Final Results

Preliminary results for the year ended 31 December 2013

Marshalls plc, the specialist Landscape Products Group, announces its full year results

* The comparative continuing operations are before operational restructuring costs and asset impairments

Highlights:

· Revenue up 2 per cent due to sales price increases and growth in International revenue of 23 per cent

· Operating profit up 25 per cent benefiting from cost reduction initiatives and margin improvement

· EPS up 26 per cent at 6.94p (2012: 5.52p)

· Net debt reduced by 44 per cent to £35.6m due to cash received from the sale of aggregate quarries and tight control over working capital

· Recommended final dividend of 3.50p per share

Current priorities:

· To increase output to meet growing demand and to deliver benefits from operational gearing

· To strengthen and extend the Marshalls brand focusing on innovation, service and new product development

· To develop "strategic growth initiatives" for targeted investment and focus

· To develop and grow profitably the International business and invest prudently in new overseas market opportunities

Commenting on these results, Martyn Coffey, Chief Executive, said:

"The action Marshalls has taken over recent years to reduce its cost base and debt whilst maintaining operational flexibility, combined with a range of growth initiatives, means the business is well positioned to take full advantage of the improving market conditions. In addition, there are further opportunities to refocus the business, establish rigorous targets and set a clear growth objective for the years ahead.

Sales in January and February 2014 are up 18 per cent against very weak weather affected comparatives. Marshalls is increasing output to meet growing demand and deliver benefits from operational gearing. The medium term objective is for the Group to return to the revenue and profit levels that were achieved by Marshalls before the recession."

Enquiries:

Group Results

Marshalls' revenue, from continuing operations, for the year ended 31 December 2013 was up 2 per cent at £307.4 million (2012: £300.9 million) and compares with a 4 per cent reduction at the Half Year. Revenue for the six months to 31 December 2013 was up 9 per cent compared with the second half of 2012. Growth has been seen in the second half in the Public Sector and Commercial and also the Domestic end markets. 

Sales to the Public Sector and Commercial end market, which represent approximately 63 per cent of Marshalls' sales, were up 1 per cent for the year, on a continuing basis, compared with 2012 reflecting the anticipated improved market conditions in the second half. Sales to the Domestic end market, which represent approximately 32 per cent of Group sales, were up 2 per cent compared with the prior year.

Operating profit from continuing operations was £16.1 million (2012: £12.9 million, before operational restructuring costs and asset impairments). EBITDA from continuing operations was £30.2 million (2012: £28.1 million, before operational restructuring costs and asset impairments).

On 30 April 2013 the Group completed the sale of a number of quarries and associated aggregates businesses to Breedon Aggregates England Limited for an initial cash consideration at completion of £17.5 million. On 23 August 2013 additional consideration of £1.2 million was received following the satisfactory fulfilment of a post completion condition. The post tax profit from discontinued operations in the year ended 31 December 2013 was £0.5 million, which included a net profit on disposal of £0.3 million. The quarries that were sold supplied solely aggregates, sand and gravel. The Group has retained all of its dimensional stone quarries, some of which produce aggregate as an ancillary product. The Group retains significant reserves of dimensional stone and related aggregates. These actions have enabled the Group to improve materially on its target net debt to EBITDA ratio of two times by the end of 2013. The net debt to EBITDA ratio at 31 December 2013 is 1.2 times.

Net finance costs were £3.1 million (2012: £3.6 million) and interest was covered 5.3 times (2012: 3.6 times before operational restructuring costs and asset impairments). External charges, totalling £3.7 million, have been partially offset by an IAS 19 notional interest credit of £0.6 million (2012: £0.7 million) in relation to the Group's Pension Scheme.

