Marshalls Regulatory News (MSLH)

3 Jul 2008 07:00



Trading update for the six months ended 30 June 2008

Strong emphasis on sales, cost reduction and cash management

Marshalls, the specialist Landscape Products Group, is providing the following trading update for the six months ended 30 June 2008 ahead of publishing its interim results on 29 August 2008.

Trading Performance

Marshalls' revenue from operations for the six months ended 30 June 2008 was slightly ahead at £211 million (2007: £210 million). Acquisitions contributed £1 million to Group revenue. Like for like revenue was maintained, with sales to the Public Sector and Commercial market, which represent approximately 55 per cent of Marshalls' sales, 9 per cent ahead of 2007 and sales to the Domestic market down 10 per cent.

In an increasingly uncertain market we continue to improve productivity and reduce our cost base. In the Public Sector and Commercial market, demand remains robust and we are delivering good results. In the Domestic market, we continue to strengthen the Marshalls brand and to develop our approved installer network with an increasing emphasis on lead generation.

Cost Reduction and Cash Management

The current market conditions and continued inflationary pressures on key input costs have accelerated our plans to streamline manufacturing capacity and reduce costs. The two most significant projects are the proposed closure of the concrete manufacturing operations at Cannock and Sawley. We will retain Sawley as a regional distribution centre. These proposed actions should enable us to realise the productivity gains from our investments in automation over recent years, reduce our fixed cost base, reduce stock volumes and release cash.

These changes are likely to involve a charge of around £8 million which will be reported separately in the Income Statement in the second half. This charge includes asset write-downs of approximately £4.5 million. The cash cost will be approximately £3.5 million and we expect the cash payback to be less than a year.

Balance Sheet and Cashflow

Marshalls' balance sheet remains strong. Our investments over the last few years in both productivity improvements and acquisitions will enable us to reduce capital expenditure in the medium term which will substantially improve net cash generation. We currently have a depreciation charge of £21 million and we would anticipate replacement expenditure to be around 60 per cent of this sum. Our proposed actions should ensure that borrowings at the end of 2008 are at a similar level to the end of 2007 and are expected to reduce in 2009.

Dividend 

Our cash generation gives us confidence with regard to future dividends, recognising their importance to shareholders. Given the current outlook, it is our intention to maintain our dividend at the 2007 level. This would result in a reported dividend for the full year of 13.85 pence per share.

Property Sales

In the first quarter of 2008 we completed the sale of two surplus properties and received gross cash proceeds of £10 million generating a profit on sale of £1 million. These proceeds are being utilised to fund small bolt-on acquisitions and development capital.

Outlook

Based on contract awarded data, the outlook for 2008 in the Public Sector and Commercial market remains positive.

In the Domestic market, installer order books, from the latest survey at the end of June 2008 at 8.2 weeks, are identical to April 2008. This implies that order intake has matched installations in the seasonally busier spring months. In June 2007 installer order books were at 9.7 weeks (2006: 8.9 weeks); however, this was inflated in 2007 due to the backlog created by the exceptionally wet weather and flooding last year.

We maintain a strong emphasis on sales, cost reduction and cash management.  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 prejudice to our longer term prospects.

3 July 2008

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