REG - Marshalls PLC - Final Results
18/03/2024 07:00
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RNS Number : 1361H Marshalls PLC 18 March 2024
18 March 2024
Management actions position the Group well for when markets recover
Marshalls plc, a leading manufacturer of sustainable solutions for the built
environment, announces its results for the year ended 31 December 2023
Financial summary
£M 2023 2022 Change (%)
Revenue 671.2 719.4 (7%)
Adjusted results (Notes 1 and 2 below)
Adjusted EBITDA 103.6 136.0 (24%)
Adjusted operating profit 70.7 101.1 (30%)
Adjusted profit before tax 53.3 90.4 (41%)
Adjusted basic EPS - pence 16.7 31.3 (47%)
Adjusted ROCE (%) 8.4 13.3 (4.9ppts)
Final dividend - pence 5.7 9.9 (42%)
Total dividend for the year - pence 8.3 15.6 (47%)
Pre-IFRS 16 net debt 172.9 190.7 9%
Statutory results
Operating profit 41.0 47.9 (14%)
Profit before tax 22.2 37.2 (40%)
Basic EPS - pence 7.4 11.4 (35%)
· Group financial performance impacted by challenging end market conditions
· Benefitted from agile and flexible business model:
· Decisive action taken to right size manufacturing capacity and the
cost base, resulting in annualised savings of £11 million, with around 40 per
cent delivered in 2023
· Flexibility maintained in the manufacturing network in order to
respond rapidly to deliver higher volumes when markets recover
· Term loan reduced by £30 million to £180 million in early January 2024
which, together with the £160 million RCF, provides significant liquidity to
fund the Group's strategy
· Robust balance sheet with net debt reducing by £17.8 million to £172.9
million (on a pre-IFRS 16 basis), and year-end leverage of 1.9 times adjusted
EBITDA
Operational and strategic highlights
· On 1 March 2024 Matt Pullen was appointed as Chief Executive, succeeding
Martyn Coffey who stepped down from the Board on 29 February 2024
· Dual block plant in St Ives operational, improving capabilities and new
product development
· Exited the Group's Belgian operation allowing the Group to solely focus on the
UK construction market
· Ahead of Marshalls' carbon reduction target: enlarged Group's targets
submitted to SBTi for approval. Progress made towards commercialising the
Group's ESG and carbon credentials
· Marshalls' logistics function to be outsourced to Wincanton in H1 2024 -
expected to improve service and deliver efficiencies
Outlook
· Revenue in the first two months of the year was lower than 2023 and reflects
the continued weakness seen in the second half of last year
· In line with recent sentiment of UK economic and industry forecasts, the Board
expects activity levels to remain subdued in the first half of the year
followed by a modest recovery in the second half as the macro-economic
environment progressively improves. The start of this recovery is now
expected to be slower and more modest than previously assumed. Therefore the
Board believes that revenues in 2024 will be lower than previously expected
and that profit will now be at a similar level to 2023.
· The Board remains confident that actions taken to improve efficiency and
flexibility, together with a more diversified and resilient portfolio has
strengthened the Group.
· With clear long-term structural growth drivers and attractive market growth
opportunities, the Group is well positioned for relative outperformance in the
medium-term, and this will underpin a material improvement in profitability as
end markets recover.
Matt Pullen, Chief Executive, commented:
"I am delighted to be appointed as Chief Executive of Marshalls. During 2023,
the business was necessarily focused on controlling and improving the
efficiency and agility of its cost base, leveraging its strength in
operations, as well as rigorous and strong management of cashflow. All of the
actions taken demonstrate the business is well managed and agile. I would like
to thank all my colleagues for their hard work and commitment throughout last
year.
I have been with the Group since early January and these first two months have
reinforced my view of both the strengths of the business and the significant
opportunity to deliver profitable growth and create shareholder value. Over
the coming months our focus will be on evolving the existing strategy, with a
focus on the medium and longer-term market opportunities related to climate
mitigation and adaptation and the structural drivers that will fuel demand for
the Group's products and solutions.
