Norcros delivers solid interims

Norcros, a supplier of branded showers, tiles and adhesives focused in the UK and South Africa, has delivered solid interims and expressed confidence that it will make 'further progress'.

For the six months ending September 30th, revenues increased 3.8% to £106.3m (September 2011: £102.4m), with pre-tax profits leaping 53.5% to £6.6m (September 2011: £4.3m). The vast improvement in profits was as a result of an improved underlying profit before taxation (up 11%), no exceptional charges in the period and higher non cash finance income.

Basic underlying earnings per share were 1.1p (2011: 0.9p), driven by improved underlying profit before taxation and a low tax charge as a result of the recognition of a deferred tax asset in its South African business not previously recognised.

Norcros's UK business increased revenues by 4.7% to £61.1m (2011: £58.4m) although underlying operating profit at £6.0m was 9.5% below last year.

Its South African business is growing strongly and returned to profitability.

Total revenue for the six months ended September 30th 2012 in its South African business was 17.4% higher than prior year on a constant currency basis at £39.9m (2011: £39.2m), although a considerably weaker rand means reported sterling revenue was ahead by only 1.9%.

An underlying operating profit of £0.5m was recorded compared to an underlying operating loss of £0.3m in the prior year, principally driven by an improved performance in its tile manufacturing business as well as further improvements in our market leading adhesive business.

Revenue at its Australian operation, Johnson Tiles, at £5.3m was 9.3% higher (2011: £4.8m) on a constant currency basis driven by a new tile range, success in the specification sector, and continued share gain with Bunnings, a major Australian DIY retailer. This new range together with a strong customer relationship and logistics expertise recently helped win further business to supply Bunnings in New Zealand.

The business remained profitable in the period, generating an underlying operating profit of £0.1m (2011: £0.1m).

Its pension scheme deficit increased from £18.7m at March 31st 2012 to £22.3m at September 30th, due to a fall in the discount rate. However, this deficit represents only 6% of the total scheme which is worth £366m. Consequently, it plans to close its defined pension benefit scheme to new entrants from April next year.

Net debt before prepaid finance costs at September 30th 2012 increased to £20.2m from £18.5m at March 31st 2012, but leverage still remains low at 1.1 times earnings before interest, tax, depreciation and amortisation (EBITDA).

The interim dividend is up 10.7% to 0.155p a share, payable on January 8th 2013.

Broker commentHouse broker Numis said: "We maintain our view that Norcros looks too cheap relative to the merchanting companies which are driven by the same end-user market but trade on valuation ratings almost double that of Norcros, and retain our 'Buy' recommendation." It has a price target of 20p.

CM