Marshalls PLC Final Results (4794Z)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Marshalls Plc	LSE:MSLH	London	Ordinary Share	GB00B012BV22	ORD 25P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	7.50	2.93%	263.50	261.00	261.50	262.50	255.50	257.50	912,604	16:35:11

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Construction Matl-whsl, Nec	674.4M	18.6M	0.0736	35.46	659.78M

Marshalls (LSE:MSLH)
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TIDMMSLH

RNS Number : 4794Z

Marshalls PLC

15 March 2017

Preliminary results for the year ended 31 December 2016

Marshalls plc, the specialist Landscape Products Group, announces its full year results for the year ended 31 December 2016.

 
 Financial Highlights                             Year ended           Year ended        Increase 
                                                 31 December          31 December               % 
                                                        2016                 2015 
 
 Revenue                                           GBP396.9m            GBP386.2m               3 
 EBITDA                                             GBP60.8m             GBP51.8m              17 
 Operating profit                                   GBP47.6m             GBP37.5m              27 
 Profit before tax                                  GBP46.0m             GBP35.3m              31 
 Basic EPS                                            18.95p               14.32p              32 
 Total dividends - ordinary and 
  supplementary                                       11.70p                9.00p              30 
 Final ordinary dividend - recommended                 5.80p                4.75p              22 
  Supplementary dividend - recommended                 3.00p                2.00p 
 
  Return on capital employed ("ROCE")                  23.0%                19.0% 
                                                                                           up 400 
  Net cash / (debt)                                  GBP5.4m           GBP(11.5)m    basis points

Highlights:

   --      Revenue up 3% to GBP396.9 million (2015: GBP386.2 million)

-- Strong profit before tax growth of 31% to GBP46.0 million (2015: GBP35.3 million) driven by improved operating margins to 12.0% (2015: 9.7%)

   --      Return on capital employed improved 21% (400 basis points) to 23.0% (2015: 19.0%) 
   --      EPS up 32% to 18.95 pence (2015: 14.32 pence) 
   --      Final ordinary dividend increased by 22% to 5.80 pence (2015: 4.75 pence) per share 
   --      Supplementary dividend of 3.00 pence per share 
   --      Strong sales and order intake since the year end

The 2020 Strategy:

   --      Grow EBITDA, improve ROCE and strengthen our brand 
   --      Promote self help investment and growth initiatives 
   --      Prioritise organic capital investment 
   --      Commit further investment to research and development 
   --      Focus on innovation and new product development to drive sales growth 
   --      Focus on increasing the profitability of the Smaller UK Businesses 
   --      Advance the development of a wide-ranging digital strategy 
   --      Target selective bolt-on acquisition opportunities

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

"The Group has again delivered significant profit growth in 2016 with the underlying indicators remaining supportive in Marshalls' main end markets. The Construction Products Association's recently published Winter Forecast reflected a slight improvement in medium term growth assumptions compared with the Autumn Forecast.

Marshalls has a strong balance sheet and the Group's innovative product range and strong market positions mean it is well placed to deliver continued growth and operational profit improvements as it implements its 2020 Strategy. Sales and order intake have been strong in the first couple of months of 2017."

Enquiries:

 
 Martyn Coffey    Chief Executive    Marshalls plc         +44(0)1422 314777 
 Jack Clarke      Group Finance 
                   Director 
 Andrew Jaques                                             +44(0)20 3128 
  James White                         MHP Communications    8540

There will be a live video webcast of the analyst presentation which you can access via the following link: http://webcasting.brrmedia.co.uk/broadcast/58c28d41649fc94ffb07f644

or from our website, www.marshalls.co.uk. An on demand version of the webcast will be available on the website later in the day. The presentation is also available by dial in conference call on +44 (0)330 336 9436; meeting code 5811388.

Group Results

Marshalls' revenue for the year ended 31 December 2016 was up 3 per cent at GBP396.9 million (2015: GBP386.2 million).

Sales to the Domestic end market, which represent 31 per cent of Group sales, were up 10 per cent for the year compared with 2015. Domestic sales growth was particularly strong in the second half of the year increasing by 14 per cent in this period. The survey of domestic installers at the end of February 2017 revealed order books of 10.9 weeks (2016: 10.5 weeks), which compares with 11.7 weeks at the end of June 2016.

Sales to the Public Sector and Commercial end market represent 64 per cent of Group sales and, as previously reported, were broadly in line with the prior year. However, based on public indicators, we believe we continue to outperform our peers and gain market share.

Operating profit was supported by a strong finish to the year and increased by 27 per cent to GBP47.6 million (2015: GBP37.5 million). EBITDA increased by 17 per cent to GBP60.8 million (2015: GBP51.8 million). The Group's operating margin increased strongly from 9.7 per cent to 12.0 per cent during the year.

ROCE is defined as EBITA / shareholders' funds plus cash / net debt and was 23.0 per cent for the year ended 31 December 2016, an increase of 21 per cent (400 basis points) compared with the prior year.

Profit before tax increased by 31 per cent to GBP46.0 million (2015: GBP35.3 million) and EPS was 18.95 pence (2015: 14.32 pence), an increase of 32 per cent.

Net finance costs were GBP1.6 million (2015: GBP2.2 million) and interest was covered 29.9 times (2015: 17.2 times). External charges totalled GBP1.2 million (2015: GBP1.8 million) and, including scheme administration costs, there was an IAS 19 notional interest charge of GBP0.4 million (2015: GBP0.4 million) in relation to the Group's pension scheme.

The effective tax rate was 18.5 per cent (2015: 20.9 per cent) and benefited from a credit arising on the finalisation of prior period tax computations. The tax charge includes a deferred tax credit of GBP1.1 million arising, in part, due to a further substantively enacted reduction in the rate of corporation tax to 17 per cent by April 2021. The Group has paid GBP7.1 million (2015: GBP7.0 million) of corporation tax during the year. Deferred tax of GBP0.2 million in relation to the actuarial gain arising on the defined benefit pension scheme in the year has been taken to the Consolidated Statement of Comprehensive Income.

Marshalls has again been awarded the Fair Tax Mark which recognises social responsibility and transparency in a company's tax affairs. The Group's tax policy has long been closely aligned with the Fair Tax Mark's objectives and this is now supported by additional tax disclosures and a declared tax policy.

Significant cash generation has seen the Group deliver a cash positive position of GBP5.4 million at 31 December 2016, which compares with net debt of GBP11.5 million at 31 December 2015.

Operating Performance

The Marshalls brand remains central to our strategy and the Group has again received "Superbrand" status for 2017. The Group has an increasingly strong market position and we continue to benefit from our leading, trusted brand with clear values and excellent environmental credentials. Marshalls remains a benchmark for excellence and our 3 cornerstone themes of customer service, quality and sustainability continue to put the customer at the very heart of our business.

The core Commercial and Domestic businesses continue to deliver benefits from operational gearing and our network of manufacturing sites remains a key competitive strength. The performance of our Smaller UK Businesses has continued to improve during 2016 and collectively they have delivered profit growth of 13 per cent. These businesses include Street Furniture, Mineral Products and Stone Cladding.

International revenue has grown by 2 per cent during 2016 and represents approximately 5 per cent of Group sales. Marshalls has made continued progress in developing the International business although the market background in mainland Europe remains subdued. During the early part of 2016 we opened a sales office in Dubai to facilitate further sales growth in the Middle East and the Group continues to improve its global infrastructure, supply chains and routes to market.

We are continuing to focus on improving operational and manufacturing efficiency. The Group adopts a flexible operating framework that focuses on employee accountability, process repeatability and plant reliability. In the UK, the Group has a unique manufacturing network of 13 concrete manufacturing sites as well as quarries producing paving, walling and cladding products, making Marshalls the only truly national supplier. Our national geographic coverage continues to provide strong competitive advantage and the implementation of best practice across the entire network continues to be a priority. All the Group's operations are supported by a centrally managed logistics and distribution capability.

In the core Landscape Products business, revenue from new products increased by 10 per cent during 2016. The development pipeline continues to be strong and the Group remains committed to increasing the resources and investment that will drive further innovation and new product development. The growth in new products and the development of new manufacturing processes are evidenced by the increase in the number of patents being taken out by the business and we currently have 8 patents pending. Particular focus is given to those businesses with the greatest growth opportunity.

Research and development expenditure in the year ended 31 December 2016 amounted to GBP3.4 million (2015: GBP3.1 million). Investment in research and development covers a number of areas including the development of the Group's project engineering and manufacturing capabilities, technical innovations in concrete and other materials and the extension of the new product pipeline.

Skilled engineers and technicians are integral to the Group's world--class Manufacturing, Innovation and New Product Development team. This capability delivers strong competitive advantage by combining machinery design and implementation with process improvement and continues to enable the Group to accelerate new product development across the business. As regards the Group's mineral reserves, the "Marshalls Stone Standard" quality mark gives our customers full assurance that all Marshalls natural stone not only meets, but exceeds, the base technical levels outlined under BS7533.

The Group's operational strategy continues to be to drive more sales through quality installers. The Marshalls Register of approved domestic installers is unique and has now grown to almost 2,000 teams. The objective is to continually develop the Marshalls brand and improve the product mix whilst ensuring a consistently high standard of quality, excellent customer service and marketing support across our national network.

Delivering the 2020 Strategy

Good progress has been made in the year to deliver our 2020 Strategy and our self help programme to support further organic growth is well advanced. The drive for sustainable operational improvements is proving successful, as evidenced by the margin improvements in the year.

Looking ahead, the Group's strategic priorities continue to be the growth initiatives of the 2020 Strategy and to drive through further sustainable cost reductions and improvements in operational efficiency. Capital expenditure of GBP20 million is targeted for 2017 including GBP6 million of additional self help investment. A good pipeline of performance improving projects has been identified that will drive this growth. In addition, further increases in research and new product development expenditure are planned.

Targeted bolt-on acquisitions remain a key part of the 2020 Strategy, specifically within our identified focus sectors of Water Management, Street Furniture and Minerals. However, given current market uncertainty, our approach remains cautious. Any proposed acquisition target will be carefully selected against strict criteria and will be thoroughly considered during detailed due diligence. Any acquisitions would be funded by operational cash flow and the Group's bank facilities.

Marshalls' operational priorities continue to focus on service, quality, design, innovation and sustainability and the Group continues to extend its product range and provide more integrated product solutions. The Group continues to receive good feedback from its customers and installers for the consistency and quality of service and we remain committed to developing new products that are better than any existing market offering. Marshalls continues to have customer service as a key KPI and maintains industry leading standards of product quality, availability and "on time" delivery. Our combined customer service measure continued to be in excess of 98 per cent throughout 2016.

Marshalls' Digital Strategy remains a key priority and further investment is being directed to enhance capability and digital support throughout the business, combining digital trading, digital marketing and digital business. Web and mobile applications now enable customers to model their requirements, allow digital access to the registered installer base and allow real-time visibility of stock.

Marshalls' strategy continues to be to enhance its position as a market leading landscape products specialist. The Group's technical and sales teams remain particularly focused on those market areas where future demand is considered to be greatest and Rail, Water Management and New Build Housing continue to show strong order intake. We promote our full range of new products and sustainable integrated solutions to customers, architects and contractors and the Group is outperforming the market in these areas. The Group's "Design Space" office in Central London was opened specifically to showcase the Group's brand leading capabilities where customers are provided with ready access to samples and technical advice.

Capital allocation

The Group's capital allocation policy is to maintain a strong balance sheet with a flexible capital structure that recognises cyclical risk. The Group's capital structure has 3 guiding principles; security, efficiency and liquidity.

The priorities for capital allocation are:

   1.       Organic growth - capital investment, with GBP20 million targeted for 2017; 
   2.       Increased research and development and new product development expenditure;

3. Ordinary dividends - maintaining dividend cover of 2 times earnings over the business cycle;

4. Selective bolt-on acquisition opportunities in Water Management, Street Furniture and Minerals; and

   5.       Supplementary dividends when appropriate - discretionary and non-recurring.

Balance Sheet and Net Debt

Net assets at 31 December 2016 were GBP217.1 million (2015: GBP192.7 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. At 31 December 2016 the Group had cash of GBP5.4 million compared with net debt of GBP11.5 million at 31 December 2015.

The Group continues to prioritise inventory management and improved stock turnover. We believe debtor days remain industry leading due to continued close control of credit management procedures. The Group maintains credit insurance which provides excellent intelligence to minimise the number and value of bad debts and, ultimately, compensation if bad debts are incurred.

The Group's defined benefit pension scheme reported a surplus of GBP4.3 million at 31 December 2016 (2015: GBP3.4 million). 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 fair value of the scheme assets at 31 December 2016 was GBP360.1 million (2015: GBP302.2 million) and the present value of the scheme liabilities is GBP355.8 million (2015: GBP298.8 million). These changes have resulted in an actuarial gain, net of deferred taxation, of GBP1.4 million (2015: GBP3.9 million actuarial loss) and this has been recorded in the Consolidated Statement of Comprehensive Income. The Company has agreed with the Trustee that no cash contributions are now payable under the funding and recovery plan.

Dividends

Marshalls has strong cash generation and a robust balance sheet which underpins our progressive dividend policy. The Group maintains the objective of 2 times dividend cover over the business cycle. The Board is recommending a final dividend of 5.80 pence (2015: 4.75 pence) per share which, together with the interim dividend of 2.90 pence (2015: 2.25 pence) per share, makes a total ordinary dividend for the year of 8.70 pence (2015: 7.00 pence) per share.

Given the strong performance in the year, the Board is also recommending a supplementary dividend of 3.00 pence per share (2015: 2.00 pence). This supplementary dividend is discretionary and non-recurring. It recognises the Board's objective of maintaining an efficient and prudent capital structure and providing increased returns for shareholders whilst at the same time retaining flexibility for capital and other investment opportunities.

Taken together, the ordinary and supplementary dividends represent an aggregate distribution for the year of 11.70 pence per share. The final ordinary dividend of 5.80 pence per ordinary share will, subject the shareholders' approval at the Annual General Meeting on 10 May 2017, be paid alongside the supplementary dividend of 3.00 pence per share on 30 June 2017 to shareholders on the register at 16 June 2017.

Outlook

The Group has again delivered significant profit growth in 2016 with the underlying indicators remaining supportive in Marshalls' main end markets. The Construction Products Association's recently published Winter Forecast reflected a slight improvement in medium term growth assumptions compared with the Autumn Forecast.

Martyn Coffey

Chief Executive

Marshalls plc

Preliminary Announcement of Results

Consolidated Income Statement