thank you so much for your time. Appreciate it.