Norcros plc: Company overview, growth strategy, and sustainability initiatives (LON:NXR)

Norcros plc (LON:NXR) Chief Executive Officer Thomas Willcocks and Chief Financial Officer James Eyre caught up with DirectorsTalk for an exclusive interview to discuss what the company does, highlights since becoming CEO, growth strategy, areas for acquisitions, mitigating challenges, and how the business will develop over the coming years.

Q1: Thomas, just starting with yourself, for those that don’t really know Norcros very well, could you just give us an overview of the business?

A1: It’s a great business, I’ve been with it since 2006. What we are is a leading bathroom and kitchen business with market leading brands underpinned by very strong in-house product design capabilities, what that does is it sets us apart from off the shelf distributors.

So, at our core, we design, manufacturer and source and then provide market leading service to blue-chip customers such as Wickes, Screwfix, Barrats to name but a few. Our sector-focused in-house design teams have exceptional technical and fashion design capabilities which are really important in making sure that our customers have the ‘on trend’ correct products to sell to their customers.

All of our brands are positioned in what we would look at as the more resilient mid to premium upper ends RMI segment where 70% to 80% of the addressable bathroom and market sits. Market leading brands we have include:

  • Triton, who are very very strong in the electric shower segment and increasingly strong in sustainable electric shower segment,
  • Grant Westfield, who we acquired recently, performing extremely well in wall panelling,
  • Merlin shower enclosures who are the number one shower enclosure business in the UK and Ireland

Our business has an excellent financial track record of revenue and profit growth and really really substantial cash generation.

So, a very good business with very strong growth prospects.

Q2: Now, you became CEO in April of last year, what have been the key actions that you’ve taken since then, and what have been the highlights?

A2: I think the fact that I’ve been here since 2006, firstly running our South African business and then moving across here 2 years before I took over, certainly helped my understanding the business. I really inherited an excellent business from my predecessor and a very very good team, and a business that has grown organically and through M&A.

With the team, we stood back and had a look at where we’d been, what we’d really successfully delivered on and where we wanted to go, and really identified four key areas of focus.

The first was really looking at our portfolio, and having a look at how we could build a stronger portfolio specifically focussed on growth and also operating margins. That would probably indicate that rather than just acquiring businesses, we may also exit businesses that we would not be able to add any value to.

So, that was really the first point and we’ve already done that by exiting our Norcros adhesives business in the UK.

We have a very strong focus on organic growth and what underpins our organic growth us exceptional new product development. Our vitality rates are around 25%, and what that means is that 25% of the products that we sell were launched in the last 3 years, and a lot of those new product launches have strong sustainability credentials.

I think also what people often ask is, you’ve got all of these  brands in Norcros, why is the sum of the parts better than the individual businesses? We’ve really focussed on working on sell side and cross side synergies which has started to pay off really well and driven ahead of market organic growth.

Finally, big focus on sustainability. ESG is a massive subject, I’m not going to go into all the different parts of ESG but if you go onto our Triton website, and have a look at our new Triton ENVi shower, you’ll see, like most of our products, they work with people, energy, and water, and we’ve launched the first carbon-neutral electric shower in the market. Not only is it carbon-neutral, but it’s also the first new generation behind the wall electric shower.

So, those are the four key areas that we’ve been really focussed on and delivering strong results.

Q3: What’s your growth strategy like and where do you see the most exciting opportunities?

A3: I think from a growth perspective, the path is evolutionary, rather than it’s revolutionary, we’ve got a proven track record. I think the focus areas that we’ve just spoken about would underpin our growth and we’d have a strategy and have a strategy that is clearly balanced  between organic growth and very targeted acquisitions that James may talk to you later.

So, we cover a number of bathroom categories, there are a n umber of gaps left or categories where we think we can build our presence so if we find the right acquisitions, we’ll make them. They will generally be aimed in our sweet spot, which is mid to premium, and also with strong sustainability credentials.

So, we’ll grow organically as we have, maximising the synergies across our group but also looking for M&A opportunities.

Q4: James, Thomas just mentioned acquisitions there, obviously you’re considering them but what areas are you looking at?

A4: I think the first thing to say is that we have a very strong track record in delivering acquisitions, we’ve been on the acquisitions trail since about 2013 and we have a very diligent, comprehensive way of assessing those businesses and bringing them into the Norcros platform.

What we’re looking for specifically is complementary products in complimentary geographies, and that might be the UK, it might be near side Europe, it won’t be the USA but what we’re specifically looking for is where we can add value and drive synergies. We’re not going to buy revenue for revenue sake, we’re not going to buy turnarounds, and what we’re looking for is to back really strong management teams, and, as I say, where we can drive synergies.

I think the other part of that is we are looking for capital-light, high cash generation businesses, that is something we can flex in the cycle and drive high growth returns and high cash generation.

I think the final point just to mention is that overall, we have a conservative approach to leverage, we’re not going to over gear the balance sheet when we’re doing acquisitions, we’ve done that historically and we’ll continue to that in the future.

Just one final point, as a real world example, we bought the Merlin business, which does shower enclosures, back at the end of 2017, and we’ve driven that business faster and more aggressively than what it would’ve been under private ownership. That business has now doubled revenues in that period since we’ve acquired it, and it’s significantly increased its market share.

Q5: Just turning back to you Thomas, what do you see as challenges and how are you planning to mitigate those challenges?

A5: I think it we look at the last 4 or 5 years, what we certainly know is nothing’s going to stay the same. In saying that, we’ve got an extremely resilient model and it’s been proven, be it through COVID, be it through any of the other challenges that we’ve seen and again, quite frankly, the kind of challenges we’ve seen in the Gulf.

We have an excellent and resilient supply chain, a very very strong balance sheet that’s allowed us to hold the kind of stock levels and deliver the service levels that sets us apart from our competitors.

I think the other thing that’s really important about this business and the way that we’ve really focussed on the mid to premium segment means that we are operating and selling into a market segment that is more resilient.

So, as the challenges come and go, and if you look at our 10 year track record of revenue, profit growth and cash generation, we’ve got a proven track record of being able to manage our way through pretty much any of the challenges that have been thrown at us.

That’s what makes Norcros the special business that it is.

Q6: How do you see the business developing over the next few years?

A6: We are very focussed on profitable growth, and that growth will come, as I said earlier, from organic as well as M&A activity. The organic piece would really be driven by new product development, heavily focussed on sustainable products, operational efficiencies and sell side synergies. Most importantly, on talent and making sure that we have the very very best people working on our products and servicing our customers in the market.

We believe that if we do those well, in which we have done well over an extended period, we’ll be able to accelerate the growth and the returns of this business.

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