11 November 2021

Norcros plc

Results for the six months ended 30 September 2021

'Sustained outperformance leading to record underlying operating profits.'

Norcros, a market leading supplier of high quality and innovative bathroom and kitchen products, today announces its results for the six months ended 30 September 2021.

Financial Summary

¹ Definitions and reconciliations of alternative performance measures are provided in note 3

² 2019 period data presented to provide a more meaningful pre-COVID-19 baseline for performance comparisons

³ LFL (like for like) at constant currency and adjusting pro rata 2019 from a 27-week period to a 26-week period

 Highlights

·    Strong market outperformance with a significant increase in revenue compared to 2019; 10.9% on a reported basis and 18.4% on a constant currency like for like basis

·    Performance reflects increased activity in the UK and South African RMI markets and the strength of our customer proposition

·    Record underlying operating profit of £22.0m; an increase of 26.4% compared to 2019

·    Balance sheet remains very strong with £1.0m net cash (pre-IFRS 16) with significant liquidity and funding headroom

·    Interim dividend of 3.1p per share, reflecting the Board's confidence in the Group's prospects

Nick Kelsall, Chief Executive Officer, commented:

"The strength of our leading customer proposition and our focussed operating model has resulted in an excellent performance during the first half, with the Group benefitting from increased activity in the UK and South African RMI markets and also winning market share. Notwithstanding the ongoing uncertainty created by supply chain challenges, increased energy costs, inflationary cost pressure and a normalisation of consumer spending patterns, the Board remains confident our proven business model and customer proposition will lead to further progress, in line with its expectations, for the year to 31 March 2022."

There will be a presentation today at 9.00 am for analysts via a conference call. 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 market leading supplier of high quality and innovative bathroom and kitchen products with operations primarily in the UK and South Africa.

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

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

·       Merlyn - The UK and Ireland's No.1 supplier of shower enclosures and trays to the residential, commercial and hospitality sectors

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

·       Croydex - A market leading, innovative designer, manufacturer and distributor of high quality bathroom furnishings and accessories

·       Abode - A leading niche designer and distributor of high quality kitchen taps, bathroom taps, and kitchen sinks

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

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

·    Based in South Africa, Norcros operates under four brands:

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

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

·       TAL - The leading manufacturer of ceramic and building adhesives

·       House of Plumbing - Market leading supplier of specialist plumbing materials

·    Norcros is headquartered in Wilmslow, Cheshire and employs around 2,100 people. The Company is listed on the London Stock Exchange. For further information please visit the Company website: http://www.norcros.com

Overview of Results

The Board is pleased to record an excellent performance for the six months ended 30 September 2021, reflecting the strength of the Group's focussed operating model, our market leading brands, broad distribution channels, well-developed supply chain infrastructure and financial strength. As a result, our leading customer proposition has meant that the Group has capitalised on both the increased activity in the UK and South African RMI markets combined with market share gains in the period.

Our UK business has performed strongly with revenue of £130.8m (2020: £93.7m, 2019: £115.6m), 17.5% above 2019 on a like for like basis. Merlyn, Triton and Croydex experienced a marked increase in revenue relative to 2019, benefitting from their leading market positions, stock availability and superior service.

Our South African business also performed strongly with revenue of £70.1m (2020: £41.6m, 2019: £65.6m), 20.0% above 2019 on a constant currency like for like basis as the business continued to benefit from higher demand and market share gains in the retail renovation market.

We achieved a record level of underlying operating profit of £22.0m for the period (2020: £12.8m, 2019: £17.4m) reflecting our strong recovery in trading compared to last year and the sustained momentum in revenue growth.

Results

Group revenue for the 26-week first half was £200.9m (2020: £135.3m, 2019: £181.2m) (2020: 26 weeks, 2019: 27 weeks), a 10.9% increase on 2019 on a reported basis, a 14.0% increase on a constant currency basis and a 18.4% increase on a constant currency like for like basis adjusting 2019 from a 27 week to a 26-week period. The performance reflected increased activity in the UK and South African RMI markets and the strength of our customer proposition.

