Half Yearly Report

Interim results for the half year ended 30 June 2015

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

Highlights:

· Revenue up 11% to £199.1 million (2014: £180.0 million)

· Improvement in operating margins to 11.1% (2014: 8.7%)

· Profit before tax up 48% to £20.8 million (2014: £14.0 million)

· Return on capital employed for the year ended 30 June 2015 up 50% to 15.2% (2014: 10.1%)

· EPS up 39% to 8.50 pence (2014: 6.11 pence)

· Interim dividend increased by 13% to 2.25 pence (2014: 2.00 pence) per share 

Current priorities:

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

· To further strengthen the Marshalls brand by developing systems based solutions, service excellence and new product development

· To grow our business organically and selectively through acquisitions

· To continue to develop and invest in our strategic growth initiatives, particularly in Water Management, Street Furniture, Rail and Newbuild Housing

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

"The Group is well positioned to grow organically and selectively through acquisitions. We will continue to focus on growth initiatives during the remainder of 2015 and in 2016.

The Construction Products Association supports this view of growth and its Summer Forecast predicts growth in UK market volumes of 4.9 per cent in 2015 and 4.2 per cent in 2016. In order to drive growth, the Group continues to develop the Marshalls brand and invest in product innovation and service delivery initiatives to deliver improved trading margins and increased return on capital employed."

Enquiries:

Interim Management Report

Group results

Marshalls' revenue for the six months ended 30 June 2015 grew by 11 per cent to £199.1 million (2014: £180.0 million). Trading conditions continue to be positive and the Group experienced both strong order intake and sales growth. If these positive market conditions continue through the second half, noting the stronger comparables in the second half of 2014, it is likely that full year trading will be above original expectations.

Sales to the Public Sector and Commercial end market, which represent approximately 64 per cent of Group sales, were up 15 per cent, compared with the prior year. Sales to the Domestic end market, which represent approximately 30 per cent of Group sales, were up 4 per cent compared with the prior year. Sales in the International business have increased by 7 per cent in the six months ended 30 June 2015 and represent 6 per cent of Group sales.

Operating profit increased to £22.0 million (2014: £15.6 million). EBITDA also improved to £29.7 million (2014: £22.2 million).

Group return on capital employed ("ROCE") was 15.2 per cent for the year ended 30 June 2015 which represents an increase of 50 per cent compared with the prior year. ROCE is defined as EBITA / shareholders' funds plus net debt.

Net financial expenses were £1.2 million (2014: £1.6 million) and interest was strongly covered 18.5 times operating profit (2014: 9.9 times). The effective tax rate was 20.8 per cent (2014: 17.0 per cent).

Basic EPS was 8.50 pence (2014: 6.11 pence) per share. The interim dividend will be 2.25 pence (2014: 2.00 pence) per share, a 13% increase on the prior year.

Current strategy

The Group's focus is to grow the business organically and selectively through acquisitions. Our strategic objectives include the improvement of profit margins in all businesses and to increase the Group's ROCE. The long-term strategy continues to combine the delivery of sustainable shareholder value and profitability with organic expansion and the development of key "route to market" relationships.

Current priorities

The Group's priorities are to grow and develop the business and to leverage the benefits from the improving market conditions in order to generate volume growth and so benefit from operational gearing. A key objective is to deliver further improvement in profit margins in all businesses and end markets, and the operational priorities remain service, quality, design, innovation and a commitment to research and development, sustainability and an integrated product offer.

Operating performance

Operating margins increased to 11.1 per cent in the six months ended 30 June 2015 (2014: 8.7 per cent). This represents an improvement of 27 per cent reflecting improved operational gearing as a result of volume growth which continues to be ahead of the Construction Products Association's market forecasts. The continued focus on operational flexibility has enabled the Group to increase manufacturing output as the market has recovered and our network of manufacturing sites has enough capacity to absorb medium-term demand and the flexibility for further capacity and capability investment.

In the UK, sales price increases generated £5.6 million in additional revenue and exceeded the impact of cost inflation by £1.4 million. Volume growth has been particularly strong in the Public Sector and Commercial end market where the revenue increase attributable to volume and mix has been 11 per cent.

In the Public Sector and Commercial end market the Group's strategy is to build on its position as a market leading landscape products specialist. The Group's experienced technical and sales teams continue to focus on markets where future demand is greatest across a full range of integrated products and sustainable solutions for customers, architects and contractors. The Group continued to focus on innovation and new product development to drive sales growth in areas of particular opportunity. Commercial work from Water Management, Street Furniture, Rail and Newbuild Housing continues to increase and the Group is outperforming the market in these areas.

Our objective is to continually strengthen and differentiate the Marshalls brand, to improve the product mix and to ensure a consistently high standard of quality and to provide good geographical coverage.

In the Domestic end market the Group's strategy continues to be to drive more sales through quality installers. The Marshalls Register of approved domestic installers has grown to over 1,800 teams. The Group remains committed to increasing the marketing support to the installer base through increased training, marketing materials and sales support.

Historically, there has been a good correlation between consumer confidence and installer order books. The survey of domestic installers at the end of June 2015 revealed continuing strong order books of 12.0 weeks (2014: 11.5 weeks) and compares with 10.6 weeks at the end of April 2015. The position at 30 June 2015 is the highest recorded order book at this time of year.

The Group's Landscape Products business is a reportable segment servicing the UK Public Sector and Commercial and UK Domestic end markets. The Group's smaller UK businesses include Street Furniture, Mineral Products and Stone Cladding and their performance has continued to improve in the first half of 2015, delivering volume revenue growth of £3.8 million and profit growth of £1.0 million. All these businesses are now profitable.

Continued progress is being made in developing the International business and activity levels have been increasingly encouraging. Sales from our operations in Belgium increased by 15.8 per cent, in local currency, in the six months ended 30 June 2015 despite a market background in mainland Europe that continues to be subdued. Trading performance in the Belgium business has improved markedly. Marshalls continues to expand its geographical reach and to extend its global supply chains and routes to market. Marshalls continues to develop the distribution of natural stone products into the North American market and the Group is now opening a sales office in Dubai to facilitate further sales growth in the Middle East.

Balance sheet and cash flow as at 30 June 2015

Net assets at 30 June 2015 were £184.0 million (June 2014: £177.0 million).

At 30 June 2015 net debt was markedly lower at £32.9 million (June 2014: £50.9 million) with gearing at 17.9 per cent (June 2014: 28.8 per cent). Cash management continues to be a high priority area and the Group continues to focus on inventory and capital expenditure management, credit control and the maintenance of credit insurance for trade receivables.

Capital investment in property, plant and equipment in the six months to 30 June 2015 totalled £5.5 million (2014: £3.8 million) and compares with depreciation of £7.0 million (2014: £6.0 million). Research and development expenditure amounted to £1.6 million (2014: £1.1 million).

In July 2015, following the continued steady reduction in net debt, the Group undertook a full review of its bank facilities in order to align them with current strategy and to ensure headroom against available facilities remains at appropriate levels. We reduced our total committed facility lines by £30 million to £80 million and reduced our interest costs significantly through the refinancing. New committed facility lines have been established and Marshalls continues its policy of having significant committed facilities in place with a positive spread of medium-term maturities. The new facilities have extended maturities with some going out to 2020. At the same time, the Group also renewed its short-term working capital facilities with RBS.

The balance sheet value of the Group's defined benefit pension scheme was a surplus of £0.8 million at 30 June 2015 (December 2014: £3.4 million surplus; June 2014: £0.1 million deficit). The amount has been determined by the scheme actuary using assumptions that are considered to be prudent and in line with current market levels. The assumptions that have changed in the last six months are an increase in the AA corporate bond rate from 3.6 per cent to 3.7 per cent, in line with market movements, and an increase in the expected rate of inflation from 3.1 per cent to 3.3 per cent. The Company has agreed with the Trustee of the defined benefit pension scheme that it will cease to make cash payments under the funding and recovery plan, which totalled £4.6 million in the previous year, with immediate effect.

Dividend

The Group has a progressive dividend policy with a stated objective of achieving up to 2 times dividend cover over the business cycle. The Board has declared an interim dividend of 2.25 pence (June 2014: 2.00 pence) per share, an increase of 13 per cent. This dividend will be paid on 4 December 2015 to shareholders on the register at the close of business on 23 October 2015. The ex-dividend date will be 22 October 2015. 

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining 6 months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 December 2014. Further information is provided in Note 12 and a detailed explanation of the risks, and how the Group seeks to mitigate these risks, can be found on pages 18 to 20 of the Annual Report which is available at www.marshalls.co.uk/documents/reports/2014-full-annual-report.

Going concern

As stated in Note 1 of the 2015 Half-yearly Report, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of the Half-yearly Report. Accordingly, they continue to adopt the going concern basis in preparing the Half-yearly Report.

Outlook

The Group is well positioned to grow organically and selectively through acquisitions. We will continue to focus on growth initiatives during the remainder of 2015 and in 2016.

The Construction Products Association supports this view of growth and its Summer Forecast predicts growth in UK market volumes of 4.9 per cent in 2015 and 4.2 per cent in 2016. In order to drive growth, the Group continues to develop the Marshalls brand and invest in product innovation and service delivery initiatives to deliver improved trading margins and increased return on capital employed.

Martyn Coffey

Chief Executive

Condensed Consolidated Half-yearly Income Statement

for the half year ended 30 June 2015

All results relate to continuing operations.

Condensed Consolidated Half-yearly Statement of Comprehensive Income

for the half year ended 30 June 2015

Condensed Consolidated Half-yearly Balance Sheet

as at 30 June 2015

Condensed Consolidated Half-yearly Cash Flow Statement

for the half year ended 30 June 2015

Condensed Consolidated Half-yearly Statement of Changes in Equity

for the half year ended 30 June 2015

Notes to the Condensed Consolidated Half-yearly Financial Statements

1. Basis of preparation

Marshalls plc (the "Company") is a company domiciled in the United Kingdom. The Condensed Consolidated Half-yearly Financial Statements of the Company for the half year ended 30 June 2015 comprise the Company and its subsidiaries (together referred to as the "Group").

The Condensed Consolidated Half-yearly Financial Statements have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority and the requirements of IAS 34 "Interim Financial Reporting" as adopted by the European Union ("EU").

The Condensed Consolidated Half-yearly Financial Statements do not constitute financial statements and do not include all the information and disclosures required for full annual financial statements. The Condensed Consolidated Half-yearly Financial Statements were approved by the Board on 28 August 2015. The Condensed Consolidated Half-yearly Financial Statements are not statutory accounts as defined by Section 434 of the Companies Act 2006.

The Condensed Consolidated Financial Statements for the half year ended 30 June 2015 and comparative period have not been audited. The Auditor has carried out a review of the Half-yearly Financial Information and their report is set out below.

The financial information for the year ended 31 December 2014 has been extracted from the annual Financial Statements, included in the Annual Report 2014, which has been filed with the Registrar of Companies. The report of the Auditor was: (i) unqualified; (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under Section 498 (2) and (3) of the Companies Act 2006.

The annual Financial Statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of Financial Statements has, other than in respect of the matters referred to below, been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published Consolidated Financial Statements for the year ended 31 December 2014.

The Condensed Consolidated Half-yearly 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 cash-settled share-based payments.

The accounting policies have been applied consistently throughout the Group for the purposes of these Condensed Consolidated Half-yearly Financial Statements and are also set out on the Company's website (www.marshalls.co.uk). The Condensed Consolidated Half-yearly 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. In preparing these Condensed Consolidated Half-yearly Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements of the Group for the year ended 31 December 2014.

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.

Details of the Group's funding position are set out in Note 10 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 10 July 2015. Management believe that there are sufficient unutilised facilities held, which mature after 12 months. The Group's performance is dependent on economic and market conditions, the outlook for which is difficult to predict. Based on current expectations, the Group's cash forecasts continue to meet half year and year end bank covenants and there is adequate headroom that is not dependent on facility renewals. After considering relevant uncertainties, 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 Condensed Consolidated Half-yearly Financial Statements.

The Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Changes in Equity have been restated in respect of the half year ended 30 June 2014 (£457,000 reduction to Other Comprehensive Income) and the year ended 31 December 2014 (£792,000 reduction to Other Comprehensive Income). The restatement was in respect of deferred taxation and corporation tax on share-based payments which were previously presented within Other Comprehensive Income. The Statement has also been restated to show the effects of net investment hedging on a gross basis in both periods. There is no impact on retained profits or net assets for any period.

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. As far as Marshalls is concerned, the CODM is regarded as being the Executive Directors. The Directors have concluded that the detailed requirements of IFRS 8 support the reporting of the Group's Landscape Products business as a reportable segment, which includes the UK operations of the Marshalls Landscape Products hard landscaping business, servicing both the UK Domestic and the UK Public Sector and Commercial end markets. Financial information for Landscape Products is reported to the Group's CODM for the assessment of segmental performance and to facilitate resource allocation.

The Landscape Products reportable segment operates a national manufacturing plan that is structured around a series of production units throughout the UK, in conjunction with a single logistics and distribution operation. A national planning process supports sales to both of the key end markets, namely the Domestic and Public Sector and Commercial end markets and the operating assets produce and deliver a range of broadly similar products that are sold into each of these end markets. Within the Landscape Products operating segment the focus is on the one integrated production, logistics and distribution network supporting both end markets.

Included in "Other" are the Group's Street Furniture, Mineral Products, Stone Cladding and International operations which do not currently meet the IFRS 8 reporting requirements.