Marshalls Regulatory News (MSLH)

Interim results for the half year ended 30 June 2016

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

Highlights:

· Revenue up 2% to £202.4 million (2015: £199.1 million)

· EBITDA up 9% to £32.4 million (2015: £29.7 million)

· Improvement in operating margins to 12.8% (2015: 11.1%)

· Profit before tax up 21% to £25.1 million (2015: £20.8 million)

· Strong operating cash flow with sustainable working capital improvements

· Return on capital employed for the year ended 30 June 2016 up 31% (470 basis points) to 19.9% (2015: 15.2%)

· EPS up 22% to 10.36 pence (2015: 8.50 pence)

· Interim dividend increased by 29% to 2.90 pence (2015: 2.25 pence) per share

· Net debt of £8.8 million (30 June 2015: £32.9 million) with significant borrowing capacity

· The Board is confident of achieving its expectations for 2016

Current priorities:

· To deliver the growth initiatives set out in the 2020 strategy

· To drive through sustainable cost reductions, innovation and improvements in operational efficiency

· 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

· To develop the Group's wide ranging digital strategy

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

"Following a strong first half, the Group's focus remains the delivery of the growth initiatives set out in the 2020 Strategy, whilst maintaining a strong balance sheet and flexible capital structure. The underlying medium to long-term market indicators remain supportive notwithstanding the heightened economic and political uncertainty since the EU referendum. This increased uncertainty has not impacted underlying trading to date although we continue to monitor closely the wider business environment. The Board is confident of achieving its expectations for 2016.

The Group continues to invest in product innovation and service delivery initiatives and is driving through sustainable cost reductions and improvements in operational efficiency. This continues to improve the operational gearing across the Group which, alongside Marshalls' growth strategy, will drive future shareholder return."

There will be a presentation for analysts and investors today at 9.00 am with a telephone dial in facility available tel: number +44 (0)203 433 3570 - Access Code: 7494 9045 19#. Marshalls' Analyst Presentation will be available for analysts and investors who are unable to attend the presentation. The presentation can be viewed on Marshalls' website at www.marshalls.co.uk.

Enquiries:

Interim Management Report

Group results

Marshalls' revenue for the 6 months ended 30 June 2016 grew by 2 per cent to £202.4 million (2015: £199.1 million). Despite recent economic and political uncertainty following the EU referendum, underlying trading conditions remain supportive. The Group delivered a strong sales performance in May and June and the moving average monthly revenue trend shows that 2016 sales still exceed those of previous years for the same period. The Group has continued to experience strong order intake during the second half.

Sales to the Public Sector and Commercial end market, which represent approximately 63 per cent of Group sales, were broadly flat compared with the prior year period. Sales to the Domestic end market, which represent approximately 32 per cent of Group sales, were up 7.1 per cent. Revenue in May and June was particularly strong in the Domestic end market, where growth was 12 per cent year on year. The survey of domestic installers at the end of June 2016 revealed continuing strong order books of 11.7 weeks (2015: 12.0 weeks) and compares with 12.4 weeks at the end of April 2016.

Sales in the International business decreased by 10.8 per cent in the 6 months ended 30 June 2016 and represent 5 per cent of Group sales. However, despite the reduction in revenue, there has been a reduced loss within the International business. The new sales office in Dubai opened in January 2016 and this is having a positive impact on sales and order generation in the Middle East.

Operating profit increased to £26.0 million (2015: £22.0 million) and EBITDA also improved to £32.4 million (2015: £29.7 million).

Group return on capital employed ("ROCE") was 19.9 per cent for the year ended 30 June 2016, which represents an increase of 470 basis points compared with the prior year. ROCE is defined as EBITA divided by shareholders' funds plus net debt.

Net financial expenses were £0.8 million (2015: £1.2 million) and interest was strongly covered 31.4 times (2015: 18.5 times). The effective tax rate was 19.1 per cent (2015: 20.8 per cent).

Basic EPS was 10.36 pence (2015: 8.50 pence) per share. The interim dividend will be 2.90 pence (2015: 2.25 pence) per share, reflecting the strong cash generation and the Board's confidence in the future.

Significant cash generation and sustained working capital improvements have seen the Group's net debt fall to £8.8 million at 30 June 2016 (30 June 2015: £32.9 million).

2020 Strategy

The Group's strategy is to grow the business organically and selectively through acquisitions. The strategic objectives include the improvement of profit margins in all businesses and to increase the Group's ROCE. The 2020 Strategy is being driven by a focus on innovation and new product development. The aim is to extend the product range and provide more integrated solutions to improve the customer experience and differentiate the Marshalls brand. The strategy is to maintain a conservative balance sheet and a flexible capital structure that recognises cyclical risk, while focusing on security, efficiency and liquidity.

Current Priorities

The Group's key priority is to deliver improvement in profit margins in all businesses and end markets through the continued focus on service, quality, design, innovation and a commitment to research and development and sustainability. The aim is to drive through sustainable cost reductions and improvements in operational efficiency. Marshalls' digital strategy is increasing in its importance, combining digital trading, digital marketing and digital business. This strategy is focused on the customer experience and the key touchpoints therein. Specifically we have created web and mobile applications which allow customers to model their requirements, allow digital access to the registered installer base and allow real-time visibility of stock.

Operating Performance

Operating margins increased to 12.8 per cent in the 6 months ended 30 June 2016 (2015: 11.1 per cent), representing an improvement of 15.3 per cent and reflecting improved operational efficiency.

Revenue increased by £2.0 million and operating profit by £3.2 million in the Landscape Products business which serves both the UK Public Sector and Commercial and UK Domestic end markets. The increase in operating margins within the Landscape Products business is due to the delivery of sustainable cost reductions and operational efficiency improvements. The smaller UK businesses have collectively delivered revenue growth of £2.5 million and operating profit growth of £0.7 million in the 6 months ended 30 June 2016. Delivering growth in the smaller UK businesses is a key part of the 2020 Strategy and these include Street Furniture, Mineral Products and Stone Cladding.

In the Public Sector and Commercial end market, Marshalls' continuing strategy is to enhance its market leading position as a landscape products specialist. The Group's experienced technical and sales teams continue to promote a full range of integrated products and sustainable solutions to customers, architects and contractors. Commercial order intake and demand continues to be strong in Water Management, Newbuild Housing and Rail and particular focus is being directed to these markets. Crossrail is a particular focus with product opportunities for station platforms, concourses and adjacent public spaces.

In the Domestic end market the Group continues to drive more sales through the Marshalls Register of approved domestic installers, which has now grown to nearly 1,900 teams. This represents an increase of 5 per cent over the last 12 months. The Group remains committed to improving the product mix and to achieving a consistently high standard of quality, customer service and marketing support.

As a key part of the 2020 Strategy, the Group continues to focus on innovation and new product development to drive sales growth. Research and development expenditure in the 6 months ended 30 June 2016 amounted to £1.6 million (2015: £1.6 million). Investment in research and development includes project engineering to enhance manufacturing capabilities, concrete and other materials technology innovations and extending the new product pipeline. Revenue from new products in the core Landscape Products business increased by 11 per cent in the 6 months ended 30 June 2016, and represents 13 per cent of its sales.

The Group's previously announced "Self-Help" capital investment programme is on track and progressing well. This investment is in addition to our normal annual capital expenditure and will total £15 million over the next 3 years and is expected to deliver cost savings of £5 million per annum by 2019. The detailed plan includes various projects within Natural Stone, block paving and automated material handling.

Ongoing progress is being made developing the International business and the Group continues to improve its global infrastructure, supply chains and routes to market. Whilst the Belgium business has again improved, the market background in mainland Europe remains subdued. Our US business looks to increase the distribution of our natural stone products into the North American market and the new sales office in Dubai is already generating further sales growth in the Middle East.

Balance Sheet and Cash Flow

Net assets at 30 June 2016 were £204.9 million (June 2015: £184.0 million).

In the 6 months ended 30 June 2016 net cash flows from operating activities were £9.3 million (2015: £5.2 million). This strong cash generation has enabled net debt at 30 June 2016 to be reduced to £8.8 million (June 2015: £32.9 million) with gearing at 4.3 per cent (June 2015: 17.9 per cent).

The Group continues to focus on maintaining a strong balance sheet supported by robust capital disciplines. Strong cash management continues to be a high priority area. The Group operates tight control over business, operational and financial procedures and continues to focus on inventory and capital expenditure management and trade receivables. Capital investment in property, plant and equipment in the 6 months ended 30 June 2016 totalled £5.8 million (2015: £5.5 million) and this compares with depreciation of £5.9 million (2015: £7.0 million).

The Group's bank facilities support our current strategy and continued strong cash management focus ensures headroom against available facilities remains at appropriately conservative levels. Our committed facilities have been extended one year to 2021 to enhance the maturity profile and, in August 2016, the Group also renewed its short-term working capital facilities with RBS. Marshalls maintains a policy of having significant committed facilities in place with a positive spread of medium-term maturities.

The balance sheet value of the defined benefit pension scheme was a surplus of £7.9 million at 30 June 2016 (December 2015: £3.4 million surplus; June 2015: £0.8 million surplus). The surplus has been determined by the scheme actuary using assumptions that are considered to be prudent and in line with current market levels. Significant market volatility has been evident in the first 6 months of 2016 and this volatility increased further following the EU referendum on 23 June 2016. The most notable change has been a reduction in the AA corporate bond rate from 3.7 per cent to 2.7 per cent, in line with market movements. This caused the IAS 19 pension liabilities to increase by £48.6 million. However, the scheme assets have increased by £53.1 million due mainly to the high proportion of liability-driven investments whose performance matches the liabilities. The expected rate of inflation reduced to 2.9 per cent from 3.1 per cent at 31 December 2015.

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 2.90 pence (June 2015: 2.25 pence) per share, an increase of 29 per cent which reflects the strong cash generation. This dividend will be paid on 2 December 2016 to shareholders on the register at the close of business on 21 October 2016. The ex-dividend date will be 20 October 2016. 

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. While recognising some increased economic uncertainty post the EU referendum, 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 2015. A detailed explanation of the risks, and how the Group seeks to mitigate these risks, can be found on pages 20 to 23 of the Annual Report, which is available at www.marshalls.co.uk/documents/reports/2015-full-annual-report.

Going concern

As stated in Note 1 of the 2016 Half-yearly Report, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Half-yearly Report.

Outlook

Following a strong first half, the Group's focus remains the delivery of the growth initiatives set out in the 2020 Strategy, whilst maintaining a strong balance sheet and flexible capital structure. The underlying medium to long-term market indicators remain supportive notwithstanding the heightened economic and political uncertainty since the EU referendum. This increased uncertainty has not impacted underlying trading to date although we continue to monitor closely the wider business environment. The Board is confident of achieving its expectations for 2016.

The Group continues to invest in product innovation and service delivery initiatives and is driving through sustainable cost reductions and improvements in operational efficiency. This continues to improve the operational gearing across the Group which, alongside Marshalls' growth strategy, will drive future shareholder return.

Martyn Coffey

Chief Executive

Condensed Consolidated Half-yearly Income Statement

for the half year ended 30 June 2016

All results relate to continuing operations.

Condensed Consolidated Half-yearly Statement of Comprehensive Income

for the half year ended 30 June 2016

Condensed Consolidated Half-yearly Balance Sheet

as at 30 June 2016

Condensed Consolidated Half-yearly Cash Flow Statement

for the half year ended 30 June 2016

Condensed Consolidated Half-yearly Statement of Changes in Equity

for the half year ended 30 June 2016

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 2016 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 26 August 2016. 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 2016 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 on page 23.

The financial information for the year ended 31 December 2015 has been extracted from the annual Financial Statements, included in the Annual Report 2015, 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 2015.

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 2015.

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 16 August 2016. 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 June 2015 comparative amounts for trade receivables and other payables have been restated by £11,384,000 to reflect comparability with regards to gross settled transactions. Notes 2 and 11 have also been updated accordingly.

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.

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 the share of profit of associates and certain administration costs that are not capable of allocation. Centrally administered overhead costs that relate directly to the reportable segments are included within the segment results.

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

Other segment information