Marshalls Regulatory News (MSLH)

Embargoed until 7.00am on Thursday 17 March 2022

Marshalls plc

Strong growth - positive trading outlook

Marshalls plc, the specialist Landscape Products group, announces its full year results for the year ended 31 December 2021.

Financial highlights

· Record sales and adjusted profitability, reflecting the sustained heightened demand post COVID-19

· Full year revenue of £589.3 million, an increase of 26% on 2020 and 9% on 2019

· Adjusted EBITDA of £107.1 million, an increase of 86% on 2020 and 3% on 2019

· Adjusted profit before tax up 3% against 2019 at £72.1 million (up 221% on 2020)

· Profit before tax on a statutory basis was £69.3 million (2020: £4.7 million; 2019: £69.9 million)

· Net debt of £41.1 million (2020: £75.6 million). Pre-IFRS 16 net positive cash of £0.1 million

· Strong balance sheet, with a flexible capital structure and a clear capital allocation policy

· Recovery in adjusted ROCE to 20.6 per cent (2020: 8.2%; 2019: 21.4%)

· Proposed final dividend of 9.6 pence giving rise to a total dividend for the year of 14.3 pence

· Continued momentum in trading during the first two months of 2022 - healthy order books underpinning management confidence

· The Board's expectations for the current year are now ahead of its previous view

Operational highlights

· Continued focus on customer service and satisfying increased demand

· Proactive supply chain management to mitigate raw material shortages and cost inflation

· Focus on flexibility within manufacturing and logistics and short-term labour availability

· Sustained emphasis on growth opportunities arising from ESG leadership

· Capital investment of around £35 million planned for 2022 - construction at St Ives on track

· Priority given to health and safety

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

"Trading remains strong and has continued to improve since the start of the year, notwithstanding ongoing supply chain challenges. At the end of February revenues were up 13 per cent and order volumes up 5 per cent compared to the same period in 2021. Despite the terrible situation in Ukraine and the current geo-geopolitical uncertainties that prevail, the outlook for the construction market remains positive. This continues to be supported by strong forward indicators, particularly in our target markets in New Build Housing, Road, Rail and Water Management.

Our strong market positions, focused investment plans and established brand underpin the Group's Business Strategy. We remain confident that our strategy will continue to deliver profitable long‑term growth and that we will be able to mitigate raw material shortages and cost inflation through the effective management of our supply chain.

Given the strength of recent and current trading the Board's expectations for the current year are now ahead of its previous view."

There will be a video webcast for analysts and investors today at 09:00am. The presentation will be available for analysts and investors who are unable to view the webcast live and can be viewed on Marshalls' website at www.marshalls.co.uk. Users can register to access the webcast using the following link:

https://webcasting.brrmedia.co.uk/broadcast/61e7db357eb59509ae2fb669. There will also be a telephone dial in facility available Tel: +44 (0)330 336 9601- Access Code: 8226602.

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014), as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Notes:

Enquiries:

Group results

Market conditions have remained supportive over the last year, notwithstanding increasingly challenging supply chain pressures. The Group has performed well and delivered a record trading performance, despite experiencing issues with both raw material and labour shortages. These operational challenges have given rise to significant raw material cost inflation, additional overtime costs to cover COVID-19 related absenteeism and some customer project delays. Nevertheless, demand for our products has remained strong, and cost increases were recovered through a mid-year price increase and a further price increase was implemented successfully in January 2022. We have strong supplier relationships, and our centralised procurement team is actively managing our supply chain to create flexibility and reduce risk. Trading in the first two months of 2022 has continued to be positive with revenue growth of 13 per cent and the order books remain strong.

We have continued to prioritise health and safety, and we are committed to taking the safety and wellbeing of our employees and other stakeholders to the highest possible level. We have maintained robust health and safety procedures throughout our manufacturing, logistics and office-based operations. In 2021, we launched our Health and Employee Wellbeing Strategy and in 2022 we will be introducing a new mental health and wellbeing programme. Our goal is to recognise employee ill-health as early as possible and to provide the best support that we can. Our dedicated, external confidential Employee Assistance Helpline, has actively supported colleagues who have been working from home.

Group revenue for the year ended 31 December 2021 was £589.3 million (2020: £469.5 million; 2019: £541.8 million), which is 26 per cent ahead of the 2020 comparative and 9 per cent ahead of the same period in 2019. Revenue growth in the second half of the year was increasingly strong and was 11 per cent ahead of the comparative figures for 2019.

Revenue in the Domestic end market, which represented approximately 28 per cent of Group sales, was £167.0 million. This represents an increase of 30 per cent compared with the prior year, and is up 18 per cent compared with the same period in 2019. The survey of Marshalls' register of approved installers at the end of February 2022 revealed order books of 17.4 weeks (2021:19.4 weeks) which compared with 16.7 weeks at the end of October 2021 and remains at historically high levels. The Private Housing "repair, maintenance and improvement" trend continues to be strong and is the main driver in the UK Domestic end market. There remains strong demand for DIY projects, with customers spending more time at home and investing in home and garden improvements. This demand is underpinned by the unusually high level of household savings accumulated during the pandemic.

Revenue in the Public Sector and Commercial end market was £389.1 million and 66 per cent of Group revenue. This represents an increase of 26 per cent compared with the prior year, and is up 4 per cent compared with the same period in 2019. The comparison with 2019 was 6 per cent after adjusting for the impact on sales caused by the planned reduction in Marshalls Mortars and Screed sites in the first half of 2020. The Group continues to focus on those market areas where future demand is expected to be greatest, including New Build Housing, Road, Rail and Water Management. Infrastructure is also expected to be a key element of medium-term construction growth. The ABI lead indicator supports a strong outlook for commercial contract work in 2022.

Revenue in the International business, which includes Marshalls NV in Belgium, was up 6 per cent compared with the prior period and 23 per cent compared with 2019. International revenue represented 6 per cent of Group sales in the period. The Group continues to develop its international supply chains to ensure that they remain sustainable and aligned with market risks and opportunities. Freight costs from overseas have been particularly challenging, with the cost of container transport increasing significantly in the last year. The breadth of our operations is a strength and we continue to be able to balance the demand for imported stone with quality materials from our UK-based quarries.

Adjusted EBITDA was £107.1 million (2020: £57.6 million; 2019: £103.9 million). The Group's adjusted operating profit was £76.2 million (2020: £27.2 million; 2019: £73.7 million) and was 3 per cent ahead of the 2019 comparative. The operating profit margin of 12.9 per cent for the year ended 31 December 2021 (2020: 5.8 per cent; 2019: 13.6 per cent) has been adversely impacted by the temporary effect of supply chain issues and by increased levels of overtime required as a consequence of labour shortages and absenteeism during COVID-19.

The reported operating profit for the year ended 31 December 2021 is after a number of adjusting items, the net impact of which is not material. These items comprise a net profit on the sale of a surplus site at Ryton which is largely offset by adjusting charges totalling £8.8 million. The adjusting items are set out in Note 4.

Net financial expenses were £6.9 million (2020: £4.7 million; 2019: £3.8 million), including £1.9 million (2020: £1.6 million) of IFRS 16 lease interest. However, this is after making a charge to recognise an additional pension liability of £2.8 million in accordance with the requirements of IAS19. Details of this non-cash adjustment are set out at Note 4.

Adjusted profit before tax was £72.1 million (2020: £22.5 million; 2019: £69.9 million). Statutory profit before tax was £2.8 million lower than the adjusted result at £69.3 million reflecting the additional pension interest charge of £2.8 million (2020: £4.7 million; 2019: £69.9 million).

The adjusted effective tax rate was 20.8 per cent (2020: 23.1 per cent). The 2021 Budget announced that the UK corporation tax rate would increase to 25 per cent from 2023, and this rate change was substantively enacted on 10 June 2021. Consequently, the deferred tax liability at 31 December 2021 has been calculated at the rate at which the deferred tax is expected to unwind in the future, using rates enacted at the balance sheet date. This rate change has given rise to an increase in the deferred tax charge of £4.9 million. The impact of this on the tax charge has been partially mitigated by the temporary increases in capital allowances in the year arising from the announcement of a 130 per cent first year allowance for plant and machinery and the reversal of certain tax provisions made in prior years which are no longer required.

Earnings per share for the year, was 27.5 pence (2020: 1.2 pence), which increases to 28.6 pence on an adjusted basis after adding back the impact of the pension interest adjustment.

Capital discipline remains a key priority, and the Group's strong cash generation continued during the year which contributed to a significant reduction in Group net debt. Due to the supply chain challenges and raw material shortages experienced, we increased our investment in inventory driven by higher shipping costs on imported product lines and our desire to maintain availability and customer service. Inventory at 31 December 2021 was £107.4 million (2020: £89.8 million; 2019: £89.2 million).

Operational initiatives

During the year ended 31 December 2021, capital expenditure totalled £21.9 million, which was lower than the £30 million originally planned for 2021. Supply chain issues experienced during the year have led to delays in some of our capital expenditure projects. We continue to generate a good pipeline of capital investment projects that will drive future organic growth, and we are now planning for capital investment of around £35 million in 2022.

The construction of our flagship dual block plant at our St Ives site is progressing in line with plan. The overall 3-year investment will be around £24 million and will incorporate the latest advanced technologies. It will be the first facility of its kind in the UK, and the project will significantly increase capacity, improve efficiency, enable multiple secondary finishing and facilitate the launch of new products.

There continues to be a focus on innovation and new product development across all parts of the Group. The development pipeline is strong, and the Group is committed to providing sustainable, high-performance product solutions. Investment is being driven by our sustainability agenda and by anticipating future trends. Two examples are our new facing concrete bricks which have a significantly lower embedded carbon footprint and new granite choices which have lower Ethical Risk Index scores.

Marshalls 5 year Strategy and ESG agenda

Our overall strategy continues to focus on the maintenance of a strong balance sheet, a flexible capital structure and a clear capital allocation policy. The Group's strong ESG agenda is fully integrated into our business operations and our eight strategic growth pillars. For example, our ability to deliver our own products to our customers is a key part of our service proposition and sits within our Logistics Excellence strategic growth pillar. We continue to invest in our own fleet, supplemented by third party logistics contractors, and we aim to maximise the benefits of new technology and reduce vehicle carbon emissions. We believe that our ESG strategy continues to generate opportunities which, going forward, will be a source of significant competitive advantage.

COP 26 reminded us all how companies need to adapt to mitigate climate change. Marshalls began its sustainability journey over 20 years ago and we have worked hard to reduce our carbon footprint throughout this period. Since 2008 the Group has reduced its footprint by 50 per cent and we are on target to make a further 50 per cent reduction by 2030, in line with our commitment to net zero emissions by this date.

Our commitment is to reduce scope 1 and 2 greenhouse gas emissions by 40 per cent per tonne of production by 2030 from a 2018 base year. For scope 3, we have also committed that 73 per cent of our suppliers by emissions, covering purchase goods and services and upstream transport and distribution, will have science-based targets by 2024. Our emission reduction targets have been approved by the Science Based Targets initiative as consistent with levels required to meet this net-zero commitment. We were the first company in our sector to achieve this accreditation and we have a published roadmap to support these targets. We continue to make and plan operational changes, with a focus on our fleet using lower emission fuels and installing solar panels across our manufacturing sites. In 2021 we installed solar panels at our Sittingbourne site in Kent and all our major manufacturing sites have now had solar energy assessments. Our new dual block plant at St Ives has been designed to be compatible with solar energy supply, with the aim of using solar power for all forklift trucks and electric car charging points.

We continue to take the lead in supporting and upholding human rights, at home and overseas in our supply chain. We aim to ensure that all our products and services are ethically sourced and sustainable.

We joined the Ethical Trading Initiative in 2006 and continue to support the UN Global Compact sustainable development goals. Marshalls has again been awarded the Fair Tax Mark accreditation. This recognises social responsibility and transparency in our tax affairs.

Balance Sheet and net debt

Net assets at 31 December 2021 were £344.3 million (2020: £287.8 million). The Group has a strong balance sheet with a good range of medium-term bank facilities available to fund investment initiatives to generate growth.

Reported net debt was £41.1 million at 31 December 2021 (2020: £75.6 million; 2019: £60.0 million). On a pre-IFRS 16 basis, the Group was cash positive at 31 December 2021 at £0.1 million (2020: £26.9 million net debt; 2019: £18.7 million net debt). The strong cash generation reflects the continuing focus given to capital discipline. Operating cash flow for the twelve months to 31 December 2021 represented 80 per cent of EBITDA. This is lower than usual due to the operating decision to increase investment in imported inventory as a result of significant increases in shipping costs to ensure ongoing availability and maintain the desired high levels of customer service.

The balance sheet value of the Group's defined benefit Pension Scheme was a surplus of £25.8 million (2020: £2.7 million; 2019: £15.7 million). The amount has been determined by the Scheme's pension adviser. The fair value of the Scheme assets at 31 December 2021 was £392.1 million (2020: £402.7 million; 2019: £368.9 million) and the present value of the Scheme liabilities is £366.3 million (2020: £400.0 million; 2019 £353.1 million).

Dividend

The Group maintains a progressive dividend policy of two times dividend cover over the business cycle. The aim of this policy is to increase returns for shareholders whilst at the same time recognising an appropriate degree of caution and stewardship.

The Board is now proposing a final dividend of 9.6 pence which, when combined with the interim dividend of 4.7 pence, gives rise to a total dividend for the year of 14.3 pence. This compares with adjusted earnings per share of 28.6 pence for the year ending 31 December 2021 and represents two times cover.

Outlook

Trading remains strong and has continued to improve since the start of the year, notwithstanding ongoing supply chain challenges. At the end of February revenues were up 13 per cent and order volumes up 5 per cent compared to the same period in 2021. Despite the terrible situation in Ukraine and the current geo-political uncertainties that prevail, the outlook for the construction market remains positive. This continues to be supported by strong forward indicators, particularly in our target markets in New Build Housing, Road, Rail and water Management.

Our strong market positions, focused investment plans and established brand underpin the Group's Business Strategy. We remain confident that our strategy will continue to deliver profitable long‑term growth and that we will be able to mitigate raw material shortages and cost inflation through the effective management of our supply chain.

Given the strength of recent and current trading the Board's expectations for the current year are now ahead of its previous view.

Martyn Coffey

Chief Executive

Marshalls plc

Preliminary Announcement of Results

Consolidated Income Statement

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Consolidated Balance Sheet

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Consolidated Cash Flow Statement

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Changes in Equity

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Changes in Equity

For the year ended 31 December 2021

Marshalls plc

Preliminary Announcement of Results

Notes to the Consolidated Financial Statements

For the year ended 31 December 2021

1 Basis of Preparation

Whilst the Financial Information included in this Preliminary Announcement has been prepared on the basis of the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full Consolidated Financial Statements in April 2022.

The Financial Information set out in this Preliminary Announcement does not constitute the Company's Consolidated Financial Statements for the years ended 31 December 2021 or 2020, but is derived from those Financial Statements. Statutory Financial Statements for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered following the Company's Annual General Meeting. The auditor, Deloitte LLP, has reported on those Financial Statements. The audit reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying the reports and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2021 or 2020.

The Consolidated Financial Statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards as issued by the International Accounting Standards Board. 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.

Details of the Group's funding position are set out in Note 12. The additional short-term bank facilities of £90 million established in May 2020 were not utilised and have now reached maturity. In addition, the COVID Corporate Financing Facility ("CCFF") that was put in place at the same time was also not required and expired in 2021. Bank facilities have returned to pre COVID-19 levels and total £165 million, of which £140 million are committed. On 13 August 2021, the Group entered into a new £20 million revolving credit facility with HSBC and the Group renewed its on-demand, short-term working capital facilities of £25 million with NatWest. 

Amendment agreements were entered into with all partner banks prior to the cessation of LIBOR at the end of 2021. The Group's committed bank facilities are all revolving credit facilities with interest now charged at variable rates based on SONIA. The Group's bank facilities continue to be aligned with the current strategy to ensure that headroom against available facilities remains at appropriate levels. The maturity profile of borrowing facilities are structured to provided balanced, committed and phased medium-term debt. The Group has significant headroom of £114 million at 31 December 2021 against its bank facilities.

In assessing the appropriateness of adopting the going concern basis in the Consolidated Financial Statements, the Board reviewed a range of severe downside scenarios to stress test the potential impact of emerging and longer term risks. The latest stress tests reviewed by the Board in relation to the completion of these Consolidated Financial Statements assumed a further sales revenue sensitivity of 20 per cent over each of the next two years, cumulatively 60 per cent against 2021 revenue. None of the stress tests applied impact the Directors' opinion that 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. However, the potential impact of wider political and economic uncertainties has been considered, including issues or delays as a consequence of continuing issues relating to the availability of raw materials and labour and the potential impact of cost inflation that could lead to a reduction in consumer confidence and a slowdown in the UK economy. The financial impact of climate change risk continues to be assessed along with market changes driven by advances in technology. Based on current expectations the Group's latest cash forecasts continue to meet half year and year-end bank covenants and there is adequate headroom that is not dependent on facility renewals. At 31 December 2021, on a covenant test basis (pre-IFRS 16), the relevant ratios were comfortably achieved and were as follows:

• EBITA: interest charge - 54.4 times (covenant test requirement - to be greater than 2.5 times).

• Net debt: EBITDA - 0 times (covenant test requirement - to be less than 3.0 times).

In performing an assessment of the Group's going concern, the Directors have considered the group's capital allocation policy and priorities for capital and the possible future cash requirements arising from each of these priorities for capital.

After considering these capital allocation priorities and the risks associated with relevant uncertainties (including the impact on markets and supply chains of geo-political risks such as the current crisis in Ukraine, the risk of further COVID-19 uncertainty and continuing macro-economic factors and inflation), the Directors believe that the Group is well placed to manage its business risks successfully. The Board considers that the facilities now available to the Group are sufficient to meet significant downside liquidity scenarios over a prolonged period and that there are sufficient unutilised facilities held which mature after twelve months. Accordingly, the Directors 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 cash settled share-based payments.

The Consolidated Financial Statements are presented in Sterling, rounded to the nearest thousand. Sterling is the currency of the primary economic environment in which the Group operates.

Adoption of new standards in 2021

The Group adopted 'Interest Rate Benchmark Reform - Phase II - Amendments to IFRS 9 'Financial instruments', IFRS 16 'Leases' and other IFRSs with effect from 1 January 2021. The Group has also followed the IFRIC Interpretations Committee's guidance published in April 2021 on the Capitalisation of costs of configuring or customising application software under "Software as a Service" ('SaaS') arrangements.

Other than items in respect of additional disclosure in relation to adjusting items, including for the year ended 31 December 2020, "operational restructuring costs and asset impairments", 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/investor/financial-performance). Adjusting items have been disclosed separately because of their size, nature or incidence to enable a full understanding of the Group's underlying results.

There are no new or amended standards or interpretations adopted during the year that have a significant impact on the consolidated financial statements.

The following other standards, interpretations and amendments to existing standards have been issued but were not mandatory for accounting periods beginning 1 January 2021 and are not expected to have a material impact on the Group. These standards have not been applied in these financial statements, and were pending endorsement by the UK Educational Board:

• IFRS 10 (amended) "Consolidated Financial Statements" and IAS 28 (amended) "Investments in Associates and Joint Ventures (2011)", effective date deferred indefinitely;

• IFRS 17 "Insurance Contracts", effective from 1 January 2023;

• IAS 1(amended) - "Classification of Liabilities as Current or Non-current", effective from 1 January 2023;

• IAS 1(amended) - "Disclosure of Accounting Policies", effective from 1 January 2023;

• IAS 8 (amended) - "Definition of Accounting Estimates", effective from 1 January 2023;

• IFRS 16 (amended) - "Property, Plant and Equipment - Proceeds before Intended Use", effective from 1 January 2022;

• IFRS 37 - "Onerous Contracts - Cost of Fulfilling a Contract", effective from 1 January 2022;

• IFRS 3 - "Reference to the Conceptual Framework", effective from 1 January 2022;

• Annual Improvements 2018 - 2020 cycle, effective from 1 January 2022; and

• IAS 12 (amended) - "Income Taxes - Assets and Liabilities arising from a Single Transaction", effective from 1 January 2023.

The Directors do not expect that the adoption of the standards listed above will have a material impact on the Financial Statements of the Group in future periods.

Alternative performance measures

The Group uses alternative performance measures ("APMs") which are not defined or specified under IFRS. The Group believes that these APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide additional comparative information.

Adjusting items

Adjusting items are items that are unusual because of their size, nature or incidence and which the Directors consider should be disclosed separately to enable a full understanding of the Group's underlying results.

For the year ended 31 December 2021, adjusting items include the disposal of the Group's site at Ryton, significant asset impairments, the costs of closing the site at Stoke and exiting the manufacture of cast stone and the special "thank you" bonus paid to employees in recognition of their contributions during the COVID-19 pandemic. Adjusting items in 2021 also included an accounting charge relating to additional consideration for the acquisition of CPM and a non-cash finance charge resulting from the receipt of a Counsel legal opinion in relation to certain historic pension issues. Further details have been disclosed in Note 4.

For the year ended 31 December 2020, adjusting items comprise items previously disclosed separately under the heading of "operational restructuring costs and asset impairments." Further details have been included in Note 4.

Profit before adjusting items

Pre-IFRS 16 basis

Disclosures required under IFRS are referred to as either on a post-IFRS 16 basis or on a reported basis. Disclosures referred to on a pre-IFRS 16 basis are restated to those that applied before the adoption of IFRS 16 and are used to provide additional information and a more detailed understanding of the Group results. Certain financial information, on both a reported basis and on a pre-IFRS 16 basis, is set out below. Both are disclosed before adjusting items.

EBITA and EBITDA

EBITA represents earnings before interest, tax and the amortisation of intangibles. This is a component of the ROCE calculation. EBITDA is calculated by adding back depreciation to EBITA. Both EBITA and EBITDA are disclosed before adjusting items.

ROCE

Reported ROCE is defined as EBITA divided by shareholders' funds plus net debt. ROCE is disclosed before adjusting items.

Net debt

Net debt comprises cash at bank and in hand, bank loans and leasing liabilities. An analysis of net debt is provided in Note 11.

The ratio of operating cash flow to EBITDA

The ratio of adjusted operating cash flow to EBITDA is calculated as set out below:

2 Segmental analysis

Segment revenues and results

The Group has two customers which each contributed more than 10 per cent of total revenue in the current and prior year.

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 UK 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 one integrated production, logistics and distribution network supporting both end markets.

Included in "Other" are the Group's Landscape Protection, Mineral Products, Mortars and Screeds and International operations, which do not currently meet the IFRS 8 reporting requirements.

The accounting policies of the Landscape Products operating segment are the same as the Group's accounting policies. Segment profit represents the profit earned without allocation of certain central administration costs that are not capable of allocation. Centrally administered overhead costs that relate directly to the reportable segment are included within the segment's results.

Segment assets

For the purpose of monitoring segment performance and allocating resources between segments, the Group's CODM monitors the property, plant and equipment, right-of-use assets and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments.

Other segment information

Geographical destination of revenue

The Group's revenue is subject to seasonal fluctuations resulting from demand from customers. In particular, demand is higher in the summer months. The Group manages the seasonal impact through the use of a seasonal working capital facility.

3 Net operating costs

4 Adjusting items

(i) The additional special bonus payable to employees as a thank you for their support during the pandemic.

(ii) Redundancy and other closure costs relate to the Edenhall Stoke site following a network review. The site was used to manufacture cast stone and the Group has decided to exit this market.

(iii) Write-off of property, plant and equipment relates to assets at our St Ives site that are being dismantled to allow construction of the dual block plant.

(iv) The additional consideration to the CPM vendors represents an accounting charge relating to the acquisition of CPM following the agreement reached with the vendors to release of funds initially set aside in escrow, following the identification of an under-funded pension scheme of a related company. This risk is now considered to be remote and £3,750,000 will be released from escrow and paid to the vendors as additional consideration. This results in a charge to the Income Statement because it falls outside the hindsight period of twelve months set out under IAS.

(v) The net gain on a significant surplus site relates to the sale of Ryton near Coventry.

(vi) The interest expense on defined benefit pension scheme relates to a technical non-cash, finance charge resulting from the receipt of Counsel's opinion on certain historic benefit issues (Note 5).

5 Financial expenses and income

Net interest expense on the defined benefit pension scheme is disclosed net of Company recharges (Note 11).

6 Income tax expense

The net amount of deferred taxation debited to the Consolidated Statement of Comprehensive Income in the year was £6,547,000 (2020: credited £2,149,000).

The majority of the Group's profits are earned in the UK with the standard rate of corporation tax being 19 per cent for the year to 31 December 2021. The 2021 Budget announced that the UK corporation tax rate would increase to 25 per cent from 2023. This change was substantively enacted on 10 June 2021 and consequently, the deferred taxation liability at 31 December 2021 has been calculated at 25 per cent, which is the rate at which the deferred tax is expected to unwind in the future using rates enacted at the balance sheet date. The rate change has given rise to an increase to the deferred tax charge of £4.9 million which in turn has given rise to an increase in the effective tax rate.

Capital allowances are tax reliefs provided in law for the expenditure the Group makes on fixed assets. The rates are determined by Parliament annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending, where the expenditure on fixed assets is treated as an investment with the cost then being spread over the anticipated useful life of the asset, and/or impaired if the value of such assets is considered to have reduced materially.

The different accounting treatment of fixed assets for tax and accounting purposes is one reason why the taxable income of the Group is not the same as its accounting profit. During the year ended 31 December 2021 the capital allowances due to the Group exceeded the depreciation charge for the year.

Short-term timing differences arise on items such as depreciation in stock and share-based payments because the treatment of such items is different for tax and accounting purposes. These differences usually reverse in the years following those in which they arise, as is reflected in the deferred tax charge in the Financial Statements.

Adjustments to tax charges arising in earlier years arise because the tax charge to be included in a set of accounts has to be estimated before those Financial Statements are finalised. Such charges therefore include some estimates that are checked and refined before the Group's corporation tax returns for the year are submitted to HM Revenue & Customs, which may reflect a different liability as a result.

Some expenses incurred may be entirely appropriate charges for inclusion in the Financial Statements but are not allowed as a deduction against taxable income when calculating the Group's tax liability for the same accounting period. Examples of such disallowable expenditure include business entertainment costs and some legal expenses.

The prior year adjustment in corporation tax includes the reversal of tax provisions made in prior years which are no longer required, including provisions made on acquisition of subsidiaries. 

As can be seen from the tax reconciliation, the process of adjustment that can give rise to current year adjustments to tax charges arising in previous periods can also give rise to revisions in prior year deferred tax estimates. This is why the current year adjustments to the current year charge for capital allowances and short-term timing differences are not exactly replicated in the deferred taxation charge for the year.

The Group's overseas operations comprise a manufacturing operation in Belgium and sales and administration offices in the USA and China. The sales of these units, in total, were approximately 5 per cent of the Group's turnover in the year ended 31 December 2021. In total, the trading profits were not material and a minimal amount of tax is due to be paid overseas.

7 Earnings per share

Basic earnings per share from total operations of 27.5 pence (2020: 1.2 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders for the financial year, after adjusting for non-controlling interests, of £54,806,000 (2020: £2,370,000) by the weighted average number of shares in issue during the period of 199,094,964 (2020: 198,642,224).

Basic earnings per share before adjusting items of 28.6 pence (2020: 8.6 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders for the financial year, after adjusting for non-controlling interests, of £56,948,000 (2020: £17,078,000) by the weighted average number of shares in issue during the period of 199,094,964 (2020: 198,642,224).

Profit attributable to Ordinary Shareholders

Weighted average number of Ordinary Shares

Diluted earnings per share from total operations of 27.4 pence (2020: 1.2 pence) per share is calculated by dividing the profit for the financial year, after adjusting for non-controlling interests, of £54,806,000 (2020: £2,370,000) by the weighted average number of shares in issue during the period of 199,094,964 (2020: 198,642,224) plus potentially dilutive shares of 1,222,847 (2020: 1,614,132), which totals 200,317,811 (2020: 200,256,356).

Diluted earnings per share before adjusting items of 28.4 pence (2020: 8.5 pence) per share is calculated by dividing the profit for the financial year, after adjusting for non-controlling interests, of £56,948,000 (2020: £17,078,000) by the weighted average number of shares in issue during the period of 199,094,964 (2020: 198,642,224) plus potentially dilutive shares of 1,222,847 (2020: 1,614,132), which totals 200,317,811 (2020: 200,256,356).

Weighted average number of Ordinary Shares (diluted)

8 Dividends

After the balance sheet date, a final dividend of 9.6 pence was proposed by the Directors. This dividend has not been provided for and there are no income tax consequences.

The following dividends were approved by the shareholders and recognised in the Financial Statements:

Due to the impact of COVID-19 the Board did not propose an interim dividend during 2020.

The Board recommends a 2021 final dividend of 9.6 pence per qualifying Ordinary Share (amounting to £19,122,000, to be paid on 1 July 2022 to shareholders registered at the close of business on 10 June 2022).

9 Lease liabilities

As at 31 December 2021, the total minimum lease payments (above) comprised property of £33,272,000 (2020: £32,122,000) and plant, machinery and vehicles of £18,936,000 (2020: £29,010,000).

On 10 September 2020 the Group completed a sale and leaseback transaction in relation to its site in Rumst, Belgium. The net cash proceeds of €12,481,000 have been used to pay down the inter-company indebtedness between Marshalls NV and Marshalls Mono Limited. The net profit for the Group of £1,484,000 has been disclosed within the net gain on asset and property disposals (Note 3). The lease has a 10-year term, with an option to extend after 5 years. It has currently not been assumed that the option to extend will be exercised as the Directors do not believe that this is reasonably certain.

Certain leased properties have been sublet by the Group. Sublease payments of £285,254 (2020: £239,003) are expected to be received during the following financial year. An amount of £295,548 (2020: £225,786) was recognised as income in the Consolidated Income Statement within net operating costs in respect of subleases.

The Group does not face a significant liquidity risk with regard to its lease liabilities. For the year ended 31 December 2021, the interest expense on lease liabilities amounted to £1,889,000 (2020: £1,604,000). Lease liabilities are calculated at the present value of the lease payments that are not paid at the commencement date.

For the year ended 31 December 2021, the average effective borrowing rate was 3.4 per cent. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The vast majority of lease obligations are denominated in Sterling.

For the year ended 31 December 2021, the total cash outflow in relation to leases amounts to £12,717,000 (2020: £13,780,000). The total cash outflow in relation to short-term and low value leases was £5,671,000 (2020: £4,551,000).

10 Loans

Bank loans

The bank loans are secured by intra-group guarantees with certain subsidiary undertakings.

11 Employee benefits

The Company sponsors a funded defined benefit pension scheme in the UK (the "Scheme"). The Scheme is administered within a trust which is legally separate from the Company. The Trustee Board is appointed by both the Company and the Scheme's membership and acts in the interest of the Scheme and all relevant stakeholders, including the members and the Company. The Trustee is also responsible for the investment of the Scheme's assets.

The defined benefit section of the Scheme provides pension and lump sums to members on retirement and to dependants on death. The defined benefit section closed to future accrual of benefits on 30 June 2006 with the active members becoming entitled to a deferred pension. Members no longer pay contributions to the defined benefit section. Company contributions to the defined benefit section after this date are used to fund any deficit in the Scheme and the expenses associated with administering the Scheme, as determined by regular actuarial valuations.

The Trustee is required to use prudent assumptions to value the liabilities and costs of the Scheme whereas the accounting assumptions must be best estimates.

The defined benefit section of the Scheme poses a number of risks to the Company, for example longevity risk, investment risk, interest rate risk, inflation risk and salary risk. The Trustee is aware of these risks and uses various techniques to control them. The Trustee has a number of internal control policies, including a Risk Register, which are in place to manage and monitor the various risks it faces. The Trustee's investment strategy incorporates the use of liability-driven investments ("LDIs") to minimise sensitivity of the actuarial funding position to movements in interest rates and inflation rates.

The defined benefit section of the Scheme is subject to regular actuarial valuations, which are usually carried out every three years. The next actuarial valuation is being carried out with an effective date of 5 April 2021. These actuarial valuations are carried out in accordance with the requirements of the Pensions Act 2004 and so include deliberate margins for prudence. This contrasts with these accounting disclosures which are determined using best estimate assumptions.

A formal actuarial valuation was carried out as at 5 April 2018. The results of that valuation have been projected to 31 December 2021 by a qualified independent actuary. The figures in the following disclosure were measured using the projected unit method.

The amounts recognised in the Consolidated Balance Sheet were as follows:

The current and past service costs, settlements and curtailments, together with the net interest expense for the year, are included in the employee benefits expense in the Consolidated Statement of Comprehensive Income. Remeasurements of the net defined benefit surplus are included in other comprehensive income.

The principal actuarial assumptions used were:

12 Analysis of net debt

* Other changes include foreign currency movements on cash and loan balances.

Reconciliation of net cash flow to movement in net debt

Borrowing facilities

The total bank borrowing facilities at 31 December 2021 amounted to £155.0 million (2020: £255.0 million), of which £114.0 million (2020: £124.7 million) remained unutilised. The undrawn facilities available at 31 December 2021, in respect of which all conditions precedent had been met, were as follows: