Norcros Regulatory News (NXR)

19 June 2014

Norcros plc

Results for the year ended 31 March 2014

'Significant progress during the year'

Norcros, the market leading supplier of innovative branded showers, taps, bathroom accessories, tiles and adhesives, today announces its results for the year ended 31 March 2014.

Financial Summary

*Underlying is before non-underlying and exceptional operating items, and, where relevant, before non-cash finance costs less attributable taxation

**Underlying operating cash flow is cash generated from continuing operations before exceptional cash out flows and pension fund deficit recovery contributions

†The results for the previous year have been restated to reflect the implementation of IAS19R, 'Employee Benefits' and discontinued operations

 Highlights

· Fifth consecutive year of revenue and underlying operating profit growth

· Revenue increased by 16.6% on a constant currency basis

· Underlying operating profit increased by 25.5% to £16.1m (2013: £12.8m)

· Strong cash performance

· Vado acquisition successfully integrated

· Disposal of Australian business May 2014 - geographic focus

· Underlying ROCE 15.0% (2013: 12.6%)

· Progress with legacy matters

· Full year dividend up 10.9%

Martin Towers, Chairman, commented:

"I am pleased to report that Norcros has made significant progress during the year to 31 March 2014, recording a fifth consecutive year of revenue and underlying operating profit growth, which was achieved despite mixed market conditions in the UK and a challenging environment in South Africa.

I believe that the Group will continue to make progress towards its strategic targets of doubling revenue to £420m by 2018 through both organic and acquisitive growth, and achieving an underlying return on capital employed between 12% and 15% across the cycle. Underpinned by our strong brands, leading market positions and continued self-help initiatives focused on market share gain and operating efficiencies, I look forward to the future with confidence."

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.comlater in the day.

ENQUIRIES

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

· Based in the UK, Norcros operates under four brands:

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

· Vado - A leading manufacturer and supplier of taps, mixer showers, bathroom accessories and valves

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

· Norcros Adhesives - Manufacturer of tile & stone adhesives, grouts and related products

· Based 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 and building adhesives

· Norcros is headquartered in Wilmslow, Cheshire and employs around 1,700 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

Overview

I am pleased to report that Norcros has made significant progress during the year to 31 March 2014, recording a fifth consecutive year of revenue and underlying operating profit growth. Despite mixed market conditions in the UK and a challenging environment in South Africa, Group revenue from continuing operations grew by 9.2% and by 16.6% on a constant currency basis. Underlying operating profit from continuing operations was 25.5% higher at £16.1m.

The Group has made good progress on delivering its strategic objectives, with the successful integration of the Vado business acquired in March 2013 driving excellent revenue and profit growth. Tight cost control and cash management across all our businesses improved underlying return on capital employed from continuing operations to 15.0% (2013: 12.6%), towards the top end of our strategic target. The disposal of Johnson Tiles Australia announced in March 2014 and completed on 30 May 2014 now allows management to fully focus on its target geographies of the UK, Africa and the Middle East. We will continue to seek out opportunities to expand the Group through a combination of organic growth initiatives and acquisition of businesses in our target geographies and product groups.

Strong conversion of operating profit to cash meant that net debt at the end of the year was lower at £26.9m (2013: £30.7m), representing leverage of just 1.2x EBITDA, leaving the Group well placed to execute its growth strategy.

Further progress on the Group's legacy issues has also been made in the year with the agreement to sub-let the vacant surplus leasehold property at Groundwell, Swindon, to Network Rail. It is, however, disappointing to report that the sale of part of our surplus freehold land at Tunstall to Morrisons has not proceeded as expected.

Dividend

The Board is recommending a final dividend for the year of 0.34p (2013: 0.305p) per share. When added to the interim dividend of 0.17p (2013: 0.155p) per share which was paid on 9 January 2014 this will make the total dividend for the year 0.51p (2013: 0.46p) per share, a 10.9% increase on the previous year.

Board changes

In September 2013, Mr Vijay Aggarwal resigned from the Board. Mr Aggarwal had been a non-executive director of the Company since October 2009 and has represented Lifestyle Investments Pvt Ltd, which was also a significant shareholder in the Company until its complete exit in September 2013.

People

The people who work for the Group are undoubtedly our key asset and I am certain that the existing opportunities for long-term growth will ensure that our employees find Norcros a place where they will continue to enjoy rewarding careers. On behalf of the Board I congratulate them all for delivering another year of progress.

Summary

Norcros has continued its strong growth momentum and has again delivered a robust financial performance in line with market expectations. The Group remains in a strong financial position.

I believe that the Group will continue to make progress towards its strategic targets of doubling revenue to £420m by 2018 through both organic and acquisitive growth, and achieving an underlying return on capital employed between 12% and 15% across the cycle. Underpinned by our strong brands, leading market positions and continued self-help initiatives focused on market share gain and operating efficiencies, I look forward to the future with confidence.

Chief Executive's Review

Overview

The Group results for the year and comparatives have been adjusted to reflect the re-classification of our Australian business as held for disposal at 31 March 2014.

Group revenue for the year increased by 9.2% to £218.7m (2013: £200.4m) and by 16.6% on a constant currency basis. On a like for like basis, excluding Vado (acquired in March 2013) and Nortec (disposed of in November 2012), revenue was 4.5% lower on a reported basis, but 1.9% higher on a constant currency basis.

UK market conditions during the year have been mixed, with the trade sector recovery driven by improving new house build and housing transactions. The retail sector remained weak for most of the year although there have been signs of improvement in the last quarter of our financial year. UK revenue for the year at £148.0m (2013: £122.8m) was 20.6% higher on a reported basis reflecting the Vado acquisition in March 2013. On a like for like basis excluding Vado, UK revenue was 3.2% lower than last year with good progress in Triton Showers and Norcros Adhesives offset by lower revenue at Johnson Tiles.

In its first year under Norcros ownership, Vado has performed in line with our expectations and although the comparatives are not reported in our results, revenue for the full year was 16.5% ahead of last year. This strong performance, together with the successful integration of the business during the year, leaves Vado well positioned to make further progress.

Despite a challenging market environment, our South African business performed well with full year revenue growth of 9.1% on a constant currency basis and 11.8% on a like for like basis (excluding Nortec which was disposed of in November 2012). A 19.5% weaker Rand compared to last year resulted in full year reported Sterling revenue being 8.8% lower than prior year at £70.7m (2013: £77.6m) and 6.6% lower on a like for like basis.

Group underlying operating profit at £16.1m (2013: £12.8m) was 25.5% higher than prior year, with operating margins also ahead at 7.3% (2013: 6.4%). This was achieved despite the weaker South African Rand which impacted reported South African profits by £0.4m.

Strong cash conversion in our businesses resulted in closing net debt lower at £26.9m (2013: £30.7m) and leaves the Group well positioned for future growth.

Strategy

As reported in March 2013, the Board has set itself three strategic targets. These are to double Group revenue to £420m by 2018, to maintain revenue derived outside of the UK at approximately 50% of Group revenue, and to sustain a pre-tax return on capital employed of 12% to 15% over the economic cycle. I'm pleased to say that good progress has been made on a number of fronts towards these targets.

The acquisition of Vado has helped drive revenue growth of 9.2% in the year and 16.6% on a constant currency basis. Vado has been integrated quickly and seamlessly into the Norcros Group, and has been significantly earnings enhancing in its first year of ownership. Furthermore, exciting synergy benefits between Vado and the rest of the Group are being developed, including Vado's first ever range of top end electric showers aimed at high street bathroom boutiques.

Towards the end of the financial year, the Group entered into a conditional agreement to dispose of 100% of the share capital of Norcros Industry (Pty) Ltd which owns the Group's Australian tiles business, Johnson Tiles (Pty) Ltd (JTA) to Kim Hin Industries Berhad (KHIB), a company listed on the Malaysian Bursa. This transaction was completed on 30 May 2014 for total consideration of £4.2m. This sale represents an excellent outcome for our shareholders, and allows management to fully focus on its target geographies of the UK, Africa and the Middle East.

Property

Progress on resolving legacy property issues has been mixed.

Excellent progress has been made through the sub-let of the vacant and surplus property at Groundwell, Swindon to Network Rail Infrastructure Limited for the period through to 31 December 2018. This sub-lease will reduce the Group's net cash outflow on legacy leases by approximately £4.0m over the five year period starting from 1 April 2014. There is no exceptional income statement charge or credit as a result of this transaction.

Progress on the conditional sale of surplus land at Tunstall, Stoke on Trent, to a subsidiary of WM Morrison Supermarkets plc (Morrisons) has, however, been disappointing. Following a contractual dispute, this transaction has not progressed as planned, and the Board continues to seek compensation from Morrisons as well as to investigate alternative buyers for the site.

Summary and outlook

UK construction activity and an improving housing market has driven trade sector recovery during the year but the UK retail sector, as expected, is taking longer to benefit, although there have been some encouraging signs more recently. Whilst the medium-term outlook in South Africa is positive, the weak Rand continues to have an adverse effect on Rand profit translation to Sterling. Nevertheless, with our strong brands, leading market positions and continued self-help initiatives focused on market share gain, the Board remains confident that the Group should continue to make progress for the year to 31 March 2015.

Business performance

Business review - UK

United Kingdom

Revenue increased in the year by 20.6% to £148.0m (2013: £122.8m) reflecting the Vado acquisition in March 2013. On a like for like basis excluding Vado, UK revenue was 3.2% lower than last year with good progress in Triton Showers and Norcros Adhesives offset by lower revenue in Johnson Tiles. Underlying operating profit increased to £14.2m (2013: £11.9m) with margins broadly maintained at 9.6% (2013: 9.7%). This is a strong performance given the mixed market conditions which have prevailed and the retail destocking effects which impacted Johnson Tiles performance in the period.

Triton Showers

Triton, our UK domestic shower business, has maintained its market leading position despite a flat UK market and continued tough conditions in the Irish market, with revenue for the year 1.6% higher at £51.9m (2013: £51.1m).

In the UK, revenue for the year was 2.4% ahead of prior year, and, excluding the effect of some low margin business exited last year, was 4.2% higher. Trade sector revenue was in line with last year and excluding the exit of marginal business last year was 4.4% higher. Revenue in the retail sector grew by 4.5% reflecting the success of Triton's category management approach and promotional programmes.

Export revenue, which represents approximately 13% of overall revenue, was 3.4% lower compared to prior year. The primary export market for Triton is Ireland, and although revenue was lower than last year, this is a respectable performance given the Irish shower market is estimated to have halved since 2007.

Performance of the thermostatic electric products for the care market including the Safeguard and T150 range has been encouraging. This success should be further underpinned by the recently launched Safeguard+ range with the unique grab rail shower kit and remote on/off control.

This new product range forms the central pillar of the newly launched "Inclusive Showering" product offering. This new range has been extremely well received across all of Triton's trade customers. Its success reflects the investment and research with both industry respected occupational therapists and the Royal National Institute for the Blind to develop a product range suitable for people with additional needs, but at the same time acceptable to the whole market, hence the concept of "Inclusive Showering".

The T80Z Fast Fit range, which focuses on the increased speed of fit for installers, continues to gain momentum and has grown substantially in both merchant and electrical wholesale segments.

Margins and profits were higher than last year, reflecting input cost reductions combined with an improvement in revenue mix. The business continued to be strongly cash generative.

Vado

Vado, which was acquired on 31 March 2013, is our leading manufacturer of taps, mixer showers, bathroom accessories and valves. Vado recorded revenue of £29.1m for the period, 16.5% higher than last year (although not under Norcros ownership last year and not included in our comparatives).

UK revenue was 22.6% higher than the prior year with strong performances in both the retail and trade sectors. UK retail revenue was 19.7% higher, reflecting the success of the Vado Partnership Programme which was launched last year and stronger relationships with buying groups increasing brand penetration. UK trade revenue was 26.1% higher benefitting from increased business from existing customers as well as new specification wins including St. George (part of Berkeley Group Holdings plc) and Redrow.

Export revenue, which accounts for approximately 42% of overall revenue, was 9.1% higher with encouraging growth both in the specification and retail sectors in the Middle East and Africa more than offsetting a large project in Hong Kong in the first half of last year that was not repeated this year.

Revenue and gross margins increased in the period with further revenue investment made in sales resource and marketing initiatives to support future growth. Underlying operating profit for the year was in line with expectations and higher than prior year.

In January 2014, Vado opened the Hydrologics Studio, its new customer training facility. This innovative facility is designed to increase customers' understanding of the Vado business, its product range and the brand. Early customer reaction has been very positive. Investment in product development remains key to Vado's strategy with two new tap ranges launched in 2013 alongside an enhancement of their core shower offering, all of which has contributed to the strong growth momentum of the business.

Integration of the Vado business into the Group was completed quickly and seamlessly following acquisition, and a number of exciting incremental revenue initiatives with other Group companies are progressing well.

Johnson Tiles

Johnson Tiles, the UK market leading ceramic tile manufacturer and a market leader in the supply of both own manufactured and imported tiles, saw revenue decrease by 8.4% to £61.7m (2013: £67.3m).

In the UK revenue fell by 12.6% with a decline in the retail sector more than offsetting growth in the trade sector. UK retail revenue was 21.4% lower than last year reflecting tough comparatives with last year benefitting from the significant pipeline fill for the B&Q tile range review, together with weaker sales and destocking by a number of large retail customers in the year. UK trade revenue has continued to improve, particularly in the second half of the year, and was 3.4% ahead of last year. This reflected improved market conditions with increased activity from house builders and increased specification business following last year's refurbishment of the Material Lab and the launch of the new, specification focused website in September 2013. Notable successes in the period include further specifications with Marks and Spencer, John Lewis, Premier Inn and Costa Coffee.

Export revenue, which represents approximately 13% of overall revenue, increased by 32.7%. This was driven by the successful introduction of a new large format ink jet range in the French retailer Leroy Merlin combined with a strong contract performance in the Middle East. These projects included the Supreme Court in Muscat Oman, Al Barsha Tower project in UAE, Saudi Embassy in Cairo and the Geant Hypermarket in UAE. Furthermore, a significant project at the flagship Waikiki Beach Hawaii Hilton Hotel was completed, where a 31 storey bespoke external mural panel was fixed.

A major review and restructuring of the business was undertaken during the first quarter of the financial year following weak sales and destocking by a number of large retail customers. This resulted in a headcount reduction of 59 across all areas of the business and the closure of the USA warehouse operations. The majority of the restructuring redundancies were made by the end of the first half at a cost of £1.3m.

Following a difficult first half which saw the business fall into a loss making position, financial performance in the second half substantially improved reflecting the benefits of the reduced cost base following the restructuring, coupled with growth in our trade and export business, resulting in an overall profit for the year, albeit lower than prior year.

Norcros Adhesives

Norcros Adhesives, our manufacturer and supplier of tile and stone adhesives and ancillary products, continued its strong momentum and grew revenue by 21.1% in the year to £5.3m (2013: £4.4m).

Growth in the year was driven by market share gain from significant new accounts in both the retail and distribution channels. We have secured a further three years of our exclusive specification with Barratt Homes and this will continue to drive take up in our distribution base.

Progress has been made in the year in the DIY multiples channel, a segment which had previously been difficult to penetrate. High quality products and our service proposition has proved successful in gaining our first listing, and our offering in this sector will further develop as range review opportunities become available in other retailers.

The launch of our new ready-mixed range in January 2014 has been successful with the new formulation receiving positive feedback from our fixer customers, driving greater levels of acceptance and penetration into this sector of the market. Our new wet-room backer board and adhesive system launched in April 2013 has capitalised on the growing popularity of this type of shower solution and our reputation as a "one-stop shop" for our customers.

As the business grows, it has been imperative that our manufacturing systems are robust to ensure that the quality and consistency of our products is maintained. To this end, ISO9001 accreditation was achieved in April 2014.

Strong revenue growth and improved margins resulted in underlying operating profit higher than last year and at a record level for this business.

Business Review - South Africa

Another strong year of growth in our South African business saw revenue 9.1% higher on a constant currency basis and 11.8% higher on a like for like constant currency basis (excluding Nortec which was disposed of in November 2012). The average exchange rate for Sterling to Rand for the year was 19.5% weaker at ZAR15.97 (2013: ZAR13.37), resulting in full year reported revenue of £70.7m (2013: £77.6m), which was 8.8% lower than prior year and 6.6% lower on a like for like basis. Underlying operating profit for the year doubled to £1.9m (2013: £0.9m) despite a 19.5% weaker Rand adversely impacting Sterling reported profits by approximately £0.4m.

Johnson Tiles South Africa

Johnson Tiles South Africa continued to make strong progress despite the impact of a much weaker local currency on energy and raw material costs. This was driven off the back of an excellent manufacturing performance. Independent sector revenues increased by 12.3% on a constant currency basis but, at £10.6m (2013: £11.3m), were 6.5% lower on a reported basis. Further gains in the DIY sector have been achieved as we continue our successful strategy of importing ceramic tile products to complement our own manufactured product to create a "one-stop shop" for larger retailers, particularly Builders Warehouse.

The focus of the last two years has been on operational improvements and it is therefore pleasing to report that the manufacturing plant is now operating extremely well and in line with our plans. The substantial progress in this area has been the key driver behind the significantly reduced loss in this year. The second phase of the profit improvement programme aims to improve margins via an improved product offer both in terms of design and format. This process commenced towards the end of the financial year with the successful installation of state-of-the-art ink jet printing equipment and the introduction of new larger format tiles which are due to be launched in Q2 of 2014/15.

The business is currently experiencing a legal strike by a number of employees at its manufacturing facility in Olifantsfontein. The strike involves members of NUM (The National Union of Mineworkers), who are currently the majority union in the plant and relates to a failure to agree a collective recognition agreement regarding employment terms. With the support of the minority union BCAWU who have remained at work we have managed to maintain production levels with minimal disruption to the business. Management remain confident that, in the absence of any escalation, they will be able to maintain budgeted production performance for as long as is necessary.

TAL Adhesives

TAL, our market leading adhesives business in South Africa, saw independent sector revenue grow 5.2% on a constant currency basis and an 11.8% decline on a Sterling reported basis to £17.1m (2013: £19.4m). On a like for like basis, excluding the Nortec business which was disposed of in November 2012, constant currency revenue growth was 16.7%.

Improving markets and continued market share gain particularly in the DIY retail sector have helped drive South African revenue, whilst significant progress in sub Saharan Africa, particularly Zimbabwe and Namibia, saw export revenue grow 60.7% compared to the same period last year. Focus on product quality and technical support are fundamental to TAL's success, and to reinforce this position, a £0.1m investment in a new laboratory at our main Olifantsfontein site was completed in the first half of the year, resulting in improved production control, product formulations and margins.

Underlying operating profits for the period improved compared to prior year and remain strong.

Following the sale of the business and assets of TAL's small but loss making Nortec business in November 2012, the premises at Spartan in which this business had been located and had been leased to the new owners for a short period were vacated. These premises were disposed of in the first half of the year, generating proceeds of £0.7m and a profit of £0.5m, which has been treated as an exceptional gain in the income statement.

Tile Africa

Tile Africa, our leading retailer of wall and floor tiles, adhesive, showers, sanitaryware and bathroom fittings, saw revenue increase 9.9% on a constant currency basis but reduce 8.2% on a Sterling reported basis to £43.0m (2013: £46.9m).

Sales growth reflected a slower than anticipated Christmas period following shipping delays out of China of imported product required for our peak trading period. Notwithstanding this, Tile Africa delivered a strong underlying operating profit performance.

The successful implementation of new inventory optimisation software is now delivering the expected benefits. Improved in-stock levels supported by increased investment in marketing have contributed to constant currency like for like store revenue growth of 13.6% in the year.

Store relocations in Klerksdorp and Montana were completed in the year. Of our 29 owned stores, 23 have now been successfully upgraded, and our new store programme is progressing well, with new sites secured for Southgate and Vanderbijlpark.

Financial overview

Revenue

Group revenue at £218.7m (2013: £200.4m) increased by 9.2% of which acquisitions and disposals accounted for 13.6%, with organic revenue growth of 1.9% and foreign exchange impacts accounting for a 6.3% decline.

Underlying operating profit

Underlying operating profit increased by 25.5% to £16.1m (2013: £12.8m). Our UK businesses delivered underlying operating profits of £14.2m against £11.9m, driven largely by the acquisition of Vado. Following last year's return to profitability, our South African businesses generated an underlying operating profit of £1.9m (2013: £0.9m). On a constant currency basis the improvement in underlying operating profit in South African businesses was £1.4m. Group underlying operating profit margins improved to 7.3% (2013: 6.4%).

Non-underlying and exceptional operating items

Non-underlying costs totalling £1.8m (2013: £1.5m) were made up of £1.4m (2013: £1.5m) non-cash pension fund administration costs following the implementation of the revised IAS 19, 'Employee Benefits', accounting standard and £0.4m (2013: £nil) arising from the amortisation of acquired intangibles relating to the Vado acquisition.

Exceptional items of £1.5m (2013: £4.4m) predominantly related to costs associated with the restructuring exercise in our Johnson Tiles business undertaken in the first half of the year. A full analysis of both non-underlying and exceptional operating items can be found in note 3 below.

Operating profit for the year after deducting non-underlying and exceptional operating costs was £12.8m (2013: £6.9m).

Net finance costs

Net finance costs increased to £7.0m (2013: £1.7m) although £4.6m of this increase related to the movement on fair value of foreign exchange contracts. Bank interest payable of £1.5m (2013: £1.3m) was slightly higher than the prior year and reflects the increase in average net debt following the acquisition of Vado.

Following the implementation of the revised accounting standard, IAS 19, 'Employee Benefits', the Group has recognised a £1.3m interest cost in respect of pension scheme liability (2013: £0.9m) which increased by £0.4m principally due to a higher opening liability.

Profit before tax

Underlying profit before tax was £14.6m (2013: £11.5m), reflecting the increased underlying operating profit noted above. Underlying profit before tax is reconciled as follows:

The Group reported profit before tax of £5.8m (2013: £5.2m).

Taxation

The tax credit for the year was £4.3m (2013: credit of £0.2m). Due to the continued strong performance of the Group, a further review of the position with regard to deferred tax assets was undertaken. As a result of this, the remaining unrecognised deferred tax assets in relation to both the UK and South African businesses of £4.4m have now been recognised in respect of tax losses and capital allowances, on the grounds that it is considered probable that the Group will benefit from these assets in the foreseeable future.

Recognition of the assets is likely to mean that future effective tax rates will increase to approximately 25% in the coming year. The standard rate of UK corporation tax from 1 April 2014 will reduce to 21%, with a further reduction to 20% from 1 April 2015, and the standard rate of tax in South Africa is 28% (2013: 28%). The Group's effective tax rate is expected to be higher than the standard UK rate because of the geographic mix of profits and because certain expenses, such as amortisation, are generally not allowable for tax purposes.

(Loss)/profit from discontinued operations

On 25 March 2014, the Company entered into a conditional agreement to dispose of 100% of the issued share capital of Norcros Industry (Pty) Limited (NIPL), which owns its Australian tiles business, to Kim Hin Industries Berhad (KHIB). As KHIB is listed on the Malaysian Bursa, it required shareholder approval to allow the transaction to take place. This was duly received allowing the disposal to be completed on 30 May 2014, with total consideration of £4.2m being received.

A loss of £1.6m relating to this sale has been included in these accounts, which, together with the results of the year for NIPL of £0.2m, has been disclosed within (loss)/profit for the year from discontinued operations.

As NIPL represented a major line of business for the Group, it has been classified as held-for-sale in the consolidated balance sheet and its operations have been treated as discontinued with a single amount shown on the face of the consolidated income statement.

Further details on discontinued operations are provided in note 8 below.

Restatement of prior year results

As NIPL is no longer classed as a continuing operation the prior period has also been restated in accordance with the presentational requirements of IFRS 5.

Furthermore, the introduction of a revised IAS 19, 'Employee Benefits', accounting standard (see pension schemes below), also requires prior year results to be restated.

The table below demonstrates the impact of these restatements on the consolidated income statement.

Earnings per share

Underlying diluted earnings per share amounted to 2.8p (2013: 1.8p). Excluding the effect of deferred tax assets recognised in the year, underlying diluted earnings per share was 2.1p. Basic earnings per share was 1.5p (2013: 1.0p).

Dividends

As previously announced it is the Board's intention to continue a progressive yet prudent dividend policy subject to the Group's earnings, cash flow and balance sheet position. As such the Board is recommending a final dividend of 0.34p (2013: 0.305p) per share, which, if approved, together with the interim dividend of 0.17p (2013: 0.155p), makes a total dividend of 0.510p (2013: 0.460p) in respect of the year ended 31 March 2014.

This final dividend, if approved at the Annual General Meeting, will be payable on 30 July 2014 to shareholders on the register on 27 June 2014. The shares will be quoted ex-dividend on 25 June 2014.

Balance sheet

The Group's balance sheet is summarised below:

Property, plant, equipment and investment properties fell by £7.6m, of which £3.8m was due to exchange rate movements. Additions in the year were £4.3m.

Deferred tax increased principally as a result of the full recognition of certain assets in the year, net of a reduction of £2.5m as a result of the decrease in the pension scheme liability.

Pension schemes

The Group contributed £2.1m (2013: £3.2m) into its UK defined benefit pension scheme during the year. This included deficit recovery contributions of £2.0m (2013: £2.0m) as part of the 2012 deficit recovery plan.

The gross defined benefit pension scheme valuation on the UK scheme showed a deficit of £21.8m compared to a deficit of £30.0m last year. The lower deficit reflects decreased liabilities due to a higher discount rate of 4.30% (2013: 4.20%) and a higher than expected return on scheme assets.

During the year the Group implemented the revised IAS 19, 'Employee Benefits', accounting standard and in line with the requirements, has restated comparative financial information accordingly. Whilst this had no impact on the value of the liability or net assets, the analysis of amounts charged to the income statement and other comprehensive income have changed. A summary of the impact is shown below:

Fund administration expenses of £1.4m (2013: £1.5m) which had previously been netted off actuarial gains are now included in the income statement. The method of calculating the interest cost has also changed leading to a finance cost of £1.3m (2013: £0.9m).

The Group's contributions to its defined contribution pension schemes were £2.2m (2013: £1.2m) and have increased, as expected, due to the closure of the UK defined benefit scheme to future accrual.

Cash flow and net debt

Net debt decreased by £3.8m in the year to £26.9m (2013: £30.7m). A summary of the movement in net debt is shown below:

Key cash flow components and movement in Group net debt

Underlying operating cash flow was £9.5m higher than in the previous year at £20.3m, as a result of higher operating profits and management of working capital. The Group's working capital outflow was £2.6m (2013: £7.4m), principally reflecting investment in inventory at Vado and Tile Africa to support future growth.

Net cash generated from operating activities was £6.0m higher than in the previous year at £10.3m, largely due to improved underlying operating cash flow net of higher outflows in respect of exceptional items.

Capital expenditure at £4.2m (2013: £6.7m) included a new tile press at Johnson Tiles UK, continued investment in tooling for new product in Triton Showers and a customer training facility at Vado. In South Africa, capital investment was in ink jet tile manufacturing equipment at Johnson Tiles South Africa together with store upgrades as part of the normal store improvement programme in Tile Africa.

Bank funding

The Group has a committed facility of £70m with a club of three banks, and headroom on facilities was £34.1m at 31 March 2014. This facility expires in October 2015 and is currently subject to a margin of 2% above LIBOR.

Responsibility Statement

Each of the directors, whose names and functions are listed below, confirms that, to the best of their knowledge:

The consolidated financial statements, prepared in accordance with the applicable United Kingdom law and in conformity with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and

The business review includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole.

Directors: Martin Towers (Chairman), Nick Kelsall (Group Chief Executive), Martin Payne (Group Finance Director), David McKeith (Non-Executive Director) and Jo Hallas (Non-Executive Director).

N. P. Kelsall

Group Chief Executive

M. K. Payne

Group Finance Director

Consolidated income statement

Year ended 31 March 2014

* The prior year comparatives have been restated where required to reflect the implementation of IAS 19R - Employee Benefits, measurement period adjustments in respect of business combinations and discontinued operations.

** Underlying is defined as before exceptional items and, where relevant, 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, less attributable taxation.

Consolidated statement of comprehensive income and expense

Year ended 31 March 2014

Items in the statement are disclosed net of tax.

* The prior year comparatives have been restated where required to reflect the implementation of IAS 19R - Employee Benefits, measurement period adjustments in respect of business combinations and discontinued operations.

Consolidated balance sheet

At 31 March 2014

* The prior year comparatives have been restated where required to reflect the implementation of IAS 19R - Employee Benefits, measurement period adjustments in respect of business combinations and discontinued operations.

Consolidated cash flow statement

Year ended 31 March 2014

The net decrease in cash at bank and in hand and bank overdrafts in the year from discontinued operations included in the above was £0.3m (2013: decrease of £0.2m).

* The prior year comparatives have been restated where required to reflect the implementation of IAS 19R - Employee Benefits, measurement period adjustments in respect of business combinations and discontinued operations.

Consolidated statement of changes in equity

Year ended 31 March 2014

* The prior year comparatives have been restated where required to reflect the implementation of IAS 19R - Employee Benefits, measurement period adjustments in respect of business combinations and discontinued operations.

Notes to the preliminary statement

Year ended 31 March 2014

1. Basis of preparation

Norcros plc ("the Company") and its subsidiaries (together "the Group") principal activities are the development, manufacture and marketing of home consumer products in the UK, South Africa and the Rest of the World. The Company is a public limited company which is listed on the London Stock Exchange market of listed securities is incorporated and domiciled in the UK. The address of its registered office is Ladyfield House, Station Road, Wilmslow, SK9 1BU.The financial information presented in this preliminary announcement is extracted from, and is consistent with, the Group's audited financial statements for the year ended 31 March 2014. The financial information set out above does not constitute the Company's statutory financial statements for the periods ended 31 March 2014 or 31 March 2013 but is derived from those financial statements. Statutory financial statements for 2014 will be delivered following the Company's annual general meeting. The auditors have reported on those financial statements; their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

2. Segmental reporting

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

Continuing operations - year ended 31 March 2014

Revenues of £35.9m (2013: £44.8m) are derived from a single customer. These revenues are attributable to the UK segment.

Continuing operations - year ended 31 March 2013

3. Non-underlying and exceptional operating items

The Directors believe that underlying profit before taxation and underlying earnings provide shareholders with additional useful information on the underlying performance of the Group. In order to arrive at underlying profit before taxation and underlying earnings, certain items including non-underlying and exceptional operating items have been excluded.

An analysis of non-underlying and exceptional operating items is shown below.

1 The implementation of IAS 19R, 'Employee Benefits', has required that certain costs of administering the Group's pension schemes are recognised in the income statement. Prior year comparatives have been restated for this change in accounting policy.

2 As a result of the acquisition of Vado, the Group has recognised an intangible asset which is subject to a non-cash amortisation charge.

1 During the year the Group disposed of a surplus property in South Africa generating a profit of £0.5m.

2 In accordance with IFRS 3R, a significant proportion of deferred consideration payable to the former shareholders of Vado is required to be treated as remuneration, and, accordingly, is expensed to the income statement as incurred.

3 Legal costs related to the ongoing dispute over the disposal of the surplus land at the Highgate site in Tunstall, UK.

4 Restructuring costs related to redundancies, asset write-downs and consultancy costs following the implementation of a programme of restructuring initiatives throughout the Group's business units. In 2013 this included a loss of £0.3m on the sale of the small non-core South African Nortec adhesives business.

5 The provision to cover the Group's onerous property leases was increased by £3.0m in 2013 following a reappraisal of the future cash flows arising from these leases.

6 The fees arose as a result of the Group's acquisition of Vado in 2013.

4. Finance income and costs

5. Non-GAAP measures

Consolidated Income Statement

The Directors believe that underlying profit before taxation and underlying earnings provide shareholders with additional useful information on the underlying performance of the Group. Underlying profit before taxation is defined as profit before taxation, non-underlying operating items, exceptional operating items, amortisation of costs of raising finance, net movement on fair value of derivative financial instruments, discounting of property lease provisions and finance costs relating to pension schemes.

EBITDA is a measure commonly used by investors and financiers to assess business performance. Underlying EBITDA has also been provided which reflects EBITDA as adjusted for non-underlying and exceptional operating items. The Directors consider that these measures provide shareholders with additional useful information on the performance of the Group.

Consolidated Cash Flow Statement

Underlying operating cash flow is defined as cash generated from continuing operations before cash outflows from exceptional items and pension fund deficit recovery contributions. The Directors believe that underlying operating cash flow provides shareholders with additional useful information on the underlying cash generation of the Group.

Consolidated Balance Sheet

Underlying capital employed is used to calculate underlying return on capital employed, one of the Group's key performance indicators and reflects the value of the assets used to generate underlying operating profit from continuing operations. Consequently, adjustments are made to remove assets and liabilities which do not impact underlying operating profit from continuing operations and to remove the average impact of exchange rate movements.

6. Earnings per share

Basic and diluted earnings per share

Basic EPS is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the Norcros Employee Benefit Trust.

For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. At 31 March 2014 the potential dilutive ordinary shares amounted to 24,374,489 (2013: 8,895,196) as calculated in accordance with IAS 33.

The calculation of EPS is based on the following profits and numbers of shares:

Basic and diluted underlying earnings per share

Basic and diluted underlying earnings per share has also been provided which reflects underlying earnings from continuing operations divided by the weighted average number of shares set out above.

The Company has recognised further deferred tax assets during the year totalling £4.4m. Excluding the impact of this, underlying basic earnings per share was 2.2p and underlying diluted earnings per share was 2.1p.

7. Consolidated cash flow statement

(a) Cash generated from operations

The analysis of cash generated from operations split by continuing and discontinued operations is given below.

Continuing operations

Discontinued operations

(b) Purchase of property, plant and equipment

The analysis of cash used in purchasing property, plant and equipment split by continuing and discontinued operations is given below.

 (c) Outflow related to exceptional items

This includes expenditure charged to exceptional provisions relating to onerous lease costs, acquisition fees and other business rationalisation and restructuring costs.

(d) Analysis of net debt

Other non-cash movements principally relates to the amortisation of financing costs charged in the year.

8. Discontinued operations and assets held-for-sale

On 25 March 2014, the Company entered into a conditional agreement to dispose of 100% of the issued share capital of Norcros Industry (Pty) Limited (NIPL), which owns its Australian tiles business, to Kim Hin Industries Berhad (KHIB). As KHIB is listed on the Malaysian Bursa, shareholder approval was required to allow the transaction to take place, and this was duly received allowing the disposal to be completed on 30 May 2014.

Due to the fact that irrevocable undertakings supporting the transaction had been obtained from KHIB's largest shareholder (representing approximately 61% of KHIB's issued share capital), it was determined that the sale was highly probable at 31 March 2014 and accordingly NIPL has been classified as held-for-sale in the consolidated balance sheet. In accordance with IFRS 5, an impairment loss of £1.5m to remeasure the carrying value of the assets to fair value less costs to sell has been recognised following the reclassification of the net assets of NIPL as held-for-sale. Including an estimated tax charge arising from the transaction of £0.1m, a total loss on disposal of £1.6m is anticipated. An analysis of the assets held-for-sale and liabilities associated with assets held-for-sale is given in the table below.

As NIPL represented a major line of business for the Group and has been classified as held-for-sale, its operations have been treated as discontinued with a single amount shown on the face of the consolidated income statement. As NIPL is no longer classed as a continuing operation the prior year has also been restated to conform to this style of presentation. The table below provides further detail of the amount presented in the consolidated income statement.

The net cash flows of NIPL reported in the consolidated cash flow statement are as follows.

The total comprehensive income and expense of NIPL reported in the consolidated statement of comprehensive income and expense are as follows.