(NXR) Norcros

FOR IMMEDIATE RELEASE                                                                          17 November 2011

Norcros plc

Results for the 26 weeks ended 30 September 2011

'On track to deliver further progress'

Norcros ("Norcros" or "the Group"), the home consumer products group with operations primarily in the UK and South Africa, announces results for the 26 weeks ended 30 September 2011.

Financial Summary

*Adjustment to the previous period which covered 27 weeks compared to 26 weeks for this period

**Operating profit before exceptional items

***Profit/earnings before exceptional items and non-cash finance costs

Highlights

·     Significant revenue growth of 8.6% achieved

·     Trading profit for 26 weeks up despite significant energy and commodity price increases

·     Resolved significant legacy lease issue for £7.8m generating cash saving of £3.3m p.a.

·     Sale of surplus land to WM Morrison Supermarkets plc subject to planning consent

·     Strong financial position - net debt before prepaid finance costs at £18.1m ; 1x EBITDA

·     New £51m bank facility on improved terms through to Oct 2015

John Brown, Chairman, commented:

"Norcros has delivered a solid performance in the last six months. The Group will benefit from management's self-help actions to reduce costs, improve manufacturing efficiencies and implement selective price increases in the second half.

Although we expect market conditions to remain challenging in both the UK and South Africa, we have a strong financial position and new banking facilities until 2015. The Group is well positioned to improve margins and make further progress."

There will be a presentation today at 9.30 am for analysts at the offices of Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN. The supporting slides will be available on the Norcros website at http://www.norcros.com/ later in the day.

ENQUIRIES

Notes to Editors

·    Norcros is a leading supplier of high quality and innovative showers, ceramic wall and floor tiles and adhesive products with operations primarily in the UK and South Africa.

·    In the UK, Norcros operates under three brands:

·    Triton Showers - Market leader in the manufacture and marketing of showers in the UK

·    Johnson Tiles - A leading manufacturer of ceramic tiles in the UK

·    Norcros Adhesives - Manufacturers of ceramic adhesives, grouts and related products

·    In South Africa, Norcros operates under three brands:

·    Tile Africa - Chain of retail stores focused on ceramic and porcelain tiles, and associated products such as sanitary ware, showers and adhesives

·    Johnson Tiles South Africa - Manufacturer of ceramic and porcelain tiles

·    TAL - The leading manufacturer of ceramic, industrial and building adhesives

·    Norcros is headquartered in Wilmslow, Cheshire and employs around 1700 people. The company is listed on the London Stock Exchange. For further information please visit the Company website: http://www.norcros.com/

Chairman's statement

The Board is pleased to announce a solid set of results for the six months ended 30 September 2011.  Significant revenue growth was achieved across the Group's businesses, driven by management's commitment to invest in new product development programmes and to focus on sales and marketing initiatives. Combined with its strength of service offering this commitment enabled Norcros to outperform its competition and gain further market share.

Whilst profitability has remained strong, the Group has not been immune from energy and commodity price increases. In response to these challenges, actions have been implemented to further restructure the cost base, recover input cost increases through selective selling price increases and improve operational performance.

The success of our sales and marketing programmes, the low net debt position and good cash generation leaves the Group in a strong position to make further progress provided conditions in our key markets do not deteriorate any further.

Results

The period under review covers a 26 week period whereas the comparable period last year covered 27 weeks.

Group revenue increased by 5.3% to £102.4m (2010: £97.3m) for the six months ended 30 September 2011 and by 8.6% on a constant currency like for like number of weeks basis.

Group trading profit was £6.3m (2010: £6.4m), which represents a 2.2% improvement on a like for like number of weeks basis.

Group benchmark profit before taxation was £5.4m (2010: £5.6m) and is in line with last year on a like for like number of weeks basis.

Group profit before taxation was £4.3m (2010: £6.8m) with the 2010 result benefiting from an exceptional gain of £2.7m arising on the sale of our 25% investment in R.J. Beaumont & Co Pty Ltd.

Basic benchmark earnings per share was 0.9p (2010: 0.9p).

Financial

Net cash generated from operations in the period was £0.6m (2010: £3.8m). This included the previously announced £7.8m buy-out of the onerous property lease at Springwood Drive and also a saving of £1.1m from ongoing lease costs on the site. Investment in capital expenditure returned to levels similar to our depreciation charge at £3.1m (2010: £2.0m). Net debt before prepaid finance costs at 30 September 2011 increased to £18.1m from £12.4m at 31 March 2011, the increase principally reflecting the buy-out of the lease at Springwood Drive.

On 31 August 2011 the Group announced that it had entered into an agreement with WM Morrison Supermarkets plc to sell part of its surplus freehold land holding subject to an acceptable planning consent being granted for the site, which is being progressed.

On 22 September 2011 the Group secured a new committed £51m revolving credit facility through to October 2015. The terms of this new facility provide the Group with increased flexibility and a lower cost of borrowing, reflecting its strong financial position. The annualised reduction in bank interest as a result of these improved terms is anticipated to be approximately £0.5m per annum.

An exceptional non-cash interest charge of £1.2m has been recognised in these results arising from the write-off of unamortised fees related to the previous refinancing. Fees of approximately £0.8m have been incurred in securing the new facility and will be amortised over its term.

The position of our UK defined benefit pension scheme as calculated under IAS19 has been updated and shows an increased deficit from £7.0m at 31 March 2011 to £14.6m at 30 September 2011. The increased deficit at 30 September 2011 reflects a combination of a fall in the applicable discount and inflation rates and a lower market value of the scheme assets, but still represents a 96% funding level on this basis.

Dividend

As a result of the Group's strong financial position and the solid trading performance in the first half, the Board is declaring an interim dividend of 0.14p per share (2010: 0.12p). The dividend is payable on 6 January 2012 to shareholders on the register on 9 December 2011. The shares will be quoted ex-dividend on 7 December 2011.

Operating review

Further details of the financial performance and market conditions in each of the Group's businesses are set out below.

UK

For the six months ended 30 September 2011 total revenues in our UK businesses increased by 6.2% to £58.4m and by 10.3% on a like for like number of weeks basis. Trading profits at £6.5m were 11.9% ahead of last year and on a like for like number of weeks basis were up 16.2%.

Triton Showers

Triton Showers, our market leading UK shower operation, delivered a strong trading performance, excellent cash generation and increased overall market share of the domestic shower market despite a backdrop of ongoing strong commodity prices. This demonstrates the strength of its business model, consumer brand awareness and high customer service levels.

The shower market has declined by 3% over the last year but has been relatively static over the last six months. Within that, the electric shower segment is performing better than the mixer segment driven by the strength of replacement activity.

Overall revenue was 1.6% lower, but 2.2% higher on a like for like number of weeks basis. On a like for like number of weeks basis UK revenues were 1.5% higher with a stronger performance in the retail sector compared to the trade. Export sales were ahead by 6.4% on a like for like number of weeks basis representing a robust performance given the continued very subdued market conditions in Ireland, our largest export market. However, across the whole business our strong commitment to product development has continued and significant investment is being made in new product introductions with the launch of the T80Z family range and the new Aspirante range helping first half performance.  

Trading profits and margins were higher than last year as a result of an ongoing programme of cost reduction initiatives and tight cost control.

Johnson Tiles

Johnson Tiles, a leading UK ceramic tile manufacturer, performed well, especially in its domestic market where it has continued to gain share. Overall revenue in the six months ended 30 September 2011 was 13.0% higher, or 17.4% on a like for like number of weeks basis. UK revenues exceeded the prior year by 21.2% on a like for like number of weeks basis with growth in the DIY multiple channel significantly ahead of that in trade. This has been achieved against the backdrop of an estimated 5% decline in the UK tile market over the last year, with all sectors experiencing lower levels of activity. The social housing market sector has been particularly badly affected by the impact of the public sector cuts. Market share was gained from new product listings won as a result of the demise of a key UK competitor in June last year. Innovative ink jet products and our architect and designer-focused ranges have driven performance with revenues benefitting from noteworthy projects at the Olympic Village, New Scotland Yard and Marks & Spencer in the period.

Supply issues have constrained export revenues, leaving them 5.6% lower than prior year on a like for like number of weeks basis. However, we are confident of overcoming these issues and project activity in the important Middle East market remains strong and this will benefit revenues in the second half.

Notwithstanding the strong sales performance, trading profits were lower in the first six months reflecting higher energy and commodity prices and lower than expected manufacturing output following installation of the new kiln.  We are confident that these inefficiencies are temporary and are working towards securing the full benefit of the increase in capacity. Energy costs increased by 37% on last year but, as part of its energy hedging policy, the business has covered forward a substantial proportion of its forecast consumption in the remainder of the year and does not therefore anticipate any significant additional energy cost risk in the second half.

Management has taken action to mitigate input cost increases by undertaking a cost reduction programme and by implementing selective selling price increases. The benefits of these actions will largely be reflected in the second half. Johnson Tiles' strategy remains focused on product leadership, excellent service and strong customer relationships.

Norcros Adhesives

Revenue in our UK adhesive business continued to grow rapidly and trading profit was maintained in the first half of the year. Our new ready mix adhesive manufacturing facility installed in February 2011 is working well and allows us to offer a fully integrated manufactured product range. As a result of our strategy of continuing to invest in sales and marketing, growth has been generated through gaining a number of significant national contract specifications. This has helped to develop stronger relationships with the major fixing contractors and created additional opportunities to target open tender specifications. Furthermore, the national specifications for Barratts and David Wilson Homes have been gained towards the end of the period, which will contribute to revenue growth in the second half.

South Africa

For the six months ended 30 September 2011 total revenues in our South African businesses increased by 5.2% to £39.2m and by 9.0% on a constant currency like for like number of weeks basis. A trading loss of £0.3m was recorded compared to a trading profit of £0.5m in the prior year. This was principally driven by an increased loss in Johnson Tiles, our tile manufacturing operation.

Revenues at our retail operation, TAF, increased by 0.6% on a constant currency basis and by 4.5% on a constant currency like for like number of weeks basis. Retail sales grew by 6.8% on a like for like number of weeks and stores basis, reflecting an improved product offering and refinement of our store operating model. This performance helped deliver a small trading profit in the period versus a small trading loss in the comparable period last year.

During the period one further store was upgraded bringing the number of upgrades to 20 out of our 31 stores. A further store will be upgraded in the second half and it remains our target to convert all stores by 2014. Additional growth will come from opening up franchises in outlying or rural areas, where economic activity is expected to increase, and from targeting opportunities in sub-Saharan Africa.

Johnson Tiles, our tiles manufacturing business, has made strong progress in growing revenues as part of its turnaround strategy, albeit it has made slower than expected progress on the manufacturing objectives.

Revenues in the independent sector have grown by 37.8% on a constant currency basis and by 43.1% on a constant currency like for like number of weeks basis. This significant increase has resulted from targeting dedicated sales resource on the independent merchant and sub-Saharan African export markets. This success is particularly noteworthy given the increase in importing activity driven by the strong Rand. Future growth will also be achieved by broadening the product offer through increasing the number of complementary high quality imported tiles we offer to the independent sector.

We have implemented a programme to accelerate improvements in the manufacturing process. A new buffer system was installed in May 2011 which necessitated an interruption to production. Commissioning of this equipment took longer than expected and impacted overall plant efficiency in the first half. We have also restructured the senior manufacturing management team and have recently announced a number of key management appointments. These factors have led to an increased trading loss versus the comparable period last year. The key focus of the new team is to further improve plant stability, increase output and reduce unit manufacturing costs.

TAL, our market leading adhesive operation, continues to benefit from our strategy of strengthening the product range and expanding into sub-Saharan Africa to deliver 5.6% higher revenues in constant currency terms or 9.7% on a constant currency like for like number of weeks basis, achieving good growth particularly in tile adhesives.

A new satellite tile adhesive manufacturing facility was opened in Durban in September. This will realise savings in distribution costs and yield operating efficiencies at the main tile adhesive manufacturing operation at Olifantsfontein.

Investment in sales and marketing initiatives and set-up costs associated with the new Durban plant left trading profits slightly lower in the first half and leaves the business well positioned to make further progress.

Rest of the World

Revenues at our Australian operation, Johnson Tiles were 13.0% lower on a constant currency basis and 9.6% lower on a constant currency like for like number of weeks basis reflecting weak consumer confidence and uncertainty over Government spending policies. Despite lower sales the business operated at a trading profit, which represents an improvement over last year, driven by stronger gross margins and tight overhead cost control.

Summary & outlook

The Group has delivered a solid trading performance in the first half and at the same time, as part of its ongoing self-help programme, has successfully addressed a significant element of the legacy property issues. The Group has also recently secured a new £51m committed bank facility through to October 2015 and remains in a strong financial position. This is reflected in the Board's decision to declare an increased interim dividend.

Market conditions both in the UK and South Africa remain extremely challenging and therefore we are appropriately cautious about the prospects for the rest of the year. Nevertheless, management is committed to continuing to drive market share gains with our strength of service and highly regarded products, to seek new growth opportunities, improve manufacturing performance and exert tight cost control.

The Board believes that management's self-help actions to reduce costs, improve manufacturing efficiencies and implement selective price increases in the second half leaves the Group well positioned to make further progress and improve margins provided conditions in our markets do not deteriorate significantly from current levels.

J. E. Brown

Chairman

17 November 2011

Condensed consolidated income statement

26 weeks ended 30 September 2011

Condensed consolidated statement of comprehensive income

26 weeks ended 30 September 2011

Items in the statement are disclosed net of tax.

Condensed consolidated balance sheet

At 30 September 2011

Condensed consolidated statement of cash flows

26 weeks ended 30 September 2011

Condensed consolidated statements of changes in equity

26 weeks ended 30 September 2011 (unaudited)

During the period the Company repurchased 148,754,684 deferred shares of 9p each for a nominal value. Following this the Company cancelled both its capital redemption reserve and its share premium account.

27 weeks ended 30 September 2010 (unaudited)

Condensed consolidated statement of changes in equity continued

53 weeks ended 31 March 2011 (audited)

Notes to the accounts

26 weeks ended 30 September 2011

1. Accounting policies

General information

The Company is a limited liability company incorporated and domiciled in the UK. The Company is listed on the London Stock Exchange. This condensed consolidated interim financial information was approved for issue on 17 November 2011. This condensed consolidated financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

This condensed consolidated interim financial information has been neither audited nor reviewed.

Basis of preparation

This condensed consolidated financial information for the 26 weeks ended 30 September 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union.

The condensed consolidated financial report should be read in conjunction with the Annual Report and Accounts for the year ended 31 March 2011, which has been prepared in accordance with IFRS as adopted by the European Union. The Annual Report and Accounts was approved by the Board on 23 June 2011 and delivered to the Registrar of Companies. The report of the auditors on the financial statements was unqualified.

The principal accounting policies applied in the preparation of this Interim Report are included in the financial report for the year ended 31 March 2011. These policies have been applied consistently to all periods presented, unless otherwise stated.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profits or losses.

New standards, amendments to standards or interpretations

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 April 2011:

The Group has adopted the following new standards, amendments and interpretations now applicable. None of these standards and interpretations has had any material effect on the Group's results or net assets.

The following standards, amendments and interpretations are not yet effective and have not been adopted early by the Group:

* These standards are not expected to have a material impact on the Group.

Accounting estimates and judgements

The preparation of condensed consolidated financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of income, expense, assets and liabilities. The significant estimates and judgements made by management were consistent with those applied to the consolidated financial statements for the year ended 31 March 2011.

2. Segmental reporting

The Group operates in three main geographical areas: UK, South Africa and Rest of the World. All inter-segment transactions are made on an arm's length basis. The chief operating decision maker assesses performance and allocates resources based on geography as each segment has similar economic characteristics, complementary products, distribution channels and regulatory environments.

2. Segmental reporting continued

3. Exceptional items

1 The pension credit related to the impact of changes in pensioners' benefits in the UK defined benefit pension scheme.

2 The provision to cover the Group's onerous leases was increased by £4.2m last year, of which £2.0m related to the Springwood Drive property and £2.2m to the remaining three UK onerous property leases.

3 Profit on disposal of the Group's 25% investment in R. J. Beaumont & Co. Pty Limited.

4 Following the refinancing of the Group's banking facilities, £1.2m of unamortised costs relating to previous banking arrangements have been impaired in the period.

4. Non-GAAP measures

Benchmark profit before taxation is defined as profit before taxation, exceptional items, amortisation of costs of raising finance, movement on fair value of derivative financial instruments, discounting of property lease provisions and finance costs relating to pension schemes. Benchmark earnings are defined as benchmark profit before taxation less attributable taxation.

The Directors believe that benchmark profit before taxation and benchmark earnings provide shareholders with additional useful information on the underlying performance of the Group.

5. Earnings per share

6. Finance income and costs

7. Borrowings

The fair value of bank loans equals their carrying amount as they bear interest at floating rates.

The repayment terms of borrowings are as follows:

During the period the Group secured a new committed £51.0m revolving credit facility which expires in October 2015. Under this facility bank borrowings are secured by the Group's UK assets.

8. Ordinary called up share capital

During the period the Company repurchased 148,754,684 deferred shares of 9p each for a nominal value.

9. Consolidated cash flow statements

(a) Cash generated from operations

9. Consolidated cash flow statements continued

(b) Cash flows from exceptional items

This includes expenditure charged to exceptional provisions relating to onerous property leases, business rationalisation and restructuring including severance and other employee costs. During the period £7.8m was paid to exit an onerous lease obligation at Springwood Drive, Braintree, Essex.

(c) Analysis of net debt

Other non-cash movements relate to an increase in transaction costs of £0.8m (2010: £nil) following the refinancing of bank debt in September 2011 less amortisation charged for the period of £1.8m (2010: £0.6m) of which £0.6m (2010: £0.6m) was charged to finance costs and £1.2m (2010: £nil) was charged to exceptional finance costs.

10.  Dividends

A final dividend in respect of the year ended 31 March 2011 of £1.4m (0.24p per share) was paid in August 2011. On 17 November 2011 the Board declared an interim dividend in respect of the year 31 March 2012 of £0.8m (0.14p per share). This dividend will be paid in January 2012 and is not reflected in this condensed consolidated financial information.

11. Retirement benefit obligations

(a) Pension costs

Norcros Security Plan

The Norcros Security Plan, the principal UK pension scheme of Norcros plc subsidiaries, is funded by a separate trust fund. It is predominantly a defined benefit scheme, with a modest element of defined contribution benefits. Norcros plc itself has no employees and so has no liabilities in respect of these pension schemes.

The valuation used for IAS 19 disclosures has been produced by Mercer Human Resource Consulting, a firm of qualified actuaries, to take account of the requirements of IAS 19 in order to assess the liabilities of the scheme at 30 September 2011. Scheme assets are stated at their market value at 30 September 2011.

The latest actuarial valuation as at 31 March 2009 resulted in a deficit of £36.1m. As a result a twelve-year recovery plan has been agreed between the Group and the trustee of the fund whereby the Group makes additional contributions to the scheme of £1.0m in each of the two years ending 31 March 2011 and 31 March 2012 followed by seven further additional contributions of £1.1m per annum in each year from the year ending 31 March 2016 onwards.

South Africa defined benefit schemes

The Group previously operated two separate defined benefit schemes for the benefit of the Group's South African employees. These were the TAL Pension Fund and the Johnson Tiles Pension Fund. Both schemes were closed in 2007 and replaced by defined contribution schemes. Following the agreement of the allocation of surplus assets, a surplus of £1.0m (2010: £1.2m) has been recognised as an asset on the balance sheet as this amount is considered to be recoverable by the Group.

(b) IAS 19, 'Retirement benefit obligations'

The principal assumptions used to calculate the scheme liabilities of the Norcros Security Plan under IAS 19 are:

The amounts recognised in the balance sheet are determined as follows:

12. Principal subsidiaries and associated company

The principal Group subsidiaries and associates are disclosed below. Transactions between subsidiaries and between the Parent Company and its subsidiaries are eliminated on consolidation.

United Kingdom

-    Norcros Group (Holdings) Limited

Overseas

-    Norcros SA (Pty) Limited* trading as Johnson Tiles Pty Limited, TAL and TAF (incorporated in South Africa)

-    Johnson Tiles (Pty) Limited* (incorporated in Australia)

-    Philkeram-Johnson SA* (associated company - 50%, incorporated in Greece**)

* The Group interest is owned by Group companies other than Norcros plc.

**  This investment is accounted for as an associate as the Directors do not exert control over the financial and operating activities.

Notes

Unless otherwise stated, all companies are 100% owned and all UK companies are incorporated and operate in Great Britain and are registered in England and Wales. Overseas companies operate in the countries in which they are incorporated.

Only those subsidiary undertakings and associated companies whose results principally affect the financial statements of the Group are included above.

Statement of directors' responsibilities

The Directors confirm that to the best of their knowledge this condensed interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-    an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed interim financial information and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-    material related-party transactions in the first six months and any changes in the related-party transactions disclosed in the last Annual Report.

The Directors of Norcros plc are listed on page 24 of the Interim Report.

By order of the Board