The Norcros operating companies largely performed relatively well in challenging market conditions (in both the UK and South Africa) in FY20 though year end trading was affected by COVID-19 lockdowns, as flagged previously. The group’s financial position appears robust following management actions (including foregoing an FY20 final dividend) and well-placed to both contend with weaker near-term markets and the pursuit of market share gains from a position of relative competitive strength. Our estimates remain suspended at this time.
A pre close trading statement trailed the likely year-end impact of COVID-19 on FY20 results, but in the event both reported EBIT and core net debt were slightly better than guidance. Company reported EBIT was down just over £2.1m after a c £4.6m trading hit from coronavirus/lockdown effects. (We estimate that constant FX like-for-like EBIT was c 12% lower year-on-year.) In the UK, retail channel sales generally outperformed the other subsectors, while in South Africa, a maiden contribution from House of Plumbing (acquired in April for c £9m) served to push territory sales ahead while maintaining local profitability overall. Including the acquisition consideration, net cash flow was effectively neutral with the small increase in core net debt to £36.4m attributable to FX translation effects.
Prompt action at the year-end led to the closure of facilities (with c 80% of staff furloughed at the peak) together with other cost reduction/cash preservation steps. While operations have mostly resumed (the exception being Johnson Tiles UK) and trading levels in June (to 25th) have recovered to c 75% of prior year levels, nearterm trading is likely to be in recessionary economic conditions. Some likely restructuring activity has been flagged in both the UK and South Africa. At the end of FY20, Norcros had pre-emptively drawn down c £84m of gross debt for business liquidity purposes and also has agreed covenant waivers in place for the next 12 months. Given that net debt had risen only to c £39m by 7 June, the funding position appears to be under control with capacity to accommodate weaker trading.
The trailing P/E and EV/EBITDA (adjusted for pensions cash) for Norcros are 5.9x and 4.6x respectively. Geographic and local subsector differences make it difficult to generalise on the trading outlook at specific operating company level. Forward guidance and our estimates for FY21 remain suspended for the time being, though a lower outturn than FY20 is clearly the likely scenario.