Norcros — Delivering progress

Norcros (LSE: NXR)

Currency in GBP

Last close As at 30/03/2023

GBP1.86

−0.50 (−0.27%)

Market capitalisation

GBP160m

Research: Industrials

Norcros — Delivering progress

Management guidance and our headline estimates are unchanged following a very good H122 trading performance. Norcros is a leading player in its product categories and market channels, and represents a modestly valued way for investors to gain exposure to the active residential renovation subsector.

Industrials

Norcros

Delivering progress

H122 results

Construction & materials

20 December 2021

Price

307p

Market cap

£248m

ZAR21.2/£

Net cash (£m) at end September 2021
Pre-IFRS 16 basis

1.0

Shares in issue

80.8m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

4.7

54.7

Rel (local)

0.8

2.0

38.8

52-week high/low

341p

186p

Business description

Norcros is a leading supplier of showers, enclosures and trays, tiles, taps and related fittings and accessories for bathrooms, kitchens, washrooms and other commercial environments. It has operations in the UK and South Africa, with some export activity from both countries.

Next event

H122 DPS 3.1p to be paid

11 January 2022

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Management guidance and our headline estimates are unchanged following a very good H122 trading performance. Norcros is a leading player in its product categories and market channels, and represents a modestly valued way for investors to gain exposure to the active residential renovation subsector.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/20

342.0

27.1

26.1

3.1

11.8

1.0

03/21

324.2

29.0

29.1

8.2

10.6

2.7

03/22e

380.1

34.6

32.8

9.0

9.4

2.9

03/23e

392.0

36.0

34.0

9.8

9.0

3.2

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptionals, pension net finance costs and change in fair value of derivatives.

Robust model delivering profit growth

H122 results for Norcros showed excellent progress; revenue of c £200m (+18.4% constant currency exchange rate, like-for-like, CC l-f-l, versus H120) and EBIT of £22m (11.0% margin, 140bp above H120 levels) were both consistent with pre-close guidance, as was the period-end core net cash of £1m. Both divisions delivered strong underlying revenue progress and UK operations drove the group EBIT uplift. Norcros declared a 3.1p interim dividend. While underlying market demand has been good overall, the company’s robust business model (which has performed creditably through both the COVID dip and subsequent rebound) has additionally secured share gains. In sectors where supply chain challenges, transportation and other cost inflation have been widely flagged across the industry, this is a noteworthy achievement.

Balanced outlook, guidance maintained

With regard to outlook, management maintained previous guidance, balancing out currently healthy activity levels by referencing some of the factors which were successfully navigated in H1 (eg cost inflation, supply chain challenges) as well as an expectation of ‘normalising consumer demand’ in both of its main sales territories. Our estimates are unchanged at the headline level, although we have slightly rebalanced the EBIT mix in favour of the UK based on H122 performance. It is too early to make any concrete observations concerning the latest COVID concerns, noting from previous experiences that the impacts have included demand-side benefits and supply-side costs.

Valuation: Outperformance but rating still modest

Having risen by 54% ytd, Norcros’s share price has significantly outperformed the FTSE All-Share Index. Much of this occurred in the early part of 2021; apart from a spike with the H122 pre-close update in October, it has traded in a range around 300p for much of the year. With unchanged estimates this time, valuation metrics are very similar to our last note with a current year P/E of 9.4x and an EV/EBITDA (adjusted for pensions cash) of 5.9x. A track record of market outperformance and balance sheet capacity to enhance this through M&A activity are relevant considerations for investors, we feel, pending improved visibility on the business cycle once COVID factors start to recede.

H122 results overview

Strong first half performance in H122 saw Norcros sustain and extend its excellent H221 trading period, which gathered momentum after lockdown-related disruption in the early part of FY21. Against the pre-COVID H120, the company generated good double-digit underlying revenue growth and a 140bp group EBIT margin improvement (to 11%) led by UK operations. Note that all of this progress was generated organically. Norcros ended H122 with a net cash position down to modest levels substantially due to inventory investment above typical seasonal levels. Following a COVID-related pause in H121, the 3.1p interim dividend was in line with that declared for H120.

Exhibit 1: Norcros – divisional and interim splits

£m

Actual

CER l-f-l

Actual

H122

H122

H122

H120

H220

2020

H121

H221

2021

H122

vs H120

vs H120

vs H121

Group revenue

181.2

160.8

342.0

135.3

188.9

324.2

200.8

10.8%

18.4%

48.4%

UK

115.6

109.8

225.4

93.7

126.5

220.2

130.8

13.1%

17.5%

39.6%

South Africa

65.6

51.0

116.6

41.6

62.4

104.0

70.1

6.8%

20.0%

68.4%

Group operating profit (post SBP)

17.4

14.9

32.3

12.8

21.0

33.8

22.0

26.5%

N/A

72.0%

UK (including SBP)

12.5

11.9

24.4

10.8

16.1

26.9

17.0

36.3%

N/A

57.7%

South Africa

4.9

3.0

7.9

2.0

4.9

6.9

5.0

1.4%

N/A

148.7%

£/ZAR

18.35

18.97

21.95

21.00

20.00

-8.2%

9.7%

Source: Company. CER l-f-l = constant exchange rate, like-for-like (and adjusts for 27-week H120 and 26-week H122).

Unless stated otherwise, the percentage changes below are all versus the H120 base period.

UK operations: Volume growth and mix effects enhance margin

First-half underlying revenue growth of 17.5% was driven slightly more by volume than pricing, although both showed good advances over H120. The price component partly reflected increases driven by tight supply chain conditions – as seen widely across the sector – but also mix effects. Six of the seven operating companies in the UK achieved revenue growth and, with some of the larger profit contributors also experiencing favourable operational gearing, this drove an overall UK EBIT margin uplift of 120bp versus H120 to 13.0%, a new UK record level we believe.

The trading period was characterised by generally better demand in the residential repair, maintain or improve (RMI) facing channels including retail and online-led vendors. Norcros’s operations also further strengthened their position with new housebuilders through new listings and inventory availability. After a period of mixed performance, some of the larger subsidiary companies saw good export demand – especially into the Republic of Ireland – although this was not universal. The three standout company performances (all percentage changes in l-f-l revenue versus H120) were:

Triton (showers, +31.5%, comprising retail +51.5%, trade +12% and export +34%),

Merlyn (shower enclosures, +37.9%; retail +20.7%, trade +61.8% and export +42%),

Croydex (bathroom accessories, +25.7%, driven by retail +30%)

A further three also grew their top line by double digits; a recovery in important export markets benefited Vado, while progress for the other two was UK-led.

Vado (+10.3%), Abode (+12%), Norcros Adhesives (+19.7%)

Lastly, Johnson Tiles was the only UK business which saw a reduction in sales (by 15%); two-thirds is understood to have been due to an exit from lower-margin lines following a previous capacity reduction action (ie closing the second kiln). Apart from this, Johnson Tiles probably has the highest exposure to the commercial and social housing sectors compared to its UK sister companies and these subsectors have not seen demand as strong as that in private residential.

South African operations: Retail sector leads the way

H122 revenue rose by +20% CER l-f-l (versus H120), heavily influenced by retail sector exposure and, although the divisional EBIT margin fell slightly (by 40bp to 7.1%), operating profit was still c 10% higher on the same basis. After taking a c 8% adverse £/ZAR position into account (again versus H120), sterling profitability was only marginally ahead.

Across the South African businesses, the retail channel was clearly much firmer than all of the others served. Tile Africa (a broad-range bathroom products retailer) is the only end-consumer/ user-facing operation in the Norcros group with 34 stores (two of which are franchised) stretching from the Western Cape to the northern Limpopo province. It is the largest of Norcros’s four South African operating companies, accounting for just over half of divisional revenue and saw growth of 34% in the period. Underlying residential renovation demand was strong but we believe that inventory availability benefited market share also, as in the UK. Exposure to small contracting business is less significant than retail for Tile Africa; new housebuilding activity remained firm but small commercial projects less so. Supply chain and import restrictions reported elsewhere do not appear to have affected sales performance materially, although may have contributed to a slightly tighter EBIT margin.

While the companies with greater exposure to the trade, contract and commercial channels performed less strongly, some progress was evident. Johnson Tiles South Africa (JTSA, tiles manufacture, sourcing and supply) and TAL (building adhesives) grew revenues by 10.8% and a more marginal 0.9% respectively. Bear in mind that both companies supply Tile Africa also, so underlying activity was stronger than headline growth figures suggest. That said, they are both more exposed to larger commercial projects also, as is House of Plumbing where revenues increased by 10.3% in local currency. This was a three-outlet specialist trade plumbing distributor when it was acquired on 1 April 2019 (ie at the beginning of FY20). While COVID 19 further dampened commercial sector demand that was already soft in comparison to other subsectors, this has allowed Norcros to open a further three outlets formerly run by a competitor that went into administration. This takes the total to seven – having opened another one previously – and looks to be a strategically sensible move consistent with plans for network expansion, albeit that some margin dilution is likely until these new depots become fully integrated.

Balance sheet capacity supports strategic investment

Norcros successfully de-geared during COVID-affected FY21 and, despite rebuilding inventory levels and paying the FY21 final dividend, retained a £1m net cash position (pre-IFRS 16 basis) at the end of H122. This was an improvement from c £7m net debt a year earlier, though down from c £10m net cash at the start of the current financial year.

The healthy increase in EBIT/EBITDA was more than absorbed by a c £18m working capital outflow in the H122 trading period, substantially due to inventory investment with only a minor net absorption into trade receivables/payables. A number of different elements are at work here. Firstly, there is a normal seasonal working capital build reflecting the underlying pattern of demand. Given that business activity levels recovered strongly in H221 and continued into H122, we feel that the normal seasonal pattern will have been superseded by the requirement to hold higher than normal stock to sustain service levels. In the initial COVID lockdown period in 2020, demand recovered faster than supply leading to a thinning of inventory levels generally, so the process of rebuilding began in H221. In addition, with ongoing supply chain challenges, Norcros has taken the strategic decision to invest in higher stock volumes which, amplified by price inflation, has driven the significant working capital absorption seen in H122 and lower cash conversion than normal. Norcros has the balance sheet to support this action and it appears to have been a source of competitive advantage in winning new business and gaining market share. There were no other major new features behind the operating cash flow of £6m for the first half.

Other cash flow items were as expected and resulted in a broadly neutral free cash flow position for the half prior to payment of the FY21 final dividend (£6.6m) and principal lease repayments (£2.4m), and overall net cash outflow for the group of c £9m. For the record, Norcros had just under £24m lease liabilities on its end-H122 balance sheet.

Cash flow outlook: Norcros expects to maintain a strategic inventory investment for the time being, meaning that only a small seasonal H2 unwind is likely. An increase in capex has been flagged for the year including IT infrastructure upgrades at Triton and Tile Africa, but otherwise spread across the group; £9m spend for the year is approaching two times owned asset depreciation and we see this level continuing. An overall expected net inflow in H222 rebuilds the net cash position, although not quite back to start year levels on our estimates.

Acquisitive growth potential: Norcros’s last acquisition was House of Plumbing (on 1 April 2019) and since this time – even after the above inventory investment – pro forma net debt of c £44m has been replaced by the modest net cash position at the end of H122. Absent any acquisitions, we project net cash generation of c £10m in both FY23 and FY24. Norcros has a committed £120m RCF plus £30m accordion financing arrangement, which runs to November 2022 and will be due for renewal shortly. The recent cash flow performance clearly illustrates a business resilience and capacity for strategic investment and M&A activity despite challenging market conditions.

Pension update: lastly, we should mention the group’s defined benefit pension scheme, where the latest triennial review (with a 1 April 2021 valuation date) is currently underway. The gross scheme deficit was c £6m at the end of H122, which we believe is the lowest level for 10 years, and the current arrangement with trustees provides for c £3.3m additional cash contributions by Norcros to the scheme per year. Over the last decade, group EBIT has more than trebled and, given that the balance sheet is also ungeared, it is fair to say that the company covenant has strengthened over this period. The scheme liability position – which stood at £416m at the end of FY21 – is still material of course but the level of contributions relative to the scheme deficit, and with an upswing in the interest (and discount) rate cycle underway, suggests that cash requirements are unlikely to get materially more onerous.

Outlook substantially unchanged

At the time of reporting H122 results, management was expecting little change in market conditions and, although supply chain challenges were ongoing, this partly reflected healthy demand levels which have also allowed input price increases to be passed through. We will continue to monitor margin development and track underlying volume growth rates in subsequent trading updates to ascertain whether an anticipated ‘normalisation of demand’ is occurring. At this stage, we have made no material changes in our estimates save for a slight rebalancing of group EBIT towards UK operations and away from South Africa, with no overall net change.

The existing group M&A strategy was also unchanged, with an acquisition pipeline that was said to be ‘well developed’. Consequently, there is a reasonable expectation of further deal activity at some point – although none is factored into our estimates – and this may well inform the refinancing decision-making process over the next 12 months.

Exhibit 2: Financial summary

£m

2015

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

222.1

235.9

271.2

300.1

331.0

342.0

324.2

380.1

392.0

404.0

Cost of Sales

 

 

N/A

N/A

(171.7)

(190.4)

(206.8)

(217.5)

N/A

N/A

N/A

N/A

Gross Profit

 

 

N/A

N/A

99.5

109.7

124.2

124.5

N/A

N/A

N/A

N/A

EBITDA IFRS16

 

 

24.3

28.0

31.6

34.7

42.2

38.8

39.9

44.7

46.8

48.5

Op Profit (before SBP)

 

 

18.3

22.5

25.2

28.3

35.6

32.2

34.7

39.9

41.3

42.7

Net Interest

 

 

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(1.6)

(1.5)

(0.6)

(0.7)

(0.6)

Other financial - norm

 

 

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.5)

(4.3)

(4.7)

(4.6)

(4.6)

Other financial

 

 

2.1

(0.2)

(4.2)

(4.5)

2.3

0.9

(3.0)

(0.4)

(0.4)

(0.4)

Intangible Amortisation

 

 

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(3.7)

(3.7)

(3.7)

(3.7)

(3.7)

Exceptionals

 

 

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(9.3)

(3.8)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

14.0

18.5

20.7

24.4

30.9

27.1

29.0

34.6

36.0

37.5

Profit Before Tax (company norm) 

 

15.8

20.4

22.9

26.3

32.6

28.8

30.6

36.3

37.6

39.1

Profit Before Tax (statutory)

 

 

11.0

15.4

11.5

13.5

25.4

15.0

18.5

30.5

31.8

33.4

Tax

 

 

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(4.1)

(3.5)

(7.6)

(7.9)

(8.3)

Other

 

 

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

 

 

11.1

16.1

17.7

20.8

24.9

23.0

25.5

27.0

28.1

29.3

Profit After Tax (statutory)

 

 

8.1

13.0

8.5

9.9

19.4

10.9

15.0

22.9

23.9

25.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Avge Number of Shares Outstanding (m)

 

 

59.2

60.6

61.1

68.0

80.2

80.3

80.6

80.9

81.0

81.0

Avge Number of Shares Outstanding FD (m)

 

 

61.5

62.2

63.1

69.8

81.1

81.0

80.8

82.4

82.5

82.5

EPS FD - norm (p)

 

 

18.0

24.7

24.4

26.8

29.6

26.1

29.1

32.8

34.0

35.5

EPS FD - co norm (p)

 

 

21.1

27.7

27.8

29.5

31.7

28.2

31.1

34.8

36.0

37.4

EPS - statutory (p)

 

 

13.2

20.8

13.4

14.1

23.9

13.5

18.6

27.8

29.0

30.5

Dividend per share (p)

 

 

5.6

6.6

7.2

7.8

8.4

3.1

8.2

9.0

9.8

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

36.7

36.5

37.5

36.4

N/A

N/A

N/A

N/A

EBITDA Margin (%)

 

 

10.9

11.9

11.7

11.6

12.8

11.3

12.3

11.8

11.9

12.0

Op Margin (before GW and except.) (%)

 

 

8.2

9.5

9.3

9.4

10.8

9.4

10.7

10.5

10.5

10.6

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

78.3

93.4

98.8

147.9

138.0

150.8

141.2

140.9

140.7

140.3

Intangible Assets

 

 

26.9

44.7

44.8

98.9

94.9

96.5

93.6

89.9

86.2

82.5

Tangible Assets

 

 

37.6

38.2

43.0

45.0

42.3

49.6

47.6

51.1

54.6

57.8

Other Fixed Assets

 

 

13.8

10.5

11.0

4.0

0.8

4.7

0.0

0.0

0.0

0.0

Current Assets

 

 

100.4

119.4

165.3

165.1

169.5

188.7

171.0

198.2

214.7

232.8

Stocks

 

 

52.2

60.1

70.3

74.9

79.5

78.9

78.1

91.6

94.4

99.3

Debtors

 

 

42.6

53.4

57.5

64.4

62.8

62.5

64.6

72.6

76.0

80.1

Cash

 

 

5.6

5.9

37.5

25.8

27.2

47.3

28.3

34.0

44.3

53.3

Current Liabilities

 

 

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(79.2)

(104.1)

(109.2)

(112.0)

(114.1)

Creditors

 

 

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(79.1)

(104.1)

(109.2)

(112.0)

(114.1)

Short term borrowings

 

 

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

(0.1)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(155.9)

(59.7)

(55.5)

(52.5)

(50.9)

Long term borrowings

 

 

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(83.6)

(17.8)

(25.8)

(25.8)

(25.8)

Other long-term liabilities

 

 

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(72.3)

(41.9)

(29.7)

(26.7)

(25.1)

Net Assets

 

 

51.3

47.6

56.6

104.6

125.7

104.4

148.4

174.4

190.9

208.1

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

16.2

18.5

25.5

23.5

35.3

34.8

60.0

30.4

42.5

42.1

Net Interest

 

 

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(3.5)

(3.2)

(2.4)

(2.5)

(2.4)

Tax

 

 

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(5.3)

(3.5)

(7.4)

(8.5)

(8.8)

Capex

 

 

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(4.8)

(2.8)

(9.0)

(9.0)

(9.0)

Acquisitions/disposals

 

 

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.2)

0.0

0.0

0.0

0.0

Financing

 

 

0.2

0.1

0.0

30.1

(0.9)

(0.8)

0.3

(0.8)

(0.8)

(0.8)

Dividends

 

 

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

0.0

(9.1)

(7.4)

(8.0)

Net Cash Flow

 

 

13.4

(17.1)

7.9

(24.2)

14.0

4.2

50.8

1.7

14.3

13.1

Opening net debt/(cash)

 

 

27.4

14.2

32.5

23.2

47.1

35.0

36.4

(10.5)

(8.2)

(18.5)

IFRS 16 Finance leases

 

 

0.0

0.0

0.0

0.0

0.0

(3.8)

(4.3)

(4.0)

(4.0)

(4.0)

Other

 

 

(0.2)

(1.2)

1.4

0.3

(1.9)

(1.8)

0.4

0.0

0.0

0.0

Closing net debt/(cash)

 

 

14.2

32.5

23.2

47.1

35.0

36.4

(10.5)

(8.2)

(18.5)

(27.5)

IFRS 16 lease liabilities

 

 

 

 

 

 

 

(25.1)

(24.2)

(23.7)

(23.7)

(23.7)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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