Norcros plc Annual Report and Accounts 2022 ## Inspiring Living Spaces ### Norcros plc Annual Report and Accounts 2022 Our purpose UK portfolio ## To inspire and enhance our ## customers’ living spaces. Our mission ## To be a leading supplier of bathroom ## and kitchen products in selected ## geographies, offering strong brands, ## contemporary designs, trusted quality, ## outstanding service, innovation and ## awide product range. (Latest acquisition 31 May 2022). South African portfolio | Strategic report | Corporate governance | | | --- | --- | --- | | 03 Highlights | 64 Board of Directors | | | 04 Investment case | 66 Corporate governance | | | 06 At a glance | 70 Audit and Risk Committee report | | | 08 Markets | 75 Nomination Committee report | | | 10 Chair’s statement | 76 Remuneration Committee | | | 13 Chief Executive Officer’s statement | | annual statement 2022 | | 16 Business model | 79 Directors’ remuneration policy report | | | 18 Strategy and objectives | 87 Annual report on remuneration | | | 20 Key performance indicators | 97 Directors’ report | | | 21 Business performance | 99 Statement of Directors’ responsibilities | | PICTURED 22 UK business review Vado: Knurled X Fusion, a fusion Financial statements 28 South Africa business review ofcolour and intricate textured 101 Independent auditor’s report 31 Chief Financial Officer’s report accents, striking the perfect blend 107 Consolidated income statement 35 Risk management of confidence and urbanity to 108 Consolidated statement of injecttrue individuality into 36 Principal risks and uncertainties comprehensiveincome yourbathroom design. 41 Viability statement 109 Consolidated balance sheet 42 Environmental, social and governance FRONT COVER 110 Consolidated cash flow statement 60 Stakeholder engagement Johnson Tiles UK: The 1901 range 111 Consolidated statement of changes in equity pays homage to traditional glaze | 112 Notes to the Group accounts | effects, giving the illusion of | | --- | --- | | 140 Parent Company balance sheet | handcrafted qualities on the | | 141 Parent Company statement of | contemporary slimbrick format. | changesinequity BACK COVER 142 Notes to the Parent Company accounts Vado: Omika Noir, a Polished Blackrange designed by Jo Love Annual General Meeting and launched late in November 146 Notice of Annual General Meeting 2021, showcasing a new PVD 148 Explanatory notes finishfor Vado. ® ## Strategic ## report 03 Highlights 04 Investment case 06 At a glance 08 Markets 10 Chair’s statement 13 Chief Executive Officer’s statement 16 Business model 18 Strategy and objectives 20 Key performance indicators 21 Business performance 22 UK business review 28 South Africa business review 31 Chief Financial Officer’s report 35 Risk management 36 Principal risks and uncertainties 41 Viability statement 42 Environmental, social and governance 60 Stakeholder engagement Merlyn: Introduction of the new Merlyn revo bathroom rail and accessories to reduce clutter in your bathroom whilst giving you the safety, adaptability, independence and storage your home requires. The revo rail can be configured to suit your family’s needs, present and future, in multiple ways, all in a stylish, easy to clean package. Norcros plc Annual Report and Accounts 202202 ## Highlights Strategic report ## Record underlying operating profit ## andstrong financial position. Underlying operating profit £m Total revenue £m 1 | £41.8m +23.7% | | | | £396.3m +20.6% | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | | | 41.8 | 2022 | | | 396.3 | | 2021 | | 33.8 | | 2021 | | 324.2 | | | 2020 | | 32.3 | | 2020 | | 342.0 | | | 2019 | | 34.4 | | 2019 | | 331.0 | | | 2018 | 27.4 | | | 2018 | 300.1 | | | 1 On a constant currency basis. Year to 31 March 2022 highlights Current trading • Robust trading and decisive action taken to counter • Group revenue in the two months to the end unprecedented cost inflation and supply chain challenges ofMay 2022 was marginally ahead of the strong prior year comparator by approximately 1% • Strong execution of strategy and significantly ahead of the pre-pandemic • Full year revenue of £396.3m (2021: £324.2m), 20.6% comparator of the two months ended May 2019 higher than prior year on a constant currency basis and byapproximately 25%. Whilst market conditions are 20.9% higher than the pre-pandemic 2020 comparator likely to remain uncertain, the Board believes that on a constant currency like for like basis (after adjusting the Group’s proven business model and leading the 2020 comparator period from a 53 to a 52 week customer service proposition will continue to drive period pro-rating) outperformance leading to further progress and • Record underlying operating profit of £41.8m, market share gains, in line with its expectations, 23.7%higher than prior year (2021: £33.8m) forthe year to 31 March 2023 • Operating profit of £36.2m (2021: £24.9m) 2 | • Underlying net cash | | | of £8.6m (2021: net cash of £10.5m) | | | --- | --- | --- | --- | --- | | | | 2 | | Strategic vision remains valid | | • Underlying ROCE | | above strategic target rate at 23.9% | | | | | (2021: 18.2%) | | | Revenue target | 2 • Diluted underlying EPS of 38.2p, 22.8% higher than prior ## year (2021: 31.1p) £600m • Progressive dividend at 10.0p for the year (2021: 8.2p) Revenues derived from overseas markets • The acquisition of Grant Westfield completed after theyear end, a compelling strategic fit with the Group ## 50% Sustainable ROCE ## 2 Definitions and reconciliations of alternative performance measures >15% are provided in note 8 to the financial statements. Key messages • Our record performance is a testament to our proven • The Group has agreed a new £130m multicurrency revolving business model and the dedication of our employees credit facility in the year • The Group has delivered revenue and profit growth on • We remain confident that the Group’s highly experienced theprior year and the pre-pandemic 2020 comparator management teams, leading brands, proven business model, and leading customer service proposition will continue to • UK – a strong performance benefiting from the breadth of drive outperformance, leading to further progress in the distribution channels, stock availability and market leading year ahead service levels • SA – an excellent performance, reflecting leading market positions, stock availability and enhanced product offer Annual Report and Accounts 2022 Norcros plc 03 Strategic report ## Investment case ## Why we outperform? ## It’s in our DNA. ### We have a clear investment case and aresilient business model; ### we are well positioned for future growth. | | � | | 3 | | --- | --- | --- | --- | | Focused operating model | | Leading market positions | | | A leading supplier of bathroom and kitchen | | andbrands | | products in selected geographies. Our brands and products hold market leading positions or have a significant share of the markets we operate in. | | 2 | | 4 | | --- | --- | --- | --- | | Experienced | | Group-scale advantages | | | managementteam | | versus smaller competitors | | | Our management team has considerable | | A well-developed and leading supply chain | | | years of experience of successfully | | infrastructure, joint product development | | | operating in our markets and segments. | | sharing costs and strong balance sheet | | tosupport business growth. Norcros plc Annual Report and Accounts 202204 Strategic report ## 5 7 ### Balanced and diversified Innovation and new ### businessportfolio productdevelopment Multi-product, broad channel We constantly invest in innovation and coverage, wide market positioning developing our product portfolio to better andgeographicaldiversification. meet our customer requirements and refresh our offering. ## 6 8 ### Flexible and capital Clear and focused strategy ### lightmodel £600m revenue by 2025, 50% of revenues derived from overseas and sustainable Focusing investment where our expertise ROCE of >15%. achieves the best return for investors. Annual Report and Accounts 2022 Norcros plc 05 Strategic report ## At a glance ## A portfolio of market leading ## businesseswith strong brands. ## UK In the UK we offer a wide range of quality bathroom and kitchen products both for domestic and commercial applications. Our portfolio of businesses is well established, services a broad customer base and benefits from leading market positions and strong brands. | Market leader in the manufacture and | The UK and Ireland’s no. 1 supplier of shower | A leading manufacturer and supplier of | | --- | --- | --- | | marketing of showers in the UK | enclosures and trays to the residential, | taps, mixer showers, bathroom accessories | | | commercial and hospitality sectors | and valves | A market leading, innovative designer, A leading niche designer and distributor of The leading manufacturer and supplier of manufacturer and distributor of high quality high quality kitchen taps, bathroom taps ceramic tiles in the UK bathroom furnishings and accessories and kitchen sinks Read more about our UK businesses onpages 22 to 27 Manufacturer of tile and stone adhesives, Grant Westfield is a leading manufacturer of grouts and related products high end waterproof bathroom wall panels Norcros plc Annual Report and Accounts 202206 Strategic report ## South Africa Our complementary businesses in South Africa operate principally from a shared manufacturing and administrative site near Johannesburg, allowing them to maximise operational, revenue and cost synergies. Read more about our South African businesses on pages 28 to 30 ® Chain of retail stores focused on ceramic and Manufacturer of ceramic porcelain tiles, and associated products such andporcelain tiles as sanitaryware, showers and adhesives The leading manufacturer of ceramic and Market leading supplier of specialist building adhesives plumbing materials Annual Report and Accounts 2022 Norcros plc 07 Strategic report ## Markets ## Excellent opportunities ## for growth in all markets. ## Key market drivers UK and South Africa market demand is dependent on: • New building activity • Repair, maintenance and improvement (RMI) activity Influenced by macroeconomic factors: • Consumer confidence • Economic growth • Interest and inflation rates • Government expenditure The Group offers a wide range of quality bathroom and kitchen products for both domestic and commercial applications across the UK, Ireland, South Africa and a number of export markets. The UK overall bathroom market is large and mature and is highly fragmented with no dominant or global player across all product categories. Many of the market product category sub-segments are also highly fragmented with no one company serving all segments and channels. Shower enclosures, bathroom furniture and accessories sub-markets are particularly fragmented, characterised by a significant number of SME players. The South African overall bathroom market is large although more concentrated than in the UK, albeit selected market segments (e.g. plumbing) are regionally fragmented with limited national players. Both Norcros and the other market leader deploy integrated business models from production to retail to reach all segments and channels. In both the UK and South Africa market demand is dependent on new building activity and RMI activity in both the public and private sectors. This is in turn influenced by macroeconomic factors, such as GDP, interest rate fluctuations, inflation rates, availability of credit, equity market conditions, unemployment rates, consumer confidence, changes in government policy and housing shortages. Johnson Tiles: Material Lab is a design resource studio and materials library in London, created especially by Johnson Tiles, the UK’s leading tile manufacturer. We listened and responded to what thearchitect and design community wanted and created a muse for inspiration, sharing ideas, networking and meeting clients. Norcros plc Annual Report and Accounts 202208 Strategic report ## UK South Africa | Large fragmented market | | Medium-term potential | | | | --- | --- | --- | --- | --- | | Significant consolidation opportunity | | Market leading positions | | | | | 1 | | | 1 | | • Large target market – c. £2.1bn @ MSP | | • Sizeable target market – c. £1.2bn @ MSP | | | | • Shortage of housing | | • Supportive dynamics: | | | | • Fragmented by product and channel | | | • Shortage of housing | | | • Norcros market leading positions | | | • Construction levels are still less than half 2007 peak | | | • No overall dominant or global player | | | • Favourable long-term socio-economic demographics | | | • No one company serving all segments and channels | | • Integrated business models – Norcros market | | | leading positions • Complementary kitchen market segments • Complementary sub-markets alternative coverings • Further opportunity to grow market share • Further opportunity to grow market share | Quarterly housing completions and transactions | | | Quarterly – dwellings completed and plans passed | | --- | --- | --- | --- | | Sources: GOV.UK and HMRC – Q1 2022 | | | Source: SA Stats – Q1 2022 | | | 500,000 | 50,000 | 30,000 | | | 450,000 | 45,000 | | 25,000 400,000 40,000 20,000 | 350,000 | 35,000 | | | --- | --- | --- | | 300,000 | 30,000 | 15,000 | | 250,000 | 25,000 | | 10,000 | 200,000 | 20,000 | | | | --- | --- | --- | --- | | Quarterly completions 150,000 | 15,000 | Quarterly transactions | 5,000 | | 100,000 | 10,000 | | | 0 | | | | 2010 | 2011 2012 2013 | 2014 | 2015 2016 2017 | 2018 2019 | | 2021 | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2005 | 2006 2007 2008 | 2009 | | | | | 2020 | 2022 | | | | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | | 2021 | | | | | | | | | | | | | | 2008 | 2009 | | | | | | | | | | | 2020 | | 2022 | | LHS: Completions (England) RHS: Transactions (UK) | | | | | | | | | | Planning Completions | | | | | | | | | | | | | | | | | UK GfK consumer confidence | FNB/BER consumer confidence index | | --- | --- | | Source: GfK – May 2022 | Source: FNB/BER – Q1 2022 | | 10 | 30 | 25 5 20 0 15 -5 10 5 -10 0 -15 | | | Brexit | -5 | | --- | --- | --- | --- | | -20 | referendum | | -10 | | -25 | | | -15 | -20 -30 -25 | -35 | | | | | | | | | -30 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | COVID-19 | | | | | | | | | | COVID-19 | | | | -40 | | | | | | | | | -35 | | | | | | | | | | | FY16 | FY17 | FY18 | FY19 | | FY20 | FY21 | FY22 | | FY15 | FY16 | FY17 | FY18 | FY19 | | FY21 | FY22 | FY20 1 MSP = manufacturer’s selling price. Annual Report and Accounts 2022 Norcros plc 09 Strategic report Chair's statement # A record performance for the Group. ![img-0.jpeg](img-0.jpeg) **Norcros has continued to trade robustly through unprecedented cost inflation and supply chain challenges.** **Gary Kennedy** Chair ## Overview In my first year as Chair, I am pleased to report a record performance for the Group. Norcros has continued its recovery following the period of exceptional global disruption and uncertainty caused by the COVID-19 pandemic. The resilience of the Group's business model and strategy has proven once again to be highly effective through a period of unprecedented cost inflation, supply chain challenges and more recently the Ukraine crisis. Group revenue for the year was £396.3m (2021: £324.2m), 22.2% higher than the prior year on a reported basis and 20.6% higher on a constant currency basis. Against the pre-pandemic 2020 comparator, this represents a 15.9% increase on a reported basis, 18.6% on a constant currency basis and 20.9% on a constant currency like for like basis after adjusting the 2020 comparator period from a 53 to a 52-week period pro-rating. Underlying operating profit was at a record level of £41.8m (2021: £33.8m), 23.7% ahead of the prior year, reflecting the strong progress and market share gains in both the UK and South Africa. The Group finished the year with net cash of £8.6m (2021: net cash of £10.5m), reflecting investment into inventory in the period to optimise our service and stock availability in the light of the exceptional supply chain challenges. ## Acquisition of Grant Westfield On 31 May 2022, we completed the acquisition of 100% of the share capital of Granfit Holdings Limited and its subsidiaries including Grant Westfield Limited, trading as Multipanel. Grant Westfield is a leading manufacturer of high end waterproof bathroom wall panels. The company has a 140-year track record and operates under the leading UK bathroom wall panel brand Multipanel. Headquartered in Edinburgh, Scotland, customers are served from a nationwide UK distribution network of eight locations, and a growing presence in Europe from a distribution hub in Germany. Customers include national and regional merchants, major buying groups, specification and online customers. See note 31 to the financial statements. ## Strategy Notwithstanding the challenges of COVID-19, we have made strong strategic progress and our focused growth strategy continues to be valid and relevant. Our targets to grow Group revenue to £600m by 2025 whilst sustaining a pre-tax return on underlying capital employed of more than 15% over the economic cycle continue to govern how we evaluate opportunities and deploy capital. The Group's performance in the year demonstrates the resilience and effectiveness of our business model and strategy. Whilst there is still a significant degree of uncertainty around the post-COVID-19 economic recovery, supply chain challenges and the Ukraine crisis, we are convinced of the validity and effectiveness of the strategy and remain committed to these targets. ## Dividend The Group responded swiftly to the impact of the COVID-19 pandemic and the need to preserve cash by not paying a final dividend in relation to the year ended 31 March 2020 nor an interim dividend in relation to the year ended 31 March 2021. Based on the improved trading performance in the second half of the prior year, the further strengthening of the balance sheet and the outlook, the Board reinstated the progressive dividend policy with a final (and total) dividend for 2021 of 8.2p per share. For the year ended 31 March 2022, the Board is recommending a final dividend of 6.9p (2021: 8.2p) per share. When combined with the interim dividend of 3.1p (2021: £nil) per share, which was paid on 11 January 2022, this will make a total dividend for the year of 10.0p (2021: 8.2p) per share, a 21.9% increase on the previous year in line with the growth in earnings albeit maintaining a prudent level of cover. ## Pension scheme The net position relating to our UK defined benefit pension scheme (as calculated under IAS 19R) has improved to a surplus position of £19.6m at 31 March 2022 from a deficit of £18.3m at 31 March 2021, primarily as a result of an increase in the discount rate driven by market factors. The Group has reached agreement with the Trustee on the 2021 triennial actuarial valuation for the UK defined benefit scheme and on a new deficit recovery plan. Deficit repair contributions have been agreed at £3.8m per annum from 1 April 2022 to March 2027 (increasing with CPI, capped at 5%, each year). Both the Group and the Trustee regard this as an appropriate outcome. We remain confident that our pension obligations continue to be appropriately funded and well managed. The Group recognises that the pension scheme is a key stakeholder and the Group and the Trustee continue to work constructively together. 10 Norcros plc Annual Report and Accounts 2022 ## Environmental, social and governance (ESG) The Board remains committed to embedding sustainability within our business strategy. We recognise that our stakeholders, including our employees, investors and customers, have rising expectations about our environmental and social impacts and the way that we operate our business. We are proud of our history of environmental and social leadership, our achievements in setting industry leading standards in our products and the support we provide our communities. This year, we have made enhancements to our emissions and energy data collection process and are pleased to include our first report aligned to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which outlines our approach to managing climate-related risks and opportunities across the Group. We also report on the enhanced structure of our ESG management internally which has helped us develop our framework and improve the management of our impact. Further details can be found in the ESG section on pages 42 to 59. ## Board changes and senior management appointments As previously announced, I was appointed as a Non-executive Director and Non-executive Board Chair on 8 December 2021. I am delighted to join the Board and be part of the future growth of the Group. I would like to thank David McKeith, who was Acting Chair for the Group from April 2021 until my appointment. As previously reported, James Eyre was appointed to the Board as Chief Financial Officer with effect from 1 August 2021 following Shaun Smith's retirement at the end of December 2021. James was our Corporate Development and Strategy Director and has been a member of the Group's senior team since 2014, responsible for leading our acquisitions. He is a Chartered Accountant and held senior finance roles at AstraZeneca, Bank of Ireland and Rothschild & Co prior to joining Norcros. The Board composition can be found on pages 64 and 65. As previously 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 2021. He was previously chief executive of Bidvest Packaging. The Group Executive Committee comprises our CEO (Nick Kelsall), CFO (James Eyre), Group Counsel/Company Secretary (Richard Collins) and Group Business Director – UK (Thomas Willcocks). ## Governance As Chair, one of my primary responsibilities is to ensure that the Group continues to operate to the highest standards in all aspects of governance and risk management. Our aim at Norcros has always been to operate in line with our values and the "Norcros DNA" which sets us apart from our competitors, while ensuring that proper operating procedures and internal controls are maintained at all times. Transparency is central to this objective and you will find more detail about our approach and progress over the last year in the Corporate Governance section on pages 66 to 69. ![img-1.jpeg](img-1.jpeg) **Abode:** Agilis Single Lever in Brushed Brass and Matt Black: Style, form and function unite with Agilis, the latest innovation to join the Distinctly Abode collection of design-led taps. With the handle up front and centre an agile movement such as the flick of a wrist will operate the water flow of the Agilis, great if you have dirty hands from food preparation, baking or gardening. Designed for ultimate ease of use, the Agilis reduces reach, making it simpler to access the tap handle. Available in Chrome, Brushed Nickel, Brushed Brass, Matt Black or Black and Brass. Norcros plc 11 Strategic report ## Chair’s statement continued People The Board continues to regard our employees as our most valuable asset and in recognition of this the Group aims to create a safe and positive working environment within an open, transparent and entrepreneurial culture and de-centralised operating model. On behalf of the Board, I would like to thank the Group’s employees who have helped to deliver on the Group’s strategic objectives and in particular for their dedication and contribution over the last twelve months. I would also like to warmly welcome the management team and employees of the Grant Westfield business to the Group. Current trading Group revenue in the two months to the end of May 2022 was marginally ahead of the strong prior year comparator by approximately 1% and significantly ahead of the pre-pandemic comparator of the two months ended May 2019 by approximately 25%. Summary The Group has delivered a robust performance and a record result despite challenging market conditions. This demonstrates the effectiveness and resilience of our Group with its highly experienced management teams, leading brands, proven business model, leading customer service proposition and strong financial position. In addition, through the acquisition of Grant Westfield, the Group has taken a further important step forward in its growth strategy. Market conditions are likely to remain uncertain and challenging, albeit the Board is confident that the Group’s resilient business model and strong execution of strategy will continue to deliver outperformance leading to further progress and market share gains in line with its expectations in the year ahead. Abode: Protrad 4 in 1 boiling hot water tapin Antique Brass and Brushed Nickel. Abode’s research confirms that there is now Gary Kennedy astrong demand for hybrid tap designs that Chair combine traditional style traitswith modern 8 June 2022 functionality, like instant steaming hot and filtered water on tap. Abode’s Protrad in Antique Brass or Brushed Nickel is able to create a blendeddécor that is both classic andmodern, with the advanced functionality ofboiling hot water. Norcros plc Annual Report and Accounts 202212 Chief Executive Officer's statement # Record performance notwithstanding supply chain challenges and exceptional cost inflation. ![img-2.jpeg](img-2.jpeg) **We have continued to build on last year's strong recovery from the unprecedented global disruption and uncertainty caused by the pandemic.** Chief Executive Officer ## Overview Norcros has ended the year reporting record levels of revenue and underlying operating profit and a net cash position. We have continued to build on last year's strong recovery from the COVID-19 pandemic against a backdrop of unprecedented cost inflation and exceptional supply chain challenges. It is particularly pleasing to see how well our businesses in the UK and South Africa responded and adapted to these challenges and continued to make the strong progress in performance. It is a testament to our management teams, proven business model, supply chain infrastructure and our leading customer service proposition. Group revenue at £396.3m (2021: £324.2m) increased by 22.2% on a reported basis and by 20.6% on a constant currency basis. Revenue was also 20.9% higher than the pre-pandemic comparator of 2020 on a constant currency like for like basis (after adjusting the 2020 comparator period from a 53 to a 52-week period pro-rating). The strong trading performance in the first half of the year continued into the second half with further revenue growth in South Africa and a robust performance in the UK. Group underlying operating profit for the year increased by 23.7% to a record of £41.8m (2021: £33.8m), reflecting the increased revenue in the year and an operating margin slightly ahead of last year at 10.5% (2021: 10.4%). Management acted decisively to counter unprecedented cost inflation and supply chain challenges to protect margins through implementing selling price increases and ensuring superior levels of stock availability and service. Revenue in the UK was £256.7m for the year (2021: £220.2m), 16.6% higher than the prior year on a reported basis and 16.1% higher than 2020 on a like for like basis. Buoyant demand in the RMI sector, market share gains (supported by excellent stock availability) and increased selling prices to recover higher input costs were the key drivers. All businesses apart from Johnson Tiles (which was relatively more impacted by the slower recovery in the commercial sector) delivered revenue growth on the pre-pandemic levels in 2020 and all divisions outperformed the prior year. UK underlying operating profit for the year was a record at £30.9m (2021: £26.9m) with an underlying operating margin of 12.0% (2021: 12.2%). Underlying operating profit growth was driven by a strong performance across the UK businesses. Operating cash flow was lower than prior year as a result of investment into working capital, primarily inventory. Revenue in South Africa increased by 28.8% on prior year on a constant currency basis, and 34.2% higher on a Sterling reported basis, to £139.6m (2021: £104.0m). Revenue was also 30.7% higher than 2020 on a constant currency like for like basis. All divisions delivered revenue growth on both prior year and 2020. Tile Africa, Johnson Tiles and TAL continued to benefit from higher demand and market share gains in the retail renovation market, while House of Plumbing's growth from new branch openings was partially offset by subdued activity in the large-scale commercial building segment. South African underlying operating profit for the year was at a record level of £10.9m (2021: £6.9m), largely reflecting strong retail demand and a £0.2m foreign exchange translation gain from a stronger Rand. Underlying operating margin was 7.8% (2021: 6.6%). As in the UK, operating cash flow was lower than prior year as a result of investment into working capital, primarily inventory. ## Acquisition of Grant Westfield On 31 May 2022 we completed the acquisition of 100% of the share capital of Granfit Holdings Limited and its subsidiaries including Grant Westfield Limited, trading as Multipanel. The acquisition was funded through equity and utilisation of the Group's banking facilities. Grant Westfield is a quality business with a strong track record of profitability and cash generation run by an experienced and capable management team. We welcome all the employees to the Norcros Group and expect the business to make a strong contribution to the Group through its complementary range of waterproof bathroom wall panels. ## Strong financial position The Group has a strong balance sheet with net cash of £8.6m (2021: net cash of £10.5m). This position reflects a planned investment into working capital in the year of £23.6m, particularly inventory, with a resultant underlying operating cash flow of £28.6m (2021: £65.8m) in the year. The Group completed a refinancing of its banking facilities in the second half of the year. The new facility is a £130m multicurrency revolving credit facility for an initial three-year and seven-month term, with two further years as extension options. There is also an uncommitted accordion facility of £70m. The Group therefore remains well positioned to progress its growth strategy. Following the acquisition of Grant Westfield in May 2022, pro-forma leverage is approximately 1.0x EBITDA. Annual Report and Accounts 2022 Norcros plc 13 Strategic Report Strategic report # Chief Executive Officer's statement continued # Strategy remains valid In April 2018 we launched a refreshed strategy for growth and a 2023 vision for the Group, including an updated set of strategic targets which were: to increase Group revenue to £600m by 2023; to maintain revenue derived outside of the UK at approximately 50% of Group revenue; and to sustain a pre-tax return on underlying capital employed of more than 15% over the economic cycle. The previous timescale of 2023 was extended to 2025 in the prior year reflecting the COVID-19 disruption. Notwithstanding the extended timeframe, the strategy remains valid and we have performed strongly against these targets as detailed below: - Group revenue increased by 22.2% to £396.3m (2021: £324.2m; original 2023 target: £600m). - On a Sterling reported basis, Group revenue derived outside of the UK was 43.9% (2021: 41.6%), and in constant currency terms, from when the targets were set, 47.0% (2021: 45.6%). - Group underlying return on capital employed was 23.9% on a pre-IFRS 16 basis (2021: 18.2%) and significantly exceeded our strategic target of 15%. The Group's very strong recovery from the COVID-19 pandemic and the decisive response to the inflationary and supply chain challenges continue to demonstrate the resilience of our business model and the effectiveness of our strategy. The Board remains confident that the Group's focused strategy, highly experienced management teams, talented people, market leading brands, supply chain and customer service will continue to drive outperformance in the current financial year." Nick Kelsall Chief Executive Officer The UK bathroom and kitchen product market remains highly fragmented with significant consolidation opportunities to either broaden our product portfolio or further consolidate our current offerings. The significant strength of the balance sheet means the business is well placed to take advantage of further acquisitions or organic growth opportunities as they arise. Sustained investment in new product development will continue to drive organic growth alongside our market leading brands, customer service and best in class quality. Our product vitality rate (the percentage of revenue in the period derived from new products launched in the last three years) remained high at 29% (2021: 28%), but marginally short of our demanding target of 30% mainly due to the COVID-19 related disruption to supply chains and the temporary closure of retail showrooms in recent years postponing projects. Our vitality rates are nonetheless market leading and are expected to increase again as our new product launches return to pre-COVID-19 levels. # Summary and outlook The Group has outperformed expectations, recovering very strongly from the pandemic and then successfully navigating a period of unprecedented cost inflation and supply chain challenges. Our performance on all fronts is a testament to our business model and our employees, particularly against the backdrop of challenging markets as demand continues to adjust to the impact of the pandemic. It is particularly pleasing to see how well our businesses both in the UK and South Africa have continued to make strong progress, gain market share and benefit from their leading brands, supply chain infrastructure and stock availability. 14 Norcros plc Annual Report and Accounts 2022 Whilst the recovery has been strong, the normalisation of Strategic report consumer spending patterns in addition to pressure on household disposable incomes will provide some uncertainty in our markets. In addition, the secondary impacts of the COVID-19 pandemic and the Ukraine crisis remains difficult to predict. Notwithstanding these uncertainties, we are confident that our supply chain infrastructure combined with our local inventory holdings will ensure our leading competitive position is maintained. In summary, we have ended the year strongly, outperforming our expectations and our markets and delivered record levels of revenue and profit and growth on prior year and pre-pandemic levels. Whilst market conditions are likely to remain uncertain, the Board believes that the Group’s proven business model and leading customer service proposition will continue to drive outperformance leading to further progress and market share gains, in line with its expectations, for the year to 31 March 2023. Nick Kelsall Chief Executive Officer 8 June 2022 Vado: In collaboration with Jo Love, Design Director of Love Interiors, Vadohas launched Omika Noir inPolished Black. Omika Noir offers anumber of bathing and showering solutions, embracing a slim, minimalistic silhouette with intricate geometric accents. The range will add interest andcharacter to any minimalistic modern décor. 15Norcros plc Strategic report ## Business model ## Maximising shareholder value ## throughcontinuous investment. ### We have a well-established, successful track record of serving consumers, architects, designers, ### developers, retailers and wholesalers. Our emphasis is on strong branding, contemporary designs, ### trusted quality, outstanding service, innovation and breadth of product range. Our key inputs How we do business We are focused on providing sustainable We invest significantly and continuously in our people, brands, product value creation whilst committed to development and processes and we aim to develop our business in both operating in an ethical, entrepreneurial thequality of our products and the scale of our activities. and responsible manner with the highest standards of corporate governance. We have a wide range of People strong brands with market • Providing our employees with a safe leading positions across andpositive working environment our chosen markets. • Open, transparent and entrepreneurial culture and de-centralised operating model Brand portfolio • Strong cultural values aligned to our “Norcros DNA” Products We serve consumers, • Strong brands, contemporary designs, architects, designers, Market trusted quality, innovation and a wide developers, retailers and product range share wholesalers offering • Continuous NPD programme driving outstanding customer organic market share growth service, bespoke solutions and unrivalled technical support. Process • Customer centric approach • Committed to operating in an ethical andresponsible manner We benefit from • Upholding the highest levels of corporate economies of scale and Synergies responsibility and governance shared synergies across and scale our complementary • Minimising our negative impact ontheenvironment businesses. Innovation We focus on investment in newproducts with 29% of 2022 revenue derived from products launched in the last three years. Norcros plc Annual Report and Accounts 202216 Strategic report What makes us different The value we create We base our business on understanding our The key areas of value creation across our stakeholder customers’ needs. Norcros is a substantial and growing base are below: international group with consistent, high quality standards and considerable resources. Shareholders • Progressive and resilient return of value to shareholders • Continued execution of growth strategy with strong pipeline • Collaborative branding of opportunities Broad brand positioning facilitates channel • Strong financial position with robust cash-generative business development and acquisition of new accounts. • Return on capital employed maintained above strategic target • Channel management Customers As our businesses enjoy leading positions, we have the • Over 7,500 business customers supplied during the year necessary management expertise to satisfy the needs withinnovative high quality branded products of all our customers across our broad distribution base. • Continued innovation and deployment of technology to service our customers • Leveraging Group reach • Sustained investment in our leading brands to ensure longevity Achieving greater penetration of housebuilders and • Customer-focused approach delivering outstanding customer modular/bathroom pod manufacturers. service and unrivalled technical support • Complementary products and broad Employees 1 • Nearly 2,400 employees around the world productrange Our complementary and extensive product range • Focus on training and development provides a one-stop shop to our existing customer base • Experienced, devolved management teams and and is important in attracting new customers. well-established local trading relationships • Empowering culture to enable our people to meet theiraspirations • Best in class sourcing and assembly Our products are sourced and manufactured to the highest standards and are quality monitored at each Society stage of the supply chain. • Playing a key role in the communities we serve by supporting local businesses, schools and colleges, through education and training schemes • Successful acquisition strategy • Supporting the local communities with a range We target acquisitions in complementary product, ofcharitableevents market and industry segments exhibiting attractive returns on capital. Environment • Committed to monitoring and minimising our environmental • Broad coverage of the Group impacts and encouraging our suppliers to do the same Leveraging channel development, joint product • Committed to adapting our business to changing consumer development and supply chain efficiencies. demands for our products 1 Including Granfit Holdings and its subsidiaries. Annual Report and Accounts 2022 Norcros plc 17 Strategic report ## Strategy and objectives ## A focused growth strategy delivering ## strong sustainable results. About our strategy The Board believes the execution of this ## strategy will enhance shareholder value. 1 2 Organic growth will continue to be driven by capitalising on our leading market ## Share gains and Acquisitions positions in the UK and South Africa. Our ## strategic initiatives will ensure we maintain sector focus ### Target acquisitions in the provision of innovative new product ### selected geographies ### programmes, excellent customer service Pursue a faster and ### and investment in our brand portfolio. and complementary ### focused growth strategy We will also reinforce our “designed in ### product markets with ### Britain” credentials as well as capture the to scale the size of the ### growth opportunities in South Africa and attractive returns ### Group organically Sub-Saharan Africa where medium-term ### oncapital growth rates are likely to be higher than those in the more developed markets. We will continue to drive faster revenue growth in our existing export markets and develop new emerging export opportunities. | Acquisitions will be targeted at | Progress in 2022 | | Progress in 2022 | | | --- | --- | --- | --- | --- | | complementary market and industry | • Underlying operating profits | | • Acquisition of Grant Westfield | | | segments exhibiting attractive returns on | | increased by 23.7% from | | – a leading UK designer, | | capital which are likely to be in bathroom | | £33.8m to £41.8m | | manufacturer and supplier of | | and kitchen products with exposure to | | | | waterproof bathroom wall panels, | • Ended the year with strong Balance commercial and specification segments. operating under the renowned Sheet with net cash of £8.6m (2021: The successful acquisitions of Vado, Multipanel brand net cash of £10.5m) Croydex, Abode, Merlyn and the House of Plumbing business all demonstrate • Underlying ROCE achieved of 23.9% (2021: 18.2%) ahead of strategic Priorities for 2023 theexecution of our strategy. target of 15% • Well-developed complementary acquisition pipeline Ourstrategic targets • UK market share growth during the year particularly in Triton, • Attractive opportunities to gain Merlyn and Abode share and build the “one-stop-shop” ### Grow Group revenue to • Tile Africa, Johnson Tiles and TAL • Develop international pipeline increasing market share gains in the ## £600m retail renovation market; House of ### by 2025 Plumbing branch expansion • Momentum in Eire market, Triton, ### Maintain approximately Merlyn and Vado ## 50% Priorities for 2023 ### of Group revenue derived • Continue to move towards being ### outsidethe UK “one-stop shop for bathrooms” in our selected markets ### Achieve a sustainable underlying • Further investment in brands, ### return on capital employed of service, marketing and sales, and stock availability underpinning margins and share gains ## 15% ### through the economic cycle • Further increase export traction via Merlyn, VADO, Croydex and Johnson Tiles Norcros plc Annual Report and Accounts 202218 Strategic report ## 43 5 ## ESG Operational Product vitality ## Continue to ensure excellence Maintain investment ### highstandards of inour strong brands ### Leverage revenue ### corporate governance andnew product ### synergies and efficiencies ### and responsibility and development ### within our portfolio of ### place sustainability at the programmes ### complementary ### heart of our business ### businesses | Progress in 2022 | | Progress in 2022 | | Progress in 2022 | | | --- | --- | --- | --- | --- | --- | | • New ESG governance structure – | | • Specification channel group | | • House of Plumbing product range | | | | Board reporting and ESG Forums | | continues to drive further | | expanded to serve broad civils | | | | | penetration of housebuilders | | market segment | • Reported against Task Force and modular/bathroom pod on Climate-related Financial • Comprehensive launch of a number manufacturers Disclosures (TCFD) of new product lines in the year (see • Collaborative branding winning new Business Reviews for details) • New Code of Ethics and accounts – Merlyn and Triton: “Fast Standards of Business Conduct • New Product Vitality Index at 29% Fix” shower enclosure into Screwfix across the Group (revenue % from products launched • Joint new product initiative – Triton in last 3 years) – maintained at high • Group-wide assessment by Carbon and Abode: Proboil level (2021: 28%) Trust of Scope 1, Scope 2 and Scope 3 emissions • Triton and Croydex achieve Route Priorities for 2023 Priorities for 2023 toNet Zero Standard (Taking Action) • Opportunity to apply Group • Further investment in NPD reach to Grant Westfield into new • Group Health and Safety • Further investment in marketing channels, markets and accounts Policy updated • Focus on development of further supply chain and sourcing synergies Priorities for 2023 • Continue to develop an overarching ESG framework, considering metrics and targets Annual Report and Accounts 2022 Norcros plc 19 Strategic report ## Key performance indicators ## Measuring our progress. ### We use the following key performance indicators (KPIs) to measure our progress against our ### strategicpriorities. | Total revenue £m | | | Group revenue outside the UK % | | Underlying operating profit £m | | | | --- | --- | --- | --- | --- | --- | --- | --- | | £396.3m +22.2% | | | 43.9% +2.3% | | £41.8m +23.7% | | | | 2022 | | 396.3 | 2022 | 43.9 | 2022 | | 41.8 | | 2021 | 324.2 | | 2021 | 41.6 | 2021 | 33.8 | | | 2020 | 342.0 | | 2020 | 43.1 | 2020 | 32.3 | | 1 2019 331.0 2019 41.7 2019 34.4 1 | 2018 | | 300.1 | 2018 | | 44.3 | 2018 | 27.4 | | --- | --- | --- | --- | --- | --- | --- | --- | | Link to strategy | 1 2 3 4 5 | | Link to strategy Link to strategy | 1 2 3 4 5 1 2 3 4 5 | | | | | Definition Reported Group revenue | | | Definition Revenue from the Group’s | | | Definition Reported operating profit | | | for the year. | | | South African operating segment plus | | | as adjusted for IAS 19R administrative | | | | | | export revenue from the Group’s UK | | | expenses, acquisition related costs and | | Performance Total revenue for the year operating segment. exceptional operating items, as defined in increased by 22.2% on a reported basis note 8 to the financial statements. | and by20.6% on a constant currency basis. | Performance Group revenue outside the UK | | | --- | --- | --- | | | has increased in the year to 43.9%, reflecting | Performance Underlying operating profit | | | growth in South Africa ahead of growth in the | increased by £8.0m (+23.7%). This reflected | | | UK. In constant currency terms from when | a strong trading performance in the UK | | | the targets were set we are more closely | and in South Africa. | in line with the strategic target (of 50%) at 47.0% (2021: 45.6%), the growth on prior year reflecting the higher constant currency growth in South Africa over the UK in the year. 1 On a pre-IFRS 16 basis. | Underlying return on capitalemployed % | | | | | Dividend per share p | | | | Underlying operating cash flow £m | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 23.9% +570bps | | | | | 10.0p +21.9% | | | | £28.6m -56.5% | | | | | 2022 | | | | 23.9 | 2022 | | | 10.0 | 2022 | 28.6 | | | | 2021 | | | 18.2 | | 2021 | | 8.2 | | 2021 | | | 65.8 | | 2020 | | 16.4 | | | 2020 | 3.1 | | | 2020 | | 38.4 | | | 2019 | | | 18.2 | | 2019 | | 8.4 | | 2019 | | 39.8 | | | 2018 | | | 18.0 | | 2018 | | 7.8 | | 2018 | 31.0 | | | | Link to strategy Link to strategy Link to strategy | 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 | | | | | | | | | | | | | Definition Underlying operating profit | | | | | Definition The total of the interim dividend | | | | Definition Cash generated from continuing | | | | | on a pre-IFRS 16 basis expressed | | | | | and the proposed final dividend for the | | | | operations adjusted for cash flows from | | | | | as a percentage of the average of | | | | | financial year. | | | | exceptional items and pension fund deficit | | | | | opening andclosing underlying capital | | | | | | | | | recovery contributions, as defined in note 8 | | | | Performance In line with the Board’s employed(as defined in note 8 to the to the financial statements. progressive albeit prudent dividend policy, financial statements). | | the dividend per share increased 21.9% to | Performance Underlying operating cash | | --- | --- | --- | | Performance Underlying ROCE remained | 10.0p per share from 8.2p per share. | generation decreased to £28.6m reflecting | | above the strategic target of 15% over | | a strong trading performance and | | the economic cycle. The improvement | | investment into inventory. | over prior year reflected the 23.7% growth in underlying operating profit against increased capital employed, driven by theGroup’s investment into inventory. Link to strategy 2 Acquisitions 3 ESG 4 Operational 1 Share gains 5 Product vitality andsector focus excellence Norcros plc Annual Report and Accounts 202220 Business performance Financial statements # A record performance for the Group. | | 2022 £m | 2021 £m | | --- | --- | --- | | **Revenue** | **396.3** | **324.2** | | **Operating profit** | **36.2** | **24.9** | | IAS 19R administrative expenses | 1.7 | 1.4 | | Acquisition related costs | 4.8 | 3.7 | | Exceptional operating items | (0.9) | 3.8 | | **Underlying operating profit** | **41.8** | **33.8** | | | 2022 £m | 2021 £m | | --- | --- | --- | | Revenue – UK | 256.7 | 220.2 | | Revenue – South Africa | 139.6 | 104.0 | | **Revenue – Group** | **396.3** | **324.2** | | Underlying operating profit – UK | 30.9 | 26.9 | | Underlying operating profit – South Africa | 10.9 | 6.9 | | **Underlying operating profit – Group** | **41.8** | **33.8** | | Underlying operating profit margin – UK | 12.0% | 12.2% | | Underlying operating profit margin – South Africa | 7.8% | 6.6% | | **Underlying operating profit margin – Group** | **10.5%** | **10.4%** | | | 2022 £m | 2021 £m | | --- | --- | --- | | **Underlying operating profit** | **41.8** | **33.8** | | Depreciation of right of use assets | 4.1 | 4.0 | | Lease costs | (5.7) | (5.3) | | Depreciation and underlying amortisation (owned assets) | 5.2 | 5.4 | | **Underlying EBITDA** | **45.4** | **37.9** | | Net working capital movement | (23.6) | 21.8 | | Share-based payments | 1.1 | 1.0 | | Operating profit impact of IFRS 16 | 1.6 | 1.3 | | Depreciation of right of use assets | 4.1 | 4.0 | | Cash settlement of share options | — | (0.2) | | **Underlying operating cash flow** | **28.6** | **65.8** | | | 2022 | 2021 | | --- | --- | --- | | Basic underlying earnings per share | 38.9p | 31.2p | | Diluted underlying earnings per share | 38.2p | 31.1p | The Group makes use of a number of alternative performance measures to assess business performance and provide additional useful information to shareholders. Definitions and reconciliations of these alternative performance measures are provided in note 8. Annual Report and Accounts 2022 Norcros plc 21 ![img-3.jpeg](img-3.jpeg) ## TRITON # Beauty salon goes with the Instaflow to improve efficiency ### The challenge Award-winning LUXE Hair Beauty Bridal, Leicestershire, urgently needed an energy efficient solution to provide instantaneous hot water, while helping to keep its utility bills under control. ### The solution Triton's 15L Instaflow Stored Water Heater is ideal for premises that only have access to cold mains water supply; it is quick and easy to install and easy to hide from view. The system benefits from low operating pressures, while also providing quick heat-up times and variable temperature settings. As the electric Instaflow heats water only when needed, it minimises wastage and conserves power. ### The result The salon is able to cater for the needs of its customers, while using as little water and energy as possible in the process. ## Triton Revenue at Triton, the UK's market leader in showers, was £60.1m (2021: £54.5m), 10.3% higher than the prior year and 26.3% higher than the pre-COVID-19 2020 comparator on a like for like basis. Triton has benefited from strong retail sales over the last two years by ensuring product availability and maintaining high customer service levels. As a result, as competitors struggled to react to the challenging situation, Triton was able to build on its market leading position taking an increasing market share in electric and mixer showers which has been retained. Retail sector revenue increased by 2.9% in the year and by 31.2% in comparison to 2020 on a like for like basis. Following an initial delay in the recovery of contract, housing and local authority business, the trade sector revenue has returned strongly. Trade sector revenue in the year was 22.1% higher than prior year and 21.3% higher than 2020 on a like for like basis. Export revenue also performed strongly with 11.0% growth on the prior year and 31.5% growth against 2020 on a like for like basis. Proud to be manufactured in Britain for over 45 years and a member of the "Made in Britain" scheme since 2014, Triton is known as a leader in electric shower innovation with a focus on its environmental credentials. Our "cleaner conscience" TV and press campaigns highlighting the environmental and financial benefits of showering less have been well received. Further initiatives were introduced in the year such as 100% recycled bags for shipping, 30%+ recycled content plastic packaging, carbon neutral paper for all production (such as installation instructions) and electric vehicles within the fleet. During the year Triton continued to work with the Carbon Trust with the target to be net carbon zero by the end of 2025, Triton's 50th anniversary year. New products continue to be a key driver in maintaining Triton's long-term leading market position where ongoing investment and new product launches have proven successful. Notable revenue growth in the year was delivered from Omnicare Ultra, a shower range for the care and adaptations segment. Triton's Enrich electric shower won an award in the year as the product of choice by installers and, overall Triton was awarded the Feefo Platinum Trusted Service Award for demonstrating outstanding service to customers. Triton again delivered a high level of underlying operating profit ahead of the prior year combined with good cash conversion. Strategic Report Annual Report and Accounts 2022 Norcros plc 23 Strategic report ## UK business review continued ### UK continued #### Merlyn Merlyn, the UK and Ireland's no. 1 supplier of shower enclosures and trays to the residential, commercial and hospitality sectors, performed strongly and recorded revenue of £58.3m (2021: £43.3m), growth of 34.6% on the prior year and 39.8% against 2020 on a like for like basis. The business continued to grow its market share, leveraging its leading position in the UK through its quality product offering, stock availability and customer centric service. UK revenue grew by 35.8% on prior year and 41.7% on 2020 on a like for like basis, with a particularly strong performance in the trade sector, where revenue grew by 56.3% against the prior year and 65.8% against 2020 on a like for like basis. This was driven by growth across a number of existing customers in addition to a number of new contracts including Sanctuary Housing and St Modwen Homes. The retail sector revenue increased by 21.3% against prior year and 25.2% against 2020 on a like for like basis, representing an increased share of showroom spend. Exports increased by 26.0% in the year and 26.0% against 2020 on a like for like basis, reflecting growth in Ireland and France. New product development remains a core component of Merlyn's growth strategy with the launches of Arysto luxury shower enclosures and slip resistant trays during the year. The future pipeline includes an Arysto range extension, a next generation of shower trays, further storage options and products with improved glass cleaning properties. Our focus on our customers was reflected in Merlyn winning the Fortis Overall Supplier of the Year and Wetroom Supplier of the Year and the Neville Lumb Overall Supplier of the Year and also attaining the Gold Standard in Excellence Through People. Merlyn has continued to progress its environmental credentials during the year and has launched an eco-packaging solution developed last year to eliminate the use of single-use plastics with fully recyclable alternatives. All new product launches will incorporate eco-packaging. Notwithstanding substantial increases in input and sea freight costs, Merlyn recorded a strong underlying operating profit performance. Cash conversion remained strong in the period. ![img-4.jpeg](img-4.jpeg) ![img-5.jpeg](img-5.jpeg) ### MERLYN ## Bodmin Jail Hotel blends heritage architecture with contemporary design #### The challenge Bodmin Jail Hotel is a four-star boutique hotel based in the Grade II listed walls of the former prison building in Cornwall. The design brief to Merlyn was to intertwine the imposing architecture of the 18th century jail with high quality contemporary products. #### The solution Dart Bathrooms, the contracted bathroom merchant, worked closely with Merlyn's Specification Team to select the stylish 8 Series Frameless Quadrant Door to effortlessly combine high aesthetics with functionality. #### The result The new bathroom suites perfectly marry the imposing original architecture of the 300-year-old jail with contemporary fittings and finishes. The 8 Series Frameless Quadrants with concealed fixings help to create the illusion of space, blending seamlessly with the original architecture and weathered stone walls. The product also comes with a lifetime guarantee and Mershield Stayclear easy clean protected glass. 24 Norcros plc Annual Report and Accounts 2022 ### Vado Vado, our leading manufacturer of taps, mixer showers, bathroom accessories and valves, recorded revenue of £43.9m for the year (2021: £38.2m), 14.9% higher than the prior year and 5.8% higher than 2020 on a like for like basis. In the UK, our retail sector revenue showed strong growth, up on prior year by 23.8% and 12.0% up on 2020 on a like for like basis on the back of a vibrant new product development programme and excellent stock availability. The trade sector was more challenging with revenue up 6.3% on prior year but 4.5% lower than 2020 on a like for like basis. This was in part driven by the lack of availability of building materials and labour which resulted in slower than planned build programmes at key customers. Export revenue was 16.5% ahead of both prior year and 2020 on a like for like basis on the back of strong growth in Europe and the Middle East. The business continued to invest in NPD with further market leading launches planned to follow the successful launches of the Knurled X Fusion and Omika Noir ranges this year. Our NPD programme has a strong environmental and sustainability focus, with the launch of our EcoTurn range of cold start taps last year reinforcing Vado's position as an on-trend and sustainable brand. Vado generated an underlying operating profit ahead of last year and a strong level of cash conversion in the period. ### Croydex Croydex, our market leading, innovative designer, manufacturer, and distributor of high quality bathroom furnishings and accessories, recorded revenue of £27.0m (2021: £24.1m) for the period, 12.0% higher than the prior year and 15.9% higher than 2020 on a like for like basis. Retail sector revenue was marginally ahead of prior year and 14.0% up on 2020 on a like for like basis. Retail and E-Commerce sales slowed in the second half of the year as customers returned to physical stores and activity returned to more normal levels. The business continues to develop its digital strategy and has secured further listings with Home Depot.com, Lowes, Walmart and Amazon, providing a sound base for both our export and online growth plans. Trade sector revenue was up 28.4% on the prior year and up 16.9% against 2020 on a like for like basis, with the toilet seat category including Croydex's patented fixing system performing especially well. Export sales were in line with prior year and 18.2% up on 2020 on a like for like basis, mainly driven by new business in Italy, offset by a slowdown in Germany. Croydex's ongoing new product development programme has played a major role in driving new sales opportunities, particularly through new patented solutions within the shower rod, toilet seat and medicine cabinet categories. Hygiene-focused products with anti-bacterial and anti-viral surfaces and non-touch taps were also introduced. The packaging policy was developed further in the year to reduce the environmental impact and eco-design was integrated into all products. Croydex has worked with the FSC on timber certification and BEIS, DEFRA, BMA and UWL regarding the proposed water efficiency labelling scheme. Underlying operating profit was ahead of the prior year, albeit cash conversion was significantly lower than prior year, reflecting investment into inventory to support stock availability and service. ![img-6.jpeg](img-6.jpeg) ![img-7.jpeg](img-7.jpeg) **Vado:** By using the latest thermostatic cartridge technology, Vado's thermostatic shower and bath valves can eliminate the risk of scalding, delivering optimum mixed water temperature to guarantee safety for all the family. Leaders' schedule Norcross plc 25 Strategic report # UK business review continued ## UK continued ### Abode Abode, our leading designer and distributor of high quality hot water taps, bathroom mixers, kitchen sinks and taps, recorded revenue of £18.9m for the year (2021: £15.0m), a 26.0% increase on prior year and a 30.3% increase against 2020 on a like for like basis. The business continued to benefit from its strong market positions with key customers, a well-planned and executed NPD programme and timely investment in additional inventory. The business has grown market share over the period and remains focused on developing sustainable products that provide customers with “water the way you want it”. Retail growth has been supported by an “Approved Retailer” scheme and investment in point-of-sale display aids to drive market share growth in our premium Distinctly Abode ranges. Growth in the specification sector has benefited from the Pronteau and Protrad hot water taps with further initiatives planned in the year ahead. Both taps have been awarded WRAS approval, a pre-requisite for new build markets. Our focus on our products and customers will see further market leading product launches in the year ahead that will further benefit the growth of the business. Underlying operating profit was higher than prior year with cash conversion lower than prior year, reflecting the investment into inventory. ## JOHNSON TILES # Johnson Tiles and Norcros Adhesives unite to refurbish Everglow Salon, Biddulph ### The challenge This 40m² project required all walls and floors to be stripped back to properly prepare the structural framework of the space. The floors then needed levelling to provide a suitable substrate for tiling. Additionally, a tight deadline was set to meet the fixed salon opening date. ### The solution Norcros Adhesives Pro-10 Leveller was used to provide a suitable substrate; this product is ideal for preparing sub-floors before fixing tiles. Johnson Tiles’ Glide porcelain marble-effect floor tiles were fitted using Norcros Adhesives’ S1 Rapid White Adhesive and finished with Flexi Grout in Slate Grey. ### The result The pairing of opulent floor tiles and neutral grout allows other design elements to shine. Foliage features within furniture pieces and hanging plants create a biophilic-inspired design. Gold fixtures add a touch of luxury with a metallic vibe, with the deep green velvet chairs add texture and colour. This collaboration between Norcros Adhesives and Johnson Tiles resulted in the completed space delivering an on-trend style, perfect for this contemporary salon. ## Johnson Tiles Johnson Tiles, our UK market leading ceramic tile manufacturer and a market leader in the supply of both own manufactured and imported tiles, recorded revenue of £34.2m (2021: £32.8m), 4.3% higher than the prior year but 16.4% lower than 2020 on a like for like basis. We have accelerated the process of repositioning Johnson Tiles and specifically exited a number of lower margin products as part of this plan, resulting in a more focused business. Trade sector revenue was up 17.6% on the prior year but 5.7% down on 2020 on a like for like basis, with the second half recording a 2.0% decrease on 2020 on a like for like basis. The house developer sector continued its strong performance during the year but commercial specifications, which are driven by the hospitality and retail sectors, continued to operate significantly below pre-COVID-19 levels. The social housing refurbishment market continues to be impacted by the overhang from the Grenfell cladding issue. Johnson Tiles’ strong relationships with the national house developers continued, including Barratt, David Wilson, Persimmon, Charles Church, Redrow and Countryside. Retail sector revenue was down 9.9% on prior year and 28.9% down on 2020 on a like for like basis, driven primarily by the planned exit of lower margin product categories. This has freed up resources for our growing focus on small format niche product ranges. In 2021 Johnson Tiles celebrated both its 120th year as a UK manufacturer of tiles and its heritage as a designer and innovator in tiles, with the business winning a Product of the Year award for the South Bank range at the Mix Interiors 2022 Mixology Awards. Export revenue was 11.1% below prior year and 22.6% below 2020 on a like for like basis due mainly to lower revenues to France. Johnson Tiles has developed a market leading position on sustainability over many years focusing strongly on recycling energy, water and waste and will pursue further initiatives to progress the reduction in our carbon footprint in the year ahead. ![img-8.jpeg](img-8.jpeg) 26 Norcros plc Annual Report and Accounts 2022 # NORCROS ADHESIVES # Norcros Adhesives helps Maggie's Wirral cancer support centre # The challenge Maggie's Wirral cancer support centre offers a warm and friendly atmosphere where every person feels cared for. The centre aims to provide calming, therapeutic and relaxing spaces, for those receiving treatment for cancer and their families and carers who need support. As such, the design of its buildings is of key importance in creating a welcoming and comforting environment. # The solution Norcros Adhesives was able to provide the products, expertise and technical back-up, together with a lifetime guarantee. The project featured an underfloor heating mat on top of a 70-80mm thick sand and cement screed. The surface of the screed was primed with Norcros Prime Bond and the heat mat was fully embedded in Norcros Rapid Porcelain Grey Adhesive. Large-format tiles were then laid using Norcros S1 Fibre Reinforced Tile Adhesive in Grey and colour matched grouts and silicone were used for seamless expansion joints. # The result The completed space has a very usable and comforting feel and the project was completed without any technical problems or delays. ![img-9.jpeg](img-9.jpeg) ![img-10.jpeg](img-10.jpeg) In the past year, while the business made encouraging progress, the performance was impacted by the significant increase in input costs and in particular energy. These cost increases have now been passed through to our customers by a series of phased selling price increases, albeit with some lag effect. The underlying operating loss was lower than the previous year and the level of cash generation reflected an investment into inventory. # Norcros Adhesives Norcros Adhesives, our UK manufacturer and supplier of tile and stone adhesives and ancillary products, recorded revenue of £14.3m (2021: £12.3m), 16.3% higher than prior year and 23.3% higher than 2020 on a like for like basis. Retail sector revenue was 70.5% ahead of prior year and 73.3% above 2020 on a like for like basis, reflecting significant growth of our product lines into some of our larger customers combined with a displacement of competitor products. Trade sector revenue was 29.1% below prior year and 4.9% below 2020 on a like for like basis, reflecting a slower recovery in the larger private and public commercial specification projects and an increased focus on the retail sector. The Middle Eastern operations were closed at the end of the previous financial year, and as a result, there were no revenues in the year. Norcros Adhesives maintained the "Gold Standard" from the Supply Chain Sustainability School and the business remains committed to making further progress, especially in the areas of packaging and recycling. Raw material and transport costs both increased significantly in the year and impacted margins as the recovery through selling price increases lagged the increase in operating costs. Norcros Adhesives made a small underlying operating loss in line with the prior year. Synthesis Report Annual Report and Accounts 2022 Norcros plc 27 ### Johnson Tiles South Africa Johnson Tiles South Africa, our tile manufacturing business, recorded revenue of £16.5m (2021: £12.5m), a 32.0% increase on a reported basis and 26.9% higher on a constant currency basis. Revenue was 27.9% higher than 2020 on a constant currency like for like basis. Record levels of manufacturing output were achieved during the year as productivity and efficiency initiatives were successfully delivered. Together with targeted plant investments during the period, this focus helped to drive improved throughput and product quality, enabling the business to meet the increased demand from housing renovations, commercial housebuilders and, in the latter part of the year, from the recovering commercial sector, particularly the corporate renovation segment. A lack of big build construction activity remains. Products were specified and installed in leading developments across the country, in quality, entry-level residential developments such as Thaba Village, The Reeds and Greenpark in Johannesburg, The Blyde and Greencreek in Pretoria, The Huntsman, Fynbos and Greenbay in Cape Town and Ballito Hills in Durban. During the year, the manufactured tile range was consolidated, reducing the complexity of the portfolio to further improve in-stock and customer service levels whilst increasing the depth of some ranges. Underlying operating profit was ahead of the prior year. ### Tile Africa Tile Africa, our leading retailer of wall and floor tiles, sanitaryware and bathroom fittings, recorded revenue of £75.5m (2021: £54.9m), a 37.5% increase on a reported basis and 32.0% higher on a constant currency basis. Revenue was 45.5% higher than 2020 on a constant currency like for like basis. The substantial growth on prior year was driven by buoyant retail demand from increased renovation activity, significantly improved operating disciplines and superior stock availability. The successful, exclusive Evox range of bathroomware and sanitaryware was expanded with several new bath and tap ranges, and an exclusive upmarket range, NUVO, was launched in the second half of the year. An appealing range of bathroom furniture was also added. The commercial contracts sector however remains subdued with lower overall new build activity. Despite this, the category improved as several retail floor covering installations for Pick n Pay, Boxer and Spar were completed. Tile Africa currently operates from thirty-three owned stores and two franchise stores. The temporary Wynberg pop-up clearance store was closed during the year, and a new store opened in Thohoyandou. The dual Tile Africa HomeXpress value-for-money brand is being trialled in this store. Ongoing capital investment continues, mirroring the successful flagship Greenstone store and Ballito store concepts, incorporating a bathroom store-within-a-store format and a bespoke alternative floor coverings offer. Tile Africa's underlying operating profit was significantly ahead of prior year, with strong cash flow partially offset by the investment into inventory. This investment enabled the business to both support the revenue growth and ensure our customer service and stock availability were maintained notwithstanding the supply chain challenges and extended import lead times. ## TILE AFRICA ### Launch HomeXpress store Norcros Tile Africa is proud to announce the launch of its first HomeXpress store in Thohoyandou. Tile Africa HomeXpress is all about making home improvement easy. The brand is focused on helping people update and finish their homes with quality, value-for-money products and great advice and service. The store will stock wall and floor tiles, taps, baths, toilets and all the usual bathroomware as well as PVC ceilings, cornices and paint. ![img-11.jpeg](img-11.jpeg) ![img-12.jpeg](img-12.jpeg) Annual Report and Accounts 2022 Norcros plc 29 Strategic Report Strategic report # South Africa business review continued ## South Africa continued ### TAL TAL, our market leading adhesives business, recorded revenue of £22.5m (2021: £19.1m), a 17.8% increase on a reported basis and a 13.1% increase on a constant currency basis. Revenue was 11.4% higher than 2020 on a constant currency like for like basis. Large commercial new build projects remained limited, which impacted demand for the business's high specification, rapid setting adhesives and system-driven construction products. Export retail demand remained solid despite competitors reopening plants in neighbouring countries. Notwithstanding market conditions, TAL remains the leading supplier, with the business supplying market leading products and technical expertise to several construction projects during the year, including The Blyde residential development, Babylonstoren Spa, Ford Motor Company's new manufacturing facility, Dr Pixley Kaseme Hospital, The Hilton Hotel, Hilton Towers and The Arch. Investment in new product development continued during the period with the launch of products in the waterproofing category as well as barrier and keying compounds. Ongoing development of novel fixing systems for coverings outside our traditional tile market continues. TAL's underlying operating profit and cash generation were ahead of the prior year. ## House of Plumbing House of Plumbing, our market leading supplier of specialist plumbing materials into the specification and commercial segments, recorded full year revenue of £25.1m (2021: £17.5m), 43.4% higher than the prior year on a reported basis and 37.2% higher on a constant currency basis. Revenue was 15.1% higher than 2020 on a constant currency like for like basis. The large commercial projects traditionally supplied by House of Plumbing are yet to recover post-COVID-19. However, additions to the branch network contributed to increased revenues compared to the prior year. During the period, four new branches were added in Nelspruit, Secunda, City Deep and Durban South focused on the civils product ranges used in infrastructure, mining, engineering and irrigation projects in addition to the traditional commercial plumbing offering. House of Plumbing now operates eight branches. The focus is on providing expert technical advice and consistent stock availability with the business planning to continue to extend its geographical expansion and further establish a national footprint. During the year, House of Plumbing supplied several landmark projects, including Redhill School, Ford Silverton, Coca Cola Midrand, SAB Alrode, Rand Airport, N2 Woodhill shopping mall and Netcare Hospital, Alberton. House of Plumbing's underlying operating profit was marginally higher than prior year, with cash flow reflecting the investment into inventory and new branches. ### TILE AFRICA ## Launch NUVO Bathroom Brands Tile Africa launched new exclusive NUVO Bathroom Brands in its stores with a selection of beautiful lifestyles to showcase the different ranges. It was first introduced to the local market through the tap and basin offering and was then followed by four exciting vanity ranges. ![img-13.jpeg](img-13.jpeg) ![img-14.jpeg](img-14.jpeg) 30 Norcros plc Annual Report and Accounts 2022 ## Chief Financial Officer’s report Strategic report ## Record revenue and profit performance ## and a strong balance sheet. Revenue Group revenue at £396.3m (2021: £324.2m) increased by 22.2% on a reported basis and by 20.6% on a constant currency basis. Group revenue was 20.9% higher than 2020 on a constant currency like for like basis, after adjusting the 2020 comparator period from a53to a 52-week period pro-rating. Underlying operating profit Underlying operating profit increased by 23.7% to £41.8m ## The Group completed a refinancing of (2021:£33.8m). Our UK businesses recorded an underlying operating profit of £30.9m (2021: £26.9m), and our South African ## its banking facilities in the second half businesses an underlying operating profit of £10.9m (2021: £6.9m). ## of the year and is well-positioned to Group underlying operating profit margin was 10.5% (2021: 10.4%). ## progress its growth strategy.” IAS 19R administrative costs James Eyre These costs represent the costs incurred by the Trustee of Chief Financial Officer administering the UK defined benefit pension scheme and are reflected in the Income Statement under IAS 19R. Costs of £1.7m are higher than prior year largely as a result of the fees relating • Group revenue increased by 22.2% to £396.3m (2021: £324.2m) tothe triennial actuarial valuation (2021: £1.4m). • Group underlying operating profit increased by 23.7% to Acquisition related costs £41.8m (2021: £33.8m) A cost of £4.8m (2021: £3.7m) has been recognised in the year | • Group operating profit was £36.2m (2021: £24.9m) | andis analysed as follows: | | | | --- | --- | --- | --- | | • Group underlying profit before tax was £39.3m (2021: £30.6m) | | 2022 | 202� | | | | £m | £m | • Group profit before tax was £33.0m (2021: £18.5m) Intangible asset amortisation 3.7 3.7 • Underlying operating cash flow of £28.6m (2021: £65.8m), Advisory fees 1.1 — 63% of underlying EBITDA (2021: 174%) 4.8 3.7 • Net cash of £8.6m (2021: net cash of £10.5m) • Pension scheme in a surplus position of £19.6m The advisory fees relate to the costs incurred in relation to (2021:deficit of £18.3m) acquisition activity. Exceptional operating items | Financial overview | | | A net exceptional operating credit of £0.9m (2021: charge | | | | --- | --- | --- | --- | --- | --- | | | 2022 | 202� | of£3.8m) has been recognised in the year. | | | | | £m | £m | | | | | | | | | 2022 | 202� | | Revenue 396.3 324.2 | | | | £m | £m | | Underlying operating profit 41.8 33.8 | | | Release of UK property provision (0.9) — | | | | IAS �9R administrative expenses (1.7) (�.4) | | | COVID-�9 related restructuring — 3.8 | | | Acquisition related costs (4.8) (3.7) (0.9) 3.8 Exceptional operating items 0.9 (3.8) The UK property provision related to the only remaining surplus Operating profit 36.2 24.9 and legacy onerous property lease at Groundwell, Swindon. In Net finance costs (3.2) (6.4) the year, the Group reached agreement with the landlord to exit Profit before taxation 33.0 �8.5 the lease early. A cash settlement payment of £1.3m including Taxation (7.3) (3.5) dilapidation obligations was made in the period. The remaining £0.9m of the related provision has been released as an exceptional Profit for the year 25.7 �5.0 operating item. During the prior year an exceptional charge of £3.8m was incurred in relation to restructuring programmes implemented by the Group as a result of COVID-19. Annual Report and Accounts 2022 Norcros plc 31 Strategic report ## Chief Financial Officer’s report continued | Finance costs | | | Balance sheet | | | | --- | --- | --- | --- | --- | --- | | | 2022 | 202� | The Group’s balance sheet is summarised below. | | | | | £m | £m | | | | | | | | | 2022 | 202� | Interest payable on bank borrowings 0.8 �.5 £m £m Interest on lease liabilities 1.7 �.7 | Movement on fair value of | Property, plant and equipment 29.0 28.0 | | --- | --- | | derivativefinancial instruments — 2.0 | Right of use assets 19.9 �9.6 | | Discounting of property | Goodwill and intangible assets 90.3 93.6 | | leaseprovisions 0.1 — | Deferred tax (9.4) (0.5) | | Amortisation of costs of raising | Net current assets excluding cash | | debtfinance 0.2 0.2 | and borrowings 68.2 44.0 | Pension scheme surplus/(liability) 19.6 (�8.3) Finance costs 2.8 5.4 Lease liabilities (24.0) (24.2) IAS 19R finance cost 0.4 �.0 Other non-current assets and liabilities (1.9) (4.3) Net cash 8.6 �0.5 Total finance costs 3.2 6.4 Net assets 200.3 �48.4 Net finance costs for the year of £3.2m compares to £6.4m in 2021. This decrease is mainly due to the movement in the Total net assets increased by £51.9m to £200.3m (2021: £148.4m). fair value of foreign exchange contracts which was a £2.0m Net current assets increased by £24.2m reflecting the significant cost in the prior year in relation to expired forward foreign cash investment into working capital, particularly inventory. exchange contracts. Forward foreign exchange contracts are Property, plant and equipment increased by £1.0m to £29.0m now accounted for under IFRS 9 hedge accounting, with the and included additions of £5.3m (2021: £2.5m). The depreciation movement in fair value recognised in the Consolidated Statement charge was £5.1m (2021: £5.2m) and foreign exchange gains were of Comprehensive Income. £0.8m (2021: gain of £1.7m). The Group has recognised a £0.4m interest cost in respect of Right of use assets increased by £0.3m to £19.9m (2021: £19.6m), the UK defined benefit pension scheme liability (2021: £1.0m) reflecting the small difference between additions or renewals which decreased by £0.6m principally reflecting the lower deficit and right of use asset depreciation in the year. Lease liabilities of throughout the year. £24.0m (2021: £24.2m) decreased by £0.2m. Underlying profit before tax The deferred tax liability increased by £8.9m to a liability of Underlying profit before tax was £39.3m (2021: £30.6m), mainly £9.4m (2021: liability of £0.5m). The increase is mainly the result reflecting the increase in underlying operating profit noted above. of a movement in the pension scheme position from a deficit at31March 2021 to a surplus at 31 March 2022. Taxation The tax charge for the year of £7.3m (2021: £3.5m) represents an Pension schemes effective tax rate for the year of 22.1% (2021: 18.9%). The increase On an IAS 19R accounting basis, the gross defined benefit pension in the effective tax rate mainly relates to a higher proportion of the scheme valuation of the UK scheme showed a surplus of £19.6m Group’s taxable profits being generated in South Africa and the compared to a deficit of £18.3m last year. The present value non-deductible acquisition related costs in 2022. of scheme liabilities decreased by £47.8m primarily due to an increase in the discount rate to 2.75% (31 March 2021: 2.05%) and The standard rates of corporation tax in the UK, South Africa and benefit payments made in the period. The value of scheme assets Ireland in the period were 19% (2021: 19%), 28% (2021: 28%) and decreased by £9.9m largely due to benefit payments made in the 12.5% (2021: 12.5%) respectively. period partially offset by asset returns. Dividends During the year, the Group reached agreement with the Trustee The Group responded swiftly to the impact of the COVID-19 on the 2021 triennial actuarial valuation for the UK defined pandemic and the need to preserve cash by not paying a final benefit scheme and on a new deficit recovery plan. The actuarial dividend in relation to the year ended 31 March 2020 or an interim deficit at 31 March 2021 was £35.8m (2018: £49.3m). Deficit repair dividend in relation to the year ended 31 March 2021. The Group’s contributions have been agreed at £3.8m per annum from 1 April 2022 dividend policy, which takes into account the Group’s growth to March 2027 (increasing with CPI, capped at 5%, each year). strategy, the interests of other key stakeholders, the Group’s cash- The Group’s contributions to its defined contribution pension generative characteristics and its earnings growth, was reinstated schemes were £3.7m (2021: £3.0m). in the second half of the prior year. The Board recommends a final dividend of 6.9p per share (2021: 8.2p). This, combined with the interim dividend of 3.1p per share (2021: £nil), results in a total dividend of 10.0p per share (2021: 8.2p). The total dividend is equivalent to a dividend cover of 3.8 times, consistent with the year ended 31 March 2021. The cash cost of the total dividend is £8.7m. This final dividend, if approved at the Annual General Meeting, will be payable on 29 July 2022 to shareholders on the register on 24 June 2022. The shares will be quoted ex-dividend on 23 June 2022. Norcros plc operates a Dividend Reinvestment Plan (DRIP). If a shareholder wishes to use the DRIP the latest date to elect for this in respect of this final dividend is 8 July 2022. Norcros plc Annual Report and Accounts 202232 | Cash flow and net debt | | | Strategic report | | --- | --- | --- | --- | | | 2022 | 202� | | | Underlying operating cash flow was £37.2m lower than in the prior | £m | £m | | year at £28.6m (2021: £65.8m). Underlying operating cash flow 28.6 65.8 Cash flows from exceptional items 2022 202� £m £m and acquisition related costs (1.7) (2.5) Pension fund deficit Underlying operating profit 41.8 33.8 recoverycontributions (3.3) (3.3) Depreciation and amortisation 5.2 5.4 Net working capital movement (23.6) 2�.8 Cash flow generated fromoperations 23.6 60.0 IFRS 2 charge add-back 1.1 �.0 Net interest paid (2.5) (3.2) Depreciation of right of use assets 4.1 4.0 Taxation (6.5) (3.5) Cash settlement of share options — (0.2) Net cash generated from Underlying operating cash flow 28.6 65.8 operatingactivities 14.6 53.3 The main driver of the reduction in the underlying operating Capital expenditure (5.4) (2.8) cash flow was a significant cash investment into working capital, Dividends (9.1) — particularly inventory, to optimise our service and stock availability Share transactions 0.1 0.3 proposition in the light of exceptional supply chain challenges. Principal element of lease payments (4.7) (4.3) Underlying operating cash conversion in the year was 63% of Exchange movement 1.6 0.6 underlying EBITDA (2021: 174%). Movement in costs of raising finance 1.0 (0.2) Net cash (spent)/generated (1.9) 46.9 Opening net cash/(debt) 10.5 (36.4) Closing net cash 8.6 �0.5 NORCROS ADHESIVES ## Norcros Adhesives is the ## trusted solution for new ## seaside development The challenge Norcros Adhesives has been involved in the construction of a new development of seven houses and eight holiday lets at the seaside town of Whitstable, Kent. All are designed according to the local style to fit in with surrounding buildings and finished to a luxury standard, offering spectacular views across the bay. The solution Tiling contractor Cerface of Gillingham, who have a long established partnership with Norcros Adhesives would only specify Norcros Adhesives products. This gave them the confidence to ensure that the products would work well for all areas of the project. The result The properties are now being advertised by town estate agency Christopher Hodgson for prices ranging from £800,000 to £1.45m, with five of them set to fetch seven-figure sums. Annual Report and Accounts 2022 Norcros plc 33 Strategic report # Chief Financial Officer's report continued ## Cash flow and net debt continued Cash generated from operating activities was £38.7m lower than the prior year at £14.6m, largely due to the £37.2m reduction in underlying operating cash flows. Cash flows from exceptional items and acquisition related costs in the current year primarily relate to the settlement of the surplus legacy lease at Groundwell of £1.3m. Capital expenditure at £5.4m (2021: £2.8m) represents an increase against COVID-19 levels and includes investment in new product programmes, new stores and upgrades, IT systems and manufacturing facilities. The Group ended the year with net cash of £8.6m (2021: net cash of £10.5m) on a pre-IFRS 16 basis after a net cash outflow of £1.9m. Net debt inclusive of IFRS 16 lease liabilities was £15.4m (2021: £13.7m). ## Funding and liquidity The Group agreed a new multicurrency revolving credit facility with four lenders in the second half of the year. The Group now has committed banking facilities of £130m (plus a £70m uncommitted accordion) with a maturity date of the facility of October 2025 with two further years as extension options. **James Eyre** **Chief Financial Officer** 8 June 2022 | | Average rate vs £ | | | --- | --- | --- | | | 2022 | 2021 | | South African Rand | **20.28** | 21.36 | | Euro | **1.18** | 1.13 | | US Dollar | **1.37** | 1.32 | | | Closing rate vs £ | | | --- | --- | --- | | | 2022 | 2021 | | South African Rand | **19.20** | 20.24 | | Euro | **1.19** | 1.18 | | US Dollar | **1.31** | 1.38 | | | 2022 | 2021 | Change | | --- | --- | --- | --- | | Revenue (£m) | **396.3** | 324.2 | 22.2% | | Underlying operating profit (£m) | **41.8** | 33.8 | 23.7% | | Underlying profit before tax (£m) | **39.3** | 30.6 | 28.4% | | Underlying diluted earnings per share (pence) | **38.2** | 31.1 | 22.8% | | Underlying return on capital employed (%) | **23.9** | 18.2 | 570bps | | Underlying operating cash flow (£m) | **28.6** | 65.8 | (56.5%) | | Net cash (£m) | **8.6** | 10.5 | (1.9m) | 34 Norcros plc Annual Report and Accounts 2022 ## Risk management Strategic report ## Supporting sustainable business objectives ## through embedded risk management. Risk management remains a priority for the Group to help sustain the success of the business in the future. There is a range of potential risks and uncertainties which could have a material impact on the Group’s performance. The objective of our risk management framework is to support the business in meeting its strategic and operational objectives through the identification, monitoring and mitigation of risks within clearly defined risk appetite levels for each risk category. Risk management framework How we manage risk Our risk management activities form part of a flexible and robust governance framework, which is owned by the Board, Group Audit and Risk Committee Risk management framework oversight and challenge overseen by the Audit and Risk Committee Review management of top risks and embedded at operational level. Itconsists of the following key elements: Defined risk responsibilities: Board – Overall responsibility for risk management. Defines the Group’s Risk Management Policy, sets risk appetite Group Internal Audit and Risk Assurance levels for each risk category and provides Provide independent, objective assurance leadership on the Group’s risk culture Facilitate business risk reviews Reporting on principal risks and uncertainties Audit and Risk Committee – Provides oversight, challenge and independent assurance on the risk management framework Management – Day to day operationalmanagement of risk Group and business units followingGroup policies and Risk monitoring embeddedreporting procedures Regular review and updating of risk registers Defined risk policies and reportingprocedures: • Formal Board-approved Group Risk Management Policy Integrated top-down and bottom-up risk management process • Defined risk appetite levels for each Business units Group category of risk Operational risk management Strategic risk management • Standardised, regular risk reviews and Update and maintain risk registers Identification, review and embedded risk reporting reflecting key risks identified and management of Group risks mitigating actions taken • Divisional support from Group Head ofInternal Audit and Risk Assurance What we monitor Risk landscape Risk categories What we assess Current risks: • Strategic Risk appetite: Acceptable level of risk, defined Risks that could affect our • Commercial bytheBoard, for each category of risk business, customers, supply chain, • Operational Risk ownership: Each risk has a named owner employees and other stakeholders • Financial Risk scoring: Each risk is assessed in terms of its and impact the achievement of our • People financial and reputational impact, and its likelihood, strategic goals • Regulatory and legal using a standard scoring scale • Fraud Inherent (gross) risk score: Assessment before Emerging risks: • Health and safety mitigating controls or actions are applied or taken “New” risks with relatively • Information technology and cyber Residual (net) risk score: Assessment after mitigating unclear potential future impact • Environmental, social and controls or actions are applied or taken or likelihood, identified through governance (includes Actions: Required actions to address risks that exceed the embedded internal risk climate change) risk appetite, including defined timelines assessment process Annual Report and Accounts 2022 Norcros plc 35 Strategic report ## Principal risks and uncertainties Principal risks During the past two years, many of our existing principal risks were Our risk management framework identifies the principal risks affected by the COVID-19 global pandemic. The Group has gained and uncertainties that we consider may threaten the Group’s considerable experience in identifying and managing the specific business model, future performance, solvency or liquidity. risks arising from COVID-19. Although those risks appear to be These are explained in further detail in the table below, including diminishing, we remain of the opinion that uncertainty resulting how they are being managed. The Board has carried out a from the COVID-19 pandemic is likely to remain throughout the robust assessment of the principal risks and taken them into next financial year; we therefore continue to identify COVID-19 consideration when assessing the long-term viability of the asaprincipal risk. Company on page 41. The list does not comprise all the risks that Building on the Group’s history of being focused on providing the Group may face, and they are not listed in any order of priority. sustainable value creation, environmental, social and governance (ESG) risk was added as a principal risk in 2021, recognising ESG’s importance to key stakeholders. Strategic risks Coronavirus (COVID-19) pandemic Risk movement Reducing | Description | Impact | Mitigation | | --- | --- | --- | | Although diminished, the ongoing effects of the | Whilst the Group has continued to perform | Throughout the various waves of the pandemic, | | COVID-19 global pandemic are still in evidence | robustly throughout the pandemic, the mid | we have demonstrated that our existing | | in 2022. Vaccination programmes have been | tolong-term financial impact of the COVID-19 | business continuity plans, insofar as they | | rolled out across much of the world, reducing | pandemic on our main markets remains | applied to a global pandemic, assisted us in | | the impact of contracting COVID-19 for most, | uncertain. Additionally, further outbreaks of | mitigating the impacts of COVID-19. In the early | | whilst not necessarily preventing its spread. | new variants that are vaccine resistant or | days of the pandemic, this included being able | | While travel restrictions, social lockdowns and | vaccine supply issues that impact the rollout | to quickly safeguard our employees and limit | | business closures are no longer in place in most | of vaccination efforts in some of our key | the financial impact on the business through | | locations, there is a risk that COVID-19 will | markets could lead to further restrictions or | arange of measures including the temporary | | continue to be a source of uncertainty in the | other impacts that could be detrimental | suspension of operations, bringing forward | | markets where we operate. Cases remain high | toourtrading in the short term. | planned factory maintenance shutdowns and | | and there is ongoing uncertainty over the | | reducing discretionary expenditure. We ensured | COVID-19 may continue to affect other effectiveness of vaccines on future variants of that those employees who could continue to do principal risks, for example by accelerating the virus, and over the lower take-up rates of their jobs from home were technologically orexacerbating their potential effects. vaccines in some locations. enabled to do so securely, and we provided safe systems of work for those who could not practically work from home. We could reintroduce any or all of these measures again should the need arise. We continue to closely monitor global developments related to the COVID-19 pandemic. Norcros plc Annual Report and Accounts 202236 Strategic report Strategic risks continued People risk Acquisition risk Environmental, social and Staff retention and recruitment governance (ESG) risk Risk movement Risk movement Risk movement Stable Increasing Increasing Description Description Description 1 | Part of the Group’s strategy is to grow through | The need to develop more sustainable ways | The Group currently employs 2,196 | people | | --- | --- | --- | --- | | selective acquisitions. | ofdoing business is vital. Investors, customers | worldwide. The Group’s ability to grow and | | | | and a wide range of other stakeholders are | increase its market share depends significantly | | The impact of significant global events, including increasingly wanting to form relationships with on its continuing ability to recruit and retain COVID-19, may affect the cost, timing or availability companies that have a clear plan and highly skilled employees in each area of its of potential acquisitions, and the availability of framework to improve their ESG credentials. activities and to be an employer of choice in equity or bank funding. However, such events the communities where it operates. may also provide additional opportunities that A significant part of ESG risk is related to would not otherwise have existed. climate change and the potential effects of The current employment landscape, including both physical and transition climate-related high levels of employment, inflation, increasing The Group might fail to successfully integrate risks. See the TCFD section on pages 55 to 59. minimum and living wage rates and flexible acquisitions into its existing business model. working demands, is increasing uncertainty in There is a risk from failing to meet increasing the recruitment and retention of appropriately Impact regulatory and reporting requirements. skilled employees. The operational performance of acquired businesses may not reach expectations Impact Impact impacting Group profitability and cash flow, Failure to adequately mitigate ESG risks or to Future growth plans may be restricted or aswell as affecting the Group’s reputation. satisfactorily meet reporting requirements delayed by difficulties experienced in recruiting could lead to the Group losingcustomers, and retaining appropriate employees. Mitigation investors or support from other stakeholders The Group has detailed target appraisal that would negatively impact our reputation, Mitigation procedures in place, including appropriate future profits or funding opportunities that Group policy is to remunerate employees in duediligence, and has senior management could further limitfuture growth. line with market rates and practices. In addition experienced in M&A work. The Group also has to competitive salaries, bonus schemes, share robust Board approval procedures in place to Mitigation option schemes and other benefits are offered. ensure independent review of proposals. The Group has a history of being focused on providing sustainable value creation whilst Executive and key management are Integration plans are finalised prior to being committed to operating in an ethical, incentivised through an Approved acquisitions completing to ensure newly acquired entrepreneurial and responsible manner with Performance Share Plan (APSP). A grant businesses are integrated efficiently and swiftly the highest standards of corporate governance. ofoptions under the APSP has taken place after acquisition. Group Internal Audit and Risk annually since 2011. Assurance conducts post-integration audits In recognition of the rising importance of ESG, toensure operations are fully integrated. Past the Group has established an ESG governance The Group is able to offer employees acquisitions provide demonstrable evidence structure, revised Group policies, strengthened appropriate training and development ofthe Group’s ability to successfully integrate carbon data with The Carbon Trust and opportunities and has a demonstrable new businesses. developed our ESG reporting (see the ESG trackrecord of internal promotion. section on pages 42 to 59). 1 Not including Granfit Holdings and its subsidiaries. Annual Report and Accounts 2022 Norcros plc 37 Strategic report ## Principal risks and uncertainties continued Commercial risks Market conditions Loss of key customers Competition Risk movement Risk movement Risk movement Increasing Stable Stable Description Description Description Demand in our markets is dependent on While the Group has a diverse range of The Group operates within a highly competitive newbuilding activity and repair, maintenance customers there are nevertheless certain key environment in all its markets. The actions of and improvement (RMI) activity in both the customers which account for higher levels our competitors, including their marketing public and private sectors. This is in turn ofrevenue. strategies and new product development, influenced bymacroeconomic factors, could lead to them gaining competitive The deterioration in market conditions noted consumer confidence and government advantage in key products and markets. elsewhere and the ongoing impact of spending policy inour key markets. COVID-19 continue to heighten the risk that Impact COVID-19 had an unprecedented negative key customers could go out of business, or The Group recognises that there is a risk to its effect on the growth of the global economy and that they could change their business models, results and financial condition caused by the the impact of this is expected to continue, at e.g. they may move to an online, or other actions of its competitors. least in the short to medium term. RMI demand alternative, model and we may miss this in our key markets has remained resilient in the opportunity if we fail to adapt to such changes. Mitigation last financial year while consumers continued to To help identify and manage such risks, invest in improving their homes; however, there Impact thecompetitive environment, the specific is no guarantee that this will continue in the Many of the contractual arrangements with business marketplace and the actions of future. The disposable income of consumers customers are short term in nature (as is particular competitors are reviewed and may be adversely impacted by rising inflation common in our markets) and there exists a risk discussed at both Group and operating especially in food, household energy bills and that the current performance of a business divisional Board meetings. In addition, each fuel and transport costs. may not be maintained if such contracts were market is carefully monitored to identify any not renewed or extended or were maintained Recovery from COVID-19 placed significant shift in policy by any competitor, at lower volumes due to a decline in economic unprecedented demand on global supply anychange in the routes to market, or any activity or our failure to provide goods or chains, as evidenced by the ongoing shortage indication of new competitors and/or new services in the way a customer requires us of shipping containers and increasing freight product technology entering the market. todo so. costs, along with raw material and energy price inflation, which has been influenced by the Mitigation recent conflict in Ukraine. The importance of relationships with key customers is recognised and managed by Impact senior management within the Group who Demand for our products remains robust have direct and regular access to their following the unexpected and rapid deterioration counterparts at the highest levels in market conditions arising from COVID-19. ofmanagement. However, demand could still weaken in the shortto medium term as consumer spending Rebate schemes and incentive programmes patterns change, impacting profitability and help maintain these key relationships in a cash generation. competitive market situation. In the short to medium term, the ongoing The Group stresses key selling points such as disruption to global supply chains and the continuity of supply, financial strength of increasing inflationary pressures could the Group and level of customer service to leadtoreduced profitability. help maintain relationships. As well as an excellent product offering, the Group is also Mitigation able to assist with customers’ sourcing, There are a number of mitigating factors in storage and logistics requirements. place that could limit the impact of potential Each of our businesses continues to develop changes in consumer spending patterns on the and evolve its digital and online offering in Group. These include the breadth of products response to the changing trading environment. offered, the geographical spread of our businesses, a flexible cost base and supply chain, investment in new product development and the replacement cycle of a number of our key products. We maintain appropriate headroom against our borrowing facilities and covenants, maintain strong working capital and capital expenditure controls and have disciplined planning, budgeting and forecasting processes. Our businesses actively manage their supply chains and monitor input costs whilst liaising with their customers. They mitigate risks through proactive sourcing and pricing strategies. Norcros plc Annual Report and Accounts 202238 Strategic report Operational risks Reliance on production facilities Loss of key supplier Information security and cyber Risk movement Risk movement Risk movement Stable Stable Increasing Description Description Description The Group operates a number of facilities The Group’s extended supply chain, with its The Group relies heavily on several processes forthe manufacture of tiles and adhesives. dependency on interconnected third parties and automated systems to manage data and for manufacturing, has several potential points conduct its business. The continuing prevalence Impact of failure. Raw materials, components and and increasing sophistication of cyber-crime If any of these facilities (including technology energy represent a significant proportion of and data loss incidents, along with stringent used to operate them) were to fail, the effect the Group’s input costs. The potential lack of data protection legislation compliance onthe Group could be significant. availability of, or poor quality standards in, these requirements, present risks to all businesses key elements represents a significant risk. and organisations across the globe. The risk from state-backed cyber-attacks has Mitigation Reliance on a single supplier within the increasedrecently. The Group has a well-established ongoing supplychain, or on several suppliers in close preventative maintenance programme as well geographical proximity, could lead to a failure The evolution of home and remote working as a comprehensive and flexible “annual to acquire the required quantity or quality of methods developed during COVID-19 presents shutdown” programme throughout its essential resources. increased cyber security risks due to remote manufacturing operations. system access from potentially less secure Impact working environments and unfamiliar Furthermore, the Group has experienced, The lack of supply of raw materials such as workingpractices. globally co-ordinated product sourcing functions, which could mitigate the risk clay or sand, components such as electronics, offailure. glass or brassware, or gas or electricity could Impact have significant impacts on the Group’s ability A major failure of systems or a successful Finished goods inventory holdings across to manufacture product. The risk of energy cyber-attack could result in a temporary theoperations provide limited “buffer” stocks supply interruption is elevated in South Africa inability to conduct operations or a loss of inthe event of operational failure. Disaster as its utility infrastructure is less well commercial and/or customer data. Such an recovery plans are in place and business developed than in the UK. incident may result in regulatory breaches, continuity plans have been developed and are financial loss, operating disruption or damage tested. Additionally, a business interruption Mitigation to the reputation of the Group. insurance policy is in place to mitigate losses The Group manages supply chain risks caused by a serious insurable event affecting through long-term relationships with key Mitigation manufacturing capability. suppliers, audits of key suppliers, dual supply The Group uses modern systems that are of critical materials or components, where appropriately maintained and updated. considered appropriate, and holding The latest network and security protocols are appropriate levels of finished goods stock. deployed, updated and regularly tested. The Group maintains strict product quality Dedicated business IT managers monitor standards and has dedicated procurement services and networks in line with established and quality control resource in China to policies and procedures. ensure these standards are adhered to. The Each business maintains remote backups of Group aims to mitigate risks on energy supply data. The Group undertakes annual penetration where these arise. The Group regularly reviews testing conducted by certified third parties and the geographical concentration of its supplier it has recently introduced ongoing vulnerability base and mitigates risks arising where it is scanning which takes place throughout the year. commercially and economically practical to do so. Data protection regulation compliance reviews are undertaken to confirm the effectiveness ofthe relevant processes and controls. Data protection representatives have been nominated at each business to help co-ordinate the Group’s approach to data protection and provide localadvice. During the year, the Group invested in an online training programme with information security and data protection training mandated for all users of IT equipment. A third-party specialist Incident Response provider is retained to assist the Group with an appropriate and quick response to any cyber-related or data breach incidents that may occur. New equipment, and security tools and methods such as virtual private networks and multi-factor authentication, are employed to mitigate remote working risks. Annual Report and Accounts 2022 Norcros plc 39 Strategic report ## Principal risks and uncertainties continued Financial risks Exchange rate risk Funding and liquidity risk Pension scheme risk Risk movement Risk movement Risk movement | | Stable | | Reducing | | Stable | | --- | --- | --- | --- | --- | --- | | Description | | Description | | Description | | | The Group’s financial performance is subject to | | The Group’s ability to grow and adapt its | | The Group’s pension position is subject to a | | | the effects of fluctuations in foreign exchange | | business is dependent, in part, on its ability to | | number of risks including changes in interest | | | rates. In particular, the Group sources a | | source funding through bank financing | | rates, asset values, inflation and mortality | | | significant proportion of its components and | | facilities. Whilst the Group has committed | | (seenote 24 for more detail). | | | goods for resale from the Far East and Europe | | funding until October 2025 it is possible that | | | | | which are denominated in foreign currencies | | the Group may find it difficult to obtain | | Impact | | | (primarily the US Dollar, Euro and Renminbi). | | financing on commercially acceptable terms | | These risks could increase the assessed pension | | | | | in the longer term. | | scheme liability adversely or affect the funding | | | Impact | | | | of the defined benefits under the scheme and | | | Should Sterling or the South African Rand | | Impact | | consequently the Group’s funding obligations. | | | weaken against these currencies this could | | The inability to source adequate longer-term | | | | | result in an increase in future input costs. | | funding could impact our longer-term growth | | Mitigation | | | | | strategy whilst a breach of one or more of the | | The scheme was closed to new members and | | | Mitigation | | banking covenants could result in the Group’s | | future accrual with effect from 1 April 2013 and | | | The Group typically seeks to hedge its foreign | | debt becoming immediately repayable. | | replaced by an auto-enrolment compliant defined | | | exchange transactional flows for up to twelve | | | | contribution scheme. Risks from rising costs of | | | months forward, which largely removes the | | Mitigation | | providing a final salary pension scheme have | | | effects of day to day exchange rate volatility | | The Group completed a refinancing of its | | therefore been materially reduced. | | | onour businesses. | | banking facilities in the year. We reforecast | | | | All asset investments are managed by ourliquidity and funding requirements and Regular monitoring of exchange rates and professional fund managers and a diverse covenant performance monthly. Senior market conditions, together with frequent asset portfolio is maintained to spread risk executives and divisional management teams dialogue with suppliers, allows our businesses andreturn. review, monitor and track short-term liquidity time to negotiate revised commercial terms with weekly and covenant performance monthly. Executive Management regularly monitors customers to mitigate the impact of longer-term thefunding position of the scheme and is changes in exchange rates. represented on the Trustee board to monitor The Group may, where it is considered appropriate, and assess investment performance and other denominate some of its borrowings in other risks to the Group. currencies to hedge translational asset risk. The Group considers each valuation (IAS 19R and technical provisions basis) and reassesses its position regarding its pension commitments in conjunction with external actuarial advice. The Group’s financial results show a net surplusin this scheme, as at 31 March 2022, of£19.6m (2021: deficit of £18.3m) assessed in accordance with the accounting standard IAS 19R. The present value of scheme liabilities decreased by £47.8m due to an increase in the discount rate to 2.75% (31 March 2021: 2.05%), partially offset by increased levels of inflation. The assets’ value reduced as benefit payments were in excess of asset returns. During the year, the Group has reached agreement with the Trustee on the 2021 triennial actuarial valuation for the UK defined benefit scheme and on a new deficit recovery plan. The actuarial deficit at 31 March 2021 was£35.8m (2018: £49.3m). Deficit repair contributions have been agreed at £3.8m perannum from 1 April 2022 to March 2027 (increasing with CPI, capped at 5%, each year). Norcros plc Annual Report and Accounts 202240 ## Viability statement In accordance with provision 31 of the 2018 revision of the UK Strategic report Corporate Governance Code, the Directors have assessed the ABODE viability of the Group over a longer period than the twelve months required by the “going concern” provision. Taking into account the ## Abode saves water Group’s current position and the nature of the principal risks and uncertainties it faces (see pages 36 to 40), the Board has decided ## to assess the viability of the Group over a three-year period to withnew flow limited 31 March 2025. The Board considers this period appropriate as ## it believes it is not possible to credibly forecast beyond this time tap collection horizon and it is also the period over which long-term incentives are set for Executive Directors and senior management. In anticipation of the Government’s Future Home Standard to lower energy consumption by 2025, Abode is proud to A Viability Statement financial model was developed on a offer six of its most popular mixer tap designs for the bottom-up basis by taking the output of the annual budgeting modern kitchen, alongside two of its Pronteau steaming process built up by individual businesses, then subjected to hottaps. review and challenge by the Board, and applying conservative general and business-specific assumptions to build years two Every component of its flow limited taps has been and three. The acquisition of Grant Westfield was also reflected extensively tested to meet exacting standards and withstand in the assessment. The Board considers the outputs from this the added stress that flow restriction creates. The financial model, including the Group’s cash flows, headroom development of the new Flow Limited Tap Collection by under existing financial facilities of £130m, dividend cover and Abode is testament to the company’s investment in new other key financial ratios over the three-year period. The financial product design and development, delivering the best in model has then been stress tested by modelling the most extreme design-led, sustainable solutions across the UK property but plausible scenario, that being further national lockdowns as market to support the next generation of buyers who want a a result of a resurgent COVID-19 pandemic. This has been based “house of the future”. Each product has a flow limitation of on the actual impact of the COVID-19 pandemic on the Group, 5LPM to comply with the maximum number of regulations. which at its peak saw a revenue reduction of 25% over a six-month period. The Directors have considered the impact of this scenario on the Group’s financial performance (specifically headroom on our financial facilities and covenants) which are in place until at least October 2025 after taking account of mitigating actions that could be made, with the result being that the Group maintains the necessary liquidity levels and complies with the facility covenants despite the impact of significant declines in revenues, earnings and cash outflows and increasing leverage. Reverse stress testing has also been applied to the model, which represents a further decline in sales compared with the reasonable worst case. Such a scenario, and the sequence of events which could lead to it, is considered to be implausible and remote. Therefore, the Directors have a reasonable expectation that the Group and Company will be able to continue in operation and meet their liabilities as they fall due over the period to March 2025. Annual Report and Accounts 2022 Norcros plc 41 Strategic report ## Environmental, social and governance ## ESG ## EMBEDDING SUSTAINABILITY 1 Why sustainability matters Achievements and priorities At Norcros, sustainability is at the centre of our strategy. We aim Achievements since our last Annual Report include: to manage our societal and environmental impact by conducting • We have reported against the recommendations of the business to the highest standards as well as using resources Task Force on Climate-related Financial Disclosures (TCFD) moreefficiently. recommendations for the first time, including integrating climate-related risk assessment into the Group’s overall risk We have a history of environmental and social leadership. We pride management framework. ourselves on reducing our operational environmental impact through energy saving, recycling and waste management • We established an ESG governance structure, including schemes. We design and supply product that not only create business unit level ESG Forums and twice yearly reporting commercial returns but also generate savings for customers on to the Norcros plc Board, to co-ordinate and manage our energy bills, carbon footprint, water consumption and waste. sustainability strategy. Wealso play an active role in our communities. • We carried out a Carbon Trust carbon footprint assessment Going forward, as our customers, staff, other stakeholders and across the Group, establishing an updated methodology for the communities in which we work place increasing importance calculating emissions. on environmental, social and governance (ESG) issues, we will • We developed, agreed and rolled out a new Code of Ethics and continue to develop our sustainability strategy. In the remainder Standards of Business Conduct across the Group and updated of 2022, we will continue to work on our ESG plan, which will our Group Health and Safety Policy. capture our existing ESG initiatives, a set of new activities and an overarching framework, through which we will give further • We conducted a materiality assessment, identifying ethical consideration to ESG metrics and targets. Wewill continue to make conduct and integrity, product quality and safety, and health a positive impact and difference to ourcustomers, communities andsafety as our most material issues. and employees. • Triton achieved the Carbon Trust Standard for Carbon in 2021 and lowered its CO footprint by 38% during the assessment 2 period. Croydex achieved the new Carbon Trust Route to Net Zero Standard (Taking Action) in early 2022. • We continued to invest in the development of new sustainable products. The eco-friendly Abode Swich was an SBID winner in the Kitchen Product Design category in 2021 and the One Small Step Award for Sustainability at the 2021 Ideal Home Awards. Our priorities are to: • continue to deliver the programme of initiatives we are undertaking across our business units to support their staff andtheir communities; • continue to focus on sustainability as part of our new product development programmes; • build on the work we have done with the Carbon Trust to develop Carbon Management Plans across the Group; and • develop our ESG plan that prioritises our effort on the ESG issues most material to Norcros and considers the right metrics and targets so that we can measure, continuously improve andreport on our ESG performance. Norcros plc Annual Report and Accounts 202242 Strategic report ## EMBEDDING SUSTAINABILITY Sustainability governance The Board of Norcros plc is responsible for ensuring key The ESG Forums use expertise across Group functions and allow sustainability policies, such as the Code of Ethics and Standards us to prioritise our impact through organisational workstreams of Business Conduct, are communicated, understood and andto monitor progress against our plans across the Group. Our observed by all Group businesses, employees and associates. South African business, Norcros South Africa, has a well-established Day to day responsibility for promoting and implementing these Social and Ethics Committee of its Board, which oversees ESG policies is delegated to business unit senior management. inall South African business units. Thisyear,weestablished our ESG Forums to provide more structure to our sustainability management process, which willaccelerate our sustainability ambition within the Group. Board (six-monthly meetings) Goals and objectives Executive Management (quarterly meetings) Sustainability metrics and progress ESG Forums (UK and SA) Business unit operations and project teams Annual Report and Accounts 2022 Norcros plc 43 Strategic report ## Environmental, social and governance continued ## EMBEDDING SUSTAINABILITY CONTINUED1 Sustainable business goals andmaterialityassessment Materiality assessment to help improve our understanding of issues that are of highest We have carried out a materiality assessment to define the issues importance to them. which matter most to the Group, from a financial perspective, and Our materiality assessment is shown in the matrix below. We the issues which impact society and influence our stakeholders. identified 18 material issues and prioritised the issues by the The materiality assessment is crucial as it allows us to prioritise impact of the issue on our business and the level of influence the issues and will be a vital input as we develop our sustainability issue has on stakeholders. The most material issues for Norcros strategy and ESG plan throughout 2022. are in the top right of the diagram. We concluded the three most We developed the materiality assessment by considering important issues are ethical conduct and integrity; product quality the issues that were important to our internal and external and safety; and health and safety. As we develop our ESG plan, we stakeholders. We held a workshop with our senior leadership will focus our effort on the material issues and the prioritisation of team to develop and shortlist these issues and prioritised their these issues will help us to further refine where we invest our time. relative importance to the business. We also surveyed a selection of staff and external stakeholders, such as customers and our lending banks, to incorporate their views into our analysis and Higher Ethical conduct and integrity Climate change and emissions Product quality and safety Innovative and efficient products Health and safety Supply chain management Human rights Diversity and inclusion Talent and workforce development Packaging and plastic Energy management Cyber and data security Influence on stakeholders Effective use of raw materials Waste management Water use Air pollutants Communities and partnerships Freedom of association Impact on Norcros HigherLower We have grouped our material issues into three broad categories: Governance Environmental Social Norcros plc Annual Report and Accounts 202244 Strategic report ## EMBEDDING SUSTAINABILITY CONTINUED United Nations Sustainable Development Goals Alignment At Norcros, we impact and influence six of the United Nations Sustainable Development Goals (UN SDGs). There are 17 SDGs (https://sdgs.un.org/goals) and this year, we assessed which Goals are most material to us. Norcros makes the greatest contribution to SDGs 8, 12 and 16 (explained in the graphic below) through the provision of safe, quality products and ensuring our business is conducted in an ethical manner. The alignment of these material topics to the SDGs most relevant to us is shown below. Environment Material topics: Aligned UN SDGs: • Energy management • Effective use of raw materials • Waste management • Packaging and plastic • Innovative and efficient products • Climate change and emissions Social Material topics: Aligned UN SDGs: • Talent and workforce development • Health and safety • Supply chain management • Human rights • Freedom of association • Product quality and safety Governance Material topics: Aligned UN SDGs: • Ethical conduct and integrity • Cyber and data security Annual Report and Accounts 2022 Norcros plc 45 Strategic report ## Environmental, social and governance continued ## HEALTH AND SAFETY 2 Board of Directors (set Health and Safety Policy) Group H&S Managers’ Forum (chaired by Company Secretary) Divisional H&S Managers Safety first Our Group Health and Safety Policy is driven from the top of the Our health and safety organisational framework, outlined below, organisation with the Board having ultimate responsibility. The clearly defines those responsible and accountable for health policy, which covers all employees, sets out our commitment to and safety across our businesses. In addition, every employee create, maintain and continuously improve a safe and healthy is made aware that they have a responsibility for their own and working environment for employees, contractors and visitors. others’ health and safety when engaged on Company business. Our working environment is designed to prevent occupational The Group Health and Safety Managers’ Forum is chaired by the accidents and illnesses. We monitor key health and safety KPIs at Company Secretary and comprises all the divisional Health and operational board and management meetings. Safety Managers. Other members of Group management attend by invitation including the Group Head of Internal Audit and RiskAssurance. Currently, Triton Showers, Vado, Johnson Tiles SA, TAL and Merlyn Industries are certified to the Health and Safety Management System ISO 45001 standard; together this covers 50% of our turnover. ## Our working environment is designed Many of our employees have access to online health and safety ## to prevent occupational accidents training, which provides a range of training modules as required. In addition, where hands-on or specialist training is required, we ## and illnesses. We monitor key health use regular “toolbox talks” and provide more specific training ## and safety KPIs at operational board wherethisis identified as being necessary. ## and management meetings.” Norcros plc Annual Report and Accounts 202246 Strategic report ## HEALTH AND SAFETY Safety performance We have a proud track record of safety performance, and we are ## starting to report on this as part of our ESG annual report. There Norcros South Africa’s were no fatalities recorded in the year (2021: nil) and there have been no fatalities recorded over the last decade when the current ## WellnessCentre executive team have been in post. We record Accident Incidence Rate (AIR) monthly for each location and for the whole Group; this Norcros SA runs a well-established Wellness Programme includes all reported accidents, however minor. Our Group AIR with an on-site Wellness Centre at the Olifantsfontein site, 1 for2022 was 308 injuries per 100,000 employees in the year – providing primary healthcare, occupational health, and which is consistent with levels in years when operations were not professional wellness programmes and support. affected by the pandemic (2021: 222 per 100,000 employees; The centre can dispense chronic illness and HIV medication 2020: 303 per 100,000 employees). We recorded five serious and it is also partnered with Reality Wellness to provide reportable accidents in 2022 (2021: four, 2020: six). professional counselling and support to staff on issues such We record the root cause of accidents and 80% of accidents in as health, financial, psychological, trauma, substance abuse 2022 were caused by slips, trips and falls, or by handling, lifting and more. The families of employees are also encouraged or carrying. All accident statistics and their causes are regularly to make use of these support services. reviewed by the Group Health and Safety Managers’ Forum. We maintain externally managed whistleblowing reporting lines that are available to all employees where they can report confidentially, and anonymously should they want to, any concerns they may have in respect of health and safety matters. 1 The UK HSE’s all-manufacturing industry average AIR was 2,080 per 100,000 workers in 2021. Response to covid-19 Health and safety during the COVID-19 pandemic has been of paramount importance to us as a responsible employer. As social lockdowns and travel restrictions have been lifted, the impact of COVID-19 on Norcros, our employees and our customers has reduced. We followed government legal requirements and advice closely throughout the pandemic, including when all restrictions were lifted in the UK, and responsibility for COVID-19 workplace safety fell solely upon employers. This rigorous approach to the protection of our people meant that, as with the previous financial year, in the year to 31March 2022 there were no reported incidents of transmission of COVID-19 at any Norcros location. Instructions, such as “work from home wherever possible”, have now ended and we are encouraging our employees to return to the workplace when they feel comfortable doing so. Where practical, we have introduced flexible working policies for those colleagues who are able to effectively work remotely; this provides them with greater flexibility on a more permanent basis. Health and wellbeing We treat everyone with respect and encourage them to be themselves. We promote employee wellbeing and reduce stress through several initiatives and support mechanisms. Support is provided to all UK and Eire employees through our Employee Assistance Programme that extends to all aspects of wellbeing, including free access to various independent support helplines (e.g. stress, health, lifestyle, etc.). Annual Report and Accounts 2022 Norcros plc 47 Strategic report ## OUR PEOPLE Community partnerships Our commitment to the society in which we operate is deep. ## Norcros SA – Every Group business has programmes of social engagement, including many charitable activities, and will have a positive impact on the local communities in which they operate. We empower our ## celebrating success businesses to support local charities and community projects, Our colleagues are fundamental to the successful delivery and provide local employment. Given our decentralised structure, of our strategy and, as such, Norcros SA has partnered business units in the Group are encouraged to become involved withthe Gordon Institute of Business Science (GIBS) on in and support local initiatives where possible. The Executive aprogramme for management development for staff Management of the Group supports this commitment to our acrossthe different divisions in South Africa. The aim society and reviews each business’ activities monthly. ofthis12-month programme is to develop colleagues so thatthey have a better understanding of the current and future global economic and social environment, and to develop their leadership and management skills in an ## Merlyn supports ever-changing environment. ## #WalkAMileInMay ## campaign Almost half of UK women don’t regularly check for early signs of breast cancer, even though we know that early detection can make all the difference to the fight against this disease. Merlyn’s campaign with the Pink Ribbon Foundation urges women to use precious time behind the shower screen to check for early warning signs. In fact it is the most common place that women pick up on any changes to their bodies. That’s why the partnership with Merlyn, which was launched back in 2019 to support the Pink Ribbon Foundation, is such a vital one. Merlyn is currently supporting the #WalkAMileInMay campaign with Merlyn donating £3,100 to get each employee started by sponsoring one mile per day for them. Talent and career management Employees and the local community are getting involved, All of our businesses have staff training programmes that are with Lisa Allen from the Pink Ribbon Foundation arriving at suitable for the development of appropriate technical and Merlyn’s offices in Kilkenny to kick off the campaign. people skills. We are committed to education and career development, and for those in senior leadership roles, coaching and mentoring have been offered rather than attending courses or other developmental activities. The coaching is focused on the individual’s unique work challenges and opportunities as well as onthe individual’s personal style and behaviour. Employees are encouraged to be involved in the Company’s performance through employee share schemes, and other means of incentivisation and reward. Annual Report and Accounts 2022 Norcros plc 49 Strategic report Environmental, social and governance continued ## 4 ENVIRONMENTAL PERFORMANCE We are committed to minimising the environmental impact of our operations, products and services wherever possible. Making progress in improving our energy efficiency and reducing carbon emissions, waste and water use are important for our customers, our staff and our stakeholders. At this stage, our initiatives are delivered within our business units and include action in the following key areas. ![img-15.jpeg](img-15.jpeg) ### Triton achieved the Carbon Trust Standard for Carbon Triton achieved the Carbon Trust Standard for Carbon in 2021 and Croydex achieved the new Carbon Trust Route to Net Zero Standard (Taking Action) in 2022 based on the progress it has made with carbon management and emissions. At Triton, some of the key carbon management initiatives have included installing LED lighting throughout 95% of its facility, reducing water usage by 38%, introducing electric vehicle charge points in the car park and a cycle to work scheme and using 100% recycled paper. #### Managing environmental performance Our individual business units track and monitor their environmental impacts. The main vehicles for compliance and improvement across sites are our environmental management systems. Six of our businesses, covering 88% of turnover, are certified to the Environmental Management ISO 14001 standard and our businesses report regularly on any environmental issues that arise. We have also completed an environmental audit at Johnson Tiles South Africa during the year and, where improvements have been suggested, they are being assessed and addressed by management. The Group has not had any environmental fines in the last twelve months. #### Energy management and greenhouse gas emissions Climate change is one of the biggest challenges of our time and the transition to a low-carbon economy has the potential to significantly impact our business as well as our clients and suppliers. Norcros aims to minimise our impact on climate change by reducing our carbon emissions across all operations. We have a range of initiatives underway across the Group to reduce our carbon footprint. We engaged with the Carbon Trust to undertake a review of our carbon management practices in each of our business units. We will consider the recommendations from this work as part of our ESG planning work through the remainder of 2022. Triton has ambitious aims to achieve carbon neutral certification and net zero status by 2025, which include the launch of Triton's Cleaner Conscience Taskforce, a working group of employees focused on driving down waste pollution, pursuing sustainable and innovative product design and looking at how Triton can improve its product life cycle. Triton achieved the Carbon Trust Standard for carbon in 2021 and, over the review period, lowered its CO₂ footprint by 38%, a significant result and one that demonstrates the company's level of commitment to reducing carbon emissions. Croydex has also been awarded the Carbon Trust Route to Net Zero Standard (Taking Action). #### Carbon emissions Our emissions data covers 100% of our operations. Following our work with The Carbon Trust over the last 12 months, we have modified our methodology for calculating carbon emissions. We measure our CO₂ emissions in accordance with the internationally recognised Greenhouse Gas (GHG) Protocol and our metrics include Scope 1 and 2 emissions. Our Scope 3 CO₂ emissions represent estimated CO₂ emissions from business travel for FY 2022. We continue to develop our data and a deeper understanding of Scope 3 emissions and will report further on this in due course. The increase in Scope 1 and 2 emissions from FY 2021 is in a large part due to the reopening of the UK and South Africa economies after the COVID-19 pandemic and the return to normalised levels of operating activity of Norcros as a Group through FY22. 50 Norcros plc Annual Report and Accounts 2022 Strategic report ## ENVIRONMENTAL PERFORMANCE Carbon Emissions and Energy Consumption Data FY 2022 FY 202� FY 2020 | | | | | Global | Global | | --- | --- | --- | --- | --- | --- | | | | UK | (excl. UK) Total UK | | (excl. UK) Total Total | | Scope � (tCO | e) 15,846 30,669 46,515 �3,6�0 3�,33� 44,94� 6 3,�4 3 | | | | | 2 Scope 2 (tCO e) 3,798 25,986 29,784 3,508 �8,078 2�,586 30,284 2 Scope 3 (tCO e) 2 – business travel 270 941 1,211 n/a n/a n/a n/a Total emissions (tCO e) 19,914 57,59 6 77, 510 �7,��8 49,409 66,527 93,427 2 Intensity ratio (total emissions (tCO e)/ 2 Grouprevenue (£m)) — — 195.6 — — 205.2 273.2 Energy consumption (kWh) 100,560,823 18 0,14 6, 3 6 9 28 0,707,192 75,225,476 �47,7 5 0,0 36 222,975,5�2 n/a Water consumption Water efficiency is an increasingly important issue for us. Thisincludes, where possible, reducing the amount of water weuse in all our operations and designing products that help ourcustomers reduce the amount of water used for their domesticor commercial purposes. Targets Triton has a target to reduce water usage by 7% which has led tothe introduction of two new water meters to help identify where the majority of water is being consumed. We recognise this target only covers 15% of our business operations and we will consider broadening the coverage of targets as part of the next stage of our ESG plan. Water consumption Freshwater usage (m 3 ) FY 2022 FY 202� FY 2020 UK 37,267 27,4 6 6 48,920 SA 101,663 79,866 84,274 Total 138,930 �07,332 �3 3,�9 4 3 Intensity ratio m per £m revenue 433.07 3 97. 2 3 4 6 7.0 2 The table above outlines water consumption across business units which account for 81% of Group revenue for FY 2022 (FY 2021: 83%, FY 2020: 83%). As with emissions, as the Group has returned to normal levels of manufacturing activity after the restrictions from the COVID-19 pandemic ended, water consumption has increased in comparison to FY 2021. Waste management Reducing packaging and increasing the amount of recycling are important goals for all our business units from an operational, commercial and environmental perspective. Various initiatives aimed at reducing waste sent to landfill and encouraging recycling are in place; employees are expected to support these schemes by sorting waste and disposing of it appropriately. Triton challenges suppliers to remove unnecessary extras, such as strapping used on the outer boxes. As a result, two out of three suppliers have invested in reusable plastic containers, which has meant that Triton has seen significant reductions in the amount of cardboard being received fromUKsuppliers. Annual Report and Accounts 2022 Norcros plc 51 Strategic report ## Environmental, social and governance continued ## SUSTAINABLE PRODUCTS5 Responsible sourcing The way our products are sourced has a significant impact on our environmental and social sustainability. We are committed to encouraging our suppliers to minimise their environmental impact and we also expect all our suppliers to conduct themselves to standards equivalent with the Code of Ethics and Standards of Business Conduct. Environmental standards at Norcros Adhesives have been maintained in the year with the continued “Gold Standard” accreditation from the Supply Chain Sustainability School (which ispartnered with the housebuilder Barratt). Norcros does not accept and will not tolerate the use of child labour or forced labour (i.e. modern slavery) anywhere in its own business or its supply chain. The Company has issued a public statement to this effect, which can be found on its website at https://www.norcros.com/investor-centre/other-disclosures/. We also encourage our direct suppliers to promote human rights throughout the supply chain. Our supplier assessments include ## Abode Filter evaluation of policies and practices in this area. ## RecycleScheme Abode’s 4 in 1 range of taps provide hot and cold domestic ## Abode – eco-friendly water, steaming hot water on demand, and fresh filtered water meaning you can make a start to eliminate the use of ## “Swich” – SBID winner single-use plastic in the home. Its Filter Recycle Scheme adds another advantage to the list, as the filter and the ## boiler can be recycled free of charge to the consumer. of Kitchen Product Abode’s recycle partner will oversee the separation of each component part with the plastic being ground down and ## Design category 2021 theinternal resin brought back to life, ready to be reused. Abode’s aim is to reduce to amount of plastic waste goingtolandfill and not harming the environment is a key consideration for the brand. At the 2021 Society of British Boosting innovation International Design (SBID) awards ceremony, Adobe’s Norcros is committed to designing, manufacturing and supplying Swich was recognised as an outstanding example of products that are reliable and safe to use. All our products are technical innovation, aesthetic creativity and fit-for-purpose tested to ensure that they meet safety requirements in the functionality. The versatility and ease of Swich is an industry countries in which they are sold and information about safe game changer for the modern home. With a revolutionary use and disposal of Norcros products is provided through design, via a simple turn of the control handle, Swich can warning labels, manuals and other documentation where this transform a new or existing kitchen tap into a water filter tap, is appropriate. The majority of our business units, covering 95% removing the need to have bottled water in the house. of turnover, are externally certified to the Quality Management ISO9001 standard. The Group is also committed to minimising the environmental impact of its products and services wherever possible. We have provided our customers with some environmentally beneficial products that are energy efficient, easily recyclable and durable to increase their longevity. To be a sustainable business, we need to continue to develop innovative solutions and we are always developing new products and technologies that align to customer and market demands as well as investing in research and development to stay ahead of our competitors. The impacts from climate change and the accelerated commitment to environmental legislation from governments, such as net zero by 2050 in the UK, has created opportunities for Norcros to capitalise on consumer and market demands for products that help customers reduce their environmental impacts. The Group offers a number of innovative products that already provide customers with solutions to reduce their carbon emissions whilealso saving money. Norcros plc Annual Report and Accounts 202252 Strategic report ## ETHICS AND COMPLIANCE6 The Code of Ethics and Standards of Business Conduct (the Code Anti-bribery and corruption and Standard) applies in all areas of Norcros Group’s business Norcros prohibits bribery and all other types of fraud and will and to all officers, Directors, employees, contractors and agency take disciplinary and/or legal action as appropriate in all cases of staff employed by or working for Norcros plc or any division of actual or attempted fraud across all operations. We have a strict Norcros plc. The Board of Norcros plc is responsible for ensuring Anti-Bribery and Corruption Policy, which applies to suppliers, set these business principles, such as anti-bribery and corruption and out in the Code and Standard and we conduct our business in diversity, are communicated to, and understood and observed by, a fair, open and transparent manner. The Board of Directors has all Group businesses, employees and associates. This Code and overall responsibility for ensuring this policy complies with our Standard will be made available to every employee at the start legal and ethical obligations, and that all those who have influence of their relationship with Norcros and will also be communicated comply with it. We prohibit, and will not accept, facilitation toallnew employees of any business acquired by Norcros. payments or “kickbacks” of any kind. Facilitation payments are typically unofficial payments made to secure or expedite a routine Whistleblowing government action by a government official. All employees Norcros encourages an environment where honest and open are required to undertake training under our Anti-Bribery and communication is expected, with employees feeling comfortable Corruption Policy at regular intervals and appropriate procedures bringing forwards any concerns or violations of Group policies. are in place at all locations to mitigate the risk of any employee This is embedded into the Code and Standard and legal protection committing an offence of the policy. exists for all whistleblowers. Norcros maintains a whistleblowing Various day to day business situations are potentially sensitive in that policy and engages two independent and confidential they can create opportunities for corruption, particularly bribery, or whistleblowing service providers, one covering South Africa a perception of improper practices. These situations include, but are specifically and the other covering all other locations. Both lines not limited to the following and Norcros’ Anti-Bribery and Corruption operate 24/7 and 365 days a year in the whistleblower’s chosen Policy sets out steps to prevent these situations occurring: local language. Concerns and reports can be made in confidence anonymously, and we will not discriminate or retaliate against • hospitality and gifts offered to third parties; any employee who reports suspected violations in good faith • hospitality, gifts and other goods or services offered to Norcros or who co-operates in any investigation or enquiry regarding employees by third parties; possibleviolations. • payment of third parties’ travel expenses; Reports on the use of these services, any significant concerns that have been raised, details of investigations carried out and • facilitation payments; any actions arising as a result are reported to the Audit and Risk • political contributions; Committee at each meeting. The Committee also receives papers on incidents of fraud or attempted fraud and reviews them at • lobbying; each meeting. At least annually, the Committee conducts an • sponsorships; and assessment of the adequacy of the Group’s procedures in respect of compliance, whistleblowing and fraud. • civic, charitable and other donations. ## This Code of Ethics and Standards of Business ## Conduct applies in all areas of Norcros Group’s ## business and to all officers, Directors, employees, ## contractors and agency staff employed by or working ## for Norcros plc or any division of Norcros plc.” Annual Report and Accounts 2022 Norcros plc 53 Strategic report ## Environmental, social and governance continued ## ETHICS AND COMPLIANCE CONTINUED6 Human rights Tax transparency Our corporate values focus on respect, integrity and fairness. Norcros plc is committed to trading within the law and conducting We are committed to respecting the dignity of the individual and all of its business activities in an honest and ethical manner. Our to supporting the United Nations (UN) Declaration of Human Tax policy governs all of our business dealings and the conduct Rights, the UN Universal Declaration of Human Rights, and the of all persons or organisations which are appointed to act on International Labour Organisation’s Declaration on Fundamental our behalf. Norcros plc and its subsidiaries has a zero-tolerance Principles and Rights at Work and other core conventions. These approach to all forms of tax evasion, whether under UK law or principles are applicable across all our operations. As a result, the under the law of any foreign country. Directors do not consider human rights issues to be a material risk for the Group, principally due to the existing regulatory frameworks in place in the UK and South Africa, being the primary geographical locations in which we operate. In South Africa, the businesses are cognisant of their responsibilities under the Broad- Based Black Economic Empowerment legislation. In addition, the Group has its Modern Slavery Act statement and a policy in support of this. Labour All our employees are entitled to a fair salary and other terms and conditions of employment, as appropriate. Our policy is to comply, at the very least, with minimum wage legislation for any job role for all employees and we seek to be competitive as is appropriate to the role and business in question. Legally required benefits such as annual leave, sick leave, maternity leave and normal working patterns and hours are of course applicable to all. ## Our corporate values focus on respect, integrity and ## fairness. We are committed to respecting the dignity of the ## individual and to supporting the UN Declaration of Human ## Rights, the UN Universal Declaration of Human Rights, ## andthe International Labour Organisation’s Declaration ## onFundamental Principles and Rights at Workand ## othercoreconventions.” Norcros plc Annual Report and Accounts 202254 Strategic report ## TCFD REPORT7 The Group recognises the recommendations of the Task Force on Risk management Climate-related Financial Disclosures. The following pages represent Climate-related risks and opportunities relevant to Norcros our first disclosure against the TCFD recommendations and the UK wereidentified with the help of external consultants CEN-ESG Government requirement for Premium Listed companies to make and refined through consultation with the Head of Internal Audit climate-related financial disclosures aligned with TCFD. and Risk Assurance and senior management. We considered climate-related risks and opportunities in all physical and transition Governance risk categories, current and emerging, whether they occur within We are enhancing our sustainability management and reporting our own operations or upstream and downstream of the Group and developing our framework and response, which will include and whether they occur within short, medium or long-term managing our emissions impact. timehorizons. The Board of Directors is responsible for all matters of strategy at Climate-related risks and opportunities were assessed and Norcros, and the oversight of climate-related issues is embedded prioritised on the existing Group five-point risk scoring criteria in that process. The Board is kept informed of climate-related for both financial impact and reputational impact (minimal, low, matters through regular scheduled updates at Board meetings intermediate, high and severe) and for likelihood (remote, unlikely, with climate change on the agenda at least once every six months possible, likely and certain). Overall risk scores are calculated as and through twice yearly reports. The Board has regular access the multiple of impact and likelihood. Likelihood is based on the to appropriate expertise, monitors and oversees progress of probability of the risk crystallising and affecting the business at the Group’s sustainability performance, tracks the process of least once during a three-year period and the longer time horizon significant strategic developments and monitors the Group’s of some climate-related risks is thus reflected in a lower likelihood emissions (Scope 1 and 2). score. By using the existing Group risk framework, climate- related risks are fully integrated into the current risk management The Audit and Risk Committee supports the Board in ensuring framework and the relative significance of climate-related risks in climate-related issues are integrated into the Group’s risk management relation to other risks can be determined. process. Climate-related risk assessments are conducted twice a year and are fully incorporated into the Group’s principal risk A summary of key risks in the divisional and corporate risk registers process. Materially significant risks, including climate-related is presented to the Audit and Risk Committee every six months. In risks, that fall outside risk appetite levels need to be reviewed and addition, there is a Group level risk review in March which identifies approved by the Board unless treatment actions can bring them and reviews Group level/strategic risks. inline with the appropriate risk appetite level, as outlined below. The decision to control or accept risks is partially determined by As climate-related issues are fundamental to the Group’s business the nature of the risk and its scoring. Management will regularly purpose, the CEO has overall responsibility for their oversight, review risk exposures against defined acceptable risk appetite ensuring climate-related issues are considered in the review of levels and develop remedial actions, with target dates, to address Norcros’ strategy, budget and business. The CEO is also responsible risks scoring higher than the accepted risk appetite level. Except for reporting on progress to the Board, which is done twice yearly. for “strategic”, “operational” and “commercial” risks, which carry a medium risk appetite, all other risk types carry a low risk appetite. At a management level, the Group has instigated a sustainability Risks scoring outside of these risk appetite levels require treatment committee (ESG Forum), comprised of representatives of the actions to bring them in line with the appropriate risk appetite level, underlying business units. The ESG Forum convenes quarterly or they need to be reviewed and approved by Board Directors. and is led by the CEO and the Corporate Development and Strategy Director. The ESG Forum is responsible for reviewing and See pages 36 to 40 for principal risks and uncertainties disclosures. managing progress against the Group’s sustainability framework, directing action in their respective business units and feeding back data, achievements and barriers to be resolved. Representatives of the ESG Forum are themselves informed by operational and project teams within the business units. The Norcros management team will also begin to consider KPIs, targets and aligning staff incentives as part of ESG strategy and planning work through 2022. Annual Report and Accounts 2022 Norcros plc 55 Strategic report ## Environmental, social and governance continued ## TCFD REPORT CONTINUED7 Strategy Through the above process the following key risks and opportunities that could have a material financial impact on the organisation have been identified. These are expanded in further detail below. In consideration of the longer time horizons for climate-related issues, the time horizons for our climate-related risk assessment analysis have been determined as: • short term: zero to three years; • medium term: three to ten years; and • long term: over ten years. | | 1. Carbon pricing | | | 4. Cost of capital | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | (carbon tax) | 2. Carbon | | linked to | 5. Customer and | | | | | inown | pricingin the | | sustainability | consumer | 6. Rising | 7. Extreme | | Risk | operations | value chain 3. Water scarcity | | criteria | pressure | temperatures | weatherevents | | Type Transition | | Transition | Physical | Transition | Transition | Physical | Physical | | | (current and | (emerging | (chronic) | (market) | (market and | (chronic) | (chronic) | | | emerging | regulation) | | | reputation) | | | regulation) Area Own Upstream Own Own Downstream Downstream Downstream operations operations operations Primary potential Higher costs Increased cost Higher costs/ Higher cost Lost revenue Higher costs/ Higher costs/ financial impact associated of purchased disruption ofcapital disruption disruption with energy goods and inbound transportation Time horizon Medium term Medium term Medium term Medium term Medium term Medium term Medium term Likelihood Certain Certain Possible Likely Likely Possible Possible Impact measure Intermediate Low Intermediate Severe Intermediate Low Low | | 1. Product design | 2. Product design | | | | --- | --- | --- | --- | --- | | | – resource efficient | – resource | 3. Water, energy and | 5. Lower transport | | Opportunity | manufacturing | efficientproducts | wastesavings 4. Renewable energy | relatedemissions | | Type Products and | | Products Resource efficiency Energy source Resource efficiency | | | services Area Own operations/ Own operations/ Own operations Own operations Own operations/ downstream downstream downstream Primary potential Increased sales Increased sales Decreased costs Decreased costs Decreased costs financial impact Time horizon Medium term Medium term Medium term Medium term Short term Likelihood Likely Likely Likely Likely Likely Impact measure Intermediate Intermediate High Low Low Norcros plc Annual Report and Accounts 202256 Strategic report ## TCFD REPORT CONTINUED Internally, we are developing our climate-related scenario analysis to improve our understanding of the behaviour of certain risks to different climate outcomes. We expect much of our scenario analysis to be qualitative at first but, there will be opportunities in future years toimprove our analysis as new data is made available both internally and externally to support a meaningful quantitative assessment. Climate-related risks Risk Carbon pricing (carbon tax) in own operations Description The cost of carbon, applied either via emissions trading prices, the price of offsets or direct carbon taxes, is expected to rise as businesses are compelled to take more responsibility for their energy use and carbon emissions. This would increase our manufacturing costs, through costs associated with Scope 1 emissions or through the increased cost of electricity used (Scope 2). The most energy intensive areas of the business are the kilns used in the manufacture of tiles (Johnson Tiles UK and Johnson Tiles South Africa). Impact The UK and South Africa currently have different carbon tax schemes and prices. In the UK, Johnson Tiles is part of an Emissions Trading System for energy intensive industries. The current ETS price is circa £80/tCO e and is expected to 2 increase in the medium term. In South Africa the current (gross) carbon tax is R144/tCO e although the net price is circa 2 20% of this level. Carbon taxes are expected to increase significantly from 2026 as per draft legislation. Mitigation Continued improvement in the energy efficiency of the manufacturing processes through recycling of heat from the kilns. Risk Carbon pricing in the value chain Description The cost of carbon, applied either via emissions trading prices, the price of offsets or direct carbon taxes, is expected torise as businesses are compelled to take more responsibility for their energy use and carbon emissions. In addition, the scope of this tax is expected to widen to include Norcros’ value chain. Impact We have yet to quantify our Scope 3 emissions but expect the prices of embedded carbon of purchased goods and services, and transportation, to increase for the Group. China accounts for a significant percentage of the Group’s suppliers, so the Chinese Emissions Trading Scheme (ETS) will be a key risk. How it develops is uncertain, but in line with global trends we expect the scope to widen and pricing to increase. We expect our suppliers to pass on their increased energy costs over time. Mitigation Broaden Scope 3 reporting and disclosure so we can better monitor and assess Scope 3 emissions. Work more closely with suppliers to ensure they are following practices in line with our regulatory standards and to where possible “design out” carbon in our product suite. Risk Water scarcity Description The Group’s tile manufacturing businesses in the UK and South Africa rely on water as a key component of the manufacturing process. Our South African sites are in an area classified as high physical water risk (WWF Water Risk Filter). Climate change is expected to exacerbate this risk in the medium term. Impact In a situation of extreme water shortages, a lack of water could disrupt production of tiles (or significantly increase manufacturing costs) and hence negatively impact revenues and profits, as well causing reputational risk to the business. Mitigation Continued improvement in the water efficiency of the manufacturing process including exploring the possibility of drilling bore holes for alternative water supplies, continue existing pH neutralising water treating and recycling methods to minimise water use. Annual Report and Accounts 2022 Norcros plc 57 Strategic report ## Environmental, social and governance continued ## TCFD REPORT CONTINUED7 Climate-related risks continued Risk Cost of capital linked to sustainability criteria Description Providers of capital (investors and banks) have been steadily incorporating sustainability into their lending assessments, which represents a risk to the availability and cost of capital if Norcros loses its competitive position in ESG performance and disclosure. Over the medium term, we expect lenders will apply punitive charges if ongoing targets on emissions reduction are not met. Impact The cost of debt is likely to increase. However, Norcros’ facilities have recently been renewed at rates in line with the market. Mitigation Remain in continued dialogue with lenders to ensure climate change disclosure is in line with the latest regulatory requirements and make progress toward setting a net zero target and transition plan. Risk Customer and consumer pressure Description The UK’s net zero carbon target is driving new building regulation and more environmentally friendly industry standards. Additionally, consumers are demanding more eco-friendly products for their homes. Our product design must continue to be innovative, reducing hot water and energy consumption in homes, in order to remain market leaders. Impact Norcros’ relative size and competitive position in the market mean that the Group is well placed to react to key client guidelines and any industry trends. However, failure to pay attention to developing consumer trends and a lack of further investment in R&D could leave Norcros vulnerable to losing out on a market that is increasingly growing to cater for consumers’ sustainable demands and regulatory requirements. Mitigation The Group must continue to monitor key client guidelines (of homebuilders and retailers) including any announcement on targets for their Scope 3 emissions to ensure compliance. Continued consumer surveys allow us to remain in touch with the latest consumer trends. Collaboration across the Group to ensure we are well placed to respond to increasing ESG requirements when clients are making purchasing decisions. Risk Rising temperatures Description In South Africa, mean annual temperatures have increased at least 1.5 times the observed global average increase of0.65°C during the last 50 years, and mean average temperature is expected to continue to rise. Impact Projected increases in temperatures can cause heat stress for employees working outside and increased demand for air conditioning and cooling equipment during hot weather which may overload the grid or drive higher costs by increasing electricity demand when electricity prices are at their highest. At this stage, the projected annual increase in temperatures for South Africa is not expected to trigger dramatic enough increases in temperature to change operations or working practice. Mitigation Norcros has already installed back-up generators in the event of power outages which can maintain operations. TheCompany is also investigating the use of on-site renewable power to become less dependent on grid energy. Risk Extreme weather events Description Norcros’ operations have been assessed and deemed not to be at major risk from extreme weather events. However, risks to Norcros could occur if the supply chain is subject to physical risks resulting from climate change e.g. extreme weather events or water scarcity. Impact In a situation of extreme weather events, such as flooding or water scarcity, supply of input materials or finished products could have a negative impact on the ability of Norcros to provide the appropriate level of stock for consumers. This could impact revenues and profits, as well causing reputational risk to the business. Mitigation Norcros has a high level of resilience in its supply chain which, for example, experienced no significant disruption during the COVID-19 pandemic, despite a large supplier network in China. The diversity of supply sources and de-centralised model (suppliers and representative offices are located near the factories they supply) contribute to this resilience. Norcros plc Annual Report and Accounts 202258 Strategic report ## TCFD REPORT CONTINUED Climate-related opportunities Opportunity Product design – resource efficient manufacturing Description Products manufactured though an energy efficient process or with recycled raw materials can significantly help lower our GHG emissions over the medium term. Impact/ Johnson Tiles manufactures a “greener” tile which is thinner than the standard tile and hence consumes less energy examples in the firing process and less water in the production process. As it is lighter, it requires less packaging and is cheaper totransport. Opportunity Product design – resource efficient products Description Products that are designed with energy and water saving features are expected to see revenues grow ahead of the market. We expect products with energy saving ratings to take market share, as increasing environmental regulatory requirements is putting pressure on smaller suppliers. Impact/ The Abode Swich water filter diverter can transform any tap into a filtered water tap, enabling households to live more examples sustainably by reducing their use of plastic water bottles. The product won the SBID International Design Award and an Ideal Home Award for sustainability, recognising its contribution to promoting sustainable living. Triton’s electric showers are A-rated energy efficiency products, with an opportunity to take a greater market share ofanincreasingly environmentally driven market. Opportunity Water, waste and energy savings Description Reduce energy and water intensity of our manufacturing processes and reduce waste generated. This is an ongoing process within our operations across all sites. As “best practice” examples are shared across all divisions, there is scope to further reduce our resource efficiency. Impact/ Opportunities exist to recycle heat generated from the kilns and use this for the drying processes. Currently, various examples energy saving practices are being implemented including LED lighting, HVAC control systems and polycarbonate sheeting in South Africa. Packaging is recycled with innovative “eco-packaging” solutions, like that in Merlyn where single-use plastic has been eliminated and been replaced by fully recyclable alternatives. Opportunity Renewable energy Description A medium-term opportunity exists to reduce our dependence on conventional energy sources and replace them with renewable sources. In-house solar photovoltaic (PV) systems would make operations less dependent on the national grid and sourcing energy under a power purchase agreement (PPA) would make use of clean sources of electricity, lowering emissions. Impact/ Johnson Tiles SA is currently reviewing proposals for solar power both on and off site. Although this involves some examples additional capex, the longer-term emissions reduction potential is considerable. Opportunity Lower transport related emissions Description Norcros is exposed to carbon price impacts on transportation costs, within Scope 1 and 3 emissions. The main source of transport related emissions relates to the diesel emissions from Triton’s fleet of service engineers. There has also been an increase in the proportion of goods air freighted recently to compensate for longer lead times resulting from COVID-19. Although Norcros only uses air freight for a small proportion of its transport, shifting this to sea freight would reduce our transportation emissions (Scope 3). Impact/ We estimate that if Triton’s entire service fleet was transitioned over to EV it would reduce net emissions significantly, examples as the decrease in Scope 1 emissions would be much greater than the increase in Scope 2 emissions (electricity). Initial analysis indicates that 1 tonne shipped by air on our routes generates 50–80 times the emissions of 1 tonne shipped by sea. Metrics and targets Norcros monitors Scope 1 and 2 greenhouse gas emissions, calculated in line with the GHG Protocol, as per page 51 ofthis report. We recognise the requirement to outline targets for our emissions and energy and water consumption. By the end of 2022, we will have developed an updated ESG strategy and plan and we will consider sustainability KPIs and targets, including those for net zero. This will require developing a fuller understanding of our Scope 3 emissions to quantify our value chain emissions impacts. Annual Report and Accounts 2022 Norcros plc 59 Strategic report ## Stakeholder engagement ## Engaging with our stakeholders. ### Statement by the Directors in relation to their statutory duty inaccordance with Section 172(1) ### oftheCompanies Act 2006. Section 172 statement The Board of Directors of Norcros plc consider that they, both Shareholders individually and collectively, have acted in a way that would be most likely to promote the success of the Company for the benefit of its Shareholder support for our members as a whole (having regard to the stakeholders and matters strategy is essential for the Group’s set out in Section 172(1) (a–f) of the Companies Act 2006) in the long-term success. decisions they have taken during the year ended 31 March 2022. Why and how we engage: In making this statement the Directors have had regard to the • We aim to provide a transparent, longer-term consideration of stakeholders and the environment clear, consistent message on and have taken into account the following: both our performance and our plans to create value, across our a) the likely consequences of any decisions in the long term; communication channels. b) the interests of the Company’s employees; • We engage to ensure the Group c) the need to foster the Company’s business relationships responds to the changing needs withsuppliers, customers and others; and interests of shareholders and to ensure our strategy d) the impact of the Company’s operations on the community remains relevant. and the environment; • We engage through investor e) the desirability of the Company maintaining a reputation roadshows and give our forhigh standards of business conduct; and shareholders the opportunity f) the need to act fairly as between members of the Company. for contact with our Board on aregular basis. The Board’s understanding of the interests of the Company’s stakeholders is informed by the programme of stakeholder Outcomes of our engagement detailed below. Section 172 considerations are engagementinclude: embedded in decision making at Board level and throughout the • Following the results of the 2021 Group. The Directors fulfil their duties by ensuring that there is AGM, the Board followed up on the a strong governance structure and process running through all points raised regarding Directors’ aspects of the Group’s operations. The strategy for the Group has remuneration to understand if any been carefully considered by the Board in conjunction with the action was required. Group’s Executive Management teams. • Engagement with our shareholders The consideration of all stakeholder interests in the context of the has influenced our acquisition COVID-19 pandemic has been a particular area of focus for the and capital investment strategy Board in recent years. The Board dedicated time for it to consider and progressive, albeit prudent, all stakeholder interests, primarily those of its shareholders as a dividend policy. whole, but also employees, suppliers, customers and the members • The acquisition of the Grant of the Group’s pension schemes. All these stakeholders (amongst Westfield business was partly others) have been impacted in different ways by the pandemic funded through equity, the demand andthe Board has had regard to this and has formulated a number for which was extremely strong, of measures to address stakeholder interests in a balanced way. demonstrating support for the Group’s strategy. Norcros plc Annual Report and Accounts 202260 Strategic report Customers Environment Society Our commitment to customer service At Norcros, sustainability is at the centre Our commitment to the society in remains critical to our success. of our strategy. We aim to manage our which we operate is deep. Every societal and environmental impact by Group business has programmes of Why and how we engage: conducting business to the highest social engagement, including many • We engage to develop customer- standards as well as using resources charitable activities. focused solutions, ensuring the more efficiently. Group understands and responds Why and how we engage: to evolving customer needs. This Why and how we engage: • We engage to have a positive helps us retain our customers and • We engage to better understand impact on the local communities attract new ones. environmental challenges and how inwhich our businesses operate. we can contribute to meeting them • We also engage with customers • We empower our businesses and minimise the impact of the to understand the environmental to support local charities and Group on the environment. challenges they face. initiatives, and community projects, • This also enables us to adhere to and also provide local employment. • We engage through our relevant environmental legislation experienced customer service • The Executive Management and regulations and to ensure that teams, engaging with customers on of the Group supports this high environmental standards a daily basis and regular monitoring commitment to our society and are respected at each of the of performance against service level reviews each business’ activities Group’s sites. agreements and quality standards. onamonthly basis. • We engage with customers, Outcomes of our Outcomes of our suppliers and other stakeholders engagementinclude: engagementinclude: to understand the environmental • The Group proactively invested into • Charitable activities and initiatives challenges they face and look for inventory to protect our service and across the Group. ways to improve the efficiency stock availability in light of exceptional ofour businesses. • Our business in South Africa supply chainchallenges. launched its first female graduate Outcomes of our • New product launches in response scheme to continue the significant engagementinclude: to customer needs. progress towards achieving • We recognised that our gender equality. • Obtaining accreditations such as shareholders are also placing WRAS approval so that our hot increasing importance on • Triton, as one of the area’s largest water taps can be used in new environmental issues and want employers, has continued to invest build markets. to understand the actions of the in its apprenticeship scheme giving Group. We developed our ESG school leavers the opportunity to plan to provide an overarching earn as they learn. framework to the work we do. • We have established a strong governance structure, including business level ESG Forums, to co-ordinate our sustainability strategy. • We carried out a full Carbon Trust carbon footprint assessment across the whole Group, establishing a Scope 1 and 2 emissions baseline. Annual Report and Accounts 2022 Norcros plc 61 Strategic report ## Stakeholder engagement continued Employees NORCROS SA The Board continues to regard our ## Norcros SA’s Diversity employees as our most valuable asset. The Group’s strategy and ## &Inclusion Program business model are underpinned by the commitment and efforts of all ## ouremployees. Launches its first female Why and how we engage: ## graduate scheme • We engage to ensure that all employees are valued and are given There is no doubt that South Africa has made significant the opportunity to provide feedback progress towards achieving gender equality, however, a lot and participate in shaping the still remains to be done. Today, organisations are becoming development of the Group. more diverse, creating workplaces that embrace more • This helps us underpin our culture of innovation and creativity, thus fuelling growth and aiding safety and ensures that employees inthe sustainability of the organisation. at all levels in the business play a As part of its Diversity and Inclusion program, Norcros SA role in promoting and upholding a has launched its first female graduate scheme and we are strong focus on health and safety, excited to extend a warm welcome to the 2022 graduates for the benefit of the Group and the and look forward to their valuable contribution. wider community. • We engage with staff throughout the Group through our divisional structure. Engagement is led by Alison Littley as the designated Non-executive Director for workforce engagement (seepages48 and 49). Outcomes of our engagementinclude: • The Group’s culture has been a particular focus of the Board and is embodied in how we endeavour to go about our business. All members of the Board undertake regular site visits and receive reports and other information to enhance theirunderstanding. • Employees are encouraged to be involved in the Company’s performance through employee share schemes, and other means Strategic Report ofincentivisation and reward. To the members of Norcros plc Approval The Group Strategic Report on The Strategic Report provides a review pages2 to 62 of Norcros plc was of the business for the financial year and approved by the Board and signed describes how we manage risks. onits behalf by: The report outlines the developments and performance of the Group during the financial year and the position at the end of the year and discusses the main trends Nick Kelsall and factors that could affect the business Chief Executive Officer in the future. 8 June 2022 Key performance indicators are published to show the performance and position of the Group. Also provided is an outline of the Group’s vision, strategy and objectives, along with the business model. Norcros plc Annual Report and Accounts 202262 ## Corporate ## governance 64 Board of Directors 66 Corporate governance 70 Audit and Risk Committee report 75 Nomination Committee report 76 Remuneration Committee annual statement 2022 79 Directors’ remuneration policy report 87 Annual report on remuneration 97 Directors’ report 99 Statement of Directors’ responsibilities Johnson Tiles: Melrose features a rustic structure combined with a glossy glaze to give a handcrafted aesthetic. With natural variation in colour and texture suitable for any interior space, Melrose offers 5 neutral tones of Bone, Pewter, Slate, Moss and Stone, providing a modern look ideal for any interior space. Annual Report and Accounts 2022 Norcros plc 63 Corporate governance ## Board of Directors ## A strong leadership team committed ## todriving our strategy for growth. Gary Kennedy Nick Kelsall James Eyre Chair Chief Executive Officer Chief Financial Officer N R | Date of appointment | Date of appointment | Date of appointment | | --- | --- | --- | | Joined the Board as Non-executive Chair | Chief Executive on 1 April 2011 having | Appointed Chief Financial Officer in | | on 8 December 2021 | previously served as Chief Financial Officer on | August 2021 | appointment to the Board inOctober 1996 Length of tenure Length of tenure Length of tenure One year Eleven years One year | Skills andexperience | Skills andexperience | Skills andexperience | | --- | --- | --- | | Gary is also non-executive chair at | Nick joined Norcros as Finance Director | James joined Norcros as Director of | | Greencore Group plc, where he assumed | of H&R Johnson Tiles Limited in 1993. | Corporate Development and Strategy | | the role of executive chair from 31 March | Nick was promoted to Chief Financial | in 2014 before being promoted to Chief | | 2022 and will fulfil that role until a new | Officer in October 1996, before being | Financial Officer in August 2021. He | | CEO takes office in September 2022. | appointed to Chief Executive Officer on | began his career at Arthur Andersen and | | Gary has extensive executive experience | 1April 2011. Formerly, Nick held a number | subsequently has held a number of senior | | along with a wealth of non-executive | of senior financial management positions | financial positions with Bank of Scotland, | | director experience. He is currently chair | with Touche Ross, Manchester, and, | Rothschild & Co, Bank of Ireland and, | | of Goodbody Stockbrokers (Ireland), and | immediately prior to joining Norcros, with | immediately prior to joining Norcros, with | | in the past has served as chair of Connect | Waterford Wedgwood Group plc. Nick has | AstraZeneca. James became a trustee | | Group plc and Green REIT plc and on the | extensive international senior management | of the David Lewis Centre in 2012 and | | boards of Elan plc, Allied Irish Bank, Friends | and M&A experience and has been a listed | stepped down from this role in 2016. He | | First Holdings and the IDA Ireland. He was | company director since 1996. He is a fellow | is a member of the Institute of Chartered | | also government appointed director of | of the Institute of Chartered Accountants in | Accountants in England and Wales. James | | Irish Bank Resolution Corporation. Gary | England and Wales. | has extensive experience in international | | is a fellow of the Institute of Chartered | | M&A, business development and strategy. | Accountants in Ireland and a council member of the Institute of Directors in Ireland. Re-election of allDirectors It is proposed that each Director will seek election or re-election at the 2022 AGM. The Board is satisfied that the Directors, individually and collectively, have the balance of technical expertise, skills and experience to manage the Company’s affairs and to further the Group’s strategic objectives. In particular, each Director has experience of growing an international business, organically, as well as by acquisition. A detailed CV for each Director, including their particular areas of experience and expertise, is available on the Company’s website, www.norcros.com. The Board notes that, if re-elected, David McKeith will before the 2023 AGM have reached a tenure of over nine years. The reasons forthis are explained on page 66. David McKeith will not seek re-election at the 2023 AGM. Norcros plc Annual Report and Accounts 202264 Corporate governance David McKeith Alison Littley Richard Collins Non-executive Director Non-executive Director Company Secretary A N R A RN Date of appointment Date of appointment Date of appointment Appointed to the Board in July 2013 Appointed to the Board in May 2019 Joined the Company in June 2013 as Company Secretary and Group Counsel Length of tenure Length of tenure Length of tenure Eight years Three years Nine years | Skills andexperience | Skills andexperience | Skills andexperience | | --- | --- | --- | | David is Senior Independent Director and | Alison was appointed a Non-executive | Richard qualified as a solicitor in 1988 and | | Chair of the Audit and Risk Committee. | Director in May 2019 and appointed Chair | was previously company secretary and | | From April 2021 he acted as Board | of the Remuneration Committee in July | director of risk and compliance at Vertex | | Chair pending the appointment of Gary | 2019. Alison has substantial experience in | Financial Services. Prior to that, Richard | | Kennedy as Chair on 8 December 2021. | multinational manufacturing and supply | was company secretary and head of | | David was the senior partner of the | chain operations, and a strong international | legal with Tribal Group plc, Blick plc and | | Manchester and Liverpool offices of | leadership background gained through a | Aggregate Industries plc. | | PricewaterhouseCoopers LLP and served | variety of senior management positions in | | | on its UK supervisory board. David was | Diageo plc and Mars Inc and an agency to | | | until 2016 a non-executive director and | HM Treasury where she was chief executive | | | audit committee chairman of Sportech plc, | officer. She is currently a non-executive | | | and is the chairman of the Halle Orchestra, | director at MusicMagpie plc and Xaar | | | Manchester. He is a fellow of the Institute | plc. Alison was formerly a non-executive | | | of Chartered Accountants in England | director of James Hardie Industries Plc, | | | and Wales. | Headlam Group plc, Geoffrey Osborne | | Group and Weightmans LLP. A Audit and Risk Committee N Nomination Committee R Remuneration Committee Chair of Committee Annual Report and Accounts 2022 Norcros plc 65 ### Governance structure ### The Board Gary Kennedy (C) (appointed as NED and Board Chair on 8 December 2021) David McKeith (Acting Board Chair from 15 April 2021 to 7 December 2021) Corporate governance | Audit and Risk Committee | | | Remuneration Committee | | | | Nomination Committee | | --- | --- | --- | --- | --- | --- | --- | --- | | | David McKeith (C) | | | | Alison Littley (C) | | Gary Kennedy (C) (served on | | | | Alison Littley | | | David McKeith | Committee from 8 December 2021) | | | | | | Gary Kennedy (served on Committee | | | David McKeith (Acting Chair from | | | | | | | from 8 December 2021) | | 15April 2021 to 7 December 2021) | | Alison Littley All Directors are supplied, in a timely manner, with all relevant toensure that the performance of each Director continues to documentation and financial information to assist them in the be effective. The overall results of the evaluation process were discharge of their duties by the making of well-informed decisions satisfactory, and the outcomes of it indicated the following areas that are in the best interests of the Company as a whole. The Board offocus for the Board and its Committees going forward: regularly reviews the management and financial performance • succession planning; of the Company, as well as long-term strategic planning and risk assessment. Regular reports are given to the Board on matters • development of remuneration policy; and such as pensions, health and safety, and litigation. • promotion of diversity. Any concerns that a Director may have about how the Group is being run or about a course of action being proposed by the Board Advice for Directors will, if they cannot be resolved once those concerns have been Procedures have been adopted for the Directors to obtain access brought to the attention of the other Directors and the Board Chair, through the Company Secretary to independent professional be recorded in the Board minutes. In the event of the resignation advice at the Company’s expense, where that Director judges it of a Non-executive Director, that Director is encouraged to send a necessary in order to discharge their responsibilities as a Director written statement setting out the reasons for the resignation to the of the Company. Chair who will then circulate it to the other members of the Board All Directors have access to the advice and services of the and the Company Secretary. Company Secretary, who is responsible to the Board for ensuring that Board policies and procedures are complied with. Both the Board Chair and Chief Executive Officer appointment and removal of the Company Secretary are matters The positions of Chair and Chief Executive Officer are held by reserved for decision by the Board. separate individuals and the Board has clearly defined their responsibilities. The Chair is primarily responsible for the effective Board procedures working of the Board, ensuring that each Director, particularly the The Board has a formal schedule of matters specifically reserved Non-executive Directors, is able to make an effective contribution. to it for decision which it reviews periodically. This ensures the The Chief Executive Officer has responsibility for running the Board makes all major strategy, policy and investment decisions Group’s businesses and for the implementation of the Board’s affecting the Company. In addition, it is responsible for business strategy, policies and decisions. planning and risk management policies and the development of policies for areas such as safety, health and environmental policies, Board, Committee and Director evaluation Directors’ and senior managers’ remuneration and ethical issues. The performance of the Board is appraised by the Chair. The The Board provides direction to the management of the Company, Executive and Non-executive Directors are evaluated individually and it is ultimately accountable for the performance of the Group. by the Chair. The Board, led by the Senior Independent Non- executive Director, appraises the Chair, and the Board evaluates The Board operates in such a way as to ensure that all decisions the performance of its three Committees. Evaluation processes are are made by the most appropriate people in a timely manner conducted periodically and they are organised to fit in with Board that will not unnecessarily delay progress. The Board has formally priorities and succession planning activity. A formal evaluation delegated specific responsibilities to Board Committees, took place in respect of the year under review in accordance with namely the Nomination Committee, Audit and Risk Committee the requirements of the Code. This evaluation was conducted and Remuneration Committee. The Terms of Reference of by means of detailed questionnaires, the results of which were those Committees are published on the Company’s website then considered as appropriate, combined with meetings and atwww.norcros.com. discussions. The Chair is responsible for the review of each Director’s development and ongoing training requirements Annual Report and Accounts 2022 Norcros plc 67 Corporate governance ## Corporate governance continued Board procedures continued Financial reporting The report of the Nomination Committee is on page 75, the report When releasing the annual and interim financial statements the of the Audit and Risk Committee is on pages 70 to 74 and the Directors aim to present a fair, balanced and understandable report of the Remuneration Committee is on pages 76 to 96. assessment of the Group’s results and prospects. The Directors have a collective responsibility for the preparation of the Annual The Board will also appoint committees to approve specific Report and Accounts which is more fully explained in the processes as deemed necessary, such as aspects of corporate Statement of Directors’ Responsibilities on page 99. transactions, or to authorise share option administrative actions. The directors and management teams of each Group company Attendance by individual Directors at meetings are responsible for those business entities. They are tasked with oftheBoard and itsCommittees the delivery of targets approved by the Board on budgets, strategy There was full attendance of Directors at the Board and principal and policy. Board Committee meetings during the year, as detailed in the table below: Directors’ roles Main Audit and Risk Remuneration Nomination The Executive Directors work solely for the Group. However, in Board Committee Committee Committee appropriate circumstances, Executive Directors are encouraged to 8 meetings 3 meetings 8 meetings 6 meetings take on one non-executive directorship in another non-competing 1 Gary Kennedy, Chair 3/8 — 2/8 2/6 company or organisation. The Chief Executive Officer and the 2 David McKeith 8/8 3/3 8/8 6/6 Chief Financial Officer have no non-executive directorships. Alison Littley 8/8 3/3 8/8 6/6 The terms and conditions of appointment of the Non-executive Nick Kelsall 8/8 — — — Directors are available upon written request from the Company. 3 James Eyre 5/8 — — — All the Non-executive Directors confirm that they have sufficient 4 Shaun Smith 3/8 — — — time to meet the requirements of their role. They also confirm to disclose to the Company their other commitments and to give an 1 Gary Kennedy was appointed to the Board as Board Chair on 8 December 2021. indication of the time involved in each such commitment. 2 David McKeith acted as Board Chair from 15 April 2021 to 7 December 2021. The annual evaluation process includes an assessment of whether 3 James Eyre was appointed to the Board as Chief Financial Officer on 1 August 2021. the Non-executive Director is spending enough time to fulfil their 4 Shaun Smith acted as Chief Financial Officer until 31 July 2021. duties. If a Non-executive Director is offered an appointment elsewhere, the Board Chair is informed before any such offer Relations with shareholders isaccepted and the Chair will subsequently inform the Board. The Company recognises the importance of maintaining good The Board has suitable procedures in place for ensuring that its communications with shareholders. The Company actively powers to authorise conflict situations are operated effectively. engages with shareholders on specific matters and takes a Such powers are operated in accordance with the Company’s number of other steps to ensure that the Board and, in particular, Articles of Association by means of each Director having a the Non-executive Directors develop an understanding of the responsibility to notify the Board of any conflict situation and for views of major shareholders about the Company. Directors have the Board to deal with that situation as appropriate. regular meetings with the Company’s major shareholders and received regular feedback on the views of those shareholders The Board ensures that all new Directors (including Non-executive through the Company’s broker. Reports of these meetings, and Directors) will receive a full, formal and tailored induction on joining any shareholder communications during the year, are given to the Company. As part of that induction procedure, the Chair will the Board. In addition, the Company publishes any significant ensure that major shareholders have the opportunity to meet a events affecting the Group and updates on current trading. The new Non-executive Director. The Chair also periodically assesses Board Chair and the Non-executive Directors are also offered the the training and development needs of all Directors and ensures opportunity to attend meetings with major shareholders and the that any suitable training and updates are provided to Directors. Non-executive Directors, and in particular the Senior Independent Director, would attend such meetings if requested to do so by any Retirement by rotation major shareholder. Each of the Directors is subject to election by shareholders at the first Annual General Meeting after their appointment. Thereafter, The Board regularly receives copies of analysts’ and brokers’ in accordance with the Company’s Articles of Association, all of briefings. The Annual and Interim Reports, together with all the Directors are subject to retirement by rotation such that one announcements issued to the London Stock Exchange, are third of the Directors retire from the Board each year and each published on the Company’s website at www.norcros.com. Director must seek re-election at intervals of no more than three The Notice of the Annual General Meeting is sent to shareholders years. However, the Board has decided that every Director should, at least 20 working days before the meeting. It is the Company’s where appropriate, offer themselves for re-election at each Annual practice to propose separate resolutions on each substantially General Meeting. Accordingly, each continuing Director will seek separate issue. re-election at the next Annual General Meeting. Biographical details of all of the Directors are set out on pages 64 and 65, where there is also a statement on the Directors’ suitability forre-election. Norcros plc Annual Report and Accounts 202268 For each resolution, proxy appointment forms should provide Viability shareholders with the option to direct their proxy to vote either for In accordance with the Code, the Board has assessed the or against the resolution or to withhold their vote. The Company prospects of the Company, using a three-year assessment ensures that all valid proxy appointments received for general timescale, and concluded that there is a reasonable expectation meetings are properly recorded and counted. For each resolution that the Company will be able to meet its liabilities and continue in the Company ensures that the following information is given at the operation. The full Viability Statement is contained on page 41. meeting and made available as soon as reasonably practicable on a website which is maintained by or on behalf of the Company: Operational structure, review and compliance In addition to the Chief Financial Officer, the Group has Senior Corporate governance • the date of the meeting; Financial Managers at its Head Office. The current Group Head • the text of the resolution; of Internal Audit and Risk Assurance was appointed in March 2020 and he is responsible for the Internal Audit and Risk • the number of votes validly cast; Assurance function for the Group. Further information on the • the proportion of the Company’s issued share capital work of this function is in the Audit and Risk Committee Report on represented by those votes; pages 70 to 74. • the number of votes cast in favour of the resolution; The key elements of the controls framework within which the Group operates are: • the number of votes against the resolution; and • an organisational structure with clearly defined lines • the number of shares in respect of which the vote was withheld. of responsibility, delegation of authority and reporting The Board Chair seeks to arrange for the Chairs of the Audit and requirements; Risk, Remuneration and Nomination Committees (or a deputy if • an embedded culture of openness of communication between any of them is unavoidably absent) to be available at the Annual operational management and the Company’s Executive General Meeting to answer any questions relating to the work of Management on matters relating to risk and control; these Committees. • defined expenditure authorisation levels; and Accountability and audit • a comprehensive system of financial reporting. An annual The respective responsibilities of the Directors and auditor in budget for each business unit is prepared in detail and approved connection with the financial statements are explained in the by the Group Executive Management. The Board approves the Statement of Directors’ Responsibilities on page 99 and the overall Group’s budget and plans. Monthly actual results are Auditor’s Report on pages 101 to 106. The Directors ensure the reported against budget and the prior year and the forecast for independence of the auditor by requesting annual confirmation of the year is revised where necessary. Any significant changes independence which includes the disclosure of all non-audit fees. and adverse variances are reviewed by the Board and remedial action is taken where appropriate. There is weekly cash and Risk management and internal control treasury reporting to the Chief Financial Officer and periodic The Board is responsible for the Group’s system of internal control reporting to the Board on the Group’s tax and treasury position. and for reviewing its effectiveness (covering all material controls including financial, operational, risk management and compliance). The system of internal control is designed to manage rather This is undertaken via an annual programme to review the internal thaneliminate the risk of failing to achieve business objectives control environment at each business unit. Each review is carried andcan only provide reasonable and not absolute assurance out by the Group Head of Internal Audit and Risk Assurance, who is against material misstatement or loss. It is tested and developed independent of that business unit. The results of these reviews are asappropriate by the Group Head of Internal Audit and Risk communicated to the Audit and Risk Committee. Assurance working in conjunction with the Audit and RiskCommittee. The Board has carried out a robust assessment in order to identify and evaluate what it considers to be the principal risks faced by The control framework as outlined above gives reasonable the Group and has also assessed the adequacy of the actions assurance that the structure of controls in operation is appropriate taken to manage these risks. This process has been in place for to the Group’s situation and that risk is kept to acceptable levels the period under review and up to the date of the approval of the throughout the Group. Annual Report and Accounts. The principal risks are disclosed onpages36 to 40. Takeover directive Share capital structures are included in the Directors’ Report The Group’s insurance continues to be managed and co-ordinated onpages 97 and 98. centrally with the assistance of insurance brokers. This gives the Group full visibility of both claims history and the insurance Approved by the Board of Directors on 8 June 2022 and signed industry’s perception of the Group’s overall risk via the respective onits behalf by: insurance premiums. The Company examines the size and trend of these premiums and the extent to which it can mitigate the risk and reduce the overall risk burden in the business by considering the appropriate level of insurance deductible and the potential Gary Kennedy benefit of self-insurance in some areas. Chair 8 June 2022 Annual Report and Accounts 2022 Norcros plc 69 Corporate governance ## Audit and Risk Committee report ## Monitoring the Company’s ## reporting and risk management. Responsibilities The Committee’s Terms of Reference are in compliance with the UK Corporate Governance Code 2018, and provide full details of its role and responsibilities. A copy can be obtained from the Company’s website, www.norcros.com. The Committee is a sub-committee of the Board whose main David McKeith responsibilities include: Chair of the Audit • monitoring the integrity of the financial statements of the andRiskCommittee Company and any formal announcements relating to the Company’s financial performance, and reviewing significant financial reporting judgements contained in them; During the year, the Committee continued to focus on oversight and monitoring of key risks and risk management • providing advice (where requested by the Board) on whether policies and procedures. the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information Role of the Audit and RiskCommittee necessary for shareholders to assess the Company’s position The main responsibilities of the Audit and Risk Committee are: and performance, business model and strategy; • reviewing the Company’s financial reporting; • reviewing the Company’s internal financial controls and internal control and risk management systems; • monitoring the Company’s risk management and internal control procedures; • monitoring and reviewing the effectiveness of the Company’s Internal Audit function; • overseeing the appointment and work of the external auditor; • at the appropriate time, conducting the tender process and making recommendations to the Board about the appointment, • overseeing the work of Internal Audit and Risk re-appointment and removal of the external auditor, and Assurance; and approving the remuneration and terms of engagement of the • advising the Board on whether the Annual Report external auditor; andAccounts are fair, balanced and understandable. • reviewing and monitoring the external auditor’s independence and objectivity; Members • reviewing the effectiveness of the external audit process, taking During the year to 31 March 2022, the Committee has consisted into consideration relevant UK professional and regulatory only of independent Non-executive Directors. Biographies of requirements; all members of the Committee appear on pages 64 and 65. On • developing and implementing policy on the engagement of the 15April 2021, David McKeith assumed the role of Acting Board external auditor to supply non-audit services, ensuring there is Chair following Mark Allen’s decision to step down from the Board. prior approval of non-audit services, considering the impact this David remained in this role until the appointment of Gary Kennedy may have on independence, taking into account the relevant as Board Chair on 8 December 2021. regulations and ethical guidance in this regard, and reporting The Chair of the Committee, David McKeith, is considered to have tothe Board on any improvement or action required; and recent and relevant financial experience as he is a fellow of the • reporting to the Board on how it has discharged its responsibilities. Institute of Chartered Accountants in England and Wales and a former senior partner of PricewaterhouseCoopers LLP. He also acted as chair of the audit committee for Sportech plc, where he was a non-executive director until he resigned from that position inAugust 2016. The Board is satisfied that the Committee has the appropriate level of expertise to fulfil its Terms of Reference. The Committee reviewed its own Terms of Reference, performance and constitution during the year. Norcros plc Annual Report and Accounts 202270 Significant financial reporting matters in the 2022 Fair, balanced and understandable The Committee formally reviews the Company’s annual and Annual Report interim financial statements and associated announcements, The significant financial reporting matters that the Committee and considers significant accounting principles, policies and considered in the year are detailed below: practices and their appropriateness, financial reporting issues and Reporting of COVID-19 significant judgements made, including those summarised above. COVID-19 continued to have an impact (albeit reducing) on both The Committee also advises the Board on whether it considers operational decisions and financial reporting in 2022. The Group that the Annual Report and Accounts, taken as a whole, is fair, has reported the impacts of COVID-19 on the business in this Corporate governance balanced and understandable, and provides the necessary and the prior years’ Annual Report and Accounts and on the information for shareholders to assess the Company’s financial actions taken by management throughout the pandemic. The position and performance, strategy and business model. Strategic Report on pages 2 to 62 includes commentary on the impacts and actions on employees, operations, financing and The Committee concluded that these disclosures, and the commercial trading. processes and controls underlying their production, meet the latest legal and regulatory requirements for a listed company The Committee is of the view that the commentary provided by and that the 31 March 2022 Annual Report and Accounts are fair, management is fair, balanced and understandable and provides balanced and understandable. shareholders and stakeholders with clear and timely information on any COVID-19 impacts on trading and the Group’s financial liquidity. Meetings of the Committee Going Concern and Viability Statement The Committee met formally three times during the year ended The Group has prepared a Going Concern and Viability Statement 31 March 2022. By invitation, the Board Chair, Chief Executive reflecting the potential impact of principal risks and uncertainties, Officer, Chief Financial Officer, Company Secretary, Group including any future COVID-19 pandemic related disruption, on Head of Internal Audit and Risk Assurance and Group Financial liquidity and solvency. This has been performed by modelling a Controller also attended each of these meetings together with the reasonable worst-case scenario and then applying a reverse stress engagement partner and other members of the audit team from test on the Group’s current forecasts. Further details are included the external auditor. on page 41 and on page 112. The Committee may invite other individuals either from within the The Committee, alongside the Board, has reviewed and Company or external technical advisers to attend meetings to considered the detailed forecast scenarios and agrees with provide information or advice as it sees fit. management’s conclusions. At each meeting the Committee had the opportunity to discuss Defined benefit pension plan liabilities matters with the external and internal auditor without management The Group’s UK defined benefit pension scheme is significant both being present. The Chair of the Committee also has regular in terms of its context in the overall Balance Sheet and the results discussions with the external audit partner outside of the formal of the Group. The Group’s UK defined benefit pension scheme Committee process, and he met with the Group Head of Internal (ascalculated under IAS 19R) shows a surplus of £19.6m at Audit and Risk Assurance without management being present. 31March 2022 from a deficit position of £18.3m at 31 March 2021. At each of its meetings the Committee reviews any financial The valuation of the present value of scheme liabilities involves communications issued to the market. significant judgement and expertise particularly in respect of the assumptions used. In order to value the liabilities, management has engaged an independent firm of qualified actuaries, Isio (formerly KPMG Pensions). The Committee reviewed the outputs from this work and benchmarked the assumptions, particularly the net discount rate, with those applied by other companies with defined benefit pension schemes with similar characteristics and having the same measurement date. The Committee concurred with the assumptions put forward by management to value the liabilities. The Committee considered the approach and judgement taken by management in determining the value of the provision and concurred with management’s view. Annual Report and Accounts 2022 Norcros plc 71 Corporate governance ## Audit and Risk Committee report continued Principal activities of the Audit and Risk Committee during the year A wide variety of issues were addressed in the year; they are summarised in the table below: Area Activities Financial reporting Review of the Company’s trading updates and other financial communications Review of the Company’s interim results for the six months ended 30 September 2021 Review of the Company’s Annual Report and Accounts for the year ended 31 March 2022, including consideration of: • significant financial reporting matters; • whether the Annual Report and Accounts are fair, balanced and understandable; and • the requirements of the going concern assessment and Viability Statement Review of changes to corporate reporting requirements Review of the potential further impairment of assets at Johnson Tiles UK due to the impact of the energy prices Review of onerous lease provision External audit Review of the external auditor’s proposed audit work plan for the year ended 31 March 2022, including its assessment of the principal financial reporting risks Review of the external auditor’s terms of engagement and proposed fees Assessment of the external auditor’s independence, objectivity, qualifications and expertise, including a review ofits internal quality control checks Review of the findings from the external audit for the year ended 31 March 2022 Internal audit Review of the internal audit work programme for 2021/22 Approval of the annual internal audit programme for 2022/23 Review of current internal audit resource levels Assessment of the work carried out to test and review internal controls and IT security, together with the status ofrecommendations identified Review of findings and agreed actions arising from internal audit assignments Compliance Review of the whistleblowing incidents log Review of the fraud and attempted fraud log Review of the data protection log including data incidents, data subject access requests, etc. Risk management Review of the Group’s reported principal risks and uncertainties Approval of the addition of environmental, social and governance (ESG) as a principal risk including defining itsrisk appetite level Review of the actions taken by the Group to manage risks arising from ESG risks including climate change Governance Conducted an appraisal of the performance of the Committee Review of the Group’s policy in respect of the employment of former employees of the external auditor Review of the Group’s policy in respect of the engagement of the external auditor for non-audit services andnon-audit services provided by the external auditor during the year Review of the Committee’s Terms of Reference and constitution in line with current best practice Norcros plc Annual Report and Accounts 202272 Internal audit framework Risk management framework The Group has a dedicated Group-wide Internal Audit and Risk Our risk management framework is highlighted on page 35 of our Assurance function that is led by an experienced Group Head of Strategic Report. The Audit and Risk Committee’s role in the risk Internal Audit and Risk Assurance. This role is supported by a small management framework can be summarised as: dedicated internal audit team based in South Africa focused on 1. review of current and future (emerging) risk through the the particular risks faced by the Group’s retail and manufacturing discussion of risk and mitigating actions with divisional operations in South Africa. Internal audit resources are kept under management in annual strategic reviews; constant review to ensure an appropriate level of independent assurance is obtained by the Committee. 2. annual review of the risk management reporting process and Corporate governance associated outputs to ensure they are robust and effective and The Group operates a rolling twelve-month audit plan prepared include strategic and operational risks that could threaten the by the Group Head of Internal Audit and Risk Assurance, which business model and future strategy; and is based on risk assessments carried out by the Group, includes senior management input, and is reviewed and approved by 3. review of the Annual Report to ensure that it is a fair reflection the Committee. At each meeting, the Committee considers the of risk assessments undertaken. results of the audits undertaken during the preceding period and the adequacy of management’s response to matters raised. Internal control and risk management review Additionally, the related mitigations against issues and actions raised The Board has overall responsibility for the Group’s system from these audits are systematically followed up in subsequent of internal control and risk management and for reviewing its Committee meetings until they are adequately resolved. effectiveness. The internal control systems are designed to meet the needs of the Group and to manage rather than eliminate the The Group control and risk self-assessment questionnaires, which risk of failure to achieve business objectives. Such systems can are completed annually by each business unit, are reviewed by the only provide reasonable and not absolute assurance against Group Head of Internal Audit and Risk Assurance and the Group material misstatement or loss. Financial Controller. This includes a management representation requiring each division to confirm that it has applied and followed The Committee undertakes a review, at least annually, of the all required policies and procedures in the year. Key control issues effectiveness of the Company’s system of internal controls that arise from this review are raised with the Committee, with and risk management and the Board will take into account the the results of this assessment also feeding into the audit plan Committee’s report, conclusions and recommendations in this andindividual audit engagements. regard. The Board confirms that it has reviewed the effectiveness of the internal control system, including financial, operational and Group Internal Audit and Risk Assurance activities compliance controls and risk management in accordance with the during the year UK Corporate Governance Code, for the period from 1 April 2021 The Group Internal Audit and Risk Assurance team provided to the date of approval of the Annual Report and Accounts for the assurance across a wide range of risks during the year in line year ended 31 March 2022. with the standards set out in the approved audit charter. The annual audit plan included Business Reviews of operational units, Fraud and whistleblowing assessing the effectiveness of key internal controls in place over The Group maintains a whistleblowing policy and engages two selected systems and processes. In South Africa (SA), the primary independent confidential whistleblowing service providers, focus was on the controls in place at retail outlets with completion one covering South Africa specifically and the other covering of a cycle of operational reviews across all stores. The SA team all other locations. Reports on the use of these services, any was expanded during the year along with the audit plan, which significant concerns that have been raised, details of investigations also covers SA Head Office financial and other risk-based reviews. carried out and any actions arising as a result are reported to the The plan also covered following up on previous audits to confirm Committee at each meeting. management’s progress with agreed actions. The Committee also receives papers on incidents of fraud or Other key activities included: sourcing and implementation of an attempted fraud and reviews them at each meeting. At least online awareness training programme for all employees covering annually, the Committee conducts an assessment of the anti-bribery, information security and data protection, liaison with adequacy of the Group’s procedures in respect of compliance, our insurers on a range of risk management projects including whistleblowing and fraud. cyber security and business continuity and disaster recovery planning, facilitation of annual control self-assessments covering financial and information security controls and other key risks, data protection controls validation and anti-bribery and corruption controls validation. Summaries of all findings and actions, and updates on all audit work and other key activities, are provided at each Audit and Risk Committee meeting. Annual Report and Accounts 2022 Norcros plc 73 Corporate governance ## Audit and Risk Committee report continued External auditor The Committee has primary responsibility for making recommendations to the Board on the appointment, re-appointment and removal of the external auditor. The Committee keeps under review the scope and results of the audit and its effectiveness, aswell as the independence and objectivity ofthe auditor. The Committee is aware of the need to safeguard the auditor’s objectivity and independence and the issue is discussed by the Committee and periodically with the audit engagement partner from BDO LLP. In accordance with Auditing Practices Board requirements, external auditor independence is maintained by the rotation of the engagement partner every five years. The current audit engagement partner, Gary Harding, was appointed following the change of auditor in 2020. Policies on the award of non-audit work to the external auditor andthe employment of ex-employees of the external auditor are in place and reviewed annually. Additionally, the approval of the Chair of the Committee is required prior to awarding high value non-audit work to the external auditor, and the non-audit work planned and performed is monitored by the Committee at each meeting. There was no non-audit work awarded to the external auditor during the year. The external audit starts with the design of a work plan that addresses the key risks of the audit which were confirmed at the March 2022 meeting of the Committee. The Committee also agreed the terms of engagement and the fees payable for the engagement. At each meeting the Committee had the opportunity to discuss matters with the external auditor without management being present. The Chair of the Committee also has regular discussions with the external audit partner outside the formal Committee process. For the year ended 31 March 2022, the Committee was satisfied with the independence, objectivity and effectiveness of the relationship with BDO LLP as external auditor. External audit tender and appointment of auditor The external auditor, BDO LLP, was appointed at the 2020 AGM inJuly 2020 following a competitive tender process. On behalf of the Audit and Risk Committee. David McKeith Chair of the Audit and Risk Committee 8 June 2022 Norcros plc Annual Report and Accounts 202274 ## Nomination Committee report ## Evaluating the Board and succession ## planning for a sustainable future. The Terms of Reference of the Committee are available for Corporate governance inspection upon written request to the Company and on its website at www.norcros.com. The Nomination Committee and the Board seek to maintain an appropriate balance between the Executive and Non-executive Directors. The Nomination Committee is chaired by the Chair of Gary Kennedy the Board and consists of all the Non-executive Directors. The Chair of the Board Chair will not chair the Committee when it deals with the NominationCommittee appointment of a successor to that role. During the year under review, the Nomination Committee led the process to find a new Non-executive Director to serve as Role of the Nomination Committee Board Chair. The main responsibilities of the Nomination Committee are: Another principal activity of the Committee was the appointment • evaluating the balance of skills, knowledge, independence, to the Board of James Eyre, as Group Chief Financial Officer. The diversity and experience of the Board; Committee also oversaw the creation of the new senior executive level role of Business Director – UK. • succession planning for the Board and at senior management level; The Nomination Committee also evaluates the balance of skills, knowledge, diversity and experience of the Board. If a new • determining the scope of the role of a new Director and the skills appointment to the Board is required, the Committee will use the and time commitment required and making recommendations appropriate selection process and will determine the scope of the to the Board about filling Board vacancies; and role of a new Director and the skills and time commitment required • appointing additional Directors. and make recommendations to the Board about filling Board vacancies and appointing additional Directors. In selecting candidates due regard will be given to the balance of the Board, and to the benefits of different backgrounds and experience, and to diversity on the Board including gender. Appointments will be made on the basis of merit and the most appropriate experience against objective criteria in the best interests of shareholders. The Board endeavours to ensure that these principles are applied throughout the Group. In the year under review the Committee has, in addition to its routine responsibilities, continued to focus on succession planning issues, and it is satisfied that there are in place appropriate plans for succession planning for Board members and senior management across the Group. Gary Kennedy Chair of the Nomination Committee 8 June 2022 Annual Report and Accounts 2022 Norcros plc 75 Corporate governance Remuneration Committee annual statement 2022 # Fairly rewarding contribution to the success of the Group. **Alison Littley** Chair of the Remuneration Committee ![img-16.jpeg](img-16.jpeg) ## Role of the Remuneration Committee The main responsibilities of the Remuneration Committee are to: - determine the remuneration policy and keep it under review, including consulting with, and obtaining approval from, shareholders as appropriate; - implement the approved remuneration policy as regards Executive Director remuneration, benefits and incentives, including the setting of targets for, and determination of payouts of, all incentive arrangements; - ensure alignment of the remuneration structure for senior executives to the Executive Director remuneration policy, including approval of changes to packages; - keep under review the Executive Director remuneration policy (and the approach to implementation) in the context of pay policies and practices across the wider workforce, and the Group's culture; and - prepare the Annual Remuneration Report, to be approved by the members of the Company at the Annual General Meeting. Dear shareholders, On behalf of the Board, I am pleased to present the Directors' Remuneration Report for the year ended 31 March 2022. Firstly, I would like to acknowledge the feedback received from shareholders over the last twelve months in relation to remuneration outcomes for the year ended 31 March 2021. The Board was naturally disappointed as to the voting outcome on the resolution to approve last year's Remuneration Report. We engaged with our principal shareholders prior to the AGM and subsequently, to understand their specific perspectives on our approach. The Committee discussed in detail the feedback received through this helpful process, for which I am grateful to those shareholders who contributed. Whilst there was some divergence in the views put forward, there was also consistency in the expectation that remuneration decisions be demonstrably aligned with the interests of wider stakeholder groups. The Committee has taken on board this feedback, and will strive to continue to balance this important perspective with its obligations, as steward of the Group, to ensure remuneration is: - fit for purpose; - competitive without being excessive; - able to incentivise and fairly reward delivery of our short and longer-term ambitions; and - applied consistently throughout the Group. I hope this report clearly explains how we have sought to achieve this aim for the year in review and the current financial year. ## The performance context for remuneration in the year Following the unprecedented challenges posed by the COVID-19 pandemic over the past two financial years, the year ended 31 March 2022 saw the Group continue its recovery off the solid platform embedded by swift management actions during 2020 and 2021. As reported earlier in this Annual Report, highlights include: - strong market outperformance with a significant increase in revenue compared to 2021; 22.2% on a reported basis and 20.6% on a constant currency basis; - record underlying operating profit of £41.8m; an increase of 23.7% compared to 2021; - a very strong balance sheet with £8.6m net cash (pre-IFRS 16), significant liquidity and funding headroom; and - total dividend of 10.0p per share, reflecting the Board's confidence in the Group's prospects. This performance is testament to the Group's proven business model and leading customer service proposition, the proactive management and the leadership of our CEO and CFO, and the commitment of all of our people. 76 Norcros plc Annual Report and Accounts 2022 ## Remuneration for the year in review Due to the continued strong performance summarised above, the Committee is pleased to note that the operating profit targets set for the annual bonus were achieved in full, resulting in the bonus payments for our Executive Directors detailed on page 89. In keeping with our normal practice, the Committee reviewed the formulaic outcome in the context of alignment with the Group's underlying performance, as well as the experience of other stakeholder groups. Noting the recent feedback from shareholders, the Committee's assessment of this outcome is explained in detail below: | Aspect reviewed | Evaluation by the Committee | | --- | --- | | The toughness of targets set at the start of the year | The targets were set at the start of the financial year (at a time of ongoing uncertainty) to span an appropriate range of possible performance outcomes identified in the budgeting process. The Committee reviewed the actual outturn in the context of the assumptions underlying the budgeting process at the time, and concluded that these – and therefore the targets built off them – remained representative of trading conditions. | | The Group's longer-term performance trajectory | Notwithstanding the formulaic outcome, the Committee evaluated performance in the context of this being a record performance for the Group, and concluded that the formulaic payout of 100% was warranted. | | Shareholder experience | We continued to deliver against our stated and progressive dividend policy. The Group's TSR has outperformed the FTSE All-Share Construction and Materials Index over the one, three and five-year periods to 31 March 2022. | | Employee experience | We continued to prioritise the safety, health and wellbeing of all our people and the wider communities in which we operate. This is detailed on pages 46 and 47. During the year, we protected jobs, did not furlough any staff, and did not make use of government support. | | Customer experience | We maintained the highest standards of service to our customers, particularly given the global challenges to supply chains. | In this context, the Committee is satisfied that the bonus targets were challenging and that the outcomes reflect the exceptional leadership and hard work of the Executive Directors and the wider workforce to produce these excellent results, notwithstanding well-documented supply chain challenges and exceptional cost inflation. Owing to the impact of the COVID-19 pandemic on the Group's EPS performance in the 2020 and 2021 financial years, the three-year cumulative EPS performance targets for the 2019 APSP awards were not achieved, and therefore these will lapse in full. APSP awards for the year in review were made in July 2021 and suitably challenging EPS targets set (see page 90 for further details). The Committee concluded that no discretion was required to be exercised to ensure alignment of incentive outcomes for the year in review with the Group's performance over the relevant period. ## Remuneration for the year to 31 March 2023 ### The workforce During the year in review, the Group's workforce remuneration practices were reviewed against our philosophy that pay should be competitive without being excessive; be aligned with our strategy; and enable Norcros to attract, motivate and retain talent to support delivery of our strategic objectives and longer-term value creation for shareholders. This review identified that our pay levels and practices have fallen, in some cases significantly, behind competitive market norms; as Norcros has evolved over time in terms of market capitalisation, scale and complexity. The below-market positioning of pay is inconsistent with our culture and values of setting total remuneration at around market median levels. In this context, correctional adjustments to salary levels have been implemented across the Group with effect from 1 April 2022, to bring these more into line with market and recognise individuals' relative experience, performance and contribution to the ongoing success of Norcros. This also includes a material cost of living increase for FY 2023 of circa 5% on average across the workforce. ### The Executive Directors Against this backdrop, the Committee has also reviewed its approach to executive remuneration. The Committee's review was informed by a number of relevant reference points, including: our stated pay principles; the approach taken for the wider workforce; and our recent experience of competing for talent in the recruitment into our CFO and Chair roles. To validate the conclusions of the review, a detailed benchmarking exercise of CEO and CFO remuneration levels was also undertaken. The Committee concluded that the structure of executive remuneration remains appropriate within the life of the current policy, but that the base salaries of the Executive Directors (and therefore the fair value of total remuneration) are misaligned with their performance and contribution to the leadership of the Group. Salary inflation has been no more than the average inflationary increase awarded to the wider UK workforce, since Executive Director base salaries were last adjusted following a review of fixed pay levels in 2014. As a result, pay levels were far below market norms and not easily brought into line over time. Consistent with the approach of making correctional salary adjustments below Board level, the Committee therefore engaged with its largest shareholders in early 2022 on the following changes to Executive Director remuneration: | | Current salary (effective 1 April 2021) | New salary (effective 1 April 2022) | Proposed salary (effective 1 April 2023) | | --- | --- | --- | --- | | **CEO – Nick Kelsall** | £388,000 | £476,000 22.7% increase | | | **CFO – James Eyre** | £261,000 | £290,000 11.1% increase | £320,000 10.3% increase, subject to continued performance | Continued in section 2 Annual Report and Accounts 2022 Norcros plc 77 Corporate governance # Remuneration Committee annual statement 2022 continued ## Remuneration for the year to 31 March 2023 continued ### The Executive Directors continued Moving the CEO's salary broadly into line with median in one step is considered by the Committee to reflect Nick Kelsall's considerable experience and tenure as CEO, effective leadership, consistently strong performance and his ongoing valued contribution to the Group. The proposed two-stage increase for James Eyre is considered appropriate in enabling the Committee to assess the second phase of the adjustment in the context of James Eyre's ongoing development and contribution in his role as CFO. The Committee has also accepted a proposal from the CEO to voluntarily reduce his pension contribution to 8% of salary (i.e. the UK workforce average) from 1 January 2023. This follows a previous reduction in Nick Kelsall's pension contribution to 15% of salary (from that to which he had been contractually entitled and reflected his membership previously of the Group's UK defined benefit scheme), following the review of fixed pay levels in 2014 and prior to the evolving market focus on aligning executive pensions with the majority of employees. James Eyre's pension contribution was reduced from 15% to 8% of salary when he was appointed as CFO. No changes are proposed to the annual bonus or APSP in FY 2023. The Committee believes that, in Nick Kelsall and James Eyre, Norcros has two talented, driven and very committed Executive Directors, who continue to perform strongly and lead the delivery of the Group's strategy. We are mindful of the optics of large increases in the current environment, but believe our proposals are fair, equitable with the approach adopted for the wider workforce, and not excessive in terms of absolute salary levels or the overall remuneration opportunity. ### The Board Chair The Committee is also responsible for setting the remuneration of the Board Chair, a role to which Gary Kennedy was appointed in December 2021. In doing so, it adopts a consistent set of principles to those for executive and workforce remuneration. Therefore, the Committee recently reviewed the Board Chair's annual fee in the context of Gary's proven business leadership credentials and broad range of relevant experience, and concluded that it should be brought more into line with the median for companies of comparable scale, complexity and sector. The Committee has therefore resolved to increase the Board Chair's fee from £132,612 p.a. to £145,000 p.a., from 1 April 2022. ## Remuneration disclosure This Directors' Remuneration Report has been prepared in accordance with the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The report meets the requirements of the UK Listing Authority's Listing Rules and the Disclosure and Transparency Rules. In this report, we describe how the principles of good governance relating to Directors' remuneration, as set out in the UK Corporate Governance Code (the Code), are applied in practice. The Remuneration Committee confirms that throughout the financial year the Group has complied with these governance rules and best practice provisions set out in the Code except as regards the alignment of Executive Director pension contributions with those for the workforce as a whole. As described elsewhere in this Report, the CFO's pension contribution is aligned with the average for the wider UK workforce, and the CEO has volunteered a reduction to his pension contribution to bring this in line with the UK workforce average from 1 January 2023. ## Review of remuneration policy The year ending 31 March 2023 is the final year of the three-year life of our current remuneration policy. In keeping with the requirement to put our remuneration policy to a new binding vote at the 2023 AGM, the Committee will be conducting a complete review of the policy later this year in line with a broader review of the entire workforce to ensure that the philosophy of pay and reward across the Group is consistent. I look forward to engaging with shareholders throughout this process. ## Concluding remarks On behalf of the Committee, we hope that we can count on your support for the resolution to approve this Directors' Remuneration Report at the 2022 AGM, where I will be available to answer any questions in relation to this report. **Alison Littley** Chair of the Remuneration Committee 8 June 2022 78 Norcros plc Annual Report and Accounts 2022 ## Directors’ remuneration policy report Directors’ remuneration policy This section of the report sets out the remuneration policy for Executive Directors and Non-executive Directors, which was approved by a binding shareholder vote at the 2020 AGM. The policy came into effect on that date and will remain effective for up to a three-year period ending on the date of the 2023 AGM. Minor amendments have been made to the drafting of this policy report from the version approved by shareholders in 2020 (which can be found in the 2020 Annual Report) including: (i) the description of the opportunity under Pension, to reflect the implementation of Policy during the 2023 financial year, (ii) the data used in the pay-for-performance scenarios; (iii) page references; and (iv) the section on Non-executive Director letters of appointment, to reflect changes in Board composition during the 2022 financial year. Corporate governance Executive Director remuneration policy table This policy has been designed to support the principal objective of enabling the Group to attract, motivate and retain the people it needs to maximise the value of the business. Assessment of policy against the 2018 UK Corporate Governance Code (the Code) The Committee believes that the proposed policy complies with Risk: The Committee has ensured that remuneration the six pillars set out in paragraph 40 of the Code. arrangements do not encourage and reward excessive risk taking by setting targets to be stretching and achievable, with Clarity: The Committee believes that the disclosure of the discretion to adjust formulaic bonus and APSP outcomes. remuneration arrangements is transparent with clear rationale provided on its maintenance and any changes to policy. The Predictability and proportionality: The link of the performance Committee remains committed to consulting with shareholders measures to strategy and the setting of targets balances on the policy and its implementation. predictability and proportionality by ensuring outcomes do not reward poor performance. Simplicity: The policy and the Committee’s approach to implementation is simple and well understood. The performance Culture: The policy is consistent with the Group’s culture as well measures used in the incentive plans are well aligned to the as strategy, therefore driving behaviours that promote the long- Group’s strategy. term success of the Company for the benefit of all stakeholders. Component and objective Operation Opportunity Performance measures Base salary Generally reviewed each year, Salaries in respect of the year n/a withincreases effective 1 April with under review (and for the To enable the Group to reference to salary levels at other following year) are disclosed attract, motivate and FTSE companies of broadly similar inthe Annual Report retain the people it needs size or sector to Norcros. onRemuneration. to maximise the value of The Committee also considers Salary increases for Executive the business the salary increases applying Directors will normally not across the rest of the UK business exceed those of the wider when determining increases for workforce over the period ExecutiveDirectors. this policy will apply. Where increases are awarded in Base salary increases are applied excess of the wider employee inline with the outcome of the population, for example if annualreview. there is a material change in the responsibility, size or complexity of the role, the Committee will provide the rationale in the relevant year’s Annual Report onRemuneration. Pension Executive Directors receive pension The CEO currently receives n/a contributions (either as a direct a Company contribution To provide a level of payment or a cash allowance). of 15% of base salary and retirement benefit that has volunteered to reduce Base salary is the only element of is competitive in the this to 8% of salary – in remuneration that is pensionable. relevant market line with the UK workforce average – from 1 January 2023. The CFO receives a Company contribution of 8% of salary, in line with the UK workforceaverage. Executive Director appointments from 1April 2020 will receive aCompany contribution inline with that available for the wider workforce intherelevantmarket. Annual Report and Accounts 2022 Norcros plc 79 Corporate governance ## Directors’ remuneration policy report continued Executive Director remuneration policy table continued Component and objective Operation Opportunity Performance measures Benefits Executive Directors are provided Benefits may vary by role, and n/a with a company car (or a cash the level is determined each Provision of benefits allowance in lieu thereof) and year to be appropriate for the inlinewith the market medical insurance. Other benefits role and circumstances of each may be introduced from time to individual ExecutiveDirector. time to ensure the benefits package It is not anticipated that the is appropriately competitive and cost of benefits (as set out reflects the needs and circumstances in the Annual Report on of the Group and individual Remuneration) would increase ExecutiveDirector. materially over the period for which this policy will apply. The Committee retains the discretion to approve a higher cost in exceptional circumstances (e.g. relocation expenses or an expatriation allowance on recruitment, etc.) or in circumstances where factors outside the Company’s control have changed materially (e.g. market increases in insurance costs). | Annual bonus | Performance targets are set at the | Maximum opportunity: 100% | The bonus will be based primarily | | --- | --- | --- | --- | | andDeferred Bonus | start of the year and aligned with the | of base salary. | on the achievement of financial | | | annual budget agreed by the Board. | | performance targets but may, | Plan(DBP) Target opportunity: 50% of At the end of the year, the Committee from time to time, include non- base salary. | To focus Executive | determines the extent to which these | | financial performance measures | | --- | --- | --- | --- | | Directors on achieving | targets have been achieved. | For threshold performance, | (the weighting of which, if any, | | demanding annual | | thebonus payout is up to 25% | will be capped at 20% of the | 50% of the total bonus payment is targets relating to of maximum. total opportunity). Details of the paid in cash, and 50% is converted measures on which the bonus Group performance and into nil-cost options over Norcros will be based shall be disclosed encourage retention shares under the Deferred Bonus Plan in the relevant Annual Report (DBP). These options are exercisable onRemuneration. after three years, subject to | continued employment and malus (in | The Committee has discretion | | --- | --- | | whole or in part) during the deferral | to adjust the formulaic bonus | | period in the event of a material | outcomes (including down to zero) | | misstatement in accounting records, | within the limits of the scheme | | gross misconduct, calculation error | to ensure alignment of pay | | or corporate failure. | withperformance. | | Cash bonuses may be subject | Further details including targets | | to clawback over the deferral | attached to the bonus for the | | period insimilar circumstances as | year under review are given on | | identifiedabove. | page 89 of the Annual Report | onRemuneration. A payment equivalent to the dividends that would have accrued on deferred bonus awards that vest will be made to participants on vesting. | Approved Performance | APSP awards comprise annual | Maximum opportunity: 100% | Vesting of APSP awards is | | --- | --- | --- | --- | | Share Plan (APSP) | conditional awards of nil-cost options | of base salary. | dependent upon the Group’s | | | following the announcement of the | | financial performance over a | Threshold performance results To incentivise Executive Group’s final results. three-year period. Details of the in 25% vesting. Directors to deliver long- measures attaching to each Awards normally vest after three term performance by Details of actual APSP awards award cycle will be disclosed in years, subject to the achievement aligning their performance in respect of each year will be the relevant Annual Report on of a performance condition and with shareholders’ interests disclosed in the Annual Report Remuneration. At the start of continued employment with the on Remuneration. each cycle, the Committee will Group until the vesting date. determine the targets that will apply to an award. Norcros plc Annual Report and Accounts 202280 Component and objective Operation Opportunity Performance measures Approved Performance To the extent an award vests, If the performance targets are not Share Plan (APSP) Executive Directors will be required met at the end of the performance to hold net vested shares for period, awards will lapse. (continued) an additional holding period of The Committee has discretion twoyears. to adjust the formulaic APSP A payment equivalent to the outcomes within the limits of Corporate governance dividends that would have accrued the scheme if certain relevant on APSP awards that vest will be events take place (e.g. a made to participants on vesting. capital restructuring, a material acquisition/divestment, etc.) with APSP awards are also subject to any such adjustment to result in the malus over the vesting period revised targets being no more or and clawback over the holding less challenging to achieve. period (in both cases in whole or in part) in the event of a material The Committee will consult major misstatement in accounting records, shareholders on changes to the gross misconduct, calculation error APSP, although it retains discretion orcorporate failure. to make non-significant changes to the performance measure without reverting to a full shareholder vote. Further details, including the targets attached to the APSP in respect of each year, are disclosed in the Annual Report onRemuneration. SAYE An HMRC-approved scheme where Savings capped at the n/a employees (including Executive individual monthly limit set by To encourage the ownership Directors) may save up to the HMRC (or other such lower of Norcros plc shares individual monthly limit set by HMRC limit as the Committee may from time to time over three years. determine) from time to time. Options are granted at a discount of up to 20%. Shareholding Executive Directors are required to n/a n/a requirements retain at least 50% of any DBP or APSP awards that vest (net of tax) To align Executive Director until they have built up a personal | and shareholder interests | holding of Norcros plc shares worth a | | --- | --- | | and reinforce long-term | defined multiple of their salaries (of at | | decision making, including | least 100% of salary). | for a period following Details of the in-post shareholding cessation of employment requirements that apply to the Executive Directors are set out in the Annual Report on Remuneration. From 1 April 2020, Executive Directors will additionally be required normally to maintain a holding in Norcros plc shares for a period of two years after they cease to be a Director of the Group. For the first year this shareholding guideline will be equal to the lower of a Director’s actual shareholding at the time of their departure and the shareholding requirement in effect at the date of their departure, and for the second year 50% of that figure. The specific application of this shareholding guideline will be at the Committee’s discretion. Only shares that are held beneficially by an Executive Director or their spouse or partner, or nil-cost options granted under the DBP on or after 27 July 2017 count in the assessment of whether an Executive Director has met the required ownership level. Annual Report and Accounts 2022 Norcros plc 81 Corporate governance ## Directors’ remuneration policy report continued Notes to the policy table Payments from previous awards For the avoidance of doubt the Group will honour any commitment entered into, and Executive Directors will be eligible to receive payment from any award made, prior to the approval and implementation of the remuneration policy detailed in this report. Details of these awards are, and will be, disclosed in the Annual Report on Remuneration. Performance measure selection and approach to target setting The measures used in the annual bonus will be selected by the Committee to directly reinforce our medium-term growth-orientated strategy (see pages 18 and 19 for further details of the strategy; details of the measures selected for use in the bonus for the year in review and for the coming year are set out in the Annual Report on Remuneration). For the APSP, the Committee shall select measures that are transparent, objective and effective measures of performance that are in the long-term interests of all of our shareholders (further details of the APSP measures are set out in the Annual Report on Remuneration). Targets applying to the annual bonus and APSP are reviewed annually, based on a number of internal and external reference points. Annual bonus targets are aligned with the annual budget agreed by the Board. Annual bonus targets are considered to be commercially sensitive but will be disclosed retrospectively in next year’s Annual Report on Remuneration (see page 89 of the Annual Report on Remuneration). APSP targets reflect industry context, expectations of what will constitute appropriately challenging performance levels and factors specific to the Group. The Committee will determine the APSP targets at the time awards are made and these targets (along with other relevant details of the grant) will be disclosed in next year’s Annual Report on Remuneration. Differences from remuneration policy for other employees The remuneration policy for other employees is based on broadly consistent principles as described above. Annual salary reviews across the Group take into account Group performance, local pay and market conditions, and salary levels for similar roles in comparable companies. Executives and senior managers are eligible to participate in annual bonus schemes. Opportunities and performance measures vary by organisational level, geographical region and an individual’s role. Other members of the Group senior leadership team participate in the APSP on similar terms as the Executive Directors, although award sizes may vary by organisational level. All UK and Republic of Ireland employees are eligible to participate in the Group’s SAYE scheme on identical terms. Performance scenario charts Chief Executive Officer Chief Financial Officer Minimum Minimum 100% £555k 100% £326k On target On target 61% 13%26% £912k £543k 60% 13%27% Maximum 32%32%36% £1,507k Maximum 32%32%36% £906k | Maximum | | | Maximum | | | | --- | --- | --- | --- | --- | --- | | | 41%27%32% | £1,745k | | 41%28%31% | £1,051k | | +50% SPG | | | +50% SPG | | | Fixed pay APSP Total Annual bonus The graphs above provide estimates of the potential future reward opportunity for Executive Directors, and the potential mix between the different elements of remuneration under four different performance scenarios: “Minimum”, “On target”, “Maximum” and “Maximum + 50% share price growth”. This information is for the current financial year, as explained below. The potential opportunities illustrated above are based on the policy applied to the base salary at 1 April 2022. For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for the year to 31 March 2023. It should be noted that any bonus deferred into the DBP and APSP awards do not normally vest until the third anniversary of the date of grant. This is intended to illustrate the relationship between executive pay and performance. The values of the DBP and APSP assume no increase in the underlying value of the shares (except the APSP value under the “Maximum + 50% share price growth (SPG)” scenario) and actual pay delivered will further be influenced by changes in factors such as the Group’s share price and the value of dividends paid. Valuation assumptions The “Minimum” scenario reflects base salary, pension and benefits (i.e. fixed remuneration), being the only elements of the Executive Directors’ remuneration package not linked to performance. The “On target” scenario reflects fixed remuneration as above, plus target bonus payout (50% of salary) and APSP threshold vesting at 25% of the maximum award level. The “Maximum” scenario reflects fixed remuneration, plus full payout under all incentives (100% of salary under each of the annual bonus and APSP). The “Maximum + 50% share price growth” scenario reflects fixed remuneration, plus full payout under all incentives (100% of salary under each of the annual bonus and APSP). The value of the APSP additionally reflects 50% share price growth over the vesting period. Norcros plc Annual Report and Accounts 202282 Approach to Executive Director recruitment and remuneration External appointment In cases of hiring or appointing a new Executive Director from outside the Group, the Remuneration Committee may make use of all existing components of remuneration, as follows: Component Policy Base salary The base salaries of new appointees will be determined by reference to relevant market data, experience and skills of the individual, internal relativities and the current salary of the incumbent in the role. Corporate governance Where a new appointee has an initial base salary set below market, the Committee may make phased increases over a period of three years, subject to the individual’s development and performance in the role. Benefits As set out in the policy table, benefits may include (but are not limited to) the provision of a company car or car allowance, medical insurance, and any necessary expatriation allowances or expenses relating to an executive’s relocation. Pension New appointees will receive pension contributions into a defined contribution pension arrangement or an equivalent cash supplement, or a combination of both. Executive Director appointments from 1 April 2020 will receive a Company contribution in line with that available for the wider workforce in the relevant market. SAYE New appointees will be eligible to participate on identical terms to all other employees. Annual bonus The bonus structure described in the policy table will apply to new appointees. The maximum opportunity will be 100% of salary, pro-rated in the year of joining to reflect the proportion of that year employed. Performance measures may include strategic and operational objectives tailored to the individual in the financial year of joining. 50% of any bonus earned will be deferred into the DBP on the same terms as other Executive Directors. APSP New appointees will be granted annual awards under the APSP on the same terms as other Executive Directors, asdescribed in the policy table. In exceptional circumstances, such as to facilitate the recruitment of an external hire, the Committee may, in its absolute discretion, make awards up to 150% of salary. In determining the appropriate remuneration structure and level for the appointee, the Remuneration Committee will take into consideration all relevant factors to ensure that arrangements are in the best interests of our shareholders. It is not the intention of the Committee that a cash payment such as a “golden hello” would be offered. However, the Committee may make an award in respect of a new appointment to “buy out” incentive arrangements forfeited on leaving a previous employer, over and above the approach and award limits outlined in the table above. Any such award will be made under existing incentive structures, where appropriate, and will be subject to the normal performance conditions of those incentives. The Committee may also consider it appropriate to make “buy out” awards under a different structure, using the relevant Listing Rule, where necessary, to replicate the structure of forfeited awards. Any “buy out” award (however this is delivered) would have a fair value no higher than that of the awards forfeited, taking into account relevant factors including performance conditions, the likelihood of those conditions being met and the proportion of the vesting period remaining. Details of any such award will be disclosed in the first Annual Report on Remuneration following its grant. Internal promotion to the Board In cases of appointing a new Executive Director by way of internal promotion, the policy will be consistent with that for external appointees detailed in the table above (i.e. excluding the flexibility to make “buy out” awards). Where an individual has contractual commitments made prior to their promotion to the Board, and it is agreed that a commitment is to continue, the Group will continue to honour these arrangements even if there are instances where they would not otherwise be consistent with the prevailing Executive Director remuneration policy at the time of promotion. Service contracts and policy for payment for loss of office Executive Directors have signed rolling contracts, terminable on twelve months’ notice by either the Group or the Director. The Group entered into a contract with Nick Kelsall on 1 April 2011, and with James Eyre on 1 August 2021. Copies of these contracts are available to view at the Group’s registered office. The Committee’s policy for Directors’ termination payments is to provide only what would normally be due to Directors had they remained in employment in respect of the relevant notice period, and not to go beyond their normal contractual entitlements. Any incentive arrangements will be dealt with subject to the relevant rules, with any discretion exercised by the Committee on a case by case basis taking into account the circumstances of the termination. Termination payments will also take into account any statutory entitlement at the appropriate level, to be considered by the Committee on the same basis. The Committee will monitor and where appropriate enforce the Directors’ duty to mitigate loss. When the Committee believes that it is essential to protect the Group’s interests, additional arrangements may be entered into (for example post-termination protections above and beyond those in the contract of employment) onappropriate terms. Under the service contracts for each Executive Director, the Company has the discretion to terminate the employment lawfully without any notice by paying to the Director a sum equal to, but no more than, the salary and other contractual benefits of the Director. The payment would be in respect of that part of the period of notice which the Director has not worked, less any appropriate tax and other statutory deductions. The Director would be entitled to any holiday pay which may otherwise have accrued in what would have been the notice period. The Company may pay any sums due under these pay in lieu of notice provisions as one lump sum or in instalments of what would have been the notice period. If the Company elects to pay in instalments, the Director is under an express contractual duty tomitigate their losses and to disclose any third party income they have received or are due to receive. Annual Report and Accounts 2022 Norcros plc 83 Corporate governance ## Directors’ remuneration policy report continued Service contracts and policy for payment for loss of office continued The Company reserves the right to reduce the amount of the instalments by the amount of such income. The Committee would expect to include similar pay in lieu of notice provisions in any future Executive Director’s service contract. In the case of Nick Kelsall’s service contract, these pay in lieu of notice provisions can also be activated by Mr Kelsall if he exercises his contractual right to terminate his employment upon a change of control of the Company or a transfer of his employment to an acquirer of the Company’s business. TheCommittee would not envisage including a similar right to terminate in any future Executive Director’s service contract, andthereisno such provision in James Eyre’s service contract. Also under their service contracts, if the Director’s employment is terminated for whatever reason, they agree that they are not entitled to any damages or compensation to recompense them for the loss or diminution in value of any actual or prospective rights, benefits or expectations under or in relation to the APSP, the DBP, the SAYE plan or the annual discretionary bonus scheme. This is without prejudice to any of the rights, benefits or entitlements which may have accrued to the Director under such arrangements at the termination of employment. The table below summarises how awards under the annual bonus, DBP and APSP are typically treated in specific circumstances, withthefinal treatment remaining subject to the Committee’s discretion: Reason for cessation Calculation of vesting/payment Timing of payment/vesting Annual bonus Voluntary resignation No bonus paid. n/a orsummary dismissal All other circumstances Bonuses are paid only to the extent that the associated objectives, as At the normal payment set at the beginning of the plan year, are met. Any such bonus would date unless the Committee, normally be paid on a pro-rata basis, taking account of the period in its absolute discretion, actually worked. determines that awards should be paid out on cessation of employment. DBP Summary dismissal Awards lapse. n/a Injury, illness, disability, Unvested awards vest. At the normal vesting date death, retirement with unless the Committee, the agreement of the in its absolute discretion, Group, redundancy or determines that awards employing company should vest on cessation leaving the Group ofemployment. Voluntary resignation Unvested awards lapse unless the Committee, in its absolute discretion, If the Committee determines or other reason not determines that an award should vest. that an award should vest, stated above then awards will vest on their normal vesting date, unless the Committee, in its absolute discretion, determines that awards should vest on cessation of employment. Change of control Unvested awards will be pro-rated for the portion of the vesting On change of control. period elapsed on change of control, unless the Committee, in its absolute discretion, determines otherwise. Awards may alternatively be exchanged for new equivalent awards in the acquirer, where appropriate. APSP Summary dismissal Awards lapse. n/a Voluntary resignation, Unapproved option awards lapse unless the Committee, in its absolute On cessation of employment injury, retirement with discretion, determines otherwise. Awards that do not lapse will continue unless the Committee, the agreement of the to be eligible to vest on the normal vesting date, subject to being pro- in its absolute discretion, Group, redundancy or rated for time to the date of cessation of employment and performance determines otherwise. other reason that the over the complete performance period. The Committee may, in its Committee determines absolute discretion, determine that awards shall vest on cessation in in its absolute discretion exceptional circumstances, subject to being pro-rated for time and performance to the date of cessation of employment. Approved option awards lapse, except in the case of retirement with the agreement of the employer, when awards will vest, subject to pro-rating as stated above. Any awards in a holding period will normally remain subject to the holding requirement until the period ends. Norcros plc Annual Report and Accounts 202284 Reason for cessation Calculation of vesting/payment Timing of payment/vesting APSP (continued) Death Unapproved option awards vest in full but may be subject to the Immediately. application of the performance conditions attached to them. Approved option awards are pro-rated for time and performance to that date. Change of control Unapproved option awards vest in full, but may be subject to the On change of control. application of the performance conditions attached to them. Approved Corporate governance option awards are pro-rated for time and performance to that date. Any awards in a holding period will normally be released. Awards vest, subject to being pro-rated for time and performance to the date of cessation of employment, unless the Committee determines otherwise. Awards may alternatively be exchanged for new equivalent awards in the acquirer, where appropriate. External appointments Executive Directors are permitted to take up non-executive positions on the boards of other companies, subject to the prior approval of the Board. The Executive Directors may retain any fees payable in relation to such appointment. Details of external appointments and the associated fees received are included in the Annual Report on Remuneration. Consideration of employment conditions elsewhere in the Group The Group seeks to promote and maintain good relations with employees and (where relevant) their representative bodies as part of its broader employee engagement strategy. See pages 48 and 49. The Committee is mindful of salary increases applying across the rest of the business in relevant markets when considering salaries for Executive Directors but does not currently consult with employees specifically on executive remuneration policy and framework. Consideration of shareholder views The Committee considers shareholder views received during the year and at the Annual General Meeting each year, as well as guidance from shareholder representative bodies more broadly, in shaping remuneration policy. The vast majority of shareholders continue to express support for remuneration arrangements at Norcros. The Committee keeps the remuneration policy under regular review, to ensure it continues to reinforce the Group’s long-term strategy and aligns Executive Directors with shareholders’ interests. We will continue to consult shareholders before making any significant changes to our remuneration policy. Non-executive Director remuneration policy Non-executive Directors (including the Board Chair) have letters of appointment which specify an initial term of at least three years, although these contracts may be terminated at one month’s notice by either the Company or Director. In line with the UK Corporate Governance Code guidelines, all Directors are subject to re-election annually at the AGM. Details of terms and notice periods for Non-executive Directors are summarised below: Date of Non-executive Director appointment Notice period Gary Kennedy 8 December 2021 1 month David McKeith 24 July 2013 1 month Alison Littley 1 May 2019 1 month Annual Report and Accounts 2022 Norcros plc 85 Corporate governance ## Directors’ remuneration policy report continued Non-executive Director remuneration policy continued It is the policy of the Board of Directors that Non-executive Directors are not eligible to participate in any of the Group’s bonus, long-term incentive or pension schemes. Details of the policy on fees paid to our Non-executive Directors are set out in the table below: Performance | Component and objective Operation Opportunity | | | measures | | --- | --- | --- | --- | | Fees | The fee paid to the Chair is determined by the | Aggregate fees are limited to | n/a | | | Committee excluding the Chair. The fees paid to | £350,000 p.a. by the Group’s | | To attract and retain Non- theother Non-executive Directors are determined Articles of Association. executive Directors of the bytheChair and the Executive Directors. | highest calibre with broad | | Fee increases will be applied | | --- | --- | --- | | commercial experience | Fee levels are reviewed periodically, with any | taking into account the | | relevant to the Group | adjustments effective 1 April. Fees are reviewed by | outcome of the review. | taking into account external advice on best practice The fees paid to Non- and fee levels at other FTSE companies of broadly executive Directors in similar size and sector to Norcros. Time commitment respect of the year under and responsibility are also taken into account when review (and for the following reviewing fees. year) are disclosed in the Annual Report on Remuneration. Approach to Non-executive Director recruitment remuneration In recruiting a new Non-executive Director, the Remuneration Committee will use the policy as set out in the table above. A base fee in line with the prevailing fee schedule would be payable for serving as a Director of the Board, with additional fees payable for acting as Chair ofthe Audit and Risk or Remuneration Committees. Norcros plc Annual Report and Accounts 202286 # Annual report on remuneration The following section provides details of how our policy was implemented during the year ended 31 March 2022 and will be implemented in the year ending 31 March 2023. ## Remuneration Committee membership in the year ended 31 March 2022 The Remuneration Committee is responsible for recommending to the Board the remuneration policy for Executive Directors and the members of the Group's senior management, and for setting the remuneration packages for the Board Chair and each Executive Director. The Committee's responsibilities are set out in its Terms of Reference, which can be found on the Company's website at www.norcros.com. During the year under review, the following Directors were members of the Remuneration Committee: - Alison Littley (Committee Chair); - David McKeith; - Gary Kennedy (from appointment on 8 December 2021); and - Mark Allen (until he stepped down from the Board on 15 April 2021). All members of the Committee are independent. They serve on the Committee for a minimum three-year term and a maximum of nine years, provided the Director remains independent. As part of an effectiveness review for the entire Board, an evaluation of the Remuneration Committee was undertaken in the year to 31 March 2022. We are pleased to report this review concluded that the Committee continues to operate effectively. In addition, the Chief Executive Officer was invited to attend Committee meetings as appropriate to advise on specific questions raised by the Committee and on matters relating to the performance and remuneration of senior managers, other than in relation to his own remuneration. The Group Counsel and Company Secretary acts as secretary to the Committee. No individual was present while decisions were made regarding their own remuneration. The Committee met eight times during the year. Attendance by individual members at meetings is detailed on page 68. ## Main activities of the Committee during the year ended 31 March 2022 The main activities carried out by the Committee during the year under review were: - reviewing and setting salary levels for Executive Directors and senior management; - determining the annual bonus outcome for the year ended 31 March 2021; - setting operating profit targets for the annual bonus for the year ended 31 March 2022; - determining the APSP outcome for the 2019 APSP awards (which would have vested in 2022 if targets had been achieved); - calibrating EPS targets for, and granting of, 2021 APSP awards; - reviewing developments in remuneration governance; - reviewing and setting the fees payable to the Non-executive Board Chair; - reviewing the pay policies and practices for the wider workforce; and - reviewing and aligning, where appropriate, the compensation and benefits provided to senior management. ## Advisers During the year under review, the Committee sought independent advice from Ellason LLP and FIT Remuneration Consultants LLP. Both Ellason and FIT are members and signatories of the Code of Conduct for Remuneration Consultants, details of which can be found at www.remunerationconsultantsgroup.com. In the year to 31 March 2022, Ellason and FIT provided the following services: | | Services provided | Fees (excl. VAT) € | | --- | --- | --- | | Ellason | Guidance on developments in remuneration governance and market trends (and implications for Norcros), remuneration benchmarking for annual review and new appointments, remuneration report drafting support and general support to the Committee throughout the year. | £13,120 | | FIT | Benchmarking of Directors' remuneration and remuneration policy review. | £16,180 | Neither Ellason nor FIT provide other services to the Company or its Directors and the Committee is satisfied that the advice it receives is independent. Financial and Accounting Annual Report and Accounts 2022 Norcros plc 87 Corporate governance ## Annual report on remuneration continued Summary of shareholder voting at the AGM The following table shows the results of the advisory vote on the 2021 Annual Report onRemuneration at the 2021 AGM, and the binding vote on the remuneration policy at the 2020 AGM: | Annual Report on Remuneration | | | | | | Remuneration policy | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (2021 AGM) | | | | | (2020 AGM) | | | | Total number | | | | % of | Total number | | | | % of | | | of votes | | votes cast | | | of votes | | votes cast | | For (including discretionary) 45,930,648 69.56% 51,9 8 9,10 6 96.04% Against 20,097,340 30.44% 2,14 6 ,0 24 3.96% Total votes cast (excluding withheld votes) 66,027,988 100.00% 5 4 ,13 5,13 0 100.00% Votes withheld 6,000 18,388 Total votes (including withheld votes) 66,033,988 54,153,518 The Remuneration Committee and Board were obviously disappointed with the outcome of the voting on the Remuneration Report atthe2021 AGM. Whilst we believe our executive remuneration arrangements are fully aligned with our Directors’ remuneration policy, which was approved by a significant majority of our shareholders at the 2020 AGM, we place great value on direct engagement with and feedback from our shareholders. We remain committed to maintaining an active dialogue with shareholders, to ensure the Committee remains fully informed of their views and expectations. Following the 2021 AGM, the Company engaged in a further proactive consultation process with its principal shareholders in order to understand the reasons behind the voting result. No material further comments were received from shareholders, given the extensive consultation that took place at the time of the AGM. Single figure for total remuneration for Executive Directors (audited information) The following table provides a single figure for total remuneration of the Executive Directors for the year to 31 March 2022, together with comparative figures for the year to 31 March 2021. The values of each element of remuneration are based on the actual value delivered, where known. The value of the annual bonus includes the element of bonus deferred under the Deferred Bonus Plan. | Nick Kelsall Shaun Smith | | | | | 7 | | | James Eyre | 7 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | 2021 | | 2022 | | | 2021 | | 2022 | | 2021 | | | £ | | £ | | £ | | | £ | £ | | | £ | 1 Base salary 388,470 358,297 195,684 240,647 173,941 — 2 Taxable benefits 15,939 16,086 9,704 13,086 8,469 — 3 Annual bonus 388,470 377,15 5 195,684 253,313 173,941 — 4 Long-term incentives — — — — — — 5 Pension benefit 72,910 60,723 29,353 36,097 13,915 — 6 SAYE — 3,320 — — — — Total fixed 47 7,319 4 3 5,10 6 234,741 289,830 196,325 — Total variable 388,470 380,475 195,684 253,313 173,941 — Total 865,789 815,581 430,425 543,143 370,266 — 1 Base salary for FY22 reflects an increase of 3% on FY21 salary. FY21 salaries reflect a 20% pay cut in the first three months of the year, due to the impact of COVID-19 to align theexecutive experience with that of our employees who were furloughed during the year. 2 Taxable benefits consist of car allowance (Nick Kelsall – 2022: £15,000, 2021: £15,000; Shaun Smith – 2022: £9,000, 2021: £12,000; and James Eyre – 2022: £8,000, 2021: n/a) andprivate medical insurance. 3 Annual bonus comprises both the cash annual bonus for performance during the year and, where applicable, the face value of the deferred bonus element on the date of deferral. Any deferred share element is deferred for three years. See “Annual bonus in respect of performance in the year ended 31 March 2022” below for further details. 4 For 2022, the APSP value of £nil reflects the value of APSP awards granted in July 2019, which will lapse in full on 25 July 2022. For 2021, the APSP value of nil for Nick Kelsall and Shaun Smith reflects the value of APSP awards granted in July 2018 and which lapsed in full on 25 July 2021. 5 In 2022, pension benefits comprised cash in lieu (Nick Kelsall – £58,270; Shaun Smith – £29,353; and James Eyre – £13,915) and amounts related to the defined benefit scheme (Nick Kelsall – £14,640). See “Total pension entitlements” on page 90 for further details. The pension benefit provided to Nick Kelsall and Shaun Smith in 2021 comprises cash in lieu (Nick Kelsall – £53,745; and Shaun Smith – £36,097) and amounts related to the defined benefit scheme (Nick Kelsall – £6,978). 6 Embedded gain on grant of Save As You Earn scheme grants made in the relevant year. 7 Figures shown for Shaun Smith relate to the period 1 April – 31 July 2021 (when he stepped down as CFO and a Board Director), and also include the value of payments made to himover the remainder of his notice period to 31 December 2021. The figures shown for James Eyre relate to the period 1 August 2021 – 31 March 2022, i.e. from his appointment as CFO and a Board Director. Norcros plc Annual Report and Accounts 202288 Incentive outcomes for the year ended 31 March 2022 (audited information) Annual bonus in respect of performance in the year ended 31 March 2022 The 2022 Annual Bonus Plan was based 100% on Group underlying operating profit performance for the year to 31 March 2022. The maximum annual bonus opportunity for the year was 100% of base salary for the Chief Executive Officer and for the Chief Financial Officer. Based on the Company’s performance in 2022, against the stretching targets set at the start of the year, the Committee approved annual bonus payouts for the Executive Directors at maximum. Further details, including the profit targets set and actual performance, are provided below: | Underlying | | | | 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | profit target | | | Payout | outturn | | Bonus | Corporate governance | | | £m | (% of max.) | | £m | (% of max.) | | | Maximum 35.2 100% 1 Target 32.0 50% 40.2 100% Threshold 30.4 25% 1 Target was set on a pre-IFRS 16 basis; therefore, the 2022 outturn has been assessed on a similar basis, i.e. underlying operating profit of £40.2m pre-IFRS 16 (reported £41.8m). In keeping with good practice, the Committee reviewed the formulaic outcome of the annual bonus in the context of business performance and the wider stakeholder experience. The Committee concluded that the formulaic outcome nevertheless reflected excellent results delivered in such challenging circumstances through exceptional leadership and the hard work of the Executive Directors and the wider senior management team. The Committee also concluded that the outcomes are aligned with the underlying performance of the Group more generally, and the experience of other stakeholders. Accordingly, no discretion has been exercised in relation to the bonus outcome for the 2022 financial year. 2019 APSP awards vesting Effective July 2019, APSP awards of 176,240 shares were granted to Nick Kelsall, and of 118,370 shares to Shaun Smith (and which was subsequently pro-rated to reflect the period that had elapsed as at his leaving date of 31 December 2021). James Eyre was awarded a 2019 APSP award in connection with his former (non-Board) role at the same time. Vesting of these awards was based on Norcros’ aggregate diluted underlying EPS over the three financial years to 31 March 2022. Based on performance over this period against the targets originally set, the Committee has determined that these awards will each lapse in full on 25 July 2022, being the end of the relevant three-year vesting period according to the APSP rules. Performance targets and actual performance against these, as determined by the Committee, are summarised in the table below: Aggregate Norcros’ Award vesting underlying EPS % vesting performance (% of APSP award) 1 Threshold 105.0p 25% 9 9.1p Maximum 119.1p 100% 0% 1 On a pre-IFRS 16 basis in line with targets. Scheme interests awarded in 2022 (audited information) 2021 DBP During the year under review, the following DBP awards were made to the Executive Directors (relating to the annual bonus earned for performance over the year to 31 March 2021). Nick Kelsall Shaun Smith Basis of award 50% of base salary 50% of base salary Grant date 21 July 2021 21 July 2021 Number of nil-cost options granted 65,478 43,977 Grant-date share price (p) 288.0 288.0 Grant-date face value (£) 188,577 126,654 Normal vesting date 21 July 2024 21 July 2024 Performance conditions None None James Eyre did not receive a 2021 DBP award. Annual Report and Accounts 2022 Norcros plc 89 Corporate governance # Annual report on remuneration continued ## Scheme interests awarded in 2022 (audited information) continued ### 2021 APSP During the year under review, the following APSP awards were granted to the Executive Directors: | | Nick Kelsall | James Eyre | | --- | --- | --- | | Basis of award | 100% of base salary | 100% of base salary | | Grant date | 21 July 2021 | 21 July 2021 | | Number of nil-cost options granted | 134,885 | 90,594 | | Grant-date share price (p) | 288.0 | 288.0 | | Grant-date face value (£) | 388,468 | 260,910 | | Normal vesting date | 21 July 2024 | 21 July 2024 | | Performance period | 1 April 2021–31 March 2024 | 1 April 2021–31 March 2024 | | Performance conditions | Three-year aggregate underlying diluted EPS to 31 March 2024 Threshold: 103.0p (25% of element vesting) Maximum: 117.5p (100% of element vesting) Straight-line vesting between these points | | | Holding period | 21 July 2024–21 July 2026 | 21 July 2024–21 July 2026 | Shaun Smith did not receive a 2021 APSP award. As disclosed in last year's Report, the Committee set targets for the 2020 APSP award on the basis of 2023 financial year performance only. In keeping with its commitment to review this approach for subsequent cycles, the Committee concluded that it would be appropriate to revert to the previous approach of calibrating EPS targets on a cumulative pence basis over the three-year performance period for 2021 APSP awards. ### 2022 SAYE In the year ended 31 March 2022, none of the Executive Directors entered into a savings contract for the 2021 SAYE scheme as they were already contracted under previous SAYE grants at the HMRC limits. ## Total pension entitlements (audited information) As part of their remuneration arrangements, Nick Kelsall and James Eyre (and, for the period he was employed by the Group, Shaun Smith) are entitled to receive pension contributions from the Company. Under these arrangements, they can elect for those contributions to be paid in the form of taxable pension allowance, or direct payments into a personal pension plan or the Group's UK defined contribution scheme. If a payment is made in the form of taxable pension allowance, the amount payable is not reduced to allow for employment taxes. During the year Nick Kelsall elected to take a taxable pension allowance of £58,270 (2021: £53,745) with no amounts paid directly into a pension scheme (2021: Enil). Shaun Smith elected to take a taxable pension allowance of £29,353 (2021: £36,097) with no amount paid into a personal pension plan (2021: Enil). James Eyre elected to take a taxable pension allowance in connection with his role as CFO for part of the year of £13,915 (2021: Enil). In line with the Regulations, the single figure table reflects the total of these amounts, as well as the capitalised increase in accrued pension (net of inflation) under the UK defined benefit scheme, of which Nick Kelsall is a deferred member. Shaun Smith and James Eyre are not members of the UK defined benefit scheme. Details of Executive Directors' retirement benefits under the Group's UK defined benefit scheme and taxable pension allowances are summarised in the following table: | Director | Accrued pension £ | Increase in accrued pension net of CPI £ | Transfer value of net increase £ | Additional value of pension on early retirement £ | Pension value in the year from DB scheme £ | Pension value in the year from cash allowance £ | Total £ | | --- | --- | --- | --- | --- | --- | --- | --- | | Nick Kelsall | 24,926 | 732 | 27,964 | — | 14,640 | 58,270 | 72,910 | | Shaun Smith | — | — | — | — | — | 29,353 | 29,353 | | James Eyre | — | — | — | — | — | 13,915 | 13,915 | 90 Norcross plc Annual Report and Accounts 2022 ## Single figure for total remuneration for Non-executive Directors (audited information) The table below sets out a single figure for the total remuneration received by each Non-executive Director for the year ended 31 March 2022 and the prior year: | | Total fee | | | --- | --- | --- | | | 2022 £ | 2021 £ | | Gary Kennedy^{1} | **41,500** | — | | Alison Littley | **47,670** | 43,700 | | David McKeith^{2} | **100,409** | 43,700 | | Mark Allen^{3} | **16,176** | 93,000 | 1 Gary Kennedy joined the Board on 8 December 2021. 2 David McKeith assumed the role of Board Chair on an interim basis from 15 April to 8 December 2021. During this period, Mr McKeith received the Board Chair fee on a pro-rata basis, and did not receive any additional fee for chairing the Audit and Risk Committee. Following Gary Kennedy's appointment, Mr McKeith's fees reverted to the NED fee policy in force for the year under review. 3 Mark Allen stepped down from the Board on 15 April 2021 and received fees for his one-month notice period. Fees for 2022 reflect a 3% increase on 2021. 2021 fees reflect a 20% pay cut in the first three months of the year, due to the impact of COVID-19 to align the Board experience with that of our employees who were furloughed during that period. ## Exit payments made in the year (audited information) All payments to Shaun Smith in connection with his retirement are included in the single figure table above. The Committee agreed to treat Shaun Smith as a 'good leaver' in respect of his outstanding DBP and APSP awards. In line with our remuneration policy, DBP awards will continue to vest on the normal vesting date. APSP awards (which have been pro-rated to the date of cessation of employment of 31 December 2021) will vest on the normal vesting date subject to the achievement of the performance conditions attaching to each award. The applicable holding period will continue to apply. ## Payments to past Directors (audited information) No payments to past Directors were made during the year under review. ## External appointments in the year No external appointments were held by the Executive Directors during the year. ## Percentage change in Director remuneration The table below shows the percentage change in Director remuneration from 2021 to 2022, compared with the percentage change in remuneration for all UK staff employed in continuing operations. A UK subset of employees (who are employed by the UK operating subsidiary of Norcros plc) was selected as a suitable comparator group for this analysis because the Directors (who are employed or engaged by Norcros plc) are based in the UK (albeit with global roles and responsibilities) and pay changes across the Group vary widely depending on local market conditions (in particular fluctuations in the exchange rate between the South African Rand and British Pound). The comparison uses a per capita figure and accordingly this reflects an average across the Group's businesses. No account is therefore taken of the impact of operational factors such as new joiners and leavers and the mix of employees. | | Salary or fees^{1} | Benefits | Bonus | | --- | --- | --- | --- | | **Executive Directors** | | | | | Nick Kelsall | 8.4% | (0.9%) | 3.0% | | Shaun Smith | 8.4% | (1.1%) | 3.0% | | James Eyre^{2} | n/a | n/a | n/a | | **Non-executive Directors** | | | | | Gary Kennedy^{3} | n/a | n/a | n/a | | Alison Littley | 8.4% | n/a | n/a | | David McKeith^{4} | 129.8% | n/a | n/a | | Mark Allen | 0% | n/a | n/a | | Martin Towers | n/a | n/a | n/a | | **Average of other employees** | **13.0%** | **4.0%** | **(18.8%)** | 1 Salary and fee figures are annualised for this comparison. Note that the % increases reflect the impact in FY21 of a temporary voluntary waiver of 20% of salary/fees for three months by Directors, to align with the experience of employees who were furloughed. 2 No year on year comparison is shown as James Eyre joined the Board during the 2022 financial year. 3 No year on year comparison is shown as Gary Kennedy joined the Board during the 2022 financial year. 4 Year on year comparison reflects the impact of Mr McKeith assuming the role of Board Chair from 15 April to 8 December 2021. Corporate and Financial Annual Report and Accounts 2022 Norcros plc 91 Corporate governance ## Annual report on remuneration continued ### Relative importance of spend on pay The table below shows shareholder distributions (i.e. dividends – there were no share buybacks in either year) and Norcros' expenditure on total employee pay for the year under review and the prior year, and the percentage change year on year. | | 2022 £m | 2021 £m | % change | | --- | --- | --- | --- | | Dividends (i.e. total payments made in year) | **9.1** | — | 100% | | Dividend per share (i.e. total dividend per share in pence in respect of year) | **10.0p** | 8.2p | 21.9% | | Total staff costs | **65.9** | 52.8 | 24.8% | ### CEO pay ratio The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations) require certain companies to disclose the ratio of the Chief Executive's pay, using the amount set out in the single total figure table (shown in this report on page 88), to that of the total remuneration of full-time equivalent UK employees at the 25th percentile, median and 75th percentile. The required information is set out in the table below: | Year | Method | 25th percentile pay ratio | Median pay ratio | 75th percentile pay ratio | | --- | --- | --- | --- | --- | | **2022** | **Option B** | **1:37.6** | **1:35.4** | **1:20.3** | | 2021 | Option B | 1:36.2 | 1:30.5 | 1:19.9 | | 2020 | Option B | 1:29.3 | 1:28.8 | 1:16.4 | | | CEO pay (€) | P25 pay (€) | P50 pay (€) | P75 pay (€) | | **2022** | **Total remuneration** | **865,789** | **23,025** | **24,450** | | | **Base salary** | **388,470** | **21,000** | **23,000** | | 2021 | Total remuneration | 815,581 | 22,505 | 26,772 | | | Base salary | 358,297 | 22,500 | 26,772 | | 2020 | Total remuneration | 591,514 | 20,173 | 20,543 | | | Base salary | 377,155 | 19,329 | 19,752 | The 25th percentile, median and 75th percentile figures used to determine the above ratios were selected by reference to the hourly pay figures for the Group's UK workforce, taken from its gender pay gap statistics for the relevant year and from these identifying the three employees who are at each percentile point. The full-time equivalent annualised remuneration (comprising salary, benefits, pension, annual bonus and long-term incentives) for those employees for the year ended 31 March 2022 was then calculated. This methodology is defined in the Regulations as Option B, which was chosen as the most appropriate methodology given the employee demographics of the Group's UK workforce. The trend year on year of pay ratios for each percentile is that the ratios have increased slightly. This is explained by a proportionately greater increase in the variable elements of the CEO's remuneration, relative to the comparators and the resulting impact of continued strong Group performance on incentive outcomes. 92 Norcros plc Annual Report and Accounts 2022 Performance graph and table The following graph shows the ten-year TSR performance of the Company relative to the FTSE All-Share Construction & Materials Index. This comparator was chosen because the Company is a constituent member of this index. Total shareholder return (Value of £100 invested on 31 March 2012) 400 350 Corporate governance 300 250 200 150 100 50 0 | 31 March | 31 March | 31 March | 31 March | 31 March | 31 March | | 31 March | | 31 March | 31 March | 31 March | 31 March | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2012 | 2013 | 2014 | 2015 | 2016 | | 2017 | | 2018 | 2019 | 2020 | 2021 | 2022 | | | | | | Norcros | | | | Construction & Materials | | | | | The table below details the Group Chief Executive’s single figure of remuneration over the same period: 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 CEO single figure of remuneration (£000) Incumbent Nick Nick Nick Nick Nick Nick Nick Nick Nick Nick Kelsall Kelsall Kelsall Kelsall Kelsall Kelsall Kelsall Kelsall Kelsall Kelsall Total remuneration £526,282 £ 9 17,5 3 0 £1,161,288 £928,764 £ 1, 0 25,15 8 £971,710 £970,860 £561,776 £815,581 £865,789 Annual bonus (asa % of max. opportunity) 50% 54% 69% 81% 68% 50% 61% — 100% 100% APSP vesting (asa% of max. opportunity) n/a 100% 99% 100% 100% 100% 58% 26% — — Implementation of Executive Director remuneration policy for the year to 31 March 2023 The Remuneration Committee conducted a thorough review of Executive Directors’ remuneration, effective 1 April 2022. The results ofthis review are as follows: Base salary Base salaries were reviewed taking into account individual performance and competitive practice for similar roles in the Company’s remuneration peer group, and remuneration awards within the Group. As explained more fully in the Annual Statement on Remuneration on page 77, Executive Directors’ salaries were reviewed in April 2022 as part of a wider review of remuneration and on a consistent basis asthe approach taken for the wider workforce. The Committee concluded from this review that Executive Director pay levels were far below market norms, and that correctional salary adjustments should also be made to their base salaries. Therefore, for the year ending 31 March 2023, base salaries will be £476,000 p.a. for Nick Kelsall and £290,000 p.a. for James Eyre. Pension There is no change in the contribution percentage for James Eyre (8% of salary) for the year ending 31 March 2023. Nick Kelsall’s contribution percentage will remain at 15% of salary until 31 December 2022. From 1 January 2023, Nick Kelsall has volunteered a reduction to his contribution percentage to 8% of salary, to align with the average contribution percentage for the wider UK workforce. Investment (£) Benefits There is no change in the car allowance for Executive Directors for the year ending 31 March 2023, which is £15,000 p.a. for Nick Kelsall and £12,000 p.a. for James Eyre. Annual Report and Accounts 2022 Norcros plc 93 Corporate governance # Annual report on remuneration continued ## Implementation of Executive Director remuneration policy for the year to 31 March 2023 continued ### Annual bonus The annual bonus opportunity for Executive Directors will remain unchanged for the 2023 financial year with a maximum bonus entitlement of 100% of salary. The bonus outcome for Executive Directors will continue to be based entirely on Group underlying operating profit. Of any bonus earned 50% will be deferred into nil-cost options for a further three years under the DBP. Annual bonus targets will be disclosed in next year's Annual Report on Remuneration, subject to these no longer being considered by the Board to be commercially sensitive. ### APSP The structure of APSP awards to be made in the 2023 financial year will be unchanged from 2022. Awards with face values of 100% of salary will be granted to the Executive Directors, with vesting subject to the achievement of suitably stretching EPS targets in accordance with the remuneration policy. To the extent an award vests, vested shares will be subject to a further two-year holding period. The Committee will determine targets at the time awards are made and these targets (along with other relevant details of this grant) will be disclosed in next year's Annual Report on Remuneration. ### SAYE Nick Kelsall and James Eyre will continue to be able to participate in any SAYE contract offered to all employees, on identical terms. ## Implementation of Non-executive Director remuneration policy for the year to 31 March 2023 The Committee has reviewed the Board Chair's fee and concluded to increase this to £145,000 p.a. from 1 April 2022, to reflect Gary Kennedy's proven business leadership credentials and broad range of relevant experience. The Board Chair and the Executive Directors reviewed Non-executive Director fees at the same time and concluded that it was appropriate to increase these, as set out below, to reflect the growing time commitment of the role. Accordingly, for the 2023 financial year, Non-executive Director fees will be as follows: | Non-executive Director | Fee at 1 April 2022 | Fee from 1 April 2021 | Percentage increase | | --- | --- | --- | --- | | Board Chair | £145,000 | £128,750 | 12.6% | | Non-executive Director | £49,000 | £41,200 | 18.9% | | Additional fee for chairing Audit and Risk or Remuneration Committees | £7,000 | £6,180 | 13.3% | ## Executive Director shareholdings (audited information) The table below shows the shareholding of each Executive Director and their respective shareholding requirement as at 31 March 2022: | | Shares owned | Options held | | | Shareholding guideline % of salary | % current holding | Requirement met? | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Vested but not exercised | Unvested and subject to performance | Unvested but not subject to performance | | | | | Nick Kelsall | 1,697,594 | — | 329,294 | 128,726 | 100% | 1,307% | Yes | | James Eyre | 51,007 | — | 133,184 | 10,975 | 100% | 58% | Building | Current shareholding is based on shares owned outright and valued using the average share price over twelve months ended 31 March 2022 of 299p. Details of the options held are provided in the table opposite. 94 Norcros plc Annual Report and Accounts 2022 Directors’ share scheme interests (audited information) Share options | | | | | | | | | Shares | | | | | Shares | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | under | | | | | under | | | | | | | | | | option | | | | | option | | | | Date | Vested | Expiration | | Exercise | | 1 April | Granted | Vested | Exercised | Lapsed | 31 March | | Scheme | of grant | | date | | date | | price | 2021 | in 2022 | in 2022 | in 2022 | in 2022 | 2022 | Nick Kelsall DBP 2 5. 07.18 25.0 7. 2 1 2 5.07. 2 8 — 41,337 — — 41,337 — — 2 3.07.19 2 3. 07.22 2 3.07.2 9 — 52,273 — — — — 52,273 21.07.21 2 1. 07. 2 4 21.07.31 — — 65,478 — — — 65,478 Corporate governance Total 93,610 65,478 — 41,337 — 117,751 APSP 25.0 7.18 25 .0 7. 21 25.0 7. 28 — 170,311 — — — 170,311 — 2 3.07.19 2 3. 07.22 2 3.07.2 9 — 176,240 — — — — 176,240 25.11.20 25.11.23 25.11.30 — 194,409 — — — — 194,409 21.07.21 2 1. 07. 2 4 21.07.31 — — 134,885 — — — 134,885 Total 540,960 134,885 — — 170,311 505,534 SAYE 23 .12.2 0 01.0 3.24 01.08.24 164p 10,975 — — — — 10,975 Total 10,975 — — — — 10,975 Shaun Smith DBP 2 5. 07.18 25.0 7. 2 1 2 5.07. 2 8 — 27,76 4 — — 27,76 4 — — 2 3.07.19 2 3. 07.22 2 3.07.2 9 — 3 5,10 8 — — — — 3 5,10 8 21.07.21 21. 07.24 21.07.31 — — 43,977 — — — 43,977 Total 62,872 43,977 — 27,76 4 — 79,085 APSP 25.07.18 25. 07.21 2 5.07.28 — 114,388 — — — 114,388 — 2 3.07.19 2 3. 07.2 2 2 3.0 7. 2 9 — 118,370 — — — — 118,370 25.11.20 25.11.23 25.11.30 — 130,573 — — — — 130,573 Total 363,331 — — — 114,388 248,943 SAYE 13 .12.19 01.03.23 31.08.23 208p 8,674 — — — — 8,674 Total 8,674 — — — — 8,674 James Eyre APSP 2 3.07.19 2 3. 07. 2 2 2 3 .0 7. 2 9 — 38,609 — — — — 38,609 25.11.20 25.11.23 25.11.30 — 42,590 — — — — 42,590 21.07.21 2 1. 07. 2 4 21.07.31 — — 90,594 — — — 90,594 Total 81,19 9 90,594 — — — 171,793 SAYE 23 .12.2 0 01.0 3.24 01.08.24 164p 10,975 — — — — 10,975 Total 10,975 — — — — 10,975 Three-year Three-year aggregate aggregate EPS targets March 2023 EPS 1 EPS targets Performance % vesting 2 5 . 0 7.18 a wa rd 23.0 7.19 a wa rd 25.11.20 award 21.07.21 award Threshold 25% 9 6 .1p 105.0p 28.2p 103.0p Maximum 100% 109.7p 119.1p 3 7.5 p 117.5 p 1 Based on outcome of final year (year to 31 March 2023). Shareholder dilution The Group’s share incentive plans operate in line with the Investment Association’s Principles, which require that commitments under all- share schemes satisfied by newly issued shares must not exceed 10% of the issued share capital in any rolling ten-year period, of which up to 5% may be used to satisfy options under executive share schemes. The Group’s position against the dilution limits at 31 March 2022 was 4.8% for the all-share schemes limit and 2.6% for executive schemes. Annual Report and Accounts 2022 Norcros plc 95 Corporate governance # Annual report on remuneration continued # Statement of Directors' shareholding and share interests (audited information) | Director | 31 March 2022 Ordinary shares | 31 March 2021 Ordinary shares | | --- | --- | --- | | Nick Kelsall | **1,697,594** | 1,675,686 | | James Eyre | **51,007** | n/a | | Gary Kennedy | **43,121** | — | | David McKeith | **17,941** | 17,941 | | Alison Littley | — | — | This report was approved by the Board of Directors on 8 June 2022 and signed on its behalf by: **Alison Littley** **Chair of the Remuneration Committee** 8 June 2022 96 Norcros plc Annual Report and Accounts 2022 # Directors' report The Directors present their Annual Report and the audited consolidated financial statements for the year ended 31 March 2022. ## Principal activities The Company acts as a holding company for the Norcros Group. The Company's registered number is 3691883 and the Company is registered and domiciled in England. The Group's principal activities are the development, manufacture and marketing of bathroom and kitchen products in the UK and South Africa. ## Results and dividends The information that fulfils the requirements of the Business Review, which is incorporated in the Directors' Report by reference, including the review of the Group's business and future prospects, is included in the Chair's Statement, the Chief Executive Officer's Statement and the Strategic Report on pages 2 to 62. Key performance indicators are shown on page 20. The Directors recommend a final dividend for the year ended 31 March 2022 of 6.9p (2021: 8.2p). This follows the decision to pay an interim dividend earlier in the year of 3.1p (2021: £nil). ## Directors' and officers' liability insurance and indemnities The Company purchases liability insurance cover for its Directors and officers which gives appropriate cover for any legal action brought against them. The Company also provides an indemnity for its Directors (to the extent permitted by the law) in respect of liabilities which could occur as a result of their office. This indemnity does not provide cover should a Director be proven to have acted fraudulently or dishonestly. ## Purchase of own shares In 2007 the Company formed the Norcros Employee Benefit Trust (the Trust). The purpose of the Trust is to meet part of the Company's liabilities under the Company's share schemes. The Trust acquired 69,101 shares during the year (2021: 132,551). At the Company's 2021 Annual General Meeting, the shareholders authorised the Company to make market purchases of up to 8,088,700 ordinary shares. At the forthcoming Annual General Meeting, shareholders will be asked to renew the authority to purchase its own shares for another year. Details are contained in the AGM Notice of Meeting on pages 146 to 152. ## Employees/fostering business relations Details of the Group's engagement with, and policies towards, its employees are contained on pages 48 and 49. Details of how the Group fosters good business relations with its suppliers and other business partners are contained on pages 60 to 62. All these details form part of the Directors' Report and are incorporated into it by cross-reference. ## Directors Biographical details of the present Directors are set out on pages 64 and 65 and on the Company's website: www.norcros.com. The Directors who served during the year and to the date of this report are set out below: | Director | Role | | --- | --- | | Gary Kennedy | Chair (appointed 8 December 2021) | | David McKeith | Non-executive Director (Acting Chair from 16 April 2021 to 7 December 2021) | | Alison Littley | Non-executive Director | | Nick Kelsall | Chief Executive Officer | | James Eyre | Chief Financial Officer (appointed 1 August 2021) | | Shaun Smith | Chief Financial Officer (until 31 July 2021) | The interests of the Directors in the shares of the Company at 31 March 2022 and 31 March 2021 are shown on page 96. ## Substantial shareholdings As at 7 June 2022 the Company had received notification that the following were interested in voting rights representing 3% or more of the Company's issued share capital: | Name | % of total voting rights | | --- | --- | | Premier Miton Group | 9.07 | | Canaccord Genuity Group Inc | 8.85 | | J O Hambro Capital Management Ltd | 8.82 | | FIL Ltd | 6.81 | | SVM Asset Management | 5.14 | | Allianz Global Investors GmbH | 4.56 | | M&G plc | 4.34 | ## Energy and greenhouse gas emissions reporting The Board has included emissions data in the ESG section in order to meet the Company's obligation under The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 to disclose the Group's worldwide emissions of the "greenhouse gases" (GHGs) attributable to human activity measured in tonnes of carbon dioxide equivalent. Annual Report and Accounts 2022 Norcros plc 97 Corporate governance Corporate governance # Directors' report continued ## Energy and greenhouse gas emissions reporting continued We have reported on all of the emission sources, being Scope 1 and Scope 2 emissions. These are emissions from activities for which the Group is responsible, plus emissions resulting from the purchase of electricity, heat, steam or cooling by a business in the Group for its own use. Also reported are the figures for aggregate energy consumed by the Group, expressed in kWh. These sources use the same reporting boundary as for our consolidated financial statements. We do not have responsibility for any emission sources that are not included in our consolidated financial statements. We use as our chosen intensity measure the ratio of total emissions (measured in tonnes of CO₂e) to the total revenue of the Group (£396.3m). This ratio is chosen because it enables us on a consistent basis year on year to compare energy use relative to the overall level of business activity in revenue terms. The Group recognises that its Scope 1 and 2 GHG emissions only reflect a proportion of our total carbon footprint across the value chain. A more holistic approach to reducing our indirect impacts will be required to deliver the scale of reductions demanded by the climate science, and we keep the embodied carbon impacts of the materials we use and of our logistics supply chain under review. We have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), data gathered to fulfil our requirements under the CRC Energy Efficiency Scheme, and emission factors from the UK Government's GHG Conversion Factors for Company Reporting 2018. We use the best information available to us, such as invoice data or measured energy usage. Where no more suitable data sources are available, we have used, where practicable, estimates based on the appropriate information that is available to the Group. ## Political donations There were no political donations (2021: Enil). ## Research and development The Group's expenditure on research and development is disclosed in note 3 to the financial statements and is focused on the development of new products. ## Corporate governance Details of the Group's corporate governance are contained on pages 66 to 69. This Corporate Governance Report forms part of the Directors' Report and is incorporated into it by cross-reference. ## Going concern Having taken into account the principal risks and uncertainties facing the Group detailed on pages 36 to 40 in the Strategic Report, the Board considers it appropriate to prepare the financial statements on the going concern basis, as explained in note 1 to the financial statements. ## Financial risk management The Group's operations expose it to a variety of financial risks. Details of the risks faced by the Group are provided in note 21 to the financial statements. ## Takeover directive The Company has only one class of shares, being ordinary shares, which have equal voting rights. The holdings of individual Directors are disclosed on page 96. There are no significant agreements to which the Company is a party which take effect, alter or terminate in the event of a change of control of the Company, except for the banking facilities dated 7 March 2022 in respect of the £130.0m unsecured revolving credit facility and the £70.0m accordion facility which contain mandatory prepayment provisions on a change of control. There are no provisions within Directors' employment contracts which allow for specific termination payments upon a change of control. ## Statement of disclosure of information to auditor In the case of each of the persons who are Directors, the following applies: - (a) so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and - (b) they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. ## Independent auditor A resolution to re-appoint BDO LLP as auditor to the Company will be proposed at the Annual General Meeting. ## Annual General Meeting The Annual General Meeting of the Company will take place at 11.00 am on 19 July 2022 at The Mere Golf Resort & Spa, Chester Road, Mere, Knutsford, Cheshire WA16 6LJ. The notice convening that meeting, together with the resolutions to be proposed, appears on pages 146 to 152 of this document. The Directors recommend that all shareholders vote in favour of all of the resolutions to be proposed, as the Directors intend to do so in respect of their own shares, and consider that they are in the best interests of the Company and the shareholders as a whole. By order of the Board **Richard Collins** Company Secretary 8 June 2022 98 Norcros plc Annual Report and Accounts 2022 ## Statement of Directors’ responsibilities In respect of the Annual Report, the Directors’ Website publication Remuneration Report and the financial statements The Directors are responsible for ensuring the Annual Report The Directors are responsible for preparing the Annual Report, the and the financial statements are made available on a website. Directors’ Remuneration Report and the financial statements in Financial statements are published on the Company’s website accordance with applicable law and regulation. in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which Company law requires the Directors to prepare financial statements may vary from legislation in other jurisdictions. The maintenance for each financial year. Under that law the Directors are required and integrity of the Company’s website is the responsibility of the to prepare the Group financial statements in accordance with UK Directors. The Directors’ responsibility also extends to the ongoing Corporate governance adopted international accounting standards and have elected integrity of thefinancial statements contained therein. to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice Directors’ responsibilities pursuant to DTR4 (United Kingdom Accounting Standards and applicable law). The Directors confirm to the best of their knowledge: Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair • the financial statements have been prepared in accordance with view of the state of affairs of the Group and Company and of the the applicable set of accounting standards, give a true and fair profit or loss of the Group for that period. In preparing the financial view of the assets, liabilities, financial position and profit and loss statements, the Directors are required to: of the Group; and • select suitable accounting policies and then apply • the Annual Report includes a fair review of the development and themconsistently; performance of the business and the financial position of the Group and Company, together with a description of the principal • state whether applicable international accounting standards risks and uncertainties that they face. have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained inthe financial statements; Nick Kelsall James Eyre Chief Executive Officer Chief Financial Officer • make judgements and accounting estimates that are reasonable 8 June 2022 and prudent; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business; and • prepare a Directors’ Report, a Strategic Report and Directors’ Remuneration Report which comply with the requirements oftheCompanies Act 2006. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 ofthe IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and Accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy. Annual Report and Accounts 2022 Norcros plc 99 ## Financial ## statements 101 Independent auditor’s report 107 Consolidated income statement 108 Consolidated statement ofcomprehensiveincome 109 Consolidated balance sheet 110 Consolidated cash flow statement 111 Consolidated statement of changes inequity 112 Notes to the Group accounts 140 Parent Company balance sheet 141 Parent Company statement ofchangesinequity 142 Notes to the Parent Company accounts Annual General Meeting 146 Notice of Annual General Meeting 148 Explanatory notes Triton: Triton’s new Push Button Bar Diverter mixer shower is designed to offer enhanced functionality with a contemporary finish, delivering the best of both worldsfor design conscious home owners. It enables the user to switch quickly between handset and fixed overhead rainfall accompanied by thermostatic temperature control and a handy storage shelf to add to the overall look. Norcros plc Annual Report and Accounts 2022100 ## Independent auditor’s report ### to the members of Norcros plc Opinion on the financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2022 andof the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; • the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Norcros plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2022 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated and parent company statements of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UKadopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Financial statements Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to theaudit committee. Independence Following the recommendation of the audit committee, we were appointed by the shareholders on 30 July 2020 to audit the financial statements for the year ended 31 March 2021 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is two years, covering the years ended 31 March 2021 to 31 March 2022. We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group or the Parent Company. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: • We obtained management’s assessment that supports the Directors’ conclusions with respect to the disclosures provided around going concern and viability; • We challenged the rationale for the assumptions utilised in the forecasts, using our knowledge of the business, the sector and wider commentary available from competitors and peers; • We considered the appropriateness of management’s forecasts by testing their mechanical accuracy, assessing historical forecasting accuracy and understanding management’s consideration of downside sensitivity analysis; • We obtained an understanding of the financing facilities from the finance agreements, including the nature of the facilities, covenants and attached conditions; • We assessed the facility and covenant headroom calculations, and reperformed sensitivities on management’s base case and stressed case scenarios; and • We reviewed the wording of the going concern disclosures, and assessed its consistency with the directors’ assessment of going concern, including underlying management forecasts. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of atleast twelve months from when the financial statements are authorised for issue. In relation to the Parent Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material toadd or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered itappropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections ofthis report. Annual Report and Accounts 2022 Norcros plc 101 Financial statements ## Independent auditor’s report continued ### to the members of Norcros plc Overview 94% (2021: 91%) of Group profit before tax Coverage 85% (2021: 84%) of Group revenue 88% (2021: 87%) of Group total assets 2022 2021 Pension scheme assumptions Key audit matters Going Concern, specifically due to Covid-19 Going Concern is no longer considered to be a key audit matter in the current year, given the general easing of Covid-19 restrictions in the key geographies in which the group operates. Group financial statements as a whole Materiality £1.6m (2021: £1.24m) based on 5% of the current year (2021: 5% on three year average basis) Profit before tax adjusted for certain non-underlying items, including acquisition costs and exceptional items. An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internalcontrol, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk ofmaterialmisstatement. Our Group audit scope focused on the Group’s principal operating locations, being those in the UK, Ireland and South Africa. In the UK and Ireland, Norcros operates under seven separate divisions: Triton, Merlyn, Vado, Johnson Tiles, Croydex, Abode and Norcros Adhesives. In South Africa there are four divisions: Johnson Tiles South Africa, TAL, House of Plumbing and Tile Africa. Consistent with the group’s operations, we scoped our audit at a divisional level. In the UK, full scope audits were performed by the Group engagement team on the significant components, Triton, Vado, Johnson Tiles, and the Parent Company. The four South African divisions together with the Merlyn division, whose finance team is based in Ireland, were considered to be significant components and were subject to full scope audits by BDO member firms in South Africa and Ireland respectively. The remaining components of the Group were considered not-significant and these components were principally subject to analytical review procedures by the Group engagement team. Our involvement with component auditors For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. Ourinvolvement with component auditors included the following: The Responsible Individual and senior members of the Group audit team were involved at all stages of the audit process, directing the planning and risk assessment work. Detailed Group instructions were sent to the component auditors, which included the principal areas to be covered by the audits, materiality levels, significant risks, fraud risks and other significant auditing and accounting matters, and further set out the information tobe reported to the Group audit team. The UK engagement team attended planning calls with both the South African and Irish teams where the scope of their work was discussed, as well as attending planning calls with divisional management. The UK engagement team reviewed the working papers of the overseas teams and attended meetings with the overseas teams and the respective divisional management teams following completion of the work. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Norcros plc Annual Report and Accounts 2022102 An overview of the scope of our audit continued Key audit matters continued Key audit matter How the scope of our audit addressed the key audit matter | Pension Scheme | The group has a defined benefit pension plan with | We obtained the report from management’s actuary used | | --- | --- | --- | | Assumptions | a net scheme asset of £19.6m (2021 net scheme | invaluing the scheme’s liabilities, from which we assessed | | Refer to Note | liability: £18.3m). | the appropriateness of the assumptions underpinning the | | 1 – summary | | valuation ofthe scheme liabilities. | We consider there to be a significant risk concerning of significant the appropriateness of the actuarial assumptions Specifically, we challenged the discount rate, inflation and accounting policies, applied in calculating the group’s defined benefit mortality assumptions applied in the calculation by using key sources pension scheme liability of £368.3m (2021: £416.1m) our auditor engaged pension experts to benchmark the of estimation as shown in Note 24. assumptions applied against comparable third-party data uncertainty and and assessed the appropriateness of the assumptions in critical judgements in The valuation of the group’s pension scheme liability the context of the group’s own position. applying the group’s was performedby management’s external actuary accounting policies and involves significant judgement from the directors Key observations: and also to Note 24. and the actuary in the choice of discount rate used Based on our audit work, we considered the assumptions Financial statements and in the key sources of estimation uncertainty, used in the calculation of the pension liability were within in particular in relation to the inflation assumptions an acceptable range. and mortality rates, as described in the group’s accounting policies. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. Weconsider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions ofreasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the Group financial statements as a whole and performance materiality as follows: Group Parent Company 2022 2021 2022 2021 £m £m £m £m Materiality 1.60 1.24 0.48 0.37 | Basis for | 5% of Profit before tax | 5% of three year average | Set based on 30% | Set based on 30% | | --- | --- | --- | --- | --- | | determining | adjusted for certain | ofProfit before tax | ofGroupmateriality. | ofGroupmateriality. | | materiality | non-underlying items, | adjusted for certain | | | | | including acquisition costs | non-underlying items, | | | | | and exceptional items. | including acquisition | | | costs, impairment and exceptional items Rationale for the We considered that using We considered that using Calculated as a Calculated as a benchmark applied this basis for determining this basis for determining percentageof Group percentageof Group materiality was most materiality was most materiality for Group materiality for Group appropriate based on appropriate as this reporting purposes, reporting purposes, the underlying trading provided a consistent taking account of the taking account of the performance of the Group, year on year basis for aggregation risk. aggregation risk. eliminating non-recurring determining materiality items and in the interests based on the underlying of the users of the trading performance of financialstatements. the Group, but eliminating non-recurring items. It also We did not use a three-year reflects the interests of average profit before tax the users of the financial figure in the current year statements. A three year as profits had stabilised average was used given and therefore using a the fluctuating level of three year average was profit before tax from notdeemedappropriate. the impact of Covid-19 duringthe period. Annual Report and Accounts 2022 Norcros plc 103 Financial statements ## Independent auditor’s report continued ### to the members of Norcros plc Our application of materiality continued Group Parent Company | | 2022 | 2021 | 2022 | 2021 | | --- | --- | --- | --- | --- | | | £m | £m | £m | £m | | Performance | 1.1 0.80 0.34 0.24 | | | | materiality Basis for 70% of materiality 65% of materiality 70% of materiality 65% of materiality determining This has increased from This was considered This has increased from This was considered performance 65% in 2021 to 70%, appropriate given this was 65% in 2021 to 70%, appropriate given this was materiality given this is our second the first year that we acted given this is our second the first year that we acted year as auditor and we as auditor of the group. year as auditor and we as auditor of the group. therefore can reflect on therefore can reflect on the experience of the the experience of the prioryear when setting prioryear when setting thisbenchmark. thisbenchmark. Parent Company statutory materiality We set materiality for the statutory audit of the Parent Company at £3.58m which represents 3% of Net Assets. Net assets was determined as the most appropriate measure on which to base materiality for the statutory audit of the Parent Company financial statements as the principal activity of the company is that of a holding company. We further applied performance materiality levels of 70% of the statutory materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Component materiality We set materiality for each component of the Group based on a percentage of between 30% and 48% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £0.48m to £0.77m. In the audit of each component, we further applied performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £48,000 (2021: £25,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts 2022 other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, weconclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Norcros plc Annual Report and Accounts 2022104 Corporate governance statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the parent company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit. Going concern • The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and longer-term and any material uncertainties identified set out on page 98; and viability • The Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers andwhy the period is appropriate set out on page 41 Other Code • Directors’ statement on fair, balanced and understandable set out on page 71; provisions • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out onpage 36; • The section of the annual report that describes the review of effectiveness of risk management and internal control Financial statements systems set out on page 73; and • The section describing the work of the audit committee set out on page 72 Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic Report In our opinion, based on the work undertaken in the course of the audit: and Directors’ • the information given in the Strategic report and the Directors’ report for the financial year for which the financial Report statements are prepared is consistent with the financial statements; and • the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. Directors’ In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance | remuneration | with the Companies Act 2006. | | --- | --- | | Matters on which | We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires | | we are required | usto report to you if, in our opinion: | to report by • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have exception not been received from branches not visited by us; or • the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not inagreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Annual Report and Accounts 2022 Norcros plc 105 Financial statements ## Independent auditor’s report continued ### to the members of Norcros plc Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Based on our understanding and accumulated knowledge of the Group and the sectors in which it operates we considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud and whether such actions or non-compliance might have a material effect on the financial statements. These included but were not limited to those that relate to the form and content of the financial statements, such as the Group accounting policies, international accounting standards, the UK Companies Act 2006, the Listing Rules and the UK Corporate Governance Code; and industry related such as compliance with health and safety legislation, employment law and taxation legislation. We communicated relevant laws and regulations to all team members, including component audit teams, toensure they were aware of any relevant regulations in relation to their work. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries, revenue being recognised in the correct period around the year end and management bias in accounting estimates. Our audit procedures included, but were not limited to: • Obtaining an understanding of the control environment in monitoring compliance with laws and regulations. • Discussions with management and the Directors, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Reviewing minutes of Board meetings throughout the period to corroborate our enquiries and to identify any other matters not already disclosed by management and the Directors; and • Agreeing the financial statement disclosures to underlying supporting documentation; • Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation tothe Group’s defined benefit pension scheme liabilities (see key audit matter above) and customer rebate, incentive and promotional support accruals; • Testing a sample of revenue transactions around the year end to supporting documentation (including invoice and proof of delivery) forall significant components to assess if the revenue had been recorded in the correct period; • Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or including specific keywords; Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Gary Harding (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Manchester United Kingdom 8 June 2022 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Norcros plc Annual Report and Accounts 2022106 # Consolidated income statement Year ended 31 March 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Continuing operations** | | | | | Revenue | 2 | **396.3** | 324.2 | | Underlying operating profit | | **41.8** | 33.8 | | IAS 19R administrative expenses | 24 | **(1.7)** | (1.4) | | Acquisition related costs | 5 | **(4.8)** | (3.7) | | Exceptional operating items | 5 | **0.9** | (3.8) | | **Operating profit** | | **36.2** | 24.9 | | Finance costs | 6 | **(2.8)** | (5.4) | | IAS 19R finance cost | 24 | **(0.4)** | (1.0) | | **Profit before taxation** | | **33.0** | 18.5 | | Taxation | 7 | **(7.3)** | (3.5) | | Profit for the year attributable to equity holders of the Company | | **25.7** | 15.0 | | **Earnings per share attributable to equity holders of the Company** | | | | | Basic earnings per share: | | | | | From profit for the year | 9 | **31.8p** | 18.6p | | Diluted earnings per share: | | | | | From profit for the year | 9 | **31.2p** | 18.6p | | Weighted average number of shares for basic earnings per share (millions) | 9 | **80.9** | 80.6 | | **Alternative performance measures** | | | | | Underlying profit before taxation (£m) | 8 | **39.3** | 30.6 | | Underlying earnings (£m) | 8 | **31.5** | 25.1 | | Basic underlying earnings per share | 9 | **38.9p** | 31.2p | | Diluted underlying earnings per share | 9 | **38.2p** | 31.1p | Financial statements Annual Report and Accounts 2022 Norcros plc 107 Financial statements # Consolidated statement of comprehensive income Year ended 31 March 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Profit for the year | | **25.7** | 15.0 | | Other comprehensive income and expense: | | | | | **Items that will not subsequently be reclassified to the Income Statement** | | | | | Actuarial gains on retirement benefit obligations | 24 | **27.5** | 24.1 | | **Items that may be subsequently reclassified to the Income Statement** | | | | | Cash flow hedges – fair value gain/(loss) in year | 21 | **3.0** | (1.5) | | Foreign currency translation of foreign operations | | **3.6** | 5.3 | | Other comprehensive income for the year | | **34.1** | 27.9 | | **Total comprehensive income for the year attributable to equity holders of the Company** | | **59.8** | 42.9 | Items in this statement are disclosed net of tax. 108 Norcross plc Annual Report and Accounts 2022 # Consolidated balance sheet At 31 March 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Non-current assets** | | | | | Goodwill | 11 | **61.2** | 60.8 | | Intangible assets | 12 | **29.1** | 32.8 | | Property, plant and equipment | 13 | **29.0** | 28.0 | | Pension scheme asset | 24 | **19.6** | — | | Right of use assets | 14 | **19.9** | 19.6 | | | | **158.8** | 141.2 | | **Current assets** | | | | | Inventories | 15 | **100.6** | 78.1 | | Trade and other receivables | 16 | **71.1** | 64.6 | | Derivative financial instruments | 21 | **1.6** | — | | Cash and cash equivalents | 17 | **27.4** | 28.3 | | | | **200.7** | 171.0 | | **Current liabilities** | | | | | Trade and other payables | 18 | **(102.4)** | (95.4) | | Lease liabilities | 19 | **(5.7)** | (5.4) | | Current tax liabilities | | **(2.7)** | (1.0) | | Derivative financial instruments | 21 | **—** | (2.3) | | | | **(110.8)** | (104.1) | | **Net current assets** | | **89.9** | 66.9 | | **Total assets less current liabilities** | | **248.7** | 208.1 | | **Non-current liabilities** | | | | | Financial liabilities – borrowings | 20 | **(18.8)** | (17.8) | | Pension scheme liability | 24 | **—** | (18.3) | | Lease liabilities | 19 | **(18.3)** | (18.8) | | Deferred tax liabilities | 22 | **(9.4)** | (0.5) | | Other non-current liabilities | 26 | **(0.3)** | (0.3) | | Provisions | 23 | **(1.6)** | (4.0) | | | | **(48.4)** | (59.7) | | **Net assets** | | **200.3** | 148.4 | | **Financed by:** | | | | | Share capital | 25 | **8.1** | 8.1 | | Share premium | | **30.3** | 30.2 | | Retained earnings and other reserves | | **161.9** | 110.1 | | **Total equity** | | **200.3** | 148.4 | The financial statements of Norcros plc, registered number 3691883, on pages 107 to 139, were authorised for issue on 8 June 2022 and signed on behalf of the Board by: Nick Kelsall]() Chief Executive Officer James Eyre]() Chief Financial Officer Financial statements Annual Report and Accounts 2022 Norcros plc 109 Financial statements # Consolidated cash flow statement Year ended 31 March 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Cash generated from operations** | 27 | **23.6** | 60.0 | | Income taxes paid | | (6.5) | (3.5) | | Interest paid | | (2.5) | (3.2) | | **Net cash generated from operating activities** | | **14.6** | 53.3 | | **Cash flows from investing activities** | | | | | Purchase of property, plant and equipment and intangible assets | | (5.4) | (2.8) | | **Net cash used in investing activities** | | **(5.4)** | (2.8) | | **Cash flows from financing activities** | | | | | Proceeds from issue of ordinary share capital | | 0.1 | 0.3 | | Principal element of lease payments | | (4.7) | (4.3) | | Drawdown of borrowings | | 25.0 | — | | Repayment of borrowings | | (23.0) | (66.0) | | Dividends paid to the Company's shareholders | 28 | (9.1) | — | | **Net cash used in financing activities** | | **(11.7)** | (70.0) | | **Net decrease in cash at bank and in hand and bank overdrafts** | | **(2.5)** | (19.5) | | Cash at bank and in hand and bank overdrafts at the beginning of the year | | 28.3 | 47.2 | | Exchange movements on cash and bank overdrafts | | 1.6 | 0.6 | | **Cash at bank and in hand and bank overdrafts at the end of the year** | | **27.4** | 28.3 | 110 Norcross plc Annual Report and Accounts 2022 # Consolidated statement of changes in equity Year ended 31 March 2022 | | Ordinary share capital £m | Share premium £m | Treasury reserve £m | Hedging reserve £m | Translation reserve £m | Retained earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 April 2020 | 8.1 | 29.9 | (0.4) | — | (21.7) | 88.5 | 104.4 | | Comprehensive income: | | | | | | | | | Profit for the year | — | — | — | — | — | 15.0 | 15.0 | | Other comprehensive (expense)/income: | | | | | | | | | Actuarial gain on retirement benefit obligations | — | — | — | — | — | 24.1 | 24.1 | | Fair value loss on cash flow hedges | — | — | — | (1.5) | — | — | (1.5) | | Foreign currency translation adjustments | — | — | — | — | 5.3 | — | 5.3 | | **Total other comprehensive (expense)/income for the year** | — | — | — | (1.5) | 5.3 | 24.1 | 27.9 | | Transactions with owners: | | | | | | | | | Shares issued | — | 0.3 | — | — | — | — | 0.3 | | Dividends paid | — | — | — | — | — | — | — | | Settlement of share option schemes | — | — | 0.3 | — | — | (0.5) | (0.2) | | Value of employee services | — | — | — | — | — | 1.0 | 1.0 | | At 31 March 2021 | 8.1 | 30.2 | (0.1) | (1.5) | (16.4) | 128.1 | 148.4 | | Comprehensive income: | | | | | | | | | Profit for the year | — | — | — | — | — | 25.7 | 25.7 | | Other comprehensive income: | | | | | | | | | Actuarial gain on retirement benefit obligations | — | — | — | — | — | 27.5 | 27.5 | | Fair value gain on cash flow hedges | — | — | — | 3.0 | — | — | 3.0 | | Foreign currency translation adjustments | — | — | — | — | 3.6 | — | 3.6 | | **Total other comprehensive income for the year** | — | — | — | 3.0 | 3.6 | 27.5 | 34.1 | | Transactions with owners: | | | | | | | | | Shares issued | — | 0.1 | — | — | — | — | 0.1 | | Dividends paid | — | — | — | — | — | (9.1) | (9.1) | | Value of employee services | — | — | — | — | — | 1.1 | 1.1 | | **At 31 March 2022** | **8.1** | **30.3** | **(0.1)** | **1.5** | **(12.8)** | **173.3** | **200.3** | Financial statements Annual Report and Accounts 2022 Norcros plc 111 Financial statements ## Notes to the Group accounts ### Year ended 31 March 2022 1. Group accounting policies General information Norcros plc (the Company), and its subsidiaries (together the Group), designs, manufactures and distributes a range of high quality andinnovative bathroom and kitchen products mainly in the UK and South Africa. The Company is incorporated in the UK as a public company limited by shares and registered in England and Wales. The shares of the Company are listed on the premium segment of the London Stock Exchange market of listed securities. The address of its registered office is Ladyfield House, Station Road, Wilmslow SK9 1BU, UK. The Company is domiciled in the UK. Basis of preparation The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are stated at their fair value. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements from this date. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement ordisclosure in the period reported as a result of the change in framework. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are detailed in the section on critical estimates on page 113. Although these estimates are based on management‘s best knowledge of amounts, events or actions, actual results may differ from expectations. Accounting reference date UK company law permits a company to draw up financial statements to a date seven days either side of its accounting reference date. For operational reasons the Company has in the current financial year adopted an accounting period of 52 weeks, and as a result of this, the exact year-end date was 3 April 2022. All references to the financial year therefore relate to the 52 weeks commencing on 5 April 2021. Inthe previous year the accounting period was 52 weeks, beginning on 6 April 2020 and ending on 4 April 2021. Going concern In adopting the going concern basis for preparing the financial statements, the Directors have considered the Group’s business activities and the principal risks and uncertainties including current macroeconomic factors in the context of the current operating environment. TheGroup, in acknowledging its TCFD requirements, has also considered climate risks in the financial statements. A going concern financial assessment was developed on a bottom-up basis by taking the output of the annual budgeting process built up by individual businesses and then subjected to review and challenge by the Board. The acquisition of Grant Westfield was also reflected in the assessment. The financial model was then stress tested by modelling the most extreme but plausible scenario, that being further national lockdowns as a result of a resurgent COVID-19 pandemic. This has been based on the actual impact of the COVID-19 pandemic on the Group, which at its peak saw a revenue reduction of 25% on the prior year over a six-month period. The scenario also incorporates management actions the Group has at its disposal including a number of cash conservation and cost reduction measures including capital expenditure reductions, dividend decreases and restructuring activities. The Group continues to exhibit sufficient and prudent levels of liquidity headroom against our key banking financial covenants during the twelve-month period under assessment. Reverse stress testing has also been applied to the financial model, which represents a further decline in sales compared with the reasonable worst case. Such a scenario, and the sequence of events which could lead to it, isconsidered to be implausible and remote. As a result of this detailed assessment, the Board has concluded that the Company is able to meet its obligations when they fall due for a period of at least twelve months from the date of this report. For this reason, the Company continues to adopt the going concern basis for preparing the Group financial statements. In forming this view, the Board has also concluded that no material uncertainty exists in its use of the going concern basis of preparation. Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out as follows. These policies have been consistently applied to all periods presented. We are not aware of any new, amended or forthcoming accounting standards that will have a material impact on the financial statements of the Group in the current year or future years. Basis of consolidation Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to or has rights tovariable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries acquired or disposed of in the year are included in the consolidated financial statements from the date on which the Group has the ability to exercise control and are no longer consolidated from the date that control ceases. Costs related totheacquisition or disposal are not included in underlying operating profit. Where necessary, adjustments are made to the financial statements of subsidiaries to bring them into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Norcros plc Annual Report and Accounts 2022112 1. Group accounting policies continued Summary of significant accounting policies continued Basis of consolidation continued Subsidiaries continued On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of acquisition and, where necessary, the accounting policies of acquired subsidiaries are adjusted to bring them in line with those of the Group. Any excess of the consideration (excluding payments contingent on future employment) over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency in the cost of acquisition below the fair values of the identifiable net assets acquired (discount on acquisition) is credited to the Income Statement in the period of acquisition. Payments that are contingent on future employment are charged to the Consolidated Income Statement. All acquisition costs are expensed as incurred. Key sources of estimation uncertainty and critical judgements in applying the Group’s accounting policies The Group’s accounting policies have been set by management and approved by the Audit and Risk Committee. The application of these accounting policies to specific scenarios requires estimates and judgements to be made concerning the future. Under IFRS, estimates or judgements are considered critical where they involve a significant risk that may cause a material adjustment to the carrying amounts of assets and liabilities from period to period. This may be because the estimate or judgement involves matters which are highly uncertain, or because different estimation methods or assumptions could reasonably have been used. Once identified, critical estimates and Financial statements judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty The key assumption concerning the future, and other key sources of estimation uncertainty at the Balance Sheet date, that has a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year is: • retirement benefit obligations – accounting for retirement benefit schemes under IAS 19 (revised) requires an assessment of the future benefits payable in accordance with actuarial assumptions. The future inflation assumptions applied in the calculation of scheme liabilities, which are set out in note 24, represent a key source of estimation uncertainty for the Group. Critical judgements in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with above) and have been identified as being particularly complex or involve subjective assessments: • acquired intangible fixed assets – intangible assets can only be recognised as part of a business combination where the intangible asset is separable from goodwill, can be reliably measured and is expected to generate future economic benefits. Judgement is required to assess whether these criteria are met and also to subsequently determine the appropriate assumptions which are used to place a value on the intangible asset. Had different assumptions been applied, the valuation of acquired intangible assets could have differed from the amount ultimately recognised. Judgement is also needed to determine the useful economic lives of intangible assets and if a different period had been determined this could have resulted in amortisation charges differing from those actually recognised; • retirement benefit obligations – accounting for retirement benefit schemes under IAS 19 (revised) requires an assessment of the future benefits payable in accordance with actuarial assumptions. The choice of discount rate and mortality assumptions applied in the calculation of scheme liabilities is a key judgement in applying the Group’s accounting policy. Details of the accounting policies applied in respect of retirement benefit schemes are set out in note 24; • defined benefit pension scheme surplus – management has concluded that the Group has an unconditional right to a refund from the UK defined benefit pension scheme once the liabilities have been discharged and that the trustees of the scheme do not have the unilateral right to wind up the scheme. Therefore the asset is not restricted and no additional liability was recognised. See note 24 for further details of the scheme; and • customer rebate, incentive and promotional support accruals – a number of the Group’s customers are offered rebates, incentives and promotional support in order to encourage trade and cement strong relationships. Accounting for such arrangements involves judgement as agreement periods typically run for a number of months or years and may involve assumptions around volumes of product purchased or sold into the future. However, where applicable, accrual calculations are underpinned by signed contracts and there has historically been a strong correlation between the amounts accrued in respect of a particular period and the amounts subsequently paid. Revenue recognition The Group derives revenue predominantly from the sale of goods to customers. Revenue from the sale of goods is recognised when control of the goods has been transferred to the buyer. Control transfers when the customer has the ability to direct the use of and substantially obtain all of the benefits of the goods. This is generally on receipt of goods by the customer. The Group also derives revenue from services provided alongside the supply of goods, mainly installation services, which are recognised over time and are calculated using the “input method” by reference to regular surveys of the work performed. Revenue received in respect of extended warranties is recognised over the period of the warranty. Revenue is measured at the fair value of the consideration received or receivable. Revenue represents the amounts receivable for goods supplied or services provided, stated net of discounts, returns, rebates and value-added taxes. Accumulated experience is used to estimate and provide for rebates, discounts and expected returns using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. An accrual is made at each Balance Sheet date as a deduction from revenue to reflect management’s best estimate of amounts to be paid in respect of arrangements in place with customers regarding rebates, discounts and expected returns. Annual Report and Accounts 2022 Norcros plc 113 Financial statements ## Notes to the Group accounts continued ### Year ended 31 March 2022 1. Group accounting policies continued Summary of significant accounting policies continued Revenue recognition continued Incremental costs of fulfilling a contract, such as testing costs, are capitalised in “Trade and other receivables” if the cost has been incurred and are amortised over the life of the contract if the period over which the Group obtains benefit from is over twelve months. Contract related support costs are accrued in “Trade and other payables” if the trigger for payment has been met. Both types of cost are recorded in the Income Statement against underlying operating profit. 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 (being the Board) assesses performance and allocates resources based on geography and accordingly segments have been determined on this basis. Corporate costs are allocated to segments on the basis of external turnover. Goodwill Goodwill is recognised as an asset and reviewed for impairment at least annually or whenever there is an indicator of impairment. Goodwill is carried at cost less amortisation charged prior to the Group’s transition to IFRS less accumulated impairment losses. Any impairment isrecognised in the period in which it is identified and is never reversed. Intangible assets Acquired intangible assets comprise customer relationships, brands, trade names and patents recognised as separately identifiable assets on acquisition as well as product certification costs and development costs which meet the criteria for capitalisation (as explained below in the accounting policy for research and development costs). They are valued at cost less accumulated amortisation, with amortisation being charged on a straight-line basis. The estimated useful lives of Group assets are as follows: Customer relationships 8–15 years Brands, trade name and patents 8–15 years Development costs 5 years Product certification costs 5 years Impairment of long-life assets Property, plant and equipment assets are reviewed on an annual basis to determine whether events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated as either the higher of the asset’s net selling price or value in use; the resultant impairment (the amount by which the carrying amount of the asset exceeds its recoverable amount) is recognised as a charge in the Income Statement. The value in use is calculated as the present value of the estimated future cash flows expected to result from the use of assets and their eventual disposal proceeds. In order to calculate the present value of estimated future cash flows the Group uses an appropriate discount rate adjusted for any associated risk. Estimated future cash flows used in the impairment calculation represent management’s best view of likely future market conditions and current decisions on the use of each asset or asset group. Property, plant and equipment Property, plant and equipment is initially measured at cost. Cost comprises the purchase price (after deducting trade discounts and rebates) and any directly attributable costs. Property, plant and equipment is stated at cost less accumulated depreciation and any provision for impairment in value. Impairment charges are recognised in the Income Statement when the carrying amount of an asset is greater than the estimated recoverable amount, calculated with reference to future discounted cash flows that the assets are expected to generate when considered as part of an income-generating unit. Land is not depreciated. Depreciation on other assets is provided on a straight-line basis to write down assets to their residual value evenly over the estimated useful lives of the assets from the date ofacquisition by the Group. The estimated useful lives of Group assets are as follows: Buildings 25–50 years Plant and equipment 3–15 years The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each Balance Sheet date. Investment property Investment property comprises mainly land and relates to property which is either sub-let to a third party or is not being utilised in the Group’s core operations. Investment property is held at cost less depreciation on buildings (land is not depreciated). Investment property is depreciated over 50 years. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, and, where applicable, labour and overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provisions are made for slow-moving and obsolete items. Taxation Current tax, which comprises UK and overseas corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date. Norcros plc Annual Report and Accounts 2022114 1. Group accounting policies continued Summary of significant accounting policies continued Taxation continued Deferred tax is the tax expected to be payable or recoverable on the difference between the carrying amounts of assets and liabilities inthe Balance Sheet and the corresponding tax bases used in the computation of taxable profits and is accounted for using the Balance Sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised and is charged in the Income Statement, except where it relates to items charged or credited to equity via the Statement of Comprehensive Income, when the deferred tax is also dealt with in equity and is shown in the Statement of Comprehensive Income. Provisions Warranty provisions – provision is made for the estimated liability on products under warranty. Liability is recognised upon the sale ofaproduct and is estimated using historical data. Restructuring provisions – provision is made for costs of restructuring activities to be carried out by the Group when the Group is Financial statements demonstrably committed to incurring the cost in a future period and the cost can be reliably measured. Property provisions – where the Group has vacated a property but is committed to a leasing arrangement, a provision is made to cover unavoidable costs including dilapidation costs net of any expected future sub-lease income. Provisions are measured at the best estimate of the amount to be spent and discounted where material. Employee benefits The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans andpost-employment medical plans. (a) Pension obligations A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent onone or more factors such as age, years of service and compensation. The liability recognised in the Consolidated Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Surpluses are only recognised to the extent that they are recoverable. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity inother comprehensive income in the period in which they arise, net of the related deferred tax. Past service costs are recognised immediately in income. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that acash refund or a reduction in the future payments is available. (b) Other post-employment obligations Some Group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. (c) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than twelve months after the end of the reporting period are discounted to their present value. (d) Profit sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Annual Report and Accounts 2022 Norcros plc 115 Financial statements ## Notes to the Group accounts continued ### Year ended 31 March 2022 1. Group accounting policies continued Summary of significant accounting policies continued Exceptional items Exceptional items are disclosed separately in accordance with the requirements of IAS 1, ‘Presentation of financial statements’. They include profits and losses on disposal of non-current assets outside the normal course of business, restructuring costs and large or significant one-off items which in management’s judgement need to be disclosed to enable the user to obtain a proper understanding ofthe Group’s financial performance. IAS 19R administrative expenses The administrative expenses incurred by the Trustee in connection with managing the Group’s pension schemes are recognised in the Consolidated Income Statement. These costs are excluded from underlying operating profit. Acquisition related costs Acquisition related costs include deferred remuneration, amortisation of acquired intangibles and professional advisory fees. These costs are excluded from underlying operating profit. Financial assets and liabilities Borrowings The Group measures all borrowings initially at fair value. This is taken to be the fair value of the consideration received. Transaction costs (any such costs that are incremental and directly attributable to the issue of the financial instrument) are included in the calculation of the effective interest rate and are, in effect, amortised through the Income Statement over the duration of the borrowing. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date. Derivative financial instruments The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates and to fluctuations in interest rates. TheGroup uses derivative financial instruments (solely foreign currency forward contracts) to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions. The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Group designates net positions and hedge documentation is prepared in accordance with IFRS 9. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles in the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value at the contract date and are re-measured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in other comprehensive income, and any ineffective portion is recognised immediately in the Income Statement. Cash and cash equivalents Cash and cash equivalents in the cash flow statement include cash in hand, deposits held at call with banks and bank overdrafts. Cash and cash equivalents are offset against overdrafts and borrowings only when there is a legally enforceable right to do so and there is a clear intention to undertake settlement of such overdrafts or borrowings held with the same counterparty within a short timeframe after the year end. Trade receivables Trade receivables are amounts due from customers for goods sold in the ordinary course of business. If collection is expected in one year or less they are classified as current assets; otherwise they are presented as non-current assets. Trade receivables are recognised initially at the amount of consideration that is unconditional. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method, less appropriate allowances for estimated credit losses (provision for impairment). The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. To measure the expected credit losses, trade receivables are grouped based on shared credit risk characteristics and the length of time overdue. An estimate is made of the expected credit loss based on the Group’s past history, existing market conditions as well as forward-looking estimates at the end of each reporting period. The maximum exposure at the end of the reporting period is the carrying amount of these receivables. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Norcros plc Annual Report and Accounts 2022116 1. Group accounting policies continued Summary of significant accounting policies continued Fair value estimation The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the Balance Sheet date. TheGroup determines the fair value of its remaining financial instruments through the use of estimated discounted cash flows. The fair value of interest rate and cross-currency swaps is calculated as the net present value of the estimated future cash flows. The carrying values less impairment provision of trade receivables and payables are assumed to approximate to their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Research and development Expenditure on research is charged against profits for the year in which it is incurred. Development costs are capitalised once the technical feasibility of a project has been established and a business plan, which demonstrates how the project will generate future economic benefits, has been approved. Development costs are amortised on a straight-line basis over their expected useful lives from the point atwhich the asset is capable of operating in the manner intended by management. Dividend distribution Financial statements Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period inwhich the dividends are approved by the Company’s shareholders, or when paid if earlier. Foreign currency transactions Functional currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the functional currency). The consolidated financial statements are presented in Sterling, which is the functional and presentational currency of the parent entity. Transactions and balances Monetary assets and liabilities expressed in currencies other than the functional currency are translated at rates applicable at the year end and trading results of overseas subsidiaries at average rates for the year. Exchange gains and losses of a trading nature are dealt with in arriving at operating profit. Translation of overseas net assets Exchange gains and losses arising on the retranslation of overseas net assets and results are taken directly to reserves. Share capital Issued share capital is recorded in the Balance Sheet at nominal value with any premium at the date of issue being credited to the share premium account. Treasury shares The cost of the purchase of own shares is taken directly to reserves and is included in the treasury reserve. Hedging reserve The hedging reserve represents the accumulated movements in the Group’s derivative financial instruments that have been designated as hedging instruments. Amounts are transferred in and out of the reserve on the revaluation, or realisation, of identified hedging instruments. Share-based payments The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each Balance Sheet date, the Company revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the Income Statement, with a corresponding adjustment to equity. Share-based payments are settled through the Norcros Group Employee Benefit Trust that holds shares in Norcros Group plc that have either been purchased on the market or issued by the Company and satisfies awards made under various employee incentive schemes. The shareholding of the Group Employee Benefit Trust is consolidated within the consolidated accounts of the Group. Government assistance As a result of the COVID-19 pandemic, the Group benefited from £4.3m of government assistance programmes relating to employee job retention costs in the prior year. Government assistance received related to employee job retention and was presented net against the applicable staff costs within cost of sales and overheads in the Income Statement. Annual Report and Accounts 2022 Norcros plc 117 Financial statements ## Notes to the Group accounts continued ### Year ended 31 March 2022 1. Group accounting policies continued Summary of significant accounting policies continued Leases Recognition At the date of commencement, the Group assesses whether a contract is or contains a lease by judging whether the contract is in relation to a specified asset and to what extent the Group obtains substantially all the economic benefits from, and has the right to direct the use of, that asset. The Group recognises a right of use (ROU) asset and a lease liability at the commencement of the lease. Short-term and low-value assets The Group has elected not to recognise ROU assets and lease liabilities for leases where the total lease term is less than or equal to twelvemonths, or for leases of assets with a value less than £5,000. The payments for such leases are recognised in the Income Statement within cost of sales or administrative expenses on a straight-line basis over the lease term and presented within cash generated from operations in the cash flow statement. Non-lease components Fees for components such as property taxes, maintenance, repairs and other services, which are either variable or transfer benefits separate to the Group’s right to use the asset, are separated from lease components based on their relative stand-alone selling price. These components are expensed in the Income Statement as incurred. Lease liabilities Lease liabilities are initially measured at the present value of future lease payments at the commencement date. Lease payments are discounted using the interest rate implicit in the lease, or where this cannot be readily determined, the lessee’s incremental borrowing rate. Lease payments include the following payments due within the non-cancellable term of the lease, as well as the term of any extension options where these are considered reasonably certain to be exercised: • fixed payments; • variable payments that depend on an index or rate; and • the exercise price of purchase or termination options if it is considered reasonably certain these will be exercised. Subsequent to the commencement date, the lease liability is measured at the initial value, plus an interest charge determined using the incremental borrowing rate, less lease payments already made such as deposits. The interest expense is recorded in finance costs in the Income Statement. The liability is re-measured when future lease payments change, when the exercise of extension or termination options becomes reasonably certain, or when the lease is modified. Payments for the principal element of recognised lease liabilities are presented within cash flows from financing activities in the cash flow statement. The interest element is recognised in net cash generated from operations. Right of use assets The ROU asset is initially measured at cost, being the value of the lease liability, plus the value of any lease payments made at or before the commencement date, initial direct costs and the cost of any restoration obligations, less any incentives received. The ROU asset is subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is adjusted for any re-measurement of the lease liability. The ROU asset is subject to testing for impairment where there are any impairment indicators. IFRS 16, ‘COVID-19 related rent concessions’ During the prior year the IASB published an amendment to IFRS 16, ‘COVID-19 related rent concessions’, amending the standard to provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification, effective for annual reporting periods beginning on or after 1 June 2020. The Group applied the COVID-19 related rent concessions practical expedient and accounted for the concessions as though they were variable lease payments. Norcros plc Annual Report and Accounts 2022118 ## 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 (being the Board) assesses performance and allocates resources based on geography and accordingly segments have been determined on this basis. Corporate costs are allocated to segments on the basis of external turnover. Finance income and costs are not split between the segments. ### Year ended 31 March 2022 | | UK £m | South Africa £m | Group £m | | --- | --- | --- | --- | | Revenue | 256.7 | 139.6 | 396.3 | | Underlying operating profit | 30.9 | 10.9 | 41.8 | | IAS 19R administrative expenses | (1.7) | — | (1.7) | | Acquisition related costs | (4.6) | (0.2) | (4.8) | | Exceptional operating items | 0.9 | — | 0.9 | | Operating profit | 25.5 | 10.7 | 36.2 | | Finance costs | | | (3.2) | | Profit before taxation | | | 33.0 | | Taxation | | | (7.3) | | Profit for the year | | | 25.7 | | Net cash | | | 8.6 | | Segmental assets | 252.9 | 106.6 | 359.5 | | Segmental liabilities | (116.9) | (42.3) | (159.2) | | Additions to property, plant and equipment | 2.9 | 2.4 | 5.3 | | Depreciation and amortisation | 8.0 | 5.0 | 13.0 | ### Year ended 31 March 2021 | | UK £m | South Africa £m | Group £m | | --- | --- | --- | --- | | Revenue | 220.2 | 104.0 | 324.2 | | Underlying operating profit | 26.9 | 6.9 | 33.8 | | IAS 19R administrative expenses | (1.4) | — | (1.4) | | Acquisition related costs | (3.5) | (0.2) | (3.7) | | Exceptional operating items | (3.6) | (0.2) | (3.8) | | Operating profit | 18.4 | 6.5 | 24.9 | | Finance costs (net) | | | (6.4) | | Profit before taxation | | | 18.5 | | Taxation | | | (3.5) | | Profit for the year | | | 15.0 | | Net cash | | | 10.5 | | Segmental assets | 221.4 | 90.8 | 312.2 | | Segmental liabilities | (125.6) | (38.2) | (163.8) | | Additions to property, plant and equipment | 1.6 | 0.9 | 2.5 | | Depreciation and amortisation | 8.5 | 4.6 | 13.1 | Financial statements Annual Report and Accounts 2022 Norcros plc 119 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 2. Segmental reporting continued The split of revenue by geographical destination of the customer is below: | | 2022 £m | 2021 £m | | --- | --- | --- | | UK | **222.4** | 189.4 | | Africa | **141.9** | 105.8 | | Rest of World | **32.0** | 29.0 | | | **396.3** | 324.2 | No one customer had revenue over 10% of total Group revenue (2021: none). Reported revenue within the South African segment contains £3.9m (2021: £2.6m) of revenue from services performed which have been recognised over time and within the UK segment contains £0.3m (2021: £0.4m) of extended warranty revenue that has been recognised over time. ## 3. Operating profit Operating profit is derived after deducting cost of sales of £255.5m (2021: £205.8m), distribution costs of £28.3m (2021: £21.3m) and administrative expenses, inclusive of exceptional and acquisition related costs, of £76.3m (2021: £72.2m). The following items have been included in arriving at operating profit: | | 2022 £m | 2021 £m | | --- | --- | --- | | Staff costs (see note 4) | **65.9** | 52.8 | | Depreciation of property, plant and equipment (all owned assets) | **5.1** | 5.2 | | Amortisation of intangible assets | **3.8** | 3.9 | | Depreciation of right of use assets | **4.1** | 4.0 | | Operating lease rentals payable for short-term and low-value leases: | | | | – plant and machinery | **0.7** | 1.2 | | – other | **0.4** | 0.6 | | Research and development expenditure | **4.8** | 3.6 | All items relate to continuing operations. ### Auditor's remuneration During the year the Group (including its overseas subsidiaries) obtained the following services from the Company's auditor and its associates: | | 2022 £m | 2021 £m | | --- | --- | --- | | Audit of the Parent Company and consolidated financial statements | **0.1** | 0.1 | | Audit of the Company's subsidiaries | **0.3** | 0.3 | | | **0.4** | 0.4 | ## 4. Employees | | 2022 £m | 2021 £m | | --- | --- | --- | | Staff costs including Directors' remuneration: | | | | – wages and salaries | **57.6** | 50.3 | | – social security costs | **3.5** | 2.8 | | – share-based payments (see note 10) | **1.1** | 1.0 | | Pension costs: | | | | – defined contribution (see note 24) | **3.7** | 3.0 | | | **65.9** | 57.1 | | Furlough payments received | — | (4.3) | | **Total staff costs** | **65.9** | 52.8 | Government income related to job retention assistance in the prior year is presented in the above table. | | 2022 Number | 2021 Number | | --- | --- | --- | | Average monthly numbers employed: | | | | – UK | **1,002** | 983 | | – overseas | **1,194** | 1,072 | | | **2,196** | 2,055 | Full details of Directors' remuneration may be found in the Remuneration Report on pages 87 to 96. 120 Norcross plc Annual Report and Accounts 2022 ## 5. Acquisition related costs and exceptional operating items An analysis of acquisition related costs and exceptional operating items is shown below: | Acquisition related costs | 2022 £m | 2021 £m | | --- | --- | --- | | Intangible asset amortisation^{1} | 3.7 | 3.7 | | Advisory fees^{2} | 1.1 | — | | | **4.8** | **3.7** | 1 Non-cash amortisation charges in respect of acquired intangible assets 2 Professional advisory fees incurred in connection with the Group's business combination activities | Exceptional operating items | 2022 £m | 2021 £m | | --- | --- | --- | | COVID-19 related restructuring^{1} | — | 3.8 | | Release of UK property provision^{2} | (0.9) | — | | | **(0.9)** | **3.8** | 1 Exceptional costs of £3.8m were incurred in the prior year in relation to COVID-19 related restructuring programmes across the Group as a result of the impact of COVID-19 on the economies we trade in. 2 The UK property provision related to the only remaining surplus and legacy onerous property lease at Groundwell, Swindon. In the year, the Group reached agreement with the landlord to exit the lease early. A cash settlement payment of £1.3m including dilapidation obligations was made in the period. The remaining £0.9m of the related provision has been released as an exceptional operating item. ## 6. Finance costs | | 2022 £m | 2021 £m | | --- | --- | --- | | Interest payable on bank borrowings | 0.8 | 1.5 | | Interest on lease liabilities | 1.7 | 1.7 | | Movement on fair value of derivative financial instruments | — | 2.0 | | Property lease discount | 0.1 | — | | Amortisation of costs of raising debt finance | 0.2 | 0.2 | | **Finance costs** | **2.8** | **5.4** | ## 7. Taxation Taxation comprises: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current** | | | | UK taxation | 3.6 | 0.4 | | Overseas taxation | 4.7 | 3.7 | | Prior year adjustment | (0.1) | (0.2) | | **Total current taxation** | **8.2** | **3.9** | | **Deferred** | | | | Origination and reversal of temporary differences | (0.9) | (0.4) | | **Total tax charge** | **7.3** | **3.5** | The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Profit before tax** | **33.0** | **18.5** | | Tax calculated at domestic tax rates applicable to profits in the respective countries | 6.8 | 3.4 | | Tax effects of: | | | | – adjustments in respect of prior years | (0.1) | (0.2) | | – expenses not deductible for tax purposes | 0.4 | 0.3 | | – tax rate differences | 0.2 | — | | **Total tax charge** | **7.3** | **3.5** | The weighted average applicable tax rate was 20.6% (2021: 18.4%), the increase relates to the increased proportional profits in South Africa and the UK relative to Ireland. The standard rate of corporation tax in the UK is 19% (2021: 19%), in South Africa 28% (2021: 28%) and in Ireland 12.5% (2021: 12.5%). Taxation on items taken directly to equity was a debit of £9.2m relating to deferred tax on pensions (see note 22) and a debit of £0.6m of deferred tax in relation to foreign exchange cash flow hedges. Annual Report and Accounts 2022 Norcros plc 121 Financial Statements Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 8. 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: | Measure | Definition | | --- | --- | | Underlying operating profit | Operating profit before IAS 19R administrative expenses, acquisition related costs and exceptional operating items. | | Underlying profit before taxation | Profit before taxation before IAS 19R administrative expenses, acquisition related costs, exceptional operating items, amortisation of costs of raising finance, net movement on fair value of derivative financial instruments, discounting of property lease provisions and finance costs relating to pension schemes. | | Underlying taxation | Taxation on underlying profit before tax. | | Underlying earnings | Underlying profit before tax less underlying taxation. | | Underlying capital employed | Capital employed on a pre-IFRS 16 basis adjusted for business combinations where relevant and the average impact of exchange rate movements. | | Underlying operating margin | Underlying operating profit expressed as a percentage of revenue. | | Underlying return on capital employed (ROCE) | Underlying operating profit on a pre-IFRS 16 basis expressed as a percentage of the average of opening and closing underlying capital employed. | | Basic underlying earnings per share | Underlying earnings divided by the weighted average number of shares for basic earnings per share. | | Diluted underlying earnings per share | Underlying earnings divided by the weighted average number of shares for diluted earnings per share. | | Underlying EBITDA | Underlying EBITDA is derived from underlying operating profit before depreciation and amortisation excluding the impact of IFRS 16 in line with our banking covenants. | | Underlying operating cash flow | Cash generated from continuing operations before cash outflows from exceptional items and acquisition related costs and pension fund deficit recovery contributions. | | Underlying net (debt)/cash | Underlying net (debt)/cash is the net of cash, capitalised costs of raising finance and total borrowings. IFRS 16 lease commitments are not included in line with our banking covenants. | | Pro-forma underlying EBITDA | An annualised underlying EBITDA figure used for the purpose of calculating banking covenant ratios. | | Pro-forma leverage | Net debt expressed as a ratio of pro-forma underlying EBITDA. | ### Reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures #### Consolidated Income Statement ##### (a) Underlying profit before taxation and underlying earnings | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit before taxation | 33.0 | 18.5 | | Adjusted for: | | | | – IAS 19R administrative expenses | 1.7 | 1.4 | | – acquisition related costs (see note 5) | 4.8 | 3.7 | | – exceptional operating items (see note 5) | (0.9) | 3.8 | | – amortisation of costs of raising finance | 0.2 | 0.2 | | – net movement on fair value of derivative financial instruments | — | 2.0 | | – property lease discount | 0.1 | — | | – IAS 19R finance cost | 0.4 | 1.0 | | **Underlying profit before taxation** | **39.3** | **30.6** | | Taxation attributable to underlying profit before taxation | (7.8) | (5.5) | | **Underlying earnings** | **31.5** | **25.1** | 122 Norcros plc Annual Report and Accounts 2022 ## 8. Alternative performance measures continued Reconciliations from GAAP-defined reporting measures to the Group's alternative performance measures continued ### Consolidated Income Statement continued #### (b) Underlying operating profit and EBITDA (pre-IFRS 16) | | 2022 £m | 2021 £m | | --- | --- | --- | | Operating profit | 36.2 | 24.9 | | Adjusted for: | | | | – IAS 19R administrative expenses | 1.7 | 1.4 | | – acquisition related costs | 4.8 | 3.7 | | – exceptional operating items (see note 5) | (0.9) | 3.8 | | **Underlying operating profit** | **41.8** | **33.8** | | – depreciation and amortisation (owned assets) | 5.2 | 5.4 | | – depreciation of leased assets | 4.1 | 4.0 | | – lease costs | (5.7) | (5.3) | | **Underlying EBITDA (pre-IFRS 16)** | **45.4** | **37.9** | ### Consolidated Cash Flow Statement #### (a) Underlying operating cash flow | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash generated from operations (see note 27) | 23.6 | 60.0 | | Adjusted for: | | | | – cash flows from exceptional items and acquisition related costs (see note 27) | 1.7 | 2.5 | | – pension fund deficit recovery contributions (see note 27) | 3.3 | 3.3 | | **Underlying operating cash flow** | **28.6** | **65.8** | ### Consolidated Balance Sheet #### (a) Underlying capital employed and underlying return on capital employed | | 2022 £m | 2021 £m | | --- | --- | --- | | Net assets | 200.3 | 148.4 | | Adjusted for: | | | | – pension scheme (asset)/liability (net of associated tax) | (14.7) | 14.8 | | – right of use assets (IFRS 16) | (19.9) | (19.6) | | – lease liabilities (IFRS 16) | 24.0 | 24.2 | | – onerous lease provision (IFRS 16) | — | (0.8) | | – cash and cash equivalents | (27.4) | (28.3) | | – financial liabilities – borrowings | 18.8 | 17.8 | | | 181.1 | 156.5 | | Foreign exchange adjustment | (1.7) | 0.8 | | **Underlying capital employed** | **179.4** | **157.3** | | **Average underlying capital employed** | **168.3** | **178.9** | | **Underlying operating profit (pre-IFRS 16)** | **40.2** | **32.5** | | **Underlying return on capital employed** | **23.9%** | **18.2%** | Financial Statements Annual Report and Accounts 2022 Norcros plc 123 Financial statements ## Notes to the Group accounts continued ### Year ended 31 March 2022 9. Earnings per share Basic EPS is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year, 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. At 31 March 2022 the potential dilutive ordinary shares amounted to 1,504,604 (2021: 201,781) as calculated in accordance with IAS 33. The calculation of EPS is based on the following profits and numbers of shares: 2022 2021 £m £m Profit for the year 25.7 15.0 2022 2021 Number Number Weighted average number of shares for basic earnings per share 80,887,24 0 80,575,242 Share options 1,504,604 201,781 Weighted average number of shares for diluted earnings per share 82,391,844 80,777,023 2022 2021 Basic earnings per share: From profit for the year 31.8p 18.6p Diluted earnings per share: From profit for the year 31.2p 18.6p Basic and diluted underlying earnings per share Basic and diluted underlying earnings per share has also been provided which reflects underlying earnings from continuing operations divided by the weighted average number of shares set out above. 2022 2021 £m £m Underlying earnings (see note 8) 31.5 2 5.1 2022 2021 Basic underlying earnings per share 38.9p 31.2p Diluted underlying earnings per share 38.2p 31.1p 10. Share-based payments Weighted average | Exercise | | share price | | | | Date from | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | price | at date of | 1 April | 31 March | | | which | Expiry | | per share | | exercise | 2021 Granted Exercised Lapsed | | 2022 | exercisable | | date | Approved Performance Share Plan 2017 (APSP) 299p 173p 6,959 — (1,488) (3,370) 2,101 16.11.20 16.11.27 Approved Performance Share Plan 2018 (APSP) Nil 173p 777,403 — — (777,403) — 25.0 7. 21 25.0 7. 28 Approved Performance Share Plan 2019 (APSP) Nil — 819,084 — — (9,744) 809,340 2 3. 07.22 2 3.07. 2 9 Approved Performance Share Plan 2020 (APSP) Nil — 970,695 — — (18,247) 952,448 25.11.23 25.11.30 Approved Performance Share Plan 2021 (APSP) Nil — — 705,555 — (5,972) 699,583 2 0. 07. 2 4 2 0.07.3 0 Deferred Bonus Plan 2018 (DBP) Nil — 6 9,10 1 — (6 9,10 1) — — 25.07.21 2 5. 07. 2 8 Deferred Bonus Plan 2019 (DBP) Nil — 87,381 — — — 87,381 23.07. 2 2 23.07. 2 9 Deferred Bonus Plan 2021 (DBP) Nil — — 109,455 — — 109,455 25.11.23 25.11.30 Save As You Earn Scheme (10) (SAYE) 160p 227p 73,299 — (64,277) (9,022) — 01.03.21 31.08.21 Save As You Earn Scheme (11) (SAYE) 201p — 73,872 — (41,417) (1,254) 31,201 01.03.22 31.0 8.22 Save As You Earn Scheme (12) (SAYE) 208p — 187,871 — (4,216) (50,889) 132,766 01.03.23 31.08.23 Save As You Earn Scheme (13) (SAYE) 164p — 6 87,421 — (1,219) (62,399) 623,803 01.03.24 31.08.24 Save As You Earn Scheme (14) (SAYE) 266p — — 173,385 — (6,766) 166,619 01.03.25 31.08.25 Details of the terms of the APSP, DBP and SAYE schemes are disclosed in the Directors’ Remuneration Report. Norcros plc Annual Report and Accounts 2022124 ## 10. Share-based payments continued In accordance with IFRS 2, the fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group's estimate of shares that will eventually vest. A charge of £1.1m was recognised in respect of share options in the year (2021: £1.0m) including £0.4m (2021: £0.4m) in respect of the Directors' share options. The highest paid Director's share options accounted for £0.2m (2021: £0.2m) of the charge. The Group uses a Black-Scholes pricing model to determine the annual charge for its share-based payments. The assumptions used in this model for each share-based payment are as follows: | | SAYE (10) | SAYE (11) | SAYE (12) | SAYE (13) | SAYE (14) | | --- | --- | --- | --- | --- | --- | | Date of grant | 14.12.17 | 14.12.18 | 13.12.19 | 23.12.20 | 20.12.21 | | Initial exercise price | 160p | 201p | 208p | 164p | 266p | | Number of shares granted initially | 345,599 | 120,220 | 306,649 | 692,908 | 173,385 | | Expected volatility | 35.1% | 30.0% | 31.0% | 42.2% | 44.5% | | Expected option life | 3 years | 3 years | 3 years | 3 years | 3 years | | Risk free rate | 0.9% | 0.9% | 0.3% | 1.3% | 1.9% | | Expected dividend yield | 4.0% | 4.1% | 4.0% | 3.8% | 2.8% | | | APSP 2017 | APSP 2018 | APSP 2019 | APSP 2020 | APSP 2021 | | Date of grant | 16.11.17 | 25.07.18 | 23.07.19 | 25.11.20 | 21.07.21 | | Initial exercise price | Nil | Nil | Nil | Nil | Nil | | Number of shares granted initially | 1,083,055 | 861,023 | 861,447 | 970,695 | 700,458 | | Expected volatility | 35.1% | 30.0% | 31.0% | 42.2% | 44.5% | | Expected option life | 3 years | 3 years | 3 years | 3 years | 3 years | | Risk free rate | 0.9% | 0.9% | 0.9% | 1.3% | 1.9% | | Expected dividend yield | 4.0% | 4.1% | 4.0% | 3.8% | 2.8% | | | | | DBP 2018 | DBP 2019 | DBP 2021 | | Date of grant | | | 25.07.18 | 23.07.19 | 21.07.21 | | Initial exercise price | | | Nil | Nil | Nil | | Number of shares granted initially | | | 69,101 | 87,381 | 109,455 | | Expected volatility | | | 30.0% | 31.0% | 44.5% | | Expected option life | | | 3 years | 3 years | 3 years | | Risk free rate | | | 0.9% | 0.9% | 1.9% | | Expected dividend yield | | | 4.1% | 4.0% | 2.8% | The share price at 31 March 2022 was 258p. The average price during the year was 299p. Expected volatility is the Company's three-year historical share price volatility. ## 11. Goodwill | | 2022 £m | 2021 £m | | --- | --- | --- | | At 1 April | 60.8 | 60.1 | | Additions | — | — | | Exchange differences | 0.4 | 0.7 | | At 31 March | 61.2 | 60.8 | Goodwill is allocated to the Group's cash-generating units (CGUs). A summary of the goodwill allocation is presented below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Croydex | 7.8 | 7.8 | | Abode | 0.8 | 0.8 | | Triton Showers | 19.1 | 19.1 | | Merlyn | 25.5 | 25.5 | | Tile Africa | 3.0 | 2.8 | | House of Plumbing | 5.0 | 4.8 | | | 61.2 | 60.8 | The recoverable amount of a CGU is determined by a value-in-use calculation. These calculations use cash flow projections derived from data and metrics used on an ongoing basis, with the key assumptions being those regarding discount rates, growth rates, future gross margin improvements and cash flows. Financial Statements Annual Report and Accounts 2022 Norcros plc 125 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 11. Goodwill continued The key assumptions for the value-in-use calculations are: - cash flows before income taxes are based on approved budgets and management projections for the first five years; - long-term growth rates of 2.0% (2021: 2.0%) for Croydex, Abode, Merlyn and Triton Showers and 4.0% (2021: 4.0%) for Tile Africa and House of Plumbing applied to the period beyond which detailed budgets and forecasts do not exist, based on macroeconomic projections for the geographies in which the entities operate; and - pre-tax discount rates of 11.4% (2021: 11.0%) in the UK and 16.8% (2021: 16.7%) in South Africa based upon the risk free rate for government bonds adjusted for a risk premium to reflect the increased risk of investing in equities and investing in the Group's specific sectors and regions. Management has applied sensitivities to the key assumptions, including discount rates and growth rates, and believes that there are no reasonably possible scenarios which would result in an impairment of goodwill. ## 12. Intangible assets | | Customer relationships £m | Brands, trade names and patents £m | Development costs £m | Product certification costs £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 April 2020 | 38.3 | 10.1 | 0.6 | 0.2 | 49.2 | | Exchange differences | 0.3 | — | — | — | 0.3 | | At 31 March 2021 | 38.6 | 10.1 | 0.6 | 0.2 | 49.5 | | Exchange differences | 0.1 | — | — | — | 0.1 | | **At 31 March 2022** | **38.7** | **10.1** | **0.6** | **0.2** | **49.6** | | **Accumulated amortisation** | | | | | | | At 1 April 2020 | 8.4 | 3.8 | 0.5 | 0.1 | 12.8 | | Charge for the year | 2.9 | 0.8 | 0.1 | 0.1 | 3.9 | | At 31 March 2021 | 11.3 | 4.6 | 0.6 | 0.2 | 16.7 | | Charge for the year | 2.9 | 0.9 | — | — | 3.8 | | **At 31 March 2022** | **14.2** | **5.5** | **0.6** | **0.2** | **20.5** | | Net book amount at 31 March 2021 | 27.3 | 5.5 | — | — | 32.8 | | **Net book amount at 31 March 2022** | **24.5** | **4.6** | **—** | **—** | **29.1** | The amortisation charge for intangibles generated on acquisition is £3.7m (2021: £3.7m) for the year and is included in the acquisition related costs in the Consolidated Income Statement. The £0.1m (2021: £0.2m) amortisation charge for internally generated or acquired intangibles is included in the Consolidated Income Statement. 126 Norcros plc Annual Report and Accounts 2022 ### 13. Property, plant and equipment | | Land and buildings £m | Plant and equipment £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 April 2020 | 34.8 | 91.1 | 125.9 | | Exchange differences | 1.0 | 3.3 | 4.3 | | Additions | 0.1 | 2.4 | 2.5 | | Reclassification | (2.6) | 3.3 | 0.7 | | Disposals | (0.1) | (2.3) | (2.4) | | At 31 March 2021 | 33.2 | 97.8 | 131.0 | | Exchange differences | 0.5 | 1.5 | 2.0 | | Additions | 0.3 | 5.0 | 5.3 | | Disposals | — | (1.4) | (1.4) | | **At 31 March 2022** | **34.0** | **102.9** | **136.9** | | **Accumulated depreciation** | | | | | At 1 April 2020 | 21.7 | 75.2 | 96.9 | | Exchange differences | 0.3 | 2.3 | 2.6 | | Charge for the year | 0.6 | 4.6 | 5.2 | | Reclassification | (1.6) | 2.3 | 0.7 | | Disposals | (0.1) | (2.3) | (2.4) | | At 31 March 2021 | 20.9 | 82.1 | 103.0 | | Exchange differences | 0.1 | 1.1 | 1.2 | | Charge for the year | 0.6 | 4.5 | 5.1 | | Disposals | — | (1.4) | (1.4) | | **At 31 March 2022** | **21.6** | **86.3** | **107.9** | | Net book amount at 31 March 2021 | 12.3 | 15.7 | 28.0 | | **Net book amount at 31 March 2022** | **12.4** | **16.6** | **29.0** | Plant and equipment include motor vehicles, computer equipment, and plant and machinery. During the prior year historical assets were reclassified from plant and equipment to land and buildings at Enil net book value. ### 14. Right of use asset | | Land and buildings £m | Plant and equipment £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 April 2020 | 21.7 | 4.6 | 26.3 | | Exchange differences | 1.4 | 0.1 | 1.5 | | Additions | 0.3 | 0.7 | 1.0 | | Modifications | 0.6 | — | 0.6 | | Disposals | (0.1) | (0.5) | (0.6) | | At 31 March 2021 | 23.9 | 4.9 | 28.8 | | Exchange differences | 0.9 | 0.1 | 1.0 | | Additions | 1.9 | 1.2 | 3.1 | | Modifications | 0.9 | — | 0.9 | | Disposals | (0.2) | (0.3) | (0.5) | | **At 31 March 2022** | **27.4** | **5.9** | **33.3** | | **Accumulated depreciation** | | | | | At 1 April 2020 | 3.3 | 2.4 | 5.7 | | Exchange differences | (0.1) | 0.1 | — | | Charge for the year | 3.0 | 1.0 | 4.0 | | Disposals | (0.1) | (0.4) | (0.5) | | At 31 March 2021 | 6.1 | 3.1 | 9.2 | | Exchange differences | 0.3 | 0.1 | 0.4 | | Charge for the year | 3.3 | 0.8 | 4.1 | | Disposals | (0.1) | (0.2) | (0.3) | | **At 31 March 2022** | **9.6** | **3.8** | **13.4** | | Net book amount at 31 March 2021 | 17.8 | 1.8 | 19.6 | | **Net book amount at 31 March 2022** | **17.8** | **2.1** | **19.9** | Financial statements Annual Report and Accounts 2022 Norcros plc 127 Financial statements ## Notes to the Group accounts continued ### Year ended 31 March 2022 15. Inventories 2022 2021 £m £m Raw materials and consumables 12.6 12.9 Work in progress 0.8 0.7 Finished goods 87.2 64.5 100.6 7 8.1 Provisions held against inventories totalled £9.1m (2021: £5.9m). The cost of inventories recognised as an expense within cost of sales in the Income Statement amounted to £218.6m (2021: £173.0m). During the year the Group charged £3.6m (2021: £1.9m) of inventory write-downs to the Income Statement within cost of sales. 16. Trade and other receivables 2022 2021 £m £m Trade receivables 68.1 61.3 Less: impairment loss allowance (1.2) (0.9) Trade receivables – net 66.9 60.4 Other receivables 0.9 1.6 Prepayments and accrued income 3.3 2.6 71.1 64.6 All trade and other receivables are current. The net carrying amounts of trade and other receivables are considered to be a reasonable approximation of their fair values. The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: 2022 2021 £m £m Sterling 53.1 49.7 South African Rand 16.4 14.2 Euro 1.6 0.7 71.1 64.6 Impairment of trade receivables | | | | 0–1 month | | 1–2 months | | | 2–3 months | | | >3 months | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Not yet due | | overdue | | | overdue | | | overdue | | overdue | | Total | | 31 March 2022 | | £m | | £m | | | £m | | | £m | | £m | £m | Expected credit loss rate 0.2% 2.4% 8.3% 10.0% 23.5% 1.8% Gross trade receivables 58.4 4.1 1.2 1.0 3.4 6 8.1 Loss allowance 0.1 0.1 0.1 0.1 0.8 1.2 | | | | 0–1 month | | 1–2 months | | | 2–3 months | | | >3 months | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Not yet due | | overdue | | | overdue | | | overdue | | overdue | | Total | | 31 March 2021 | | £m | | £m | | | £m | | | £m | | £m | £m | Expected credit loss rate 0.2% 1.7% 6.7% 50% 22% 1.5% Gross trade receivables 51.4 5.9 1.5 0.2 2.3 61.3 Loss allowance 0.1 0.1 0 .1 0.1 0.5 0.9 Movements on the provision for impairment of trade receivables were as follows: 2022 2021 £m £m At the beginning of the year 0.9 0.9 Provision for receivables impairment 0.3 0.5 Receivables written off during the year as uncollectable (0.1) (0.5) Exchange differences 0.1 — At the end of the year 1.2 0.9 Norcros plc Annual Report and Accounts 2022128 ## 17. Cash and cash equivalents | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash at bank and in hand | 27.4 | 28.3 | Credit risk on cash and cash equivalents is limited as the counterparties are banks with strong credit ratings assigned by international credit rating agencies. ## 18. Trade and other payables | | 2022 £m | 2021 £m | | --- | --- | --- | | Trade payables | 56.6 | 49.5 | | Other tax and social security payables | 5.0 | 7.7 | | Other payables | 1.9 | 1.8 | | Accruals and deferred income | 38.9 | 36.4 | | | 102.4 | 95.4 | The fair value of trade payables does not differ materially from the book value. ## 19. Lease liabilities Lease liabilities recognised on the adoption of IFRS 16. | | Land and buildings £m | Plant and equipment £m | Total £m | | --- | --- | --- | --- | | **Fair value** | | | | | At 1 April 2021 | 21.3 | 2.9 | 24.2 | | Exchange differences | 0.7 | — | 0.7 | | Additions | 1.9 | 1.2 | 3.1 | | Modifications | 0.9 | — | 0.9 | | Disposals | (0.1) | (0.1) | (0.2) | | Interest charge | 1.6 | 0.1 | 1.7 | | Gross lease payments | (5.0) | (1.4) | (6.4) | | **At 31 March 2022** | **21.3** | **2.7** | **24.0** | Lease liabilities are split into £5.7m (2021: £5.4m) payable in less than one year and £18.3m (2021: £18.8m) payable after one year. ## 20. Financial liabilities – borrowings | | 2022 £m | 2021 £m | | --- | --- | --- | | **Non-current** | | | | Bank borrowings (unsecured): | | | | – bank loans | 20.0 | 18.0 | | – less: costs of raising finance | (1.2) | (0.2) | | **Total borrowings** | **18.8** | **17.8** | The fair value of bank loans equals their carrying amount, as they bear interest at floating rates. The repayment terms of borrowings are as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Not later than one year | — | — | | After more than one year: | | | | – between one and two years | — | 18.0 | | – between two and five years | 20.0 | — | | – costs of raising finance | (1.2) | (0.2) | | **Total borrowings** | **18.8** | **17.8** | Financial statements Annual Report and Accounts 2022 Norcros plc 129 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 20. Financial liabilities – borrowings continued ### Capital risk management The Group increased the amount of its committed banking facilities to £130m (plus a £70m uncommitted accordion) shortly before the year end. The maturity date is October 2025 with two one-year extension options. This facility provides the Group with a sound financial structure for the medium term and, by reference to the £130m facility available at year end, with £133.4m of headroom being available at 31 March 2022 (2021: £124.7m), after taking into account net debt and ancillary facilities in use of £4.0m (2021: £5.6m) and overseas cash. The Group has been in compliance with all banking covenants (leverage and interest cover covenants) during the year. ### Interest rate profile The effective interest rates at the Balance Sheet dates were as follows: | | 2022 % | 2021 % | | --- | --- | --- | | Bank loans | 1.9 | 1.7 | | Overdraft | 1.9 | 1.7 | At 31 March 2022 the bank loans carried interest based on SONIA plus a margin of 1.9% (2021: LIBOR plus 1.7%). Overdrafts carry interest at SONIA plus a margin of 1.9% (2021: LIBOR plus 1.7%). ### Net cash The Group's net cash is calculated as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash and cash equivalents | 27.4 | 28.3 | | Total borrowings | (18.8) | (17.8) | | | 8.6 | 10.5 | ### Currency profile of net debt The carrying value of the Group's net cash/(debt) is denominated in the following currencies: | | 2022 £m | 2021 £m | | --- | --- | --- | | Sterling | (15.4) | (5.9) | | Euro | 0.4 | 0.4 | | US Dollar | 1.4 | — | | South African Rand | 20.1 | 15.2 | | Chinese Renminbi | 2.1 | 0.8 | | | 8.6 | 10.5 | ## 21. Financial instruments During the year the Group held financial instruments relating to the risks of the Group's operations. ### Financial risk management The Group's operations expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and energy price risk); credit risk; and liquidity risk. The Group actively seeks to limit the adverse effects of these risks on the financial performance of the Group. ### Currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currencies, primarily the US Dollar, the Euro, the Renminbi and the South African Rand. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Foreign exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The foreign currency risk associated with anticipated sales and purchase transactions is hedged out up to twelve months on a rolling basis. Basis adjustments are made to the initial carrying amounts of inventories when the inventories are initially recorded. For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount and life) of the foreign exchange forward contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically change in the opposite direction in response to movements in the underlying exchange rates. This means that there is an economic relationship between the hedging instrument (the foreign exchange forward derivatives) and the hedged item (highly probable forecast sales and purchases in foreign currency). 130 Norcros plc Annual Report and Accounts 2022 ## 21. Financial instruments continued ### Currency risk continued The notional value of the hedging instrument (the derivative) is consistent with the designated value of the underlying exposure. Therefore hedge ratio is 1:1 in all cases. However, potential future rebalancing can be performed if needed. The main source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group's own credit risk on the fair value of the forward contracts, which is not reflected in the fair value of the hedged item attributable to changes in foreign exchange rates. Other sources of ineffectiveness arising from these hedging relationships are changes in the settlement date or amount. However, the Group reviews all hedges on every reporting date to ensure their effectiveness. ### Interest rate risk The Group's interest rate risk arises from long-term borrowings. The Group has the ability to secure a substantial proportion of its bank loans at fixed rates via interest rate swaps. However, due to the current low level of debt and historically low UK SONIA rates, the Group has decided not to take out any such swaps at the present time. This position is regularly reassessed. ### Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. Each Group business is responsible for managing and analysing the credit risk of potential customers prior to offering credit terms and on an ongoing basis and uses independent ratings agencies, past trading experience and other factors in order to assess the credit quality of the customer. Additionally, the Group maintains a credit insurance policy for all its operations which covers a substantial portion of the Group's trade debtors. For banks and financial institutions only independently rated parties with a strong rating are accepted. ### Liquidity risk The Group's banking facilities are designed to ensure there are sufficient funds available for current operations and the Group's further development plans. Cash flow forecasting is performed by the Group's businesses on a rolling basis and is monitored centrally to ensure that sufficient cash is available to meet operational needs while maintaining an appropriate level of headroom on undrawn committed borrowing facilities. At 31 March 2022 the facility had £133.4m of headroom (2021: £124.7m) after taking account of ancillary facilities and overseas cash. The maturity date of the facility is October 2025. ### Financial instruments The Group's financial instruments comprise borrowings, cash, trade receivables and payables and forward exchange contracts. Based on the hierarchy defined in IFRS 7, the Group's financial instruments are classified as level 2 instruments. Consequently, fair value measurements are derived from inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices). ### Financial liabilities The table below analyses the value of the Group's financial liabilities into relevant maturity groupings based on the remaining period at the Balance Sheet date to the contractual maturity date. | | Not later than a year £m | Later than one year but not later than two years £m | Later than two years but not later than five years £m | Later than five years £m | Total £m | | --- | --- | --- | --- | --- | --- | | Borrowings^{1} | 0.3 | 18.2 | — | — | 18.5 | | Lease liabilities^{2} | 5.4 | 4.8 | 11.5 | 8.9 | 30.6 | | Trade and other payables | 95.4 | — | — | — | 95.4 | | At 31 March 2021 | 101.1 | 23.0 | 11.5 | 8.9 | 144.5 | | Borrowings^{1} | 0.4 | 0.4 | 20.7 | — | 21.5 | | Lease liabilities^{2} | 5.7 | 5.2 | 11.9 | 8.1 | 30.9 | | Trade and other payables | 102.4 | — | — | — | 102.4 | | **At 31 March 2022** | **108.5** | **5.6** | **32.6** | **8.1** | **154.8** | 1 Borrowings includes interest costs calculated using the applicable interest rate at year end. 2 Lease liabilities are on an undiscounted basis. Financial Instruments Annual Report and Accounts 2022 Norcros plc 131 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 21. Financial instruments continued ### Derivative foreign currency contracts The following table details the foreign currency forward contracts outstanding at the end of the reporting year. | | Carrying amount £m | Notional amount £m | Loss recognised in Income Statement £m | Change in fair value taken to hedge reserve £m | | --- | --- | --- | --- | --- | | As at 31 March 2021: | | | | | | Liabilities | 2.3 | 70.8 | (2.0) | 2.3 | | **As at 31 March 2022:** | | | | | | Assets | **1.6** | **66.3** | **—** | **3.9** | As at 31 March 2022, the aggregate amount of gains under foreign exchange forward contracts deferred in the cash flow hedge reserve relating to these anticipated future purchase transactions is a gain of £1.6m (2021: loss £2.3m). It is anticipated that the purchases will take place during the twelve months of the financial year ended 31 March 2022 at which time the amount deferred in equity will be removed from equity and included in the carrying amount of the inventories which are expected to be sold within twelve months of purchase. Set out below is the reconciliation of each component of equity and the analysis of other comprehensive income: | | Hedging reserve £m | | --- | --- | | **Fair value** | | | At 1 April 2021 | (1.5) | | Effective portion of changes in fair value | 3.9 | | Amount transferred to inventories | (0.3) | | Tax effect | (0.6) | | **At 31 March 2022** | **1.5** | ### Sensitivity analysis IFRS 7 requires the disclosure of a sensitivity analysis that details the effects on the Group's profit and loss and equity of reasonably possible fluctuations in market rates. To demonstrate these, reasonably possible variations of 1% increase or decrease in market interest rates and 5% strengthening or weakening in major currencies have been chosen. #### (a) 1% increase or decrease on market interest rates for most of the coming year As the Group has borrowings of £20.0m, the effect of a 1% change in market interest rates would be a change in the net finance costs of approximately £0.2m per annum. #### (b) 5% strengthening or weakening in major currencies A number of the Group's assets are held overseas and as such variations in foreign currencies will affect the carrying value of these assets. A 5% strengthening or weakening of Sterling across all currencies would lead to a circa £3.2m decrease or increase in net assets respectively. The Group's profits and losses are exposed to both translational and transactional risk of fluctuations in foreign currency risk. The Group seeks to mitigate the majority of its transactional risk using forward foreign exchange contracts and product pricing. Taking into account the unmitigated translational impact, a 5% strengthening or weakening in Sterling against all other currencies would result in an increase or decrease in reported profits of circa £0.5m respectively. 132 Norcross plc Annual Report and Accounts 2022 ## 22. Deferred tax 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. Deferred tax is calculated in full on temporary differences under the liability method. The movement on the deferred tax account is as shown below. The analysis of deferred tax assets and liabilities is as follows: | | Accelerated tax depreciation £m | Retirement benefit obligations £m | Intangible £m | Other £m | Total £m | | --- | --- | --- | --- | --- | --- | | At 1 April 2020 | 0.4 | 9.2 | (6.4) | 1.5 | 4.7 | | (Charged)/credited to the Consolidated Income Statement | (0.2) | (0.1) | 0.7 | 0.1 | 0.5 | | Charged to other comprehensive income | — | (5.6) | — | — | (5.6) | | Exchange differences | (0.1) | — | — | — | (0.1) | | At 31 March 2021 | 0.1 | 3.5 | (5.7) | 1.6 | (0.5) | | (Charged)/credited to the Consolidated Income Statement | (0.2) | 0.8 | (0.7) | 1.0 | 0.9 | | Charged to other comprehensive income | — | (9.2) | — | (0.6) | (9.8) | | Exchange differences | — | — | — | — | — | | **At 31 March 2022** | **(0.1)** | **(4.9)** | **(6.4)** | **2.0** | **(9.4)** | | | 2022 £m | 2021 £m | | --- | --- | --- | | Deferred tax assets: | | | | – to be recovered after more than twelve months | 1.6 | 4.2 | | – to be recovered within twelve months | 0.4 | 1.0 | | | **2.0** | **5.2** | | Deferred tax liabilities: | | | | – to be charged after more than twelve months | (11.0) | (5.0) | | – to be charged within twelve months | (0.4) | (0.7) | | | **(11.4)** | **(5.7)** | | **Deferred tax liabilities (net)** | **(9.4)** | **(0.5)** | Other deferred tax assets relate to share-based payment expenses, provisions and other timing differences. At the Balance Sheet date the Group has recognised £nil (2021: £nil) in respect of tax losses. No deferred tax asset has been recognised in respect of £6.7m (2021: £6.7m) of UK tax losses as whilst the losses are considered to have no date of expiry, the Company does not believe that utilisation of these losses is probable. In the year, an increase to the UK corporation tax rate from 19% to 25% from 1 April 2023 was enacted and so deferred tax assets and liabilities have been grossed up accordingly. ## 23. Provisions | | Warranty provision £m | Restructuring provision £m | UK property provision £m | Total £m | | --- | --- | --- | --- | --- | | At 1 April 2020 | 1.0 | 0.1 | 2.1 | 3.2 | | Charged to the Income Statement | 0.1 | 2.4 | — | 2.5 | | Other movement | — | — | 0.5 | 0.5 | | Utilisation | (0.1) | (1.6) | (0.5) | (2.2) | | At 31 March 2021 | 1.0 | 0.9 | 2.1 | 4.0 | | Credited to the Income Statement | — | — | (0.9) | (0.9) | | Property lease discount | — | — | 0.1 | 0.1 | | Utilisation | (0.1) | (0.2) | (1.3) | (1.6) | | **At 31 March 2022** | **0.9** | **0.7** | **—** | **1.6** | The warranty provision has been recognised for expected claims on products which remain under warranty. It is expected that this expenditure will be incurred within five years of the Balance Sheet date. The restructuring provision relates to COVID-19 restructuring liabilities that are due to be settled within two years. Annual Report and Accounts 2022 Norcros plc 133 Financial Statements Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 24. Retirement benefit obligations ### (a) Pension costs #### Norcros Security Plan The Norcros Security Plan (the Plan), the principal UK pension scheme of the Group's UK subsidiaries, is funded by a separate trust fund which operates under UK trust law and is a separate legal entity from the Company. The Plan is governed by a Trustee company, which has a board currently composed of three employer representatives and three member representatives. The Trustee is required by law to act in the best interests of the Plan members and is responsible for setting policies together with the Company. It is predominantly a defined benefit scheme, with a modest element of defined contribution benefits. Norcros plc itself has no employees other than the Directors and so has no liabilities in respect of these pension schemes. The scheme closed to new members and future accrual with effect from 1 April 2013, though active members retain a salary link. This means that employed members of the Plan who were building up benefits at the date of closure to accrual will receive a pension based on their service to 1 April 2013 but using their final pensionable salary at the point they leave employment or retire from the Plan. As a result of the closure a new defined contribution pension scheme was implemented to replace the Plan from the same date. The weighted average duration of the defined benefit obligation is approximately 15 years (2021: 15 years) and can be attributed to the scheme members as follows: | | 2022 | 2021 | | --- | --- | --- | | Employee members | 2% | 3% | | Deferred members | 28% | 29% | | Pensioner members | 70% | 68% | | Total | 100% | 100% | The Plan assets do not include any investments in the Company or any property or other assets utilised by the Company. The Plan is funded by the Company based on a separate actuarial valuation for funding purposes for which the assumptions may differ from those below. Funding requirements are formally set out in the Statement of Funding Principles, Schedule of Contributions and Recovery Plan agreed between the Trustee and the Company. During the year, the Group has reached agreement with the Trustee on the 31 March 2021 triennial actuarial valuation for the UK defined benefit scheme and on a new deficit recovery plan. The actuarial deficit at 31 March 2021 was £35.8m (2018: £49.3m). Deficit repair contributions have been agreed at £3.8m per annum from 1 April 2022 to March 2027 (increasing with CPI, capped at 5% per year). In line with the previous agreement the Group made deficit recovery contributions of £3.3m (2021: £3.3m) into its UK defined benefit pension scheme during the year to 31 March 2022. #### Risks The Plan exposes the Company to a number of actuarial risks which may result in a material change in the net scheme deficit and potentially result in an increase in cash contributions in later years and higher charges being recognised in future Income Statements. Given the long-term time horizon of the scheme's cash flows this may result in volatility in the valuation of the net scheme deficit from year to year. The main risks are set out below: **Mortality risk** – the assumptions used by the Group allow for improvements in life expectancy. However, if life expectancy improves at a faster rate than assumed, this would result in greater payments from the Plan and consequently an increase in scheme liabilities. The Group regularly reviews the mortality assumptions to minimise the risk of using an inappropriate assumption. **Interest rate risk** – a reduction in corporate bond yields would result in a lower discount rate being used to value the scheme liabilities and consequently result in an increase in scheme liabilities. Additionally, an increase in inflation would increase the scheme liabilities as the majority of the pension payments increase in line with inflation, although there are a number of caps in place to ensure that the impact of high inflation is minimised. To mitigate some of the investment volatility a proportion of the scheme assets are held in liability-driven investments which involve hedging some of the Plan's exposure to changes in interest rates and inflation by investing in assets that match the sensitivity of its liabilities. This means that if interest rates or inflation expectations change, assets and liabilities rise or fall together, and the funding level of the Plan should be less volatile. **Investment risk and currency risk** – a reduction in the value of investments caused by fluctuating exchange rates and a variety of other market factors would result in a lower valuation of scheme assets. The scheme invests in a diversified range of asset classes to mitigate the risk of falls in any one area of the investments and implements partial currency hedging on the overseas assets to mitigate currency risk. #### Defined contribution pension schemes Contributions made to these schemes amounted to £3.7m (2021: £3.0m). 134 Norcros plc Annual Report and Accounts 2022 24. Retirement benefit obligations continued (b) IAS 19R, ‘Employee benefits’ Norcros Security Plan The valuation used for IAS 19R disclosures has been based on the most recent actuarial valuation at 31 March 2021 and updated by Isio (formerly KPMG), a firm of qualified actuaries, to take account of the requirements of IAS 19R in order to assess the liabilities of the scheme at 31 March 2022. Scheme assets are stated at their market value at 31 March 2022. (i) The principal assumptions used to calculate the scheme liabilities of the Norcros Security Plan under IAS 19R are: | | 2022 | | 2021 | | --- | --- | --- | --- | | Projected | | Projected | | | | unit | | unit | Discount rate 2.75% 2.05% Inflation rate (RPI) 3.70% 3.25% Inflation rate (CPI) 2.90% 2.35% Increases to pensions in payment (other than pre-1988 GMP liabilities) 3.55% 3 .17 % Salary increases 3.15% 2.60% Financial statements The mortality assumptions are based on standard mortality tables which allow for future mortality improvements and are summarised below: 2022 2021 Life expectancy at age 65: Current pensioners – males 19.7 19.9 Current pensioners – females 22.3 22.4 Future pensioners – males (currently aged 45) 20.6 20.8 Future pensioners – females (currently aged 45) 23.4 23.5 Members are assumed to take a 25% (2021: 25%) cash commutation sum on retirement. (ii) The amounts recognised in the Income Statement are as follows: 2022 2021 £m £m Included in operating profit: IAS 19R pension administration expenses 1.7 1.4 Past service costs — — IAS 19R finance cost 0.4 1.0 Total amounts recognised in the Income Statement 2.1 2.4 (iii) The amounts recognised in the Balance Sheet are determined as follows: | Value at | | Value at | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2022 | | 2021 | | | £m | | £m | Equities 99.6 93.6 Absolute return funds 25.3 24 .1 Bonds 109.7 12 7. 2 High yield 73.6 72.2 Liability-driven investments 70.1 74.4 Cash and gilts 9.6 6.3 Total fair value of scheme assets 387.9 3 97.8 Present value of scheme liabilities (368.3) (416.1) Pension asset/(deficit) 19.6 (18.3) Annual Report and Accounts 2022 Norcros plc 135 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 24. Retirement benefit obligations continued ### (b) IAS 19R, 'Employee benefits' continued #### Norcros Security Plan continued #### (iii) The amounts recognised in the Balance Sheet are determined as follows: continued The fair value of the scheme assets analysed by asset category and subdivided between those assets that have a quoted market price in an active market and those that do not (such as investment funds) are as follows: | | Value at 31 March 2022 | | | Value at 31 March 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | | Equities | — | 99.6 | 99.6 | — | 93.6 | 93.6 | | Absolute return funds | 18.7 | 6.6 | 25.3 | 18.0 | 6.1 | 24.1 | | Bonds | — | 109.7 | 109.7 | — | 127.2 | 127.2 | | High yield | — | 73.6 | 73.6 | — | 72.2 | 72.2 | | Liability-driven investments | — | 70.1 | 70.1 | — | 74.4 | 74.4 | | Cash and gilts | 9.6 | — | 9.6 | 6.3 | — | 6.3 | | Total fair value of scheme assets | 28.3 | 359.6 | 387.9 | 24.3 | 373.5 | 397.8 | The majority of the Plan's assets are invested in pooled investment vehicles, where the fair value has been determined by the individual fund managers by applying fair value principles to the underlying investments. #### (iv) The movement in the scheme deficit in the year is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Deficit at the beginning of the year | (18.3) | (48.9) | | Employer contributions – deficit recovery | 3.3 | 3.3 | | IAS 19R pension administration expenses | (1.7) | (1.4) | | IAS 19R finance cost | (0.4) | (1.0) | | Actuarial gains | 36.7 | 29.7 | | Asset/(deficit) at the end of the year | 19.6 | (18.3) | #### (v) The reconciliation of scheme assets is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Opening fair value of scheme assets | 397.8 | 361.9 | | Employer contributions – deficit recovery | 3.3 | 3.3 | | Interest income | 7.9 | 7.8 | | Benefits paid | (23.5) | (23.2) | | Actuarial gains on scheme assets | 4.1 | 49.4 | | IAS 19R pension administration expenses | (1.7) | (1.4) | | Closing fair value of scheme assets | 387.9 | 397.8 | 136 Norcros plc Annual Report and Accounts 2022 ## 24. Retirement benefit obligations continued ### (b) IAS 19R, 'Employee benefits' continued #### Norcros Security Plan continued (vi) The reconciliation of scheme liabilities is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Opening scheme liabilities | (416.1) | (410.8) | | Interest cost | (8.3) | (8.8) | | Actuarial gains/(losses) arising from changes in financial assumptions | 15.3 | (35.3) | | Actuarial gains arising from changes in demographic assumptions | 11.6 | 15.6 | | Actuarial gains arising from experience adjustment | 5.7 | — | | Benefits paid | 23.5 | 23.2 | | Closing fair value of scheme liabilities | (368.3) | (416.1) | (vii) Amounts recognised in the Consolidated Statement of Comprehensive Income are as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Actuarial gains | 36.7 | 29.7 | | Deferred tax | (9.2) | (5.6) | | | 27.5 | 24.1 | #### (viii) Sensitivities The sensitivities regarding the principal assumptions used to measure the Plan's liabilities are as follows: | Assumption | Impact on scheme obligations | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Discount rate – 0.1% decrease | 4.0 | 5.0 | | Inflation rate (RPI and CPI) – 0.1% increase | 3.0 | 4.0 | | Increase in life expectancy by one year | 17.0 | 19.0 | 1 This includes the impact on salary increase and deferred and in payment pension increase assumptions. The above sensitivities are applied to adjust the defined benefit obligation at the end of the year. Whilst the analysis does not take account of the full distribution of cash flows expected under the scheme, it does provide an approximation as to the sensitivity of the assumptions shown. No changes have been made to the method and assumptions used in this analysis from those used in the previous year. ## 25. Called up share capital | | 2022 £m | 2021 £m | | --- | --- | --- | | **Issued and fully paid** | | | | 2022: 81,052,426 (2021: 80,855,464) ordinary shares of 10p each | 8.1 | 8.1 | During the year, the Company issued 196,962 10p ordinary shares in order to satisfy vesting of options under the Company's Approved Performance Share Plan, Deferred Bonus Plan and SAYE schemes resulting in share premium of £0.1m. ## 26. Other non-current liabilities | | 2022 £m | 2021 £m | | --- | --- | --- | | Other non-current liabilities | 0.3 | 0.3 | | | 0.3 | 0.3 | Other non-current liabilities relate to post-retirement healthcare liabilities in our South African business. Financial Statements Annual Report and Accounts 2022 Norcros plc 137 Financial statements # Notes to the Group accounts continued Year ended 31 March 2022 ## 27. Consolidated Cash Flow Statement ### (a) Cash generated from operations The analysis of cash generated from operations is given below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit before taxation | **33.0** | 18.5 | | Adjustments for: | | | | – IAS 19R administrative expenses included in the Income Statement | **1.7** | 1.4 | | – acquisition related costs included in the Income Statement | **4.8** | 3.7 | | – exceptional items included in the Income Statement | **(0.9)** | 3.8 | | – finance costs included in the Income Statement | **2.8** | 5.4 | | – IAS 19R finance cost included in the Income Statement | **0.4** | 1.0 | | – cash flows from exceptional items | **(1.7)** | (2.5) | | – settlement of share options | — | (0.2) | | – depreciation of property, plant and equipment | **5.1** | 5.2 | | – underlying amortisation | **0.1** | 0.2 | | – depreciation of right of use asset | **4.1** | 4.0 | | – pension fund deficit recovery contributions | **(3.3)** | (3.3) | | – IFRS 2 charges | **1.1** | 1.0 | | **Operating cash flows before movement in working capital** | **47.2** | 38.2 | | Changes in working capital: | | | | – (increase)/decrease in inventories | **(22.7)** | 3.8 | | – increase in trade and other receivables | **(5.1)** | (5.0) | | – increase in trade and other payables | **4.2** | 23.0 | | **Cash generated from operations** | **23.6** | 60.0 | ### (b) Outflow related to exceptional items This includes expenditure charged to exceptional provisions relating to onerous lease costs, acquisition related costs (excluding deferred remuneration) and other business rationalisation and restructuring costs. ### (c) Analysis of underlying net cash/(debt) | | Cash £m | Current borrowings £m | Non-current borrowings £m | Underlying net (debt)/cash £m | Lease liabilities £m | Net debt £m | | --- | --- | --- | --- | --- | --- | --- | | At 1 April 2020 | 47.3 | (0.1) | (83.6) | (36.4) | (25.1) | (61.5) | | Cash flow | (19.6) | 0.1 | 66.0 | 46.5 | 6.0 | 52.5 | | Non-cash finance costs | — | — | (0.2) | (0.2) | (1.7) | (1.9) | | Other non-cash movements | — | — | — | — | (1.6) | (1.6) | | Exchange movement | 0.6 | — | — | 0.6 | (1.8) | (1.2) | | At 31 March 2021 | 28.3 | — | (17.8) | 10.5 | (24.2) | (13.7) | | Cash flow | (2.5) | — | (2.0) | (4.5) | 6.4 | 1.9 | | Non-cash finance costs | — | — | 1.0 | 1.0 | (1.7) | (0.7) | | Other non-cash movements | — | — | — | — | (3.8) | (3.8) | | Exchange movement | 1.6 | — | — | 1.6 | (0.7) | 0.9 | | **At 31 March 2022** | **27.4** | **—** | **(18.8)** | **8.6** | **(24.0)** | **(15.4)** | Non-cash finance costs relate to the movement in the costs of raising debt finance in the year. 138 Norcross plc Annual Report and Accounts 2022 ## 28. Dividends A final dividend in respect of the year ended 31 March 2021 of £6.6m (8.2p per 10p ordinary share) was paid on 30 July 2021 and an interim dividend of £2.5m (3.1p per 10p ordinary share) was paid on 11 January 2022. A final dividend in respect of the year ended 31 March 2022 of £6.2m (6.9p per 10p ordinary share) is to be proposed at the Annual General Meeting on 19 July 2022. These financial statements do not reflect this dividend. ## 29. Capital commitments | | 2022 £m | 2021 £m | | --- | --- | --- | | Contracts placed for future capital expenditure not provided in the financial statements | 0.3 | 0.3 | ## 30. Related party transactions The Group considers its Directors to be the key management personnel. Compensation for Directors who have the sole responsibility for planning, directing and controlling the Group are set out in the Remuneration Report on pages 87 to 96. ## 31. Post balance sheet event On 31 May 2022 the Group acquired Granfit Holdings Limited and subsidiaries, a market leading designer, manufacturer and supplier of waterproof bathroom panels in the UK. As part of the acquisition of 100% of the share capital of Granfit Holdings Limited, provisional net assets of £10m were acquired for consideration of £80m with an additional potential earnout of up to £12m based on certain performance criteria. The acquisition was funded through an equity placing and utilisation of the Group's banking facilities. At the date of approval of these financial statements, due to the proximity of the acquisition to the reporting date, a fair value exercise has not yet been completed, and so these values remain provisional. Financial Statements Annual Report and Accounts 2022 Norcros plc 139 Financial statements # Parent Company balance sheet At 31 March 2022 | | Notes | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Non-current assets** | | | | | Investments | 3 | 177.3 | 177.3 | | Deferred tax assets | 4 | 0.7 | 0.4 | | | | **178.0** | **177.7** | | **Current liabilities** | | | | | Trade and other payables | 5 | (39.8) | (30.3) | | **Net current liabilities** | | **(39.8)** | **(30.3)** | | **Total assets less current liabilities** | | **138.2** | **147.4** | | **Non-current liabilities** | | | | | Financial liabilities – borrowings | 6 | (18.8) | (17.8) | | **Net assets** | | **119.4** | **129.6** | | **Financed by:** | | | | | Share capital | 7 | 8.1 | 8.1 | | Share premium account | | 30.3 | 30.2 | | Treasury reserve | | (0.1) | (0.1) | | Retained earnings before loss for the financial year | | 83.4 | 94.1 | | Loss for the financial year | | (2.3) | (2.7) | | **Total shareholders' funds** | | **119.4** | **129.6** | The financial statements of Norcros plc, registered number 3691883, on pages 140 to 145 were authorised for issue on 8 June 2022 and signed on behalf of the Board by: **Nick Kelsall** Chief Executive Officer **James Eyre** Chief Financial Officer 140 Norcros plc Annual Report and Accounts 2022 # Parent Company statement of changes in equity Year ended 31 March 2022 | | Ordinary share capital £m | Share premium £m | Treasury reserve £m | Retained earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | | At 1 April 2020 | 8.1 | 29.9 | (0.4) | 93.6 | 131.2 | | Comprehensive expense: | | | | | | | Loss for the year | — | — | — | (2.7) | (2.7) | | **Total comprehensive expense for the year** | — | — | — | (2.7) | (2.7) | | Transactions with owners: | | | | | | | Shares issued | — | 0.3 | — | — | 0.3 | | Equity-settled share options | — | — | 0.3 | (0.5) | (0.2) | | Value of employee services | — | — | — | 1.0 | 1.0 | | At 31 March 2021 | 8.1 | 30.2 | (0.1) | 91.4 | 129.6 | | Comprehensive expense: | | | | | | | Loss for the year | — | — | — | (2.3) | (2.3) | | **Total comprehensive expense for the year** | — | — | — | (2.3) | (2.3) | | Transactions with owners: | | | | | | | Shares issued | — | 0.1 | — | — | 0.1 | | Dividends paid | — | — | — | (9.1) | (9.1) | | Equity-settled share options | — | — | — | — | — | | Value of employee services | — | — | — | 1.1 | 1.1 | | **At 31 March 2022** | **8.1** | **30.3** | **(0.1)** | **81.1** | **119.4** | Financial statements Annual Report and Accounts 2022 Norcros plc 141 Financial statements # Notes to the Parent Company accounts Year ended 31 March 2022 1. Statement of accounting policies General information Norcros plc (the Company) is the ultimate holding company of the Norcros Group, which designs, manufactures and distributes a range of high quality and innovative bathroom and kitchen products mainly in the UK and South Africa. The Company is incorporated in the UK as a public company limited by shares and registered in England and Wales. 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. Accounting reference date UK company law permits a company to draw up financial statements to a date seven days either side of its accounting reference date. For operational reasons the Company has in the current financial year adopted an accounting period of 52 weeks, and as a result of this, the exact year-end date was 3 April 2022. All references to the financial year therefore relate to the 52 weeks commencing on 5 April 2021. In the previous year the accounting period was 52 weeks long, beginning on 6 April 2020 and ending on 4 April 2021. Basis of preparation Norcros plc is a qualifying entity able to apply FRS 101, 'Reduced disclosure framework'. The separate financial statements of the Company have been prepared in accordance with FRS 101, on the going concern basis and under the historical cost convention modified for fair values, and in accordance with the Companies Act 2006 and with applicable accounting standards. These financial statements and accompanying notes have been prepared in accordance with the reduced disclosure framework for all periods presented. A separate profit and loss account dealing with the results of the Company has not been presented as permitted by Section 408(3) of the Companies Act 2006. The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance with FRS 101: - the following paragraphs of IAS 1, 'Presentation of financial statements': - 10(d) (statement of cash flows); - 16 (statement of compliance with all IFRS); - 111 (cash flow statement information); and - 134–136 (capital management disclosures); - IFRS 7, 'Financial instruments: disclosures'; - IAS 7, 'Statement of cash flows'; - IAS 8, 'Accounting policies, changes in accounting estimates and errors' – impact of future accounting standards; - IAS 24 (paragraph 17), 'Related party disclosures' – key management compensation; and - IAS 24, 'Related party disclosures' – the requirement to disclose related party transactions between two or more members of a group. As the Group financial statements include the equivalent disclosures, the Company has taken the exemptions available under FRS 101 in respect of the following disclosures: - IFRS 2, 'Share-based payments', in respect of Group equity-settled share-based payments; and - certain disclosures required by IFRS 13, 'Fair value measurement', and disclosures required by IFRS 7, 'Financial instruments: disclosures'. Critical estimates and judgements The Directors believe that there are no critical accounting estimates relating to these financial statements. A summary of the more important accounting policies, which have been applied consistently, is set out below. Investments in subsidiaries Investments held as fixed assets are stated at cost, less any provision for impairment. The Directors believe the carrying value of investments is supported by their underlying assets and cash flow projections derived from detailed budgets and forecasts. Dividends received from investments are included within turnover and recognised on receipt of the dividend. Foreign currency transactions Monetary assets and liabilities expressed in foreign currencies are translated into Sterling at rates applicable at the year end. Exchange gains and losses are dealt with in arriving at operating profit. Taxation Deferred taxation has been recognised as a liability or asset if transactions have occurred at the Balance Sheet date that give rise to an obligation to pay more taxation in the future or a right to pay less taxation in the future. An asset is recognised only when the transfer of economic benefits is more likely than not to occur. Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the Company's shareholders or when paid if earlier. 142 Norcros plc Annual Report and Accounts 2022 ## 1. Statement of accounting policies continued ### Financial assets and liabilities Borrowings – the Company measures all borrowings initially at fair value. This is taken to be the fair value of the consideration received. Transaction costs (any such costs that are incremental and directly attributable to the issue of the financial instrument) are included in the calculation of the effective interest rate and are, in effect, amortised through the Income Statement over the duration of the borrowing. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date. ### Share-based payments The Company operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each Balance Sheet date, the Company revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the Income Statement, with a corresponding adjustment to equity. ## 2. Other information Auditor's remuneration of £3,000 (2021: £3,000) and staff costs relating to two employees (2021: two) are borne by one of the Company's subsidiaries, without recharge. Further information about the Directors' remuneration may be found in the Annual Report on Remuneration on pages 87 to 96. ## 3. Investments | | Shares in subsidiaries £m | | --- | --- | | **At 1 April 2021 and 31 March 2022** | **177.3** | Details of the subsidiaries owned by the Company, held both directly and indirectly, are shown in note 10. ## 4. Deferred tax assets Deferred tax is calculated in full on temporary differences under the liability method. The movement on the deferred tax account is as shown below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Deferred tax asset | **0.7** | 0.4 | The analysis of the deferred tax asset is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Other timing differences | **0.7** | 0.4 | | | **2022 £m** | **2021 £m** | | To be recovered after more than twelve months | — | — | | To be recovered within twelve months | **0.7** | 0.4 | | | **0.7** | 0.4 | The full potential asset for deferred tax is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Other timing differences | **0.7** | 0.4 | | Tax losses | **4.5** | 4.5 | | | **5.2** | 4.9 | No deferred tax has been recognised in the financial statements in respect of the tax losses as the Company does not believe that utilisation of these losses is probable. Financial statements Annual Report and Accounts 2022 Norcros plc 143 Financial statements # Notes to the Parent Company accounts continued Year ended 31 March 2022 ## 5. Trade and other payables | | 2022 £m | 2021 £m | | --- | --- | --- | | Accruals | 2.2 | 0.6 | | Amounts owed to Group undertakings | 37.6 | 29.7 | | | **39.8** | **30.3** | ## 6. Financial liabilities – borrowings | | 2022 £m | 2021 £m | | --- | --- | --- | | Loans and bank overdrafts | 20.0 | 18.0 | | Costs of raising finance | (1.2) | (0.2) | | | **18.8** | **17.8** | | Repayable after more than one year: | | | | – between one and two years | — | 18.0 | | – between two and five years | 20.0 | — | | – costs of raising finance | (1.2) | (0.2) | | | **18.8** | **17.8** | The Group increased the amount of its committed banking facilities to £130m (plus a £70m uncommitted accordion) shortly before the year end. The maturity date is October 2025 with two one-year extension options. The Group has been in compliance with all banking covenants during the year. ## 7. Called up share capital | | 2022 £m | 2021 £m | | --- | --- | --- | | **Issued and fully paid** | | | | 2022: 81,052,426 (2021: 80,855,464) ordinary shares of 10p each | 8.1 | 8.1 | During the year, the Company issued 196,962 10p ordinary shares in order to satisfy vesting of options under the Company's Approved Performance Share Plan, Deferred Bonus Plan and SAYE schemes resulting in share premium of £0.1m. ## 8. Dividends A final dividend in respect of the year ended 31 March 2021 of £6.6m (8.2p per 10p ordinary share) was paid on 30 July 2021 and an interim dividend of £2.5m (3.1p per 10p ordinary share) was paid on 11 January 2022. A final dividend in respect of the year ended 31 March 2022 of £6.1m (6.9p per 10p ordinary share) is to be proposed at the Annual General Meeting on 19 July 2022. These financial statements do not reflect this dividend. ## 9. Contingent liabilities The Company is party to an omnibus set-off agreement between Lloyds Bank plc and the Group's UK subsidiaries. 144 Norcros plc Annual Report and Accounts 2022 10. Subsidiaries The subsidiaries included in the financial statements are disclosed below. All companies are 100% owned by the Group. Held directly by Norcros plc Country of incorporation Company or registration Registered address Norcros Group (Holdings) Limited England Ladyfield House, Station Road, Wilmslow SK9 1BU, United Kingdom Held indirectly by Norcros plc Country of incorporation Company or registration Registered address Abode Home Products Ltd England Ladyfield House, Station Road, Wilmslow SK9 1BU, United Kingdom Bathshoponline Ltd England As above Carlton Holdings Ltd England As above Crittall Construction Ltd England As above Croydex Group Ltd England As above Financial statements Croydex Ltd England As above Eurobath International Ltd England As above H & R Johnson (Overseas) Ltd England As above H & R Johnson Tiles Ltd England As above Lincolnshire Properties (Norfolk Street) Ltd England As above Merlyn Industries UK Ltd England As above Metlex Industries Ltd England As above Norcros (Trustees) Ltd England As above Norcros Adhesives Ltd England As above Norcros Developments Ltd England As above Norcros Estates Ltd England As above Norcros Group Trusteeships Ltd England As above Norcros Industry (International) Ltd England As above Norcros Securities Ltd England As above Norcros Services Ltd England As above Plumbex UK Ltd England As above Samuel Booth and Company Ltd England As above Stonechester (Stoke) Ltd England As above Taps Direct Ltd England As above Triton Industry Ltd England As above Triton plc England As above UBM Pension Trust Ltd England As above Vado UK Ltd England As above Cronors Insurance Ltd Guernsey Dorey Court, Admiral Park, St. Peter Port GY1 2HT, Guernsey Merlyn Industries Ltd Ireland Merlyn House, Purcellsinch Industrial Estate, Dublin Road, Kilkenny, Ireland Christa 271 (Pty) Ltd Namibia 3rd Floor, 344 Independence Avenue, Windhoek, Namibia Tile Africa Windhoek Property (Pty) Ltd Namibia 15 van Zyl Street, Suiderhof, Windhoek, Namibia Ceracon (Pty) Ltd South Africa 4 Porcelain Road, Olifantsfontein 1665, South Africa General Adhesives (Pty) Ltd South Africa As above Johnson Tiles Pty Ltd South Africa As above Lesatsi Trading (Pty) Ltd South Africa As above Norcros SA (Pty) Ltd South Africa As above TAL (Pty) Ltd South Africa As above Talcor Properties (Pty) Ltd South Africa As above Tile Adhesives (Pty) Ltd South Africa As above Tile Africa Group (Pty) Ltd South Africa As above Triton SA (Pty) Ltd South Africa As above RAP Plumbing Supplies (Pty) Ltd South Africa As above Norcros Middle East Building UAE Warehouse No. 5, St. No. 4, Umm Ramool, Marrakesh Road, Materials Trading LLC P.O. Box 393937, Dubai, UAE Annual Report and Accounts 2022 Norcros plc 145 Annual General Meeting # Notice of Annual General Meeting Norcros plc ("Company") THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to consult your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent professional adviser who is authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriately authorised independent professional adviser. If you sell or otherwise transfer, or have sold or other otherwise transferred, all of your shares in the Company, please send this document and the form of proxy (if you have a form of proxy) to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee, save that you should not send such documents in or into any jurisdiction in which to do so would constitute a violation of that jurisdiction's relevant laws or regulations. If you sell or otherwise transfer, or have sold or otherwise transferred, only part of your holding of shares in the Company, you should retain this document and the form of proxy (if you have a form of proxy) and consult the stockbroker, bank or other agent through whom the sale or transfer was effected. Notice is given that the 2022 Annual General Meeting of the Company ("AGM") will be held at 11.00 am on 19 July 2022 at The Mere Golf Resort & Spa, Chester Road, Mere, Knutsford, Cheshire WA16 6LJ for the purpose of considering and, if thought fit, passing the resolutions set out below. ATTENDANCE As at the date of publication of this notice, UK Government advice and related public health guidance has been relaxed, allowing us to hold an in-person annual general meeting for the first time in two years. The health and wellbeing of our shareholders remains of paramount importance to us and, therefore, we may be required to change the arrangements for the AGM if there are any changes in such advice and guidance. In the event that it is necessary or desirable to make any changes to the arrangements for the AGM, we will seek to give shareholders as much notice as possible. Details of any changes to those arrangements will be made available on the "AGM 2022" section of the Company's website (www.norcros.com) and, where appropriate, announced via a Regulatory Information Service. We strongly encourage shareholders to register your proxy votes in advance of the AGM and to appoint the Chair as their proxy, to ensure that, if the arrangements for the AGM change and they or their proxy (other than the Chair) are unable to physically attend the AGM, they can still vote and be represented at the AGM. Details of how to complete and submit your proxy votes are set out below. RESOLUTIONS The following resolutions will be proposed at the meeting. Resolutions 1 to 11 (inclusive) will be proposed as ordinary resolutions and resolutions 12 to 15 (inclusive) will be proposed as special resolutions. 1. To receive the audited accounts and the Auditor's and Directors' Reports for the year ended 31 March 2022. 2. To declare a final dividend of 6.9 pence per ordinary share for the year ended 31 March 2022. 3. To approve the Directors' Remuneration Report (other than the part containing the Directors' Remuneration Policy) for the year ended 31 March 2022 set out in the Annual Report and Accounts for the year ended 31 March 2022. 4. To elect Gary Kennedy as a Director. 5. To re-elect Alison Littley as a Director. 6. To re-elect David McKeith as a Director. 7. To re-elect Nick Kelsall as a Director. 8. To elect James Eyre as a Director. 9. To re-appoint BDO LLP as auditor of the Company to hold office until the conclusion of the next general meeting of the Company at which accounts are laid. 10. To authorise the Audit and Risk Committee of the Board of Directors to agree the remuneration of the auditor of the Company. 11. That the Directors be and are generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into such shares ("Allotment Rights"), but so that: (a) the maximum amount of shares that may be allotted or made the subject of Allotment Rights under such authority are shares with an aggregate nominal value of £5,943,526.60 of which: (i) one half may be allotted or made the subject of Allotment Rights in any circumstances; and (ii) the other half may be allotted or made the subject of Allotment Rights pursuant to any rights issue (as referred to in the Financial Conduct Authority's Listing Rules) or pursuant to any arrangements made for the placing or underwriting or other allocation of any shares or other securities included in, but not taken up under, such rights issue; (b) such authority shall expire at the close of business on 19 October 2023 or, if earlier, at the conclusion of the Company's next annual general meeting; (c) before such expiry, the Company may make any offer or agreement which would or might require such shares to be allotted or Allotment Rights to be granted after such expiry and the Directors may allot shares or grant Allotment Rights under any such offer or agreement as if such authority had not expired; and (d) all existing authorities vested in the Directors to allot such shares or to grant Allotment Rights that remain unexercised are revoked. 146 Norcros plc Annual Report and Accounts 2022 ## RESOLUTIONS continued 12. That, subject to the passing of resolution 11 in the notice of this meeting (the "Notice"), the Directors be and are empowered pursuant to Sections 570 and 573 of the Companies Act 2006 to allot equity securities (as defined in Section 560(1) of that Act) for cash, pursuant to the authority conferred on them by resolution 11 in the Notice or by way of a sale of treasury shares, as if Section 561 of that Act did not apply to any such allotment or sale, provided that such power is limited to: - (a) the allotment or sale of such equity securities in connection with any rights issue or open offer (each as referred to in the Financial Conduct Authority's Listing Rules) or any other pre-emptive offer that is open for acceptance for a period determined by the Directors to the holders of ordinary shares in the Company on the register on any fixed record date in proportion to their holdings of such ordinary shares (and, if applicable, to the holders of any other class of equity security in the Company in accordance with the rights attached to such class), subject in each case to such exclusions or other arrangements as the Directors may deem necessary or appropriate in relation to fractions of such securities, the use of more than one currency for making payments in respect of such offer, any such shares or other securities being represented by depositary receipts, treasury shares, any legal or practical problems in relation to any territory or the regulations or requirements of any regulatory body or any stock exchange; and - (b) the allotment or sale of such equity securities (other than pursuant to paragraph (a) above) up to an aggregate nominal value of £445,764.50 (representing approximately 5% of the issued share capital of the Company), and shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by resolution 11 in the Notice, save that, before the expiry of such power, the Company may make any offer or agreement which would or might require such equity securities to be allotted or sold after such expiry and the Directors may allot or sell such equity securities under any such offer or agreement as if such power had not expired. 13. That, subject to the passing of resolution 11 in the notice of this meeting (the "Notice") and, in addition to the power contained in resolution 12 set out in the Notice, the Directors be and are empowered pursuant to Sections 570 and 573 of the Companies Act 2006 to allot equity securities (as defined in Section 560(1) of that Act) for cash, pursuant to the authority conferred on them by resolution 11 in the Notice or by way of sale of treasury shares, as if Section 561 of that Act did not apply to any such allotment or sale, provided that such power is: - (a) limited to the allotment or sale of such equity securities up to an aggregate nominal value of £445,764.50; and - (b) used only for the purposes of financing (or refinancing, if the power is to be exercised within six months after the date of the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of the Notice, and shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by resolution 11 in the Notice save that, before the expiry of such power, the Company may make any offer or agreement which would or might require such equity securities to be allotted or sold after such expiry and the Directors may allot or sell such equity securities under any such offer or agreement as if such power had not expired. 14. That the Company be and is generally and unconditionally authorised pursuant to Section 701 of the Companies Act 2006 to make market purchases (as defined in Section 693(4) of that Act) of ordinary shares in its capital provided that: - (a) the maximum aggregate number of such shares that may be acquired under this authority is 8,915,290; - (b) the minimum price (exclusive of expenses) that may be paid for such a share is its nominal value; - (c) the maximum price (exclusive of expenses) that may be paid for such a share is the maximum price permitted under the Financial Conduct Authority's Listing Rules; - (d) such authority shall expire at the close of business on 19 October 2023 or, if earlier, at the conclusion of the Company's next annual general meeting; and - (e) before such expiry, the Company may enter into a contract to purchase such shares which would or might require a purchase to be completed after such expiry and the Company may purchase such shares pursuant to any such contract as if such authority had not expired. 15. That any general meeting of the Company that is not an annual general meeting may be convened by not less than 14 clear days' notice. By order of the Board **Richard Collins** Company Secretary 8 June 2022 **Registered office:** Ladyfield House Station Road Wilmslow Cheshire SK9 1BU Registered in England and Wales company number 3691883 Annual Report and Accounts 2022 Norcros plc 147 Company meeting details Annual General Meeting # Explanatory notes # Notes 1. A member who is entitled to attend and vote at the meeting is entitled to appoint another person, or two or more persons in respect of different shares held by him, as his proxy to exercise all or any of his rights to attend and to speak and vote at the meeting. A proxy need not be a member. 2. The right of a member to attend and vote at the meeting will be determined by reference to the register of members. A member must be registered on that register as the holder of ordinary shares by 11.00 am on 15 July 2022 in order to be entitled to attend and vote at the meeting as a member in respect of those shares. 3. A member wishing to attend and vote at the meeting in person should arrive prior to the time fixed for its commencement. A member that is a corporation can only attend and vote at the meeting in person through one or more representatives appointed in accordance with Section 323 of the Companies Act 2006. Any such representative should bring to the meeting written evidence of his appointment, such as a certified copy of a board resolution of, or a letter from, the corporation concerned confirming the appointment. 4. Any member wishing to vote at the meeting without attending in person or (in the case of a corporation) through its duly appointed representative must appoint a proxy to do so. Appointing a proxy will not prevent a member from attending and voting in person at the meeting should he so wish. A member can appoint a proxy by: - logging onto http://www.signalshares.com and submitting a proxy appointment online by following the instructions. A member who has not previously done so will first need to register to use this facility (using the Investor Code detailed on the member's share certificate or otherwise available from the Company's registrar, Link Group); or - submitting (if the member is a CREST member) a proxy appointment electronically by using the CREST voting service (in accordance with the notes below). A member who would prefer a paper form of proxy may request one from the Company's registrar by calling the helpline number below. A paper proxy appointment form must be completed in accordance with the instructions that accompany it and must be delivered (together with any power of attorney or other authority under which it is signed, or a copy certified by a notary or in some other way approved by the Board) to Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL. All proxy appointments must be received by no later than 11.00 am on 15 July 2022 to be valid. The Company's registrar, Link Group, can be contacted on 0371 664 0300 if calling from the UK, or +44 (0) 371 664 0300 if calling from outside of the UK. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. The lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. 5. Any person to whom this Notice is sent who is currently nominated by a member of the Company to enjoy information rights under Section 146 of the Companies Act 2006 (a "nominated person"), may have a right under an agreement between him and that member to be appointed, or to have someone else appointed, as a proxy for the meeting. If a nominated person has no such right or does not wish to exercise it, he may have a right under such an agreement to give instructions to the member concerned as to the exercise of voting rights. The statement in note 1 above of the rights of a member in relation to the appointment of proxies does not apply to a nominated person. Such rights can only be exercised by the member concerned. 6. Voting on all resolutions will be conducted by way of a poll, rather than a show of hands. This is a more transparent method of voting as members' votes are counted according to the number of ordinary shares held. As soon as practicable following the meeting, the results of the voting at the meeting and the numbers of proxy votes cast for and against, together with the number of votes actively withheld in respect of, each of the resolutions will be announced via a Regulatory Information Service and will also be placed on the "AGM 2022" section of the Company's website (www.norcros.com). 7. As at 7 June 2022 (being the latest practicable date prior to the printing of the Annual Report and Accounts 2022), (i) the Company's issued share capital consisted of 89,152,900 ordinary shares carrying one vote each and (ii) the total voting rights in the Company were 89,152,900. 8. Each member attending the meeting has the right to ask questions relating to the business being dealt with at the meeting which, in accordance with Section 319A of the Companies Act 2006, and subject to some exceptions, the Company must cause to be answered. Information relating to the meeting which the Company is required by the Companies Act 2006 to publish on a website in advance of the meeting may be viewed at the "AGM 2022" section of the Company's website (www.norcros.com). A member may not use any electronic address provided by the Company in the Annual Report and Accounts 2022 or in any accompanying document or in any website for communicating with the Company for any purpose in relation to the meeting other than as expressly stated in it. 9. It is possible that, pursuant to members' requests made in accordance with Section 527 of the Companies Act 2006, the Company will be required to publish on a website a statement in accordance with Section 528 of that Act setting out any matter that the members concerned propose to raise at the meeting relating to the audit of the Company's latest audited accounts. The Company cannot require the member(s) concerned to pay its expenses in complying with those sections. The Company must forward any such statement to its auditor by the time it makes the statement available on the website. The business that may be dealt with at the meeting includes any such statement. 148 Norcros plc Annual Report and Accounts 2022 ## Notes continued 10. CREST members who wish to appoint one or more proxies through the CREST system may do so by using the procedures described in the CREST voting service section of the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed one or more voting service providers, should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or a proxy instruction made using the CREST voting service to be valid, the appropriate CREST message (a CREST proxy appointment instruction) must be properly authenticated in accordance with the specifications of CREST's operator, Euroclear UK & International Limited (Euroclear) and must contain all the relevant information required by the CREST Manual. To be valid, the message (regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy) must be transmitted so as to be received by Link Group (ID RA10), as the Company's issuer's agent, by 11.00 am on 15 July 2022. After this time, any change of instruction to a proxy appointed through the CREST system should be communicated to the appointee through other means. The time of the message's receipt will be taken to be when (as determined by the timestamp applied by the CREST Applications Host) Link Group is first able to retrieve it by enquiry through the CREST system in the prescribed manner. Euroclear does not make available special procedures in the CREST system for transmitting any particular message. Normal system timings and limitations apply in relation to the input of CREST proxy appointment instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or a CREST sponsored member or has appointed any voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as is necessary to ensure that a message is transmitted by means of the CREST system by any particular time. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should take into account the provisions of the CREST Manual concerning timings as well as its section on "Practical limitations of the system". In certain circumstances, the Company may, in accordance with the Uncertificated Securities Regulations 2001 or the CREST Manual, treat a CREST proxy appointment instruction as invalid. 11. The Company takes all reasonable precautions to ensure that no malicious software or computer viruses (all such things being referred to here as "Malware") are present in any electronic communication which it sends but does not accept responsibility for any loss or damage arising from the opening or use of any email or attachment sent by the Company. The Company recommends that members subject all emails and attachments to suitable Malware checking procedures prior to opening or use. Any electronic communication received by the Company or Link Group (including the lodgement of an electronic proxy appointment) which is believed to or is found to contain any Malware will not be accepted. 12. Copies of Directors' service contracts and letters of appointment will be available for inspection at the registered office of the Company during normal business hours each business day and at the place of the meeting for at least 15 minutes prior to and during the meeting. In addition, an electronic copy of any such document is available by request from a member to the Company Secretary (email: info@nordros.com). 13. Information regarding this meeting, including information required by Section 311A of the Companies Act 2006, is available on the "AGM 2022" section of the Company's website (www.nordros.com). SHAREHOLDERS ARE ENCOURAGED TO REGULARLY REVIEW THE "AGM 2022" SECTION OF THE COMPANY WEBSITE IN CASE OF ANY CHANGES TO THE ARRANGEMENTS REGARDING THE MEETING. ## Fair Processing Notice Nordros will only process your information for the purpose of managing AGM voting and analysis of voting patterns (not how individuals cast their votes). This data will only be retained for 14 months before being deleted. For more information on how we look after your personal data please see our Privacy Policy at www.nordros.com. Annual General Meeting Annual Report and Accounts 2022 Nordros plc 149 Annual General Meeting # Explanatory notes continued The 2022 Annual General Meeting of the Company will take place at 11.00 am on 19 July 2022 at The Mere Golf Resort & Spa, Chester Road, Mere, Knutsford, Cheshire WA16 6LJ. The Directors recommend all shareholders to vote in favour of all of the resolutions to be proposed, as the Directors intend to do so in respect of their own shares (save in respect of any matters in which they are interested), and consider that they are in the best interests of the Company and the shareholders as a whole. Explanatory notes in relation to the resolutions appear below. For the purposes of these notes, reference to 7 June 2022 in relation to the Company's issued share capital is a reference to the latest practicable date prior to the publication of the Company's annual report and accounts for the financial year ended 31 March 2022 ("Annual Report and Accounts 2022"). ## Resolution 1 ### Report and accounts For each financial year, the Directors are required to present the audited accounts, the Auditor's Report and the Directors' Report to shareholders at a general meeting. In line with best practice, shareholders are invited to vote on the receipt of the Annual Report and Accounts 2022. ## Resolution 2 ### Dividend The payment of the final dividend requires approval of shareholders in general meeting. A final dividend can only be declared by the shareholders in general meeting and cannot exceed the amount recommended by the Directors. The Directors have recommended a final dividend for the year ended 31 March 2022 of 6.9 pence per ordinary share. If the meeting approves resolution 2, the final dividend of 6.9 pence per ordinary share will be paid on 29 July 2022 to ordinary shareholders who are on the register of members at the close of business on 24 June 2022. ## Resolution 3 ### Approval of the Directors' Remuneration Report In accordance with the Companies Act 2006, shareholders are invited to approve the Directors' Remuneration Report for the financial year ended 31 March 2022. The vote on this resolution is advisory only and the Directors' entitlement to remuneration is not conditional on it being passed. The Directors' Remuneration Report is set out in full on pages 76 to 96 of the Annual Report and Accounts 2022. For the purposes of this resolution, the Directors' Remuneration Report does not include the Directors' Remuneration Policy which is set out on pages 79 to 86. ## Resolutions 4 to 8 ### Election and re-election of Directors Resolutions 4 to 8 relate to the retirement and re-election of the Company's Directors. The Company's Articles of Association require a Director who has been appointed by the Board of Directors to retire at the annual general meeting next following his or her appointment. Gary Kennedy and James Eyre were appointed as Directors by the Board of Directors with effect from 8 December 2021 and 1 August 2021 respectively. Consequently, each of them will retire from office at the Annual General Meeting and intends to stand for election by the shareholders for the first time. The Company's Articles of Association also require certain Directors to retire from office at intervals, and that at each annual general meeting one-third of eligible Directors must retire from office by rotation. Notwithstanding the provisions of the Articles of Association, the Board has determined that each of the remaining Directors shall also retire from office at the 2022 Annual General Meeting in line with best practice recommendations of the UK Corporate Governance Code. Each of the remaining Directors intends to stand for re-election by the shareholders. The Board confirms that, following formal performance evaluation of all of the Directors, each of the Directors standing for election or re-election continues to be an effective and valuable member of the Board, to make a positive contribution and to demonstrate commitment to his or her role (including making sufficient time available for Board and committee meetings and other duties). The Board believes that the considerable and wide-ranging experience of the Directors will continue to be invaluable to the Company. The Board is satisfied that each Non-executive Director standing for re-election is independent (as defined in the UK Corporate Governance Code). As is more fully explained on page 66 of the Annual Report and Accounts 2022, the Board notes that David McKeith will cease to be regarded as independent on the ninth anniversary of his appointment as a Director. Therefore, if re-elected at the 2022 Annual General Meeting, Mr McKeith will not seek re-election at the 2023 Annual General Meeting. Brief biographical details of all of the Directors standing for election or re-election can be found on pages 64 and 65 of the Annual Report and Accounts 2022. ## Resolutions 9 and 10 ### Appointment and remuneration of auditor The Company is required to appoint an auditor at each general meeting at which accounts are laid, to hold office until the end of the next such meeting. The Audit and Risk Committee has reviewed BDO LLP's performance as auditor of the Company during the year and has recommended to the Board that it be re-appointed. The Audit and Risk Committee also confirmed to the Board that its recommendation was free from third-party influence and that no restrictive contractual provisions had been imposed on the Company limiting its choice of auditor. BDO LLP has indicated that it is willing to continue as the Company's auditor for another year. Accordingly, the Directors propose the re-appointment of BDO LLP. Resolution 9 therefore proposes that BDO LLP be re-appointed as the Company's auditor to hold office with effect from the end of the meeting until the end of the next general meeting at which accounts are laid. Resolution 10 follows best practice in giving authority to the Audit and Risk Committee to agree the remuneration of the Company's auditor. 150 Norcross plc Annual Report and Accounts 2022 ## Resolution 11 ### Authority to allot shares Most listed companies renew their directors' authority to issue shares at each annual general meeting. Such an authority was granted by the Company's shareholders last year and is due to expire at the conclusion of the 2022 Annual General Meeting. In accordance with best practice, this resolution seeks to renew the Directors' authority to allot shares. Resolution 11, if passed, will renew the Directors' authority to allot shares in the capital of the Company up to a maximum aggregate nominal value of £5,943,526.60. This represents approximately two-thirds of the Company's issued ordinary share capital as at 7 June 2022 and is within the limits prescribed by The Investment Association. Of this amount, ordinary shares up to an aggregate nominal value of £2,971,763.80 (which represents approximately one-third of the Company's issued ordinary share capital as at 7 June 2022) can only be allotted pursuant to a rights issue. As at 7 June 2022, the Company did not hold any shares in the Company in treasury. The renewed authority will, if passed, remain in force until the close of business on 19 October 2023 or, if earlier, the conclusion of the Company's next annual general meeting. **Except for the allotment and issue of shares where necessary to satisfy the exercise of share options already granted by the Company, the Directors have no present intention of exercising this authority. The purpose of giving the Directors this authority is to maintain the Company's flexibility to take advantage of any appropriate opportunities that may arise.** ## Resolutions 12 and 13 ### Disapplication of pre-emption rights The Directors are currently empowered, subject to certain limitations, to issue shares for cash without first offering them to existing shareholders in proportion to their existing shareholdings. That power will expire at the conclusion of the 2022 Annual General Meeting and, in accordance with best practice, resolutions 12 and 13 (which will be proposed as special resolutions) seek to renew the Directors' power to disapply pre-emption rights as referenced below and in line with the Statement of Principles published by The Pre-Eemption Group in March 2015. Other than in connection with a rights issue or other similar pre-emptive issue, the power contained in resolution 12 will be limited to ordinary shares up to a maximum aggregate nominal value of £445,764.50. This amount equates to approximately 5% of the issued ordinary share capital of the Company as at 7 June 2022. In line with the Pre-Eemption Group's Statement of Principles, the Directors are also seeking (at resolution 13) a power to issue up to an additional 5% of the Company's issued ordinary share capital for cash without pre-emption rights applying. In accordance with those Principles, the Company will only allot shares up to a maximum aggregate nominal value of £445,764.50 (representing 5% of the issued ordinary share capital of the Company as at 7 June 2022) on a non-pre-emptive basis under this power where that allotment is in connection with an acquisition or specified capital investment (within the meaning given in the Statement of Principles) which is announced contemporaneously with the allotment, or which has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. This renewed authority will, if passed, remain in force until the close of business on 19 October 2023 or, if earlier, the conclusion of the Company's next annual general meeting. In accordance with the Statement of Principles (which is supported by The Investment Association and the Pensions and Lifetime Savings Association), the Board confirms its intention that no more than 7.5% of the Company's issued share capital will be issued for cash on a non-pre-emptive basis during any rolling three-year period, without prior consultation with shareholders. This limit excludes any ordinary shares issued pursuant to a general disapplication of pre-emption rights in connection with an acquisition or specified capital investment. ## Resolution 14 ### Authority to purchase own shares This resolution, which will be proposed as a special resolution, is to give the Company the flexibility to buy back its own ordinary shares in the market as permitted by the Companies Act 2006. The authority limits the number of shares that could be purchased to an aggregate maximum of 8,915,290 ordinary shares which represents approximately 10% of the Company's issued ordinary share capital as at 7 June 2022 and sets minimum and maximum prices. The renewed authority will, if passed, remain in force until the close of business on 19 October 2023 or, if earlier, the conclusion of the Company's next annual general meeting. The Directors have no present intention of exercising the authority to purchase the Company's ordinary shares, but will keep the matter under review, taking into account other investment opportunities. The authority will be exercised only if the Directors believe that to do so would result in an increase in earnings per share and would promote the success of the Company and be in the best interests of its shareholders generally. To the extent that any shares so purchased are held in treasury (see below), earnings per share will be enhanced until such time, if any, as such shares are resold or transferred out of treasury. Any purchases of ordinary shares would be by means of market purchases through the London Stock Exchange. If any shares are purchased, they will be either cancelled or held in treasury. Any such decision will be made by the Directors at the time of purchase on the basis of the shareholders' best interests. Shares held in treasury can be cancelled, sold for cash or, in appropriate circumstances, used to meet obligations under employee share schemes. Any shares held in treasury would not be eligible to vote nor would any dividend be paid on any such shares. If any ordinary shares purchased pursuant to this authority are not held by the Company as treasury shares, then such shares would be immediately cancelled, in which event the number of ordinary shares in issue would be reduced. The Directors believe that it is desirable for the Company to have this choice. Holding the repurchased shares as treasury shares gives the Company the ability to re-issue them quickly and cost effectively and provides the Company with additional flexibility in the management of its capital base. Annual Report and Accounts 2022 Norcros plc 151 Annual General Meeting Annual General Meeting ## Explanatory notes continued Resolution 14 continued Authority to purchase own shares continued As at 7 June 2022, there were options over approximately 3,600,000 ordinary shares in the capital of the Company, which represent approximately 4.04% of the Company’s issued ordinary share capital. If the authority to purchase the Company’s ordinary shares was exercised in full, these options would represent approximately 4.49% of the Company’s issued ordinary share capital. As at 7 June 2022, the Company did not hold any shares in treasury. Resolution 15 Notice of general meetings This special resolution is required to preserve the ability of the Company to convene general meetings (other than annual general meetings) on not less than 14 clear days’ notice, rather than on not less than the 21 days’ notice which would otherwise be required. In order to do so, the Company’s shareholders must approve the calling of such meetings on shorter notice. Resolution 15 seeks such approval. The shorter notice period would not be used as a matter of routine for general meetings, but only where the flexibility is merited by the business of the meeting and is thought to be to the advantage of the shareholders as a whole. The approval will be effective until the Company’s next annual general meeting, when it is intended that a similar resolution will be proposed. Norcros plc Annual Report and Accounts 2022152 Norcros plc’s commitment to environmental issues is reflected in this Annual Report, which has been printed on Heaven 42 Matt, an FSC ® certified material. This document was printed by Park Communications using its environmental print technology, which minimises the impact of printing on the environment, with 99% of dry waste diverted from landfill. Both the printer and the paper mill are registered to ISO 14001. ### Norcros plc Annual Report and Accounts 2022 Norcros plc Ladyfield House Station Road Wilmslow Cheshire SK9 1BU www.norcros.com