The effective tax rate, from continuing operations, was 1 per cent (2012: credit of 11 per cent, before operational restructuring costs and asset impairments) and continued to benefit from the reduction in the rate of corporation tax and a credit arising on the finalisation of prior year tax computations. An additional deferred tax credit of £2.6 million has arisen as reductions in the rate of corporation tax to 21 per cent by April 2014 and 20 per cent by April 2015 were substantively enacted, following the receipt of Royal Assent in July 2013. These factors have given rise to only a nominal tax charge in the year. The Group has paid £0.8 million of corporation tax during the year.

Basic EPS from continuing operations was 6.94 pence (2012: 5.52 pence, before operational restructuring costs and asset impairments), an increase of 26 per cent. EPS from total operations was 7.20 pence (2012: loss of 2.91 pence).

Operating Performance

The last six years has seen significant economic and commercial challenges and, in common with many businesses, Marshalls has experienced some of the most difficult trading conditions in its history. In response to a significantly declining market the Group reacted quickly to reduce its cost base through plant closures and headcount reduction. Despite this, the Group has maintained its national geographic coverage and still retains lowest cost to market and industry leading customer service. The Group has also worked hard to ensure the retention of operational and financial flexibility and this leaves Marshalls well placed to benefit from the improving market conditions. The Group's continuing investment in marketing, sales and operations has helped maintain its market leading position.

The current opportunity for Marshalls is to benefit from the new market conditions and to create increased demand in the brand to pull additional sales through our continually developing distribution channels. We are seeing growth in a number of key areas, for example, Landscape Water Management and Internal Natural Stone Flooring together with Home, Rail and Retail. The Group's current priorities are:

· To increase output to meet growing demand and to deliver benefits from operational gearing;

· To strengthen and extend the Marshalls brand focusing on innovation, service and new product development;

· To develop "strategic growth initiatives" for targeted investment and focus; and

· To develop and grow profitably the International business and invest prudently in new overseas market opportunities.

The Group has continued to strengthen its market position and trading margins are improving. During 2012, the Group undertook a major operational restructuring exercise in order to focus emphasis on financial and operating flexibility. This programme of cost reduction and cash realisation measures is now complete and continues to deliver positive results. The strategy combined established and new initiatives to deliver growth and these have been delivering market outperformance. Manufacturing output can be increased by 25 per cent without the need for any significant capital investment and, as demand is improving, output is being increased.

The Group continues to have customer service as a KPI and maintains industry leading standards of product quality, availability and "on time" delivery. The combined customer service measure continued to be in excess of 97 per cent throughout 2013. Customer service lies at the heart of the Marshalls' brand. The Brand strategy is focused on "Creating Better Landscapes" covering all aspects of Economic, Social and Environmental impacts of hard landscaping and, where possible, even greater alignment under this brand will be introduced in future. As hard landscaping experts, the key priorities remain service, quality, design, innovation and a commitment to research and development, sustainability and an integrated product offer. As the economy continues to recover, greater emphasis will be placed on the further extension of the Marshalls' brand across all aspects of hard landscaping.

Marshalls continues to focus on product innovation and service delivery initiatives to drive sales growth in all its end markets in order to benefit from the operational and financial flexibility that has been built into the Group over recent years. The Group is well placed to improve trading margins and deliver growth in all its end markets and key focus areas.

Commercial order intake has been encouraging with the Group securing its largest ever natural stone paving order in Manchester and two significant export orders for street furniture in Saudi Arabia and Qatar. Stone cladding, which is a relatively new area of focus for the Group, is a particular growth area and Marshalls is supplying stone for a new prestigious office building in the City of London. Commercial work from rail and new house building is also increasing, albeit from historically low levels. Water management remains a major focus area and in September 2013 Marshalls launched a re-designed and comprehensive range of linear drainage products which should appeal to Local Authorities and Property Developers.

Installer order books at the end of February 2014 were 9.3 weeks (February 2013: 7.8 weeks), compared with 11.0 weeks at the end of October 2013. Although the figure has fallen slightly over the last few months, this represents the highest sustained level for many years and the Group continues to receive good feedback from its customers and installers for the consistency and quality of service. Although the GfK's Consumer Confidence index remains negative, it is significantly improved from this time last year.

During 2013 the Group has continued to focus on innovation in order to develop areas of particular sales opportunity and to strengthen further the Marshalls' brand. In 2012 the Group launched its new cobble effect driveway product. This has utilised patented technology developed by the Group's Belgian business and is the market's first genuinely new driveway product for a decade. Sales in 2013 were £1.2 million, a significant increase from £0.2 million in the whole of the prior year. Utilising this technology Marshalls has further new products to launch over the next few years and the product's technical strength means that it is potentially suitable for both Commercial and Domestic applications.

Sales to International markets increased by £3 million, or 22.9 per cent, to £16.5 million. Despite very poor weather conditions in Belgium in the first quarter of 2013 and difficult trading conditions in Western Europe, continued progress has been made in developing the International business which now represents 5 per cent of Group sales.

Developing the International market is a key priority and the Group will continue to invest in its International structures in order to grow profitably this part of the business and to develop opportunities to promote growth both organically and by acquisition. The Group has already appointed an International Director who will add further focus to this important area.

Balance Sheet and Net Debt

Net assets at 31 December 2013 were £175.4 million (2012: £183.6 million).

At 31 December 2013 net debt was £35.6 million (2012: £63.5 million) resulting in gearing of 20 per cent (2012: 35 per cent). This reduction is due to the cash proceeds from the sale of a number of quarries and associated aggregates businesses and to close control of inventory and the effective management of working capital. Working capital has successfully released cash in the year of £5.1 million. Cash management continues to be a high priority and the Group remains committed to realising value from surplus properties.

Risk management has been a key focus for the Group's Pension Scheme over recent years and the actions the Group has taken have reduced actuarial volatility and risk. In accordance with the Scheme specific funding and recovery plan, the Group made cash contributions of £5.6 million into the Scheme in the year ended 31 December 2013. The fair value of the Scheme assets at 31 December 2013 was £258.6 million (2012: £254.8 million) and the present value of the Scheme liabilities is £262.9 million (2012: £246.6 million) and this has given rise to an accounting deficit of £4.3 million (2012: £8.2 million surplus) at the balance sheet date. These changes have resulted in an actuarial loss, net of deferred taxation, of £15.0 million (2012: £7.0 million actuarial loss) and this has been recorded in the Consolidated Statement of Comprehensive Income. In the year ended 31 December 2013 the AA corporate bond rate reduced from 4.7 per cent to 4.6 per cent and the values have been determined by the Scheme Actuary using assumptions in line with current market levels.

Borrowing Facilities

The Group continues its policy of having significant committed bank facilities in place with a positive spread of medium term maturities.

In July 2013, following the steady reduction in net debt, and especially following the disposal of the aggregates businesses, the Group cancelled a £25 million loan facility in order to re-align the unused headroom against available facilities. In August 2013, the Group renewed its short term working capital facilities with RBS.

The strategy is to retain significant committed facilities and the Group has no immediate need to renew its committed facilities. The total bank borrowing facilities at 31 December 2013 amounted to £145.0 million (2012: £170.0 million) of which £92.0 million (2012: £95.7 million) remained unutilised. In addition, the Group has a seasonal working capital facility of £20.0 million which is available between 1 February and 31 August each year. The Group has significant headroom in its facilities with year end debt at 31 December 2013 representing approximately 25 per cent of the available facilities.

Dividends

The Group continues to have a policy of 2 times dividend cover over the business cycle and as earnings increase we would plan to share the increase between strengthening cover and progressively raising the rate of dividend. The Board is recommending a final dividend of 3.50 pence (2012: 3.50 pence) per share which, together with the interim dividend of 1.75 pence (2012: 1.75 pence) per share, makes a combined dividend of 5.25 pence (2012: 5.25 pence) per share.

The final dividend of 3.50 pence is being recommended for payment on 4 July 2014 to shareholders on the register at the close of business on 6 June 2014. The ex-dividend date will be 4 June 2014.

Outlook

The Construction Products Association's ("CPA") Winter Forecast predicts growth of 3.4 per cent in 2014 and 5.2 per cent in 2015, which compares with 2.7 per cent and 4.6 per cent respectively in their Autumn forecast. The CPA predicts that growth in private house building, infrastructure work and commercial activity will drive recovery in the Sector over the next four years although they do also point to considerable uncertainties regarding the long term sustainability of the recovery.

The action Marshalls has taken over recent years to reduce its cost base and debt whilst maintaining operational flexibility, combined with a range of growth initiatives, means the business is well positioned to take full advantage of the improving market conditions. In addition, there are further opportunities to refocus the business and achieve growth, and set rigorous targets and a clear growth objective for the years ahead.

Sales in January and February 2014 are up 18 per cent against very weak weather affected comparatives. Marshalls is increasing output to meet growing demand and deliver benefits from operational gearing. The medium term objective is for the Group to return to the revenue and profit levels that were achieved by Marshalls before the recession.

Martyn Coffey

Chief Executive

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

* The comparatives have been restated in respect of discontinued operations (Note 7) and in respect of the revisions to IAS 19 - "Employee Benefits (2011)" Note 10.

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

* The comparatives have been restated in respect of discontinued operations (Note 7).

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED 31 DECEMBER 2013

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

MARSHALLS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

CONSOLIDATED NOTES

FOR THE YEAR ENDED 31 DECEMBER 2013

1 Basis of preparation

Whilst the Financial Information included in this Preliminary Announcement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 31 December 2013, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full Consolidated Financial Statements in April 2014.

The Financial Information set out in this Preliminary Announcement does not constitute the Company's Consolidated Financial Statements for the years ended 31 December 2013 or 2012, but is derived from those Financial Statements. Statutory Financial Statements for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The auditors, KPMG Audit Plc, have reported on those Financial Statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2013 or 2012.

The Consolidated Financial Statements have been prepared in accordance with IFRSs as adopted for use in the EU. The Group has applied all accounting standards and interpretations issued by the IASB and International Financial Reporting Committee relevant to its operations and which are effective in respect of these Financial Statements.

The following new accounting standards and amendments to standards are mandatory and have been adopted for the first time in the year ended 31 December 2013:

Amendments to IAS 19 - "Employee Benefits (2011)";

Amendments to IAS 1 - "Presentation of Items of Other Comprehensive Income";

Amendments to IFRS 13 - "Fair Value Measurement";

Amendments to IFRS 7 - "Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities";

Amendments to IAS 32 - "Financial Instruments: Offsetting Financial Assets and Liabilities"; and

Annual improvements to IFRSs - "2009-2011 Cycle".

The impact of IAS 19 -"Employee Benefits (2011)" and IFRS 13 - "Fair Value Measurement" are described below. The implementation of the other standards has only had a presentational impact.

The Group adopted IAS 19, "Employee Benefits (2011)", on 1 January 2013 and changed its basis for deferring its income or expense relating to defined benefit plans. As a result of the change the Group now determines the net interest income on the net defined benefit asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset at the beginning of the annual period. The comparative figures have been restated accordingly. As the discount rate and the rate of return on assets at 31 December 2011 were equal there has been no impact on the net interest income once restated.

IFRS 13 - "Fair Value Measurement," establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 - "Financial Instruments: Disclosures."

In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Group's assets and liabilities.

These standards have not had a material impact on the Consolidated Financial Statements.

Details of the Group's funding position are set out in Note 12 and are subject to normal covenant arrangements. The Group's on-demand overdraft facility is reviewed on an annual basis and the current arrangements were renewed and signed on 16 August 2013. In the opinion of the Directors there are sufficient unutilised facilities held which mature after twelve months. The Group's performance is dependent on economic and market conditions, the outlook for which is difficult to predict. The Group took decisive action in 2012 to align its operational capacity with expected market conditions. Markets remain uncertain but, based on current expectations, the Group's cash forecasts continue to meet half-year and year end bank covenants and there is adequate headroom which is not dependent on facility renewals. The Directors believe that the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements.

The Consolidated Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and liabilities for share-based payments.

The comparative figures for the financial year ended 31 December 2012 have been restated in respect of discontinued operations.

The accounting policies have been applied consistently throughout the Group for the purposes of these Consolidated Financial Statements and are also set out on the Company's website (www.marshalls.co.uk).

The Consolidated Financial Statements are presented in sterling, rounded to the nearest thousand.

The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

* The comparatives have been restated in respect of discontinued operations (Note 7).

Operating segments

IFRS 8 "Operating Segments" requires operating segments to be identified on the basis of discrete financial information about components of the Group that are regularly reviewed by the Group's Chief Operating Decision Maker ("CODM") to allocate resources to the segments and to assess their performance. The Directors have concluded that, in terms of the Group's operations, the detailed requirements of IFRS 8 support the reporting of the Group's operations as a single business segment. As far as Marshalls is concerned the CODM is regarded as being the Executive Directors.

* The comparatives have been restated in respect of discontinued operations (Note 7).

\* The comparatives have been restated in respect of discontinued operations (Note 7).

4 Operational restructuring costs and asset impairments

The Board determined that certain charges to the Consolidated Income Statement should be separately identified for better understanding of the Group's results for the year ended 31 December 2013.

Operational restructuring costs in 2012 reflected the implementation of a wide range of contingency measures aimed at reducing costs, reducing inventories and conserving cash. These initiatives included works closure costs which reflected the need for capacity reductions. Operational restructuring costs included redundancy costs of £nil (2012: £6,205,000).

* The comparatives have been restated in respect of the revisions to IAS 19, "Employee Benefits (2011)", as described in Note 1. As the discount rate and the rate of return on assets at 31 December 2011 were equal there has been no impact on the net interest income and earnings per share once restated. A restated balance sheet has not been provided given there is no impact on the balance sheet.

\* The comparatives have been restated in respect of discontinued operations (Note 7).

The deferred tax credit arose due to reductions in the rate of corporation tax to 21 per cent by April 2014 and 20 per cent by April 2015 which were substantially enacted, following the receipt of Royal Assent, in July 2013.

The net amount of deferred taxation credited to the Consolidated Statement of Comprehensive Income in the year was £3,912,000 (2012: £2,742,000).

7 Discontinued operations

On 30 April 2013 the Group completed the sale of aggregate quarries to Breedon Aggregates England Limited for cash consideration of £17.5 million. The final consideration will be up to £19.2 million dependent on certain conditions being satisfied. The assets sold comprised quarries solely supplying aggregates, sand and gravel. The Group has retained all of its dimensional stone quarries, some of which produce aggregate as an ancillary product. The disposed quarries were the freehold and leasehold quarries at Clearwell, near Lydney, Gloucestershire, which produces primarily high quality limestone aggregates and the Group's sand and gravel quarries located at Dunsville, near Hatfield, South Yorkshire, Astley Moss in Greater Manchester and Mold in North Wales which operates under the Lloyds Sand and Gravel trading name and the business carried on from these quarries. Also included was an option to develop sand and gravel resources near Saredon, Staffordshire. On 23 August 2013 additional consideration of £1.2 million was received following the satisfactory completion of a post completion condition. This condition had required the commissioning of a sand extraction plant to the satisfaction of the purchaser. The additional consideration, net of attributable costs, has given rise to a post tax profit of discontinued operations of £0.5 million.

The results of the discontinued operations which have been included in the Consolidated Income Statement were as follows: