Marshalls Regulatory News (MSLH)

9 Jan 2009 07:00



Trading Update: 9 January 2009

Continuing emphasis on cash management, cost reduction and sales opportunities

Trading Performance

Marshalls' Group revenue for the year ended 31 December 2008 was down 6 per cent at £378 million (2007: £403 million). Sales to the Public Sector and Commercial market, which represent approximately 59 per cent of Marshalls' sales, were 1 per cent ahead of 2007 and sales to the Domestic market were down 15 per cent.

For the year ended 31 December 2008 Marshalls expects to announce underlying trading results in line with current expectations.

Current Priorities

In this uncertain market we aim to retain a balance between cost reduction, conserving cash and maintaining the capability of the business for the medium term. 

We are focussing sales effort on market sectors where activity is more robust, accelerating cost reduction initiatives and conserving cash through reduced capital expenditure and strict control of working capital. Selectively, we are continuing to invest in innovation to reduce our operating costs and further extend our competitive advantage through new product development and service solutions. 

Cash Management and Cost Reduction

We completed the closure of concrete manufacturing operations at Cannock in the West Midlands and Sawley in the East Midlands in July 2008, which released £5 million of cash from stock. We have commenced consultation on proposals to reduce capacity further which involve the closure of up to two of our concrete manufacturing operations. These changes are intended to reduce our fixed cost base permanently, accelerate the productivity gains from our investments in automation over recent years, reduce stock volumes and thereby release further cash. 

Capacity reductions have already been made in a number of our other operations to reflect the weakening demand outlook and there has been a commensurate reduction in overheads. 

The works closure cost in 2008 is anticipated to be around £12 million and this will be reported separately in the Income Statement. The 2008 charge will have an expected cash cost of £7 million and non-cash asset write downs of £5 million. Once these changes are complete the remaining network of manufacturing sites will provide the capability to meet expected medium term demand and will continue to deliver excellent customer service.

In addition, we are reducing the scale of investment in our consumer initiatives. We will focus our efforts on lead generation and the support of approved installers, but expect to reduce the design, managed installations and Display Centre part of our service. Consultation has commenced with those individuals who are potentially affected. We expect a one off site closure cost of up to £4 million in 2008 of which £3 million represents the non-cash write down of assets.

Balance Sheet and Cashflow

Marshalls' balance sheet remains robust and the Group is well invested. 

In the second half we completed the acquisition of a further natural stone paving and walling business in South Wales for a total consideration, including costs, of £5 million. We have also completed a lease agreement to extract good quality limestone from a consented reserve in South Wales and we have made an equity investment to purchase a share in a further Cotswold Limestone business. The total acquisition and equity investment for the year was £7 million.

This, and the organic growth capital expenditure, has increased borrowings to £112 million (2007: £97 million) at the end of 2008 with comfortable interest cover and gearing levels for the period. In our half-yearly statement we reported that the Group had renewed and increased its bank facilities with peak facilities of £206 million, including the £20 million Debenture. The maturity profile of these bank facilities is structured to provide balanced, committed and phased medium term debt and is set out in the following table. 

We have invested significantly over the past few years in productivity improvements, organic growth capital expenditure projects and acquisitions. This will now enable us to reduce capital expenditure and focus on increasing cash generation in the immediate future. We anticipate total capital expenditure in 2009 to be approximately half of the 2008 level and broadly half of the expected depreciation level. 

Included in the balance sheet is goodwill for Premier Mortars, which supplies ready to use mortar to the house building market, and Compton, which supplies pre-fabricated garages to the consumer. These businesses have been particularly affected by the deterioration in current market conditions and the short term outlook remains challenging. The Board considers it appropriate to make a non-cash impairment provision of £9 million which covers the full amount of goodwill for these businesses. The remaining goodwill on the balance sheet is associated with the core landscape products and natural stone businesses.

Dividend 

A maintained interim dividend of 4.55 pence (2007: 4.55 pence) per share was paid on 3 December 2008. A decision on the level of the final dividend for 2008 will be made in March 2009 in line with normal Board policy. This will take into account cash generation, the medium term outlook for the business and the market and economic conditions at that time. 

Outlook

The overall demand outlook remains uncertain. Based on contract awarded data, the outlook for 2009 in the Public Sector remains positive but demand has weakened in the Commercial and Industrial Sectors with projects being delayed or cancelled as economic conditions have deteriorated. 

In the Domestic market, installer order books, from the latest survey at the end of October 2008, were 6.4 weeks, down from 8.2 weeks in June 2008.

We are focussing sales effort on the more robust sectors of market activity. The strength of our brand, our efficient manufacturing and sourcing, our comprehensive distribution network and our decisive actions to focus on cost reductions and cash management will maximise our short term performance in an uncertain market without prejudicing our longer term prospects which we consider to be good.

Enquiries:

9 January 2009

Note to the Editor:

About Marshalls:

Established in the late 1880s, Marshalls is the UK's leading manufacturer of superior natural stone and innovative concrete hard landscaping products, supplying the construction, home improvement and landscape markets. Marshalls provides the product ranges, design services, technical expertise, innovative ideas and inspiration to transform gardens, drives and public and commercial landscapes.

The Group operates its own quarries and manufacturing sites throughout the UK, including a network of regional service centres and 2 National manufacturing and distribution sites. As a major plc, Marshalls is committed to quality in everything it does, including environmental and ethical best practice and continual improvement in health and safety performance.

Forward-Looking Statements:

Any statements in this release, to the extent that they are forward-looking, are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. More information about the factors that may affect the Group's performance is contained in the Annual Report to shareholders for the year ended 31 December 2007.