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Norcros Trading 'In line With Expectations'; Planned South African Acquisition

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Norcros, a market leading supplier of high quality and innovative bathroom and kitchen products is pleased to announce that its South African business, Norcros South Africa (Proprietary) Limited has entered into a conditional agreement to acquire 100% of the share capital of South African based RAP Plumbing Supplies (Proprietary) Limited, trading as House of Plumbing ("House of Plumbing"), a private  company owned by the directors, a number of other employees and private investors for a total consideration of up to South African Rand ("ZAR") 215m (approximately £12.1m) on a debt and cash free and normalised working capital basis. 

The transaction is subject to regulatory approval from The Competition Commission of South Africa. Completion will follow once this approval has been granted to the satisfaction of Norcros. Of the total consideration, ZAR 172m (approximately £9.7m) will be settled in cash on completion and up to a further ZAR 43m (approximately £2.4m) may be payable in two years via an earn out mechanism. The acquisition will be funded entirely from local cash resources and existing facilities.  The Board expects the transaction to be earnings enhancing immediately.

House of Plumbing - business
House of Plumbing is a market leading supplier of specialist plumbing materials focused on the specification and commercial segments of the market supplying plumbing contractors, maintenance plumbers, and the public. The business operates from three branches in South Africa located in Johannesburg (which is also where the head office is based), Pretoria and Lephalale.

The business employs 102 people and has an experienced management team led by Managing Director Robin Roberson, all of whom will be staying with the business.

House of Plumbing - financial information
For the year ended 30 April 2018, House of Plumbing's audited financial statements showed revenue of ZAR 392m (approximately £22.1m), EBITDA of ZAR 33m (approximately £1.9m) and profit before tax of ZAR 34m (approximately £1.9m).  As at 30 April 2018 the business had gross assets of ZAR 112m (approximately £6.3m). House of Plumbing has continued to trade in line with its management's expectations for the 8 months ended 31 December 2018. 

Acquisition details 
Subject to regulatory approval, Norcros will acquire 100% of the share capital of House of Plumbing for initial cash consideration of ZAR 172m (approximately £9.7m) plus an earn out of up to ZAR 43m (approximately £2.4m) payable in the year ending 31 March 2022 on achievement of EBITDA and cash targets. Costs associated with this incentive will be treated as an acquisition related cost outside of underlying operating profit. 

The upfront cash amount represents 5.2 times the audited EBITDA for the 12 months to 30 April 2018.  

Acquisition rationale 
The acquisition of House of Plumbing is a further step in the Group's growth strategy to expand its bathroom product portfolio and follows on from a number of very successful acquisitions, most recently that of Merlyn, and the sustained organic growth in South Africa. House of Plumbing offers a range of complementary products and further reinforces the Group's strong positions in the commercial and specification segments of the market and will benefit from the additional distribution channels, procurement experience and strong financial position of the enlarged Group.

Commenting on the acquisition, Nick Kelsall, Group Chief Executive, said "I am excited by the acquisition of House of Plumbing as it will enhance our product offer to the important commercial and specification segments of the South African market where we have been successfully building our business. The acquisition also offers a number of opportunities to drive growth through geographical expansion and through our existing distribution channels. I look forward to working with Robin and his team to further develop and grow the business." 

Robin Roberson, Managing Director of House of Plumbing remarked, "We have been impressed by the energy and enthusiasm of the Norcros management and look forward to working with them to capitalise on the many new opportunities that being part of the Norcros Group will bring." 

Trading update 
The Group has continued to trade in line with the Board's expectations in both the UK and South Africa since the announcement of its interim results on 15 November 2018.

Whilst the market environment remains challenging the Board is confident that our market leading positions, our leading brands and the financial resilience of our diversified business model will continue to drive market outperformance and will enable the Group to make further progress in line with its expectations for the year to 31 March 2019.

The Group will announce a trading update for the year ending 31 March 2019 on 10 April 2019. 

Source : Norcros

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16 January 2019

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