In the short-term markets are expected to remain challenging with continued
weakness in the first half of the year followed by a progressive recovery in
the second half as the macro-economic environment improves. This recovery is
however expected to be slower and more modest than previously anticipated.
The Board remains confident that actions taken to improve efficiency and
flexibility, together with a more diversified and resilient portfolio have
strengthened the Group. With clear long-term structural growth drivers and
attractive market growth opportunities, the Group is well positioned for
relative outperformance in the medium term, and this will underpin a material
improvement in profitability as end markets recover."
There will be a live presentation today at 10:00am at the offices of Peel Hunt
for analysts and investors, which will also be webcast live. The presentation
will be available for analysts and investors who are unable to view the
webcast live and can be accessed on Marshalls' website at www.marshalls.co.uk
(https://protect-eu.mimecast.com/s/zHWuCQnkphX8NoNHPS8Eb) . Users can register
to access the webcast using the following link:
https://brrmedia.news/MSLH_FY (https://brrmedia.news/MSLH_FY)
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:
1. The results for the year ended December 2023 have been disclosed after adding
back adjusting items. These are set out in Note 4.
2. This Preliminary Announcement includes alternative performance measures
('APMs'), which are not defined or specified under the requirements of
International Financial Reporting Standards. The Board believes that these
APMs provide stakeholders with important additional information on the
Group. To support this, we have included an accounting policy note on APMs
in the Notes to this Preliminary Announcement, a glossary setting out the APMs
that we use, how we use them, an explanation of how they are calculated, and a
reconciliation of the APMs to the statutory results, where relevant. See
Notes 4 and 21 for further details.
Enquiries:
Matt Pullen Chief Executive Marshalls plc +44 (0)1422 314777
Justin Lockwood Chief Financial Officer +44 (0)1422 314777
Tim Rowntree MHP +44 (0)78 3462 3818
Charlie Barker +44 (0)77 3646 4749
Introduction
2023 was a challenging year for the Group. A weak macro-economic backdrop
impacted the Group's key end markets, resulting in a reduction in sales
volumes, revenues, and profitability. In response, management took decisive
action to improve agility, reduce capacity and lower Group overheads, with a
strong focus on cash management. This has resulted in a leaner, more
operationally geared business that is well positioned for when its end markets
recover.
Market overview
Macro-economic pressures and uncertainty have continued to impact the
construction industry in 2023, with significant cost inflation in the UK
economy and progressive base rate increases by the Bank of England, leading to
falling real wages, which has put unprecedented pressure on household budgets,
and resulted in reduced demand in the housing sector. The impacts have been
exaggerated by economic uncertainties and weak consumer confidence, which also
saw reduced investment in the non-housing and infrastructure sectors although
these remained more resilient in 2023. The CPA estimates that the output of
the UK construction industry contracted by 6.4 per cent in 2023, with
reductions of 17 per cent and 11 per cent in new build housing and private
housing RMI, respectively, which are key end markets for the Group. These
factors resulted in a reduction in demand for the Group's products, which had
a significant impact on its profitability.
The expectation is that many of these factors will begin to reverse during
2024, and that the UK economy, together with general construction activity
will start to recover in the second half of the year. This is reflected in the
Construction Products Association's Winter forecast, which anticipates a
contraction in construction output of 2.1 per cent in 2024, with a flat
outlook for infrastructure and further contraction in housing. The CPA
forecast that the construction industry will grow by 2.0 per cent in 2025 as
the macro-economic environment improves during the course of next year.
A core element of the Group's strategy over recent years has been to broaden
its product range, building a strong brand presence in landscaping, roofing,
water management and bricks and walling through acquisition and organic
growth. This has led to the diversification of sector exposure across new
build housing, infrastructure, commercial projects and refurbishment in both
the private and public housing sectors. The strategy has also enabled the
Group's portfolio to provide solutions at all levels of the build program from
groundworks to the roof. We estimate that around 40 per cent of the enlarged
Group's revenues are derived from the new build housing sector, with another
40 per cent from commercial & infrastructure end markets. The remaining
revenues of around 20 per cent are focused on private housing RMI, and
importantly, this is split between sales to the domestic landscaping market
and roofing refurbishment, which is far less discretionary as a purchase
decision. The strategy of sector diversification provides an element of
protection against market sector fluctuations and enables the Group to
capitalise on sector opportunities presented by demand growth, investment or
regulations.
Looking further ahead, the Board believes that the UK construction market
continues to have attractive medium and long-term growth prospects driven by
the structural deficit in new housebuilding, an ageing housing stock that
requires increasing levels of repair and maintenance, and the need to continue
to improve UK infrastructure. The Group's strategy is underpinned by its
strong market positions, established brands and focused investment plans to
drive continuous operational improvements. In addition, the Board is
recently encouraged by the more positive inflation trends and the consequent
impact on interest rate expectations, which should support progressive
improvements in the Group's end markets during 2024.
Group results
The Group's adjusted results are set out in the following table.
£'m 2023 2022 Change (%)
Revenue 671.2 719.4 (7%)
Adjusted net operating costs (600.5) (618.3) 3%
Adjusted operating profit 70.7 101.1 (30%)
Adjusted financial expenses (17.4) (10.7) (63%)
Adjusted profit before taxation 53.3 90.4 (41%)
Adjusted taxation (11.2) (17.1) 35%
Adjusted profit after taxation 42.1 73.3 (43%)
Adjusted EPS - pence 16.7p 31.3p (47%)
Proposed full-year dividend - pence 8.3p 15.6p (47%)
£'m 2023 2022 Change (%)
Adjusted operating profit 70.7 101.1 (30%)
Adjusting items (29.7) (53.2) 44%
Operating profit 41.0 47.9 (14%)
Finance costs (18.8) (10.7) (76%)
Profit before taxation 22.2 37.2 (40%)
EPS - pence 7.4p 11.4p (35%)
Group revenue for the year ended December 2023 was £671.2 million (2022:
£719.4 million) which is seven per cent lower than 2022 and includes the
contribution of four additional months of revenue from Marley. On a
like-for-like basis, Group revenue contracted by 13 per cent, with lower
revenues in all reporting segments. The strongest relative performance was
in Roofing Products demonstrating the additional resilience that the Marley
acquisition has brought to the Group due to its exposure to less discretionary
RMI activity.
Group adjusted operating profit was £70.7 million, which is 30 per cent lower
than 2022 reflecting the benefit of an additional four-month contribution from
Marley offset by reduction in profitability in the Group's other reporting
segments. Group adjusted operating margin reduced by 3.6 percentage points
to 10.5 per cent (2022: 14.1 per cent) and reflects the benefit of Marley's
structurally higher margins, offset by margin compression due to weaker
volumes and the consequent impact on operational leverage. Management took
decisive action to improve our agility, reduce capacity and lower Group
overheads, with a strong focus on cash management. This included the closure
or mothballing of factories, a reduction in shifts and capacity in other
facilities, and a reorganisation of commercial and support functions. These
changes resulted in a reduction of approximately 330 roles and will deliver
annualised net savings of around £11 million, with around 40 per cent of this
benefit being delivered in 2023. The Board reprioritised its capital
expenditure plans, executed a programme of surplus land disposals that
generated around £7 million, and has focused on efficient working capital
management including reducing inventories by around £16 million in the second
half of the year, in order to reduce the Group's net debt.
The statutory operating profit is stated after adjusting items totalling
£29.7 million as summarised in the following table, further details are set
out at Note 4.
£'m 2023 2022
Amortisation of intangible assets arising on acquisitions 10.4 7.3
Impairment charges, restructuring and similar costs 18.3 13.0
Contingent consideration 1.6 3.9
Disposal of Marshalls NV (0.6) 10.2
Transaction related costs - 14.9
Fair value adjustment to inventory - 3.9
Adjusting items within operating profit 29.7 53.2
Adjusting items within financial expenses 1.4 -
Adjusting items within profit before taxation 31.1 53.2
Adjusting items in 2023 principally comprise the amortisation of intangible
assets arising on the acquisition of subsidiary undertakings of £10.4 million
(2022: £7.3 million) and restructuring costs of £18.3 million (2022: £13.0
million). The impairment charges, restructuring and similar costs arising
from the decisive action taken during the year in response to the challenging
market conditions and comprises £8.3 million of non-cash charges and £10.0
million of cash costs. The contingent consideration charge reflects an
increase in the expected payments in respect of the acquisition of Viridian
Solar based on the strong performance of that business. The disposal of
Marshalls NV on 13 April 2023 resulted in a profit on disposal of £0.6
million. Details of the adjusting items arising in 2022 are set out at Note
4.
Net financial expenses were £18.8 million (2022: £10.7 million) and £17.4
million after adding back adjusting items (2022: £10.7 million). These
expenses comprised financing costs associated with the Group's bank borrowings
of £14.7 million (2022: £8.2 million), IFRS 16 lease interest of £2.5
million (2022: £2.4 million) and a pension related expense of £1.6 million
(2022: £0.1 million). The pensions related expense includes a non-cash,
one-off accounting charge of £1.4 million arising from the Board's decision
to augment the benefits of certain pensioners who would have otherwise
suffered hardship due to a reduction in pension payments following a review to
correct historical benefit issues (see Notes 4 and 5 for further details).
The increase in financial expenses after adding back adjusting items in the
period reflects the impact of a full year of the additional debt financing
used to part-fund the acquisition of Marley and the increase in base rates,
partially offset by a reduction in net debt.
Adjusted profit before tax was £53.3 million (2022: £90.4 million).
Statutory profit before tax was £31.1 million lower than the adjusted result
at £22.2 million (2022: £37.2 million), reflecting the impact of the
adjusting items. The adjusted effective tax rate was 21.0 per cent (2022: 18.9
per cent), which is slightly lower than the UK headline corporation tax rate
for 2023. On a reported basis, the effective tax rate is 17.1 per cent.
Adjusted earnings per share was 16.7 pence (2022: 31.3 pence), which is a 47
per cent reduction year on year reflecting the weaker profitability and the
increase in the headline rate of corporation tax. Reported earnings per
share was 7.4 pence (2022: 11.4 pence), which is lower than the adjusted
number due to the adjusting items and their tax effect.
Segmental performance
The adjusted operating profit is analysed between the Group's reporting
segments as follows:
£'m 2023 2022 Change (%)
Marshalls Landscape Products 21.3 45.3 (53%)
Marshalls Building Products 12.2 26.8 (54%)
Marley Roofing Products 44.9 34.4 31%
Central costs (7.7) (5.4) (43%)
Adjusted operating profit 70.7 101.1 (30%)
Marshalls Landscape Products
Marshalls Landscape Products comprises the Group's Commercial and Domestic
landscape business, Landscape Protection and the international businesses. The
segment delivered revenue of £321.5 million (2022: £394.1 million) which
represents a contraction of 18 per cent compared to 2022. On a like-for-like
basis, adjusting for the disposal of Marshalls NV which was sold in April
2023, revenue contracted by 16 per cent.
£'m 2023 2022 Change (%)
Revenue 321.5 394.1 (18%)
Segment operating profit 21.3 45.3 (53%)
Segment operating margin % 6.6% 11.5% (4.9ppts)
This reporting segment derives around 45 per cent of its revenues from
commercial & infrastructure, approximately 30 per cent from new build
housing and 25 per cent from private housing RMI. Whilst commercial &
infrastructure remains robust, the business has been impacted by lower new
build housing and continued weakness in private housing RMI activity driven by
the discretionary nature of the segment's domestic products, weak consumer
confidence, product price inflation and lower real incomes. These factors
resulted in UK domestic revenues being down by around 25 percent year on year,
which is a continuation of the trends reported since the second quarter of
2022. Revenues of commercially focused products were more resilient with a
contraction of 10 per cent where a robust commercial & infrastructure
performance was offset by weakness in new build housing.
Segment operating profit reduced by £24.0 million to £21.3 million. This
was driven by the combined effect of lower volumes on gross profit, weaker
realisation of price increases in the second half of the year which meant
input cost increases were not fully recovered, and a reduction in the
operational efficiency of the manufacturing network due to reduced production
volumes. In addition, margins were adversely impacted by a reduction in the
market price of Indian sandstone in the first half of the year and a tougher
pricing environment in the second half. Management took further decisive
action to reduce capacity to align to market demand, simplify operating
structures and reduce the cost base. Taken together, these actions reduced
net operating costs by around £7.6 million on an annualised basis, of which
around £3.2 million was realised in 2023. The costs associated with this
action have been presented as an adjusting item (see Note 4). The fall in
volumes together with the impact of weaker margins resulted in segment
operating margins reducing by 4.9 ppts to 6.6 ppts for the year.
Marshalls Building Products
Marshalls Building Products comprises the Group's Civils and Drainage, Bricks
and Masonry, Mortars and Screeds and Aggregates businesses. Revenue in this
reporting segment reduced by 12 per cent year on year to £170.1 million.
£'m 2023 2022 Change (%)
Revenue 170.1 193.1 (12%)
Segment operating profit 12.2 26.8 (54%)
Segment operating margin % 7.2% 13.9% (6.7ppts)
This reporting segment generates around 60 per cent of its revenues from new
build housing, around 30 per cent from commercial & infrastructure, with
the balance being derived from private housing RMI. The exposure of this
reporting segment to new build housing had an impact on its performance during
the year. All business units within this reporting segment were affected by
weak demand during the year, with the slowdown in activity impacting Bricks
and Masonry and Mortars and Screeds in the second half of the year as new
build housing volumes progressively slowed.
Segment operating profit contracted by £14.6 million to £12.2 million.
This was driven by the impact of lower volumes on both gross margins and the
operational efficiency of the factories and quarries due to reduced production
volumes. In addition, in the second half of the year management took action
to reduce manufacturing output further than sales volumes in order to reduce
inventory levels, which adversely affected operational recoveries and
profitability. Management also took action to reduce manufacturing capacity
to align it with lower market activity levels by mothballing capacity and
reducing shifts. These actions removed around £3.5 million from the cost
base, of which £1.1 million was realised in 2023. The restructuring costs
associated with these actions has been accounted for as an adjusting item (see
Note 4). Segment operating margin reduced by 6.7 ppts to 7.2 per cent
reflecting the impact of lower volumes on profitability.
Marley Roofing Products
Marley Roofing Products comprises pitched roofing products and accessories and
roof integrated solar. Revenue increased by £47.4 million including the
four additional months that were consolidated in 2023, however, on a
like-for-like basis Marley's revenues were 9 per cent lower than 2022.
£'m 2023 2022 Change (%)
Revenue 179.6 132.2 36%
Segment operating profit 44.9 34.4 31%
Segment operating margin % 25.0% 26.0% (1.0 ppts)
Approximately 40 per cent of Marley's revenues are generated from new build
housing and 40 per cent from commercial & infrastructure (including public
housing RMI) with the balance of around 20 per cent from private housing
RMI. The challenging market backdrop resulted in a reduction in
like-for-like revenues of 9 per cent, with weaker volumes of traditional
roofing products partially offset by revenue growth from Viridian Solar, which
benefitted from the trend towards energy efficient solutions and the start of
the impact of changes to building regulations in England and Wales. The rate
of contraction in revenues was more modest than the Group's other reporting
segments due to the less discretionary nature of the RMI activity that uses
its products.
Segment operating profit in the period was £44.9 million, which was £10.5
million higher than the £34.4 million included in the Group results in
2022. However, this represents a reduction of 12 per cent compared to 2022
on a like-for-like basis. This decline in profitability was driven by weaker
volumes of traditional roofing products which impacted both gross profits and
operational efficiency, partially offset by growing profitability from
Viridian Solar. In the second half of the year, management took action to
reduce costs and capacity by mothballing certain assets to manage working
capital levels. The impact of this action has been accounted for as an
adjusting item (see Note 4). Segment operating margin remained strong at 25%,
representing a year-on-year reduction of 1.0 ppts.
The opportunity for Marshalls
During 2023, the business was necessarily focused on controlling and improving
the efficiency and agility of its cost base, leveraging its strength in
operations, as well as rigorous management of operating cashflow. All of the
actions taken demonstrate the business is well managed and in control.
Marshalls has a real strength in its operations, its drive towards ever more
sustainable solutions, and its brands and products are well regarded in the
market by our customers. Over the coming months, management's focus will be on
evolving the existing strategy, with a focus on the medium and longer-term
market opportunities related to climate management and adaptation and the
structural drivers that will fuel demand for the Group's products and
solutions. Understanding and analysing these market trends and listening to
what the Group's customers are calling for, where its brands and solutions can
solve problems, is key. Investing in having a sharp focus on the parts of the
market where the Group can add real value, through great insight, clear
articulation of its brand propositions to customers and innovating in these
areas will be of paramount importance. Ensuring the Group is a trusted and
preferred partner for our customers to work with, realise greater value,
accelerate growth and expand margins as the markets recover through the next
cycle.
The Group expects to benefit from a recovery in the UK construction market
driven by the structural deficit in new build housing, the ageing housing
stock which needs investment in RMI and the continued need to improve
infrastructure. In addition to this, there are specific market sector
opportunities that are expected to outperform the overall UK construction
market and the management team are focused on capturing this potential. The
demand for roof-integrated solar solutions is expected to increase
significantly in the next 12 to 24 months. Changes to building regulations
(Part L) on energy efficiency took effect in mid-2023 and represent first part
of the plan to improve the energy efficiency of new homes. Roof-integrated
solar is being adopted by housebuilders as part of their solution to improve
energy efficiency. The Group's solar business, Viridian Solar with its
innovative patented design, is the market leader and is expected to deliver
strong profitable growth as a result. The second part of the plan aims to
mandate low carbon heating and world-leading energy efficiency through the
Future Homes Standard, and this could present further opportunities for the
growth of roof-integrated solar. The consultation on these changes is expected
to conclude in 2024. Additionally, the government's Social Housing
Decarbonisation Fund is driving the low energy refurbishment of homes by local
authorities and social landlords. A requirement of the funding is a switch to
electric heating coupled to a reduction in energy bills for residents and
solar PV is incorporated into many of the successful schemes. With a strong
position in the social housing sector, Marley is increasingly securing
specifications including solar PV as part of its roof system for this RMI
work.
The Group also expects growing demand for its water management products and
solutions. This is underpinned by water utility companies' proposals to
significantly increase their expenditure on water and sewerage infrastructure
projects, to £96 billion for 2025 to 2030, to modernise infrastructure and
reduce system leakage. In the shorter-term, additional investment of £1.6
billion has been approved following a request by DEFRA to accelerate
investments in water quality and storm overflow discharges by 2025. The
Group's drainage management and flood mitigation product range is well placed
to provide solutions to help water companies to meet these challenges. This
comprises a full underground drainage range together with the ability to
design and supply wet cast tanks and attenuation systems for improved water
storage.
Management has continued to innovate to develop its products and solutions
and, following around £25 million of investment, the dual block plant at St
Ives is now operational and able to manufacture a new range of innovative
paving products using exclusive colour blending technology, which creates a
granite appearance. The products are being launched in a wide range of colours
and finishes that have a significantly lower carbon footprint than imported
products. Viridian Solar has introduced a new range of more powerful solar
panels, EV chargers and inverters that have helped to underpin revenue growth
alongside launching ArcBox, an award-winning fire safety enclosure and
mounting bracket for use with pitched and flat roof solar systems.
The Group's product innovation is further underpinned by developments of
products that have a lower embodied carbon: utilising cement replacement and
carbon sequestration techniques. The Group was the first pre-cast concrete
manufacturer in the UK to adopt CarbonCure technologies' carbon mineralisation
technology that uses waste CO2 from other industrial processes to accelerate
the carbonation of concrete, effectively reducing the embodied carbon.
In addition, the Group is focused on opportunities to improve the efficiency
of its operations and, building on the existing relationship between Marley
and Wincanton, it announced the outsourcing of its logistics function to
Wincanton in January 2024. The transition will take place during the first
half of 2024 and will see up to 300 Marshalls employees joining Wincanton.
This outsourcing is expected to support the Group's drive for continuous
improvement for its customers and to deliver operating efficiencies. Placing
this important function in the hands of specialists will enable the Group to
take advantage of their programme to invest in diesel-alternative fuel
options, contributing to its sustainability goals.
Management continues to focus on executing the digital strategy, which aims to
provide an end-to-end digital offering and to pioneer digital standards for
the industry. This includes shifting transactions onto electronic trading
including its ordering app, EDI and dropship. Dropship is being used to extend
the availability of product ranges to customers across the board. The Group
successfully completed the disposal of its former Belgian subsidiary in April
2023, which leaves the Group focused on the UK construction market.
A recovery in the UK construction sector, a focus on attractive market
segments and continued innovation are expected to drive future volume growth
and the Group is well positioned with its market leading brands, products and
sustainable solutions for relative outperformance in the medium-term.
ESG progress
The Group has continued to focus on its carbon reduction programme, and the
Marshalls business is ahead of target on its Science Based Targets Initiative
('SBTi') approved plans. As reported last year, the Group's acquisition of
Marley meant that we needed to recalculate the enlarged Group's carbon
footprint and review the targets and timeline for achieving net zero. This
work has been completed with updated targets for the enlarged Group to achieve
net zero and these plans have been submitted to STBi, and we are awaiting
validation before we communicate our revised ambitions to stakeholders.
Commercialising our ESG credentials is a key priority for the business and a
cornerstone of this is the introduction of Environmental Product Declarations
('EPDs'), which are a valuable tool for making more sustainable choices in
construction. They provide clear and transparent information on the
environmental impact of different products and materials. The Group now has
EPDs for over 80 percent of its standard product portfolio, ensuring that
architects, engineers, and builders are able to specify the most appropriate
products from its ranges.
Balance sheet, cash flow and funding
A summary of the Group's capital deployment and net assets is set out below.
£'m December December
2023 2022
Goodwill 324.4 322.6
Intangible assets 227.5 237.1
Property, plant & equipment and right-of-use assets 291.1 303.5
Net working capital 91.0 109.7
Net pension asset 11.0 22.4
Deferred tax (84.1) (89.4)
Other net balances (2.0) (8.2)
Total capital employed 858.9 897.7
Pre-IFRS 16 net debt (172.9) (190.7)
Leases (44.7) (45.9)
Net assets 641.3 661.1
Total capital employed at December 2023 was £858.9 million, which represents
a year on year reduction of £38.8 million. This reduction is due to the
impact of amortising intangible assets arising on acquisition, depreciation
and impairment of property plant and equipment and reduced net working capital
balances. The reduction in net working capital of £18.7 million was driven
by a decision to manage inventory levels to be aligned to lower levels of
demand and the reduced trade debtor and trade creditor balances arising from
reduced activity levels.
The balance sheet value of the Group's defined benefit pension scheme ('the
Scheme') was a surplus of £11.0 million (2022: £22.4 million). The amount
has been determined by the Scheme's pension adviser using appropriate
assumptions which are in line with current market expectations. The fair value
of the scheme assets at 31 December 2023 was £250.4 million (2022: £254.9
million) and the present value of the scheme liabilities is £239.4 million
(2022: £232.5 million). The total loss recorded in the Statement of
Comprehensive Income net of deferred taxation was £7.4 million (2022: £2.3
million loss). The principal driver of the actuarial loss was a 0.3ppt
reduction in AA corporate bond rate used to discount the scheme's liabilities
at December 2023, which increased the current value of the liabilities,
partially offset by an actuarial gain (net of deferred taxation) of £2.4
million arising from the resolution of certain historical benefit issues.
This resolution also resulted in a past service cost of £1.4 million, which
has been included in the Income Statement and accounted for as an adjusting
item (see Note 4). The last formal actuarial valuation of the defined benefit
pension scheme was undertaken on 5 April 2021 and resulted in a surplus of
approximately £24.3 million, on a technical provisions basis, which was a
funding level of 107 per cent. The Company has agreed with the Trustee that no
cash contributions are payable under the current funding and recovery plan.
The next actuarial valuation is scheduled for 5 April 2024.
Adjusted return on capital employed ('ROCE') was 8.4 per cent (2022: 13.3 per
cent) on an annualised basis, with the year on year reduction due to the
weaker trading performance. We expect adjusted ROCE to increase in the
medium term to around 15 per cent as volumes recover and we benefit from
operational leverage.
Operating cash flow conversion in 2023 was 106 per cent of adjusted EBITDA
(December 2022: 91 per cent) which demonstrates the consistently strong cash
generative nature of the Group's businesses. The proactive management of
working capital combined with the planned reduction in capital expenditure
resulted in a reduction in pre-IFRS16 net debt of £17.8 million in the period
to £172.9 million (2022: £190.7 million). The strong cash generation
during the year facilitated a £30 million reduction of the Group's term loan
to £180 million in early January 2024, ensuring efficient management of
borrowings and finance costs. The Group's revolving credit facility of £160
million was undrawn at the year-end, which, together with the reduced term
loan, provides the Group with significant liquidity to fund its strategic and
operational plans going forward. Following the £30 million reduction in the
term loan, the syndicated debt facility totals £340 million with the majority
of it maturing in April 2027. Net debt to EBITDA was 1.9 times at December
2023 on an adjusted pre-IFRS16 basis (December 2022: 1.4 times). Headroom
against the bank facility at December 2023 was £160 million and all covenants
were comfortably met at this date.
Dividend
The Group maintains a dividend policy of distributions covered twice by
adjusted earnings. The Board has proposed a final dividend of 5.7 pence per
share, which, taken together with the interim dividend of 2.6 pence per share,
would result in a pay-out in respect of 2023 of 8.3 pence (2022: 15.6 pence).
This is in-line with the Group policy and represents a year-on-year reduction
of 47 per cent driven by weaker profitability, increase in weighted average
shares in issue and a higher effective taxation rate. The dividend will be
paid on 1 July 2024 to shareholders on the register at the close of business
on 7 June 2023. The shares will be marked ex-dividend on 6 June 2024.
Outlook
Revenue in the first two months of the year was lower than 2023 and reflects
the continued weakness seen in the second half of last year. In line with
recent sentiment of UK economic and industry forecasts, the Board expects
activity levels to remain subdued in the first half of the year followed by a
modest recovery in the second half as the macro-economic environment
progressively improves. The start of this recovery is now expected to be
slower and more modest than previously assumed. Therefore, the Board
believes that revenues in 2024 will be lower than previously expected and that
profit will now be at a similar level to 2023.
The Board remains confident that actions taken to improve efficiency and
flexibility, together with a more diversified and resilient portfolio has
strengthened the Group. With clear long-term structural growth drivers and