Underlying operating profit was £22.0m (2020: £12.8m, 2019: £17.4m) principally reflecting the increased revenue in the period and the ability to recover increased freight, raw material and energy costs principally through the management of selling prices. The underlying operating profit margin was 11.0% (2020: 9.5%, 2019: 9.6%).

Operating profit was £19.2m (2020: £7.4m, 2019: £14.3m) principally reflecting the increase in underlying operating profit. Acquisition related costs of £1.9m (2020: £2.1m, 2019: £2.2m) relate to acquired intangible amortisation. IFRS 19R administration expenses were £0.9m (2020: £0.9m, 2019: £0.9m) in the period.

Underlying profit before taxation was £20.9m (2020: £10.7m, 2019: £15.6m) reflecting the increase in underlying operating profit and a decrease in bank interest costs (2021: £0.3m, 2020: £1.2m, 2019: £0.9m) due to a reduction in bank borrowings in the period. The application of IFRS 16 has reduced underlying profit before taxation by £0.1m (2020: £0.4m, 2019: £0.6m). IFRS 16 interest costs in the period on lease liabilities were £0.8m (2020: £0.9m, 2019: £0.9m).

Profit before taxation was £17.7m (2020: £3.4m, 2019: £13.3m). During the period there were no exceptional costs (2020: £2.4m, 2019: nil). In prior periods the fair value financial derivative gains and losses were taken to the income statement (2020: £1.3m loss, 2019: £1.3m gain), however, in the current period hedge accounting has been applied with the fair value financial derivative gains and losses recognised in comprehensive income and the hedge reserve.

Diluted underlying earnings per share was 20.0p (2020: 10.6p, 2019: 15.1p), principally reflecting the increase in underlying profit before taxation.

The Group generated an underlying operating cash flow of £8.0m (2020: £37.6m, 2019: £20.0m) reflecting a working capital outflow of £19.3m (2020: £19.9m inflow, 2019: £3.1m outflow) as inventory levels were replenished and revenue growth was sustained in the period. The comparative underlying operating cashflow in 2020 benefitted from the COVID-19 related deferral of VAT, rates and rent in the period. Capital expenditure was £2.5m in the first half (2020: £0.9m, 2019: £3.1m), reflecting a return to pre-COVID-19 levels.

Financial Position

Group net cash (pre-IFRS 16) was £1.0m at the half year (31 March 2021: £10.5m net cash) as the Group replenished inventory levels and paid the prior year declared dividend during the period. Inclusive of IFRS 16 lease liabilities, net debt is £22.7m (31 March 2021: £13.7m). IFRS 16 has no impact on cash flow nor on the Group's existing bank covenants. The Group continues to be in a strong financial position with significant headroom within its committed £120m RCF financing facility.

Pension Scheme

The gross deficit relating to our UK defined benefit pension scheme as calculated under IAS 19R has reduced from £18.3m at 31 March 2021 to £6.1m. This decrease is primarily due to a strong investment performance which more than offset the marginal increase in pension liabilities. The inflation assumption increased to 3.45% (31 March 2021: 3.25%) and the discount rate remained at 2.05% (31 March 2021: 2.05%). All asset investments are managed by professional fund managers and we remain confident that our pension obligations continue to be appropriately funded and well managed. The Company is due to pay £3.3m this financial year into the scheme in accordance with the agreement made with the Trustee in June 2019 based on the triennial valuation dated 1 April 2018. The 1 April 2021 triennial valuation process is progressing with the Company and the Trustee working constructively together on this.

Dividend

The Board is declaring an interim dividend of 3.1p per share reflecting the strong first half performance and its confidence in the Group's prospects. The dividend is payable on 11 January 2022 to shareholders on the register on 26 November 2021. The shares will be quoted ex-dividend on 25 November 2021.

Environment, social and governance

The Board is committed to high standards of corporate responsibility, employee engagement and sustainability. We continue to prioritise a number of activities that look to reduce the Group's impact on the environment and support the communities in which we operate and we strive to provide our employees with a safe and positive working environment. During the first half of the year our environmental strategy has continued to develop with the Carbon Trust working with all divisions to gain "Taking Steps" accreditation. Further environmental activities included the continuation of the drive to reducing packaging and single use plastics, electric cars for our sales fleet, LED lighting in warehouses and a move to online installation booklets. During the period, the Board continued its focus on employee engagement and charitable contributions in our local communities including donations to the UK Pink Ribbon Foundation and further support for the South African "Project Yes" (Youth Employment Service) initiative to provide work experience for unemployed young people.

Board and senior management appointments

Good progress has been made in the search for a new Non-Executive Director as Board Chair and we will update on this in due course. David McKeith will continue to act as Board Chair until any appointment is concluded.

As separately announced, Thomas Willcocks was appointed to the Group senior executive team as Group Business Director - UK, with effect from 1 August 2021. Thomas joined Norcros South Africa in 2006 and was promoted to Managing Director of Norcros South Africa in 2009. He has overseen the sustained and profitable growth of our South African business. Kevin Swan succeeded Thomas as Managing Director of Norcros South Africa, also from 1 August 2021, having joined Norcros in March of this year. He was previously Chief Executive of Bidvest Packaging.

The Group senior executive committee now comprises our CEO (Nick Kelsall), CFO (James Eyre), Group Counsel/Company Secretary (Richard Collins) and Group Business Director - UK (Thomas Willcocks).

Operating Review

UK

Our UK businesses achieved first half revenue of £130.8m (2020: £93.7m, 2019: £115.6m), representing growth of 17.5% against 2019 on a like for like basis reflecting increased demand in the RMI sector and market share gains, with Triton and Merlyn continuing to perform extremely well. Revenues were 39.6% higher than the COVID-19 impacted half year period to 30 September 2020 when our first quarter was impacted by lockdowns and the suspension of our manufacturing and assembly facilities and the scaling back of our operations.

Underlying operating profit for the first half was £17.0m (2020: £10.8m, 2019: £12.5m), the improvement on 2019 largely reflecting the significant increase in revenue and the recovery of significantly higher freight, raw material and energy costs through the implementation of increases in selling prices and surcharges.

Triton

Triton, the UK's market leader in showers, recorded revenue for the first half of £30.9m (2020: £23.3m, 2019: £24.5m), 31.5% up against 2019 on a like for like basis as the business enhanced and grew its overall market share and leadership position across all major shower categories. Triton's customers continue to benefit from a robust and proven supply chain, ongoing customer service responsiveness and market leading products.

Retail sector revenue in the first half was up 51.5% on 2019 on a like for like basis, benefitting from a significant uplift in demand for DIY, home renovation and maintenance projects. The growth was supported by a significant increase in online sales which were up circa 70% on the corresponding 2019 pre-pandemic period.

Trade sector revenue in the first half was up 12.0% on 2019 on a like for like basis with most contract, housing and local authority business having been paused during lockdown, now recommencing.

As in the UK, export market revenue also recovered strongly through the first half and was 34.0% higher than 2019 on a like for like basis.

During the first half of the year Triton introduced a number of new products, including the new Omnicare™ Ultra Thermostatic Electric Shower to extend the existing and successful contract range. Triton has recently been awarded Product of the Year (Plumbing & Heating), for its Enrich Electric Shower, as voted for by Screwfix customers and has been shortlisted by the Bathrooms Manufacturers Association, for two categories in its 2021 Sustainability Awards.

Triton delivered strong underlying operating profit growth compared to 2019 along with improved cash conversion in the period.

Merlyn

Merlyn, the UK and Ireland's No. 1 supplier of shower enclosures and trays to the residential, commercial and hospitality sectors continued to perform strongly during the first half recording revenue of £29.1m (2020: £18.1m, 2019: £21.9m), a 37.9% increase on 2019 on a like for like basis. Merlyn benefitted from an uplift in RMI activity and also gained market share as some UK competitors faced more extreme supply chain difficulties allowing Merlyn to capitalise on its superior stock availability and leading customer service.

Retail revenue in the first half was up 20.7% on 2019 on a like for like basis driven by the significant increase in demand for home renovation products leading to strong growth with the independent retailers and buying groups.

Trade revenue in the first half was up 61.8% on 2019 on a like for like basis, mainly reflecting strong growth with the National Merchant sector and a continued high level of completions from housebuilder customers including Barratt Homes. New customers in the period included Vistry, St Modwen, Anwyl Homes and IHG with contract extensions also concluded with McCarthy & Stone, David Wilson Homes and Bloor Homes.

Export revenue in the first half increased by 41.7% on 2019 on a like for like basis reflecting growth in Ireland and France.

NPD has continued and helped drive revenue growth with the launch of the Arysto luxury shower enclosure and anti-slip trays that have been well received in the market.

Merlyn delivered strong underlying operating profit growth compared to 2019 with a reduction in cashflow reflecting the investment in working capital aligned with the strong trading momentum.

Vado

Vado, our leading manufacturer of taps, mixer showers, bathroom accessories and valves, recorded first half revenue of £22.4m (2020: £16.1m, 2019: £21.1m), 10.3% up on 2019 on a like for like basis.

Retail sector revenue in the first half was up 12.7% on 2019 on a like for like basis, driven by a strong start to the year from increased renovation activity which was partially offset by a softer summer as consumers and fitters caught up with holidays. Vado particularly benefitted from strong growth across buying groups driven by superior service and inventory levels.

Trade sector revenue in the first half was 2.2% lower than 2019 on a like for like basis as the lack of availability of building materials and labour impacted the speed of build programmes in quarter two. Despite this, overall consumer demand remains very strong with our housebuilder customers reporting strong order books. Vado has retained all key customers during the period and seen significant growth with Telford Homes and Redrow.

Export revenue in the first half increased by 37.1% on 2019 on a like for like basis benefitting from increased sales in Europe.

Investment in NPD has continued to support revenue growth with the launch of the "Knurled X Fusion" range during the period, which has been well received in the retail sector.

Vado contributed strong underlying operating profit growth compared to 2019 with reduced cashflow reflecting the investment in inventory levels in line with the improvement in trading.

Croydex

Croydex, our market leading, innovative designer, manufacturer and distributor of high-quality bathroom furnishings and accessories, recorded first half revenue of £14.2m (2020: £10.1m, 2019: £11.7m), 25.7% up on 2019 on a like for like basis.

Retail sector revenue in the first half was up 30.0% on 2019 on a like for like basis driven by increased DIY renovation activity, E-commerce growth, and new range listings in both Wickes and B&Q.

Trade sector revenue in the first half was up 22.7% on 2019 on a like for like basis mainly reflecting continued strong performances from Screwfix and Toolstation together with our enhanced on-line service proposition and digital presence driving growth across a number of customers including Plumbworld.

Export revenue in the first half increased by 23.5% on 2019 on a like for like basis, mainly driven by growth in the USA of cabinets and mirrors into Home Depot.com and new wall mounted accessory ranges at Better Living Products.

A number of new Metlex and Croydex branded products were launched in August 2021 which included new patented solutions within the shower rod, toilet seat and medicine cabinet categories.

Croydex's underlying operating profit was ahead of 2019, although cash generation was lower due to the investment in working capital.

Abode

Abode, our leading designer and distributor of high-quality hot water taps, bathroom mixers, kitchen sinks and taps, recorded revenue of £9.3m for the first half (2020: £6.5m, 2019: £8.6m), 12.0% up on 2019 on a like for like basis.

The business continued to benefit from its strong market positions with key customers after the reopening of kitchen showrooms in April. An 'Approved Retailer' scheme and investment in point-of-sale display aids were launched to further differentiate the premium 'Distinctly Abode' range. Sales of Pronteau hot water taps were also strong, benefitting from the award of WRAS approval, a pre-requisite for new build markets.

NPD remained central to the Abode brand proposition with the launch of new taps in the successful 'Hex' family of industrial designs, plus the 'Agilis', an innovative kitchen hygiene solution. Retail sales of consumables and spare parts online achieved record levels, including Pronteau supplied direct to consumers, supported by installation and servicing provided by Triton.

Abode's underlying operating profit was ahead of 2019 with cashflow reflecting the investment in working capital in the period.

Johnson Tiles

Johnson Tiles, our UK leading ceramic tile manufacturer and market leading supplier of both own manufactured and imported tiles recorded first half revenue of £17.6m (2020: £14.0m, 2019: £21.5m), 15.0% down against 2019 on a like for like basis.

Whilst retail markets continued to perform relatively well, both private new build housing, social housing and commercial contract markets operated at below pre-COVID-19 levels. Post the initial COVID-19 lockdown, we restructured our manufacturing capacity and closed one of our kilns facilitating both the exit of a number of low margin products, particularly in the DIY and Trade channels and a reduction in overall stock levels. After taking account of this change in product offering, adjusted like for like revenue was 4.8% lower than 2019.

Retail sector revenue in the first half grew 2.2% on 2019 on an adjusted like for like basis through growing our space and increasing our share of wallet in major national retailers including Wickes and Tile Giant.

Trade sector revenue in the first half was down 4.7% on 2019 on an adjusted like for like basis, mainly reflecting new build housing market activity being below pre-COVID-19 construction levels with the commercial specification and social housing refurbishment markets remaining sluggish. Despite this, we supplied a number of major contracts in the period including Porsche, Ikea, Wasps RFC, Nike Store in Glasgow, Wembley Stadium, Alexander Stadium and the University of York.

Export revenue in the first half was down 29.4% on 2019 on a like for like basis. Softer revenue in the EU, particularly France, were partly offset by strong revenue into Russia and the Tamale Airport project in Ghana.

During the period Johnson Tiles continued to develop its product range launching 19 new ranges and 14 range upgrades including our Southbank range which recently won the Mixology Surfaces Product of the Year. Additionally, Johnson Tiles further differentiated our service levels to our customers by further enhancing our market leadership in sustainability by increasing the recycling of kiln waste heat, scrap tiles and water.

Johnson Tile's underlying operating profit was marginally behind 2019 due to the impact of rising energy costs, albeit a significant improvement on the underlying operating loss in the first half of 2020 whilst cashflow was ahead of pre-pandemic levels.

Norcros Adhesives

Norcros Adhesives, our UK manufacturer and supplier of tile and stone adhesives and ancillary products, recorded first half revenue of £7.3m (2020: £5.6m, 2019: £6.3m), 19.7% up on 2019 on a like for like basis.

Retail sector revenue in the first half was up 82.8% on 2019 on a like for like basis driven by significant growth of product lines across the DIY multiples.

Trade sector revenue in the first half was 13.0% lower than 2019 on a like for like basis mainly reflecting a much slower recovery in the larger private and public commercial specification projects.

The Middle Eastern operations were closed at the end of the previous financial year and as a result there were no sales in the region during this period.

During the period Norcros Adhesives maintained the "Gold Standard" from the Supply Chain Sustainability School in addition to launching two new leveller lines in Screwfix.

Norcros Adhesives' underlying operating profit was ahead of 2019 and cashflow was in line.

South Africa                                                                           

Our South African business achieved first half revenue of £70.1m (2020: £41.6m, 2019: £65.6m), representing growth of 20.0% against 2019 on a like for like constant currency basis with Tile Africa continuing to benefit from higher demand and market share gains in the retail renovation market. Revenues were 52.4% higher on a constant currency basis than the COVID-19 impacted 2020 revenues when our first quarter was impacted by lockdowns and the suspension of manufacturing and closure of retail operations.

Underlying operating profit was £5.0m (2020: £2.0m, 2019: £4.9m) in the period, in line with pre-pandemic 2019 levels.

Johnson Tiles South Africa

Johnson Tiles South Africa, our tile manufacturing business delivered first half revenue of £8.2m (2020: £4.8m, 2019: £8.3m), 10.8% higher than 2019 on a constant currency like for like basis as the business benefitted from increased housing renovation market demand, partially offset by subdued activity in the commercial sector including the new housing and corporate renovations segments.

During the period, our manufactured tile range was consolidated, reducing the complexity of the portfolio to improve our in-stock and customer service levels whilst we increased the depth of some ranges by the introduction of the Simende, Sima, Chisel and Kgosi manufactured tile ranges and the Etosha range of factored tile products.

Johnson Tiles South Africa's underlying operating profit was marginally behind 2019, with cashflow reflecting the investment in stock.

TAL

TAL, our market leading adhesives business recorded revenue of £11.3m (2020: £7.9m, 2019: £12.6m) 0.9% higher than 2019 on a constant currency like for like basis. This performance reflects TAL's exposure to the commercial new build project sector which continues to track behind the home renovation post-pandemic recovery. Revenue of our specialist construction products were also held back by the delay in the recovery of this sector.

Notwithstanding market conditions, TAL remains the leading supplier, with the business supplying market-leading products and technical expertise into several construction projects during the first half of the year including residential projects in Gauteng and Cape Town, the Life St George's Hospital and Radisson Hotels in the Eastern Cape. Investment in NPD continued during the period with the launch of a construction waterproofing product, "Sureproof Shower", generating further momentum.

TAL's underlying operating profit and cash generation during the period were in line with 2019.

Tile Africa

Tile Africa, our leading retailer of wall and floor tiles, adhesives, showers, sanitaryware and bathroom fittings, recorded first half revenue of £37.8m (2020: £21.5m, 2019: £31.7m), 34.0% higher than 2019 on a constant currency like for like basis after benefitting from stronger retail demand from increased renovation activity and ongoing improvements in retail operating disciplines and superior stock availability.

The successful, exclusive Evox range of bathroomware and sanitaryware was expanded with the addition of several new bath ranges and four new tap ranges; and an exclusive upmarket range, Nuvo, will launch early in the second half of the year. Despite the slow commercial sector, several large retail floor covering installations for Pick n Pay, Boxer and Spar were completed during the period.

Tile Africa currently operates from thirty-two owned stores and two franchise stores. Ongoing capital investment continues, mirroring the successful flagship Greenstone store and Ballito store concepts, incorporating both a bathroom store-within-a-store concept and a bespoke alternative floorcoverings department.

Tile Africa's underlying operating profit was substantially ahead of 2019 with cashflow reflecting the investment in inventory to support the revenue growth.

House of Plumbing

House of Plumbing, our market leading supplier of specialist plumbing materials into the commercial segment, recorded first half revenue of £12.8m (2020: £7.4m, 2019: £13.0m), 10.3% higher than 2019 on a constant currency like for like basis. Despite the slow recovery of the commercial sector post-COVID-19 pandemic, the additions to the branch network contributed to increased revenues compared to prior periods. During the period, three new branches were added in Nelspruit, Secunda and City Deep focused on the civils product ranges used in the infrastructure, mining, engineering and irrigation projects in addition to the traditional commercial plumbing offering.

House of Plumbing now operates out of seven branches with the focus being on providing expert technical advice and consistent stock availability with the business planning to continue to extend its geographical expansion to further establish a national footprint.

House of Plumbing's underlying operating profit and cashflow were lower than 2019 reflecting the slower recovery of the commercial sector and the investment in new branches.

Summary and outlook

Our market outperformance in the first half reflects the strength of our focussed operating model, our market leading brands, broad distribution channels, well-developed supply chain infrastructure and stock availability. The fragmented nature of our markets continues to provide growth opportunities for the Group as we continue to focus on winning market share and complementing our product offer.

Supply chain challenges, increased energy costs, inflationary cost pressure and a normalisation of consumer spending patterns mean that uncertain market conditions are likely to prevail during the remainder of the financial year. Notwithstanding these factors and based on the excellent first half performance and the Group's revenue momentum, the Board remains confident our proven business model and leading customer proposition will lead to further progress, in line with its expectations, for the year to 31 March 2022.

Nick Kelsall                                                                                                   James Eyre

Chief Executive Officer                                                                                Chief Financial Officer

11 November 2021                                                                                         11 November 2021                                                           

Condensed consolidated income statement

Six months to 30 September 2021

Condensed consolidated statement of comprehensive income

Six months to 30 September 2021

Items in the statement are disclosed net of tax.

Condensed consolidated balance sheet

At 30 September 2021

Condensed consolidated statement of cash flow

Six months to 30 September 2021

Condensed consolidated statements of changes in equity

Six months to 30 September 2021 (unaudited)

Six months to 30 September 2020 (unaudited)

Year ended 31 March 2021 (audited)

Notes to the accounts

Six months to 30 September 2021

1. Accounting policies

General information

The principal activities of Norcros plc ("the Company") and its subsidiaries (together "the Group") are the design, manufacture and distribution of a range of high quality and innovative bathroom and kitchen products mainly in the UK and South Africa.

The Company is incorporated in England as a public company limited by shares. The shares of the Company are listed on the London Stock Exchange market of listed securities. The address of its registered office is Ladyfield House, Station Road, Wilmslow, SK9 1BU, UK.

This condensed consolidated interim financial information was approved for issue on 11 November 2021 and does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006 and has neither been audited nor reviewed.

Basis of preparation

This condensed consolidated interim financial information for the six months to 30 September 2021 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union.

The Directors consider, after making appropriate enquiries at the time of approving the condensed consolidated interim financial information, that the Company and the Group have adequate resources to continue in operational existence and, accordingly, that it is appropriate to adopt the going concern basis in the preparation of the condensed consolidated interim financial information.

The condensed consolidated interim financial information should be read in conjunction with the Annual Report and Accounts for the year ended 31 March 2021, 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 9 June 2021 and delivered to the Registrar of Companies. The report of the external auditor on the financial statements was unqualified.

Accounting policies

The principal accounting policies applied in the preparation of this condensed consolidated interim financial information are included in the financial report for the year ended 31 March 2021. These policies have been applied consistently to all periods presented.

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

Risks and uncertainties

The principal risks and uncertainties affecting the Group, together with the approach to their mitigation, remain as set out on pages 34 to 38 in the 2021 Annual Report, which is available on the Group's website (www.norcros.com). The principal risks stated were: coronavirus (COVID-19) pandemic, acquisition risk, environmental, social and governance (ESG), staff retention and recruitment, market conditions, loss of key customers, competition, reliance on production facilities, loss of a key supplier, information security and cyber risk, exchange rate risk, funding and liquidity risk and pension scheme risk.

This interim statement includes comments on the outlook for the remaining six months of the financial year.

Forward-looking statements

This interim statement contains forward-looking statements. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Accounting estimates and judgements

The preparation of condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 March 2021.

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, which is considered to be the Board, assesses performance and allocates resources based on geography as each segment has similar economic characteristics, complementary products, distribution channels and regulatory environments.

There are no differences from the last Annual Report in the basis of segmentation or in the basis of measurement of segment profit or loss.

3. Alternative performance measures

The Group makes use of a number of alternative performance measures to assess business performance and provide additional useful information to shareholders. Such alternative performance measures should not be viewed as a replacement of, or superior to, those defined by Generally Accepted Accounting Principles (GAAP). Definitions of alternative performance measures used by the Group and, where relevant, reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures are provided below.

The alternative performance measures used by the Group are:

Underlying profit and underlying earnings per share measures provide shareholders with additional useful information on the underlying performance of the Group. This is because these measures are those principally used by the Directors to assess the performance of the Group and are used as the basis for calculating the level of annual bonus and long-term incentives earned by the Directors. The term 'underlying' is not recognised under IFRS and consequently the Group's definition of underlying may differ from that used by other companies.

Reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures:

Condensed Consolidated Income Statement

(a)   Underlying profit before taxation and underlying earnings

(b)   Underlying EBITDA

Condensed Consolidated Statement of Cash Flow

Underlying operating cash flow

4. Acquisition related costs and exceptional operating items

An analysis of acquisition related costs and exceptional operating items is shown below.

1     In accordance with IFRS 3R, a proportion of the deferred consideration payable to the former shareholders of certain acquired businesses is required to be treated as remuneration, and, accordingly, is expensed to the Income Statement as incurred.

2     Non-cash amortisation charges in respect of acquired intangible assets.

1.    Exceptional costs of £2.4m were incurred in the period ended 30 September 2020 in relation to COVID-19 related restructuring programmes across the Group comprising of £2.0m in cash costs and £0.4m of non-cash costs. £3.8m of COVID-19 related restructuring costs were incurred in the year ended 31 March 2021 comprising of £2.3m in cash costs and £1.5m of non-cash costs.

5. Earnings per share

Basic and diluted earnings per share

Basic earnings per share (EPS) is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the period, 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.

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 have also been provided which reflect underlying earnings from continuing operations divided by the weighted average number of shares set out above.

6. Taxation

Taxation comprises:

Current tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year.

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%. This new law was substantively enacted on 24 May 2021. Deferred tax balances have been remeasured to either 19% or 25% depending on when the Directors expect these timing differences to reverse.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The movement on the deferred tax account is as shown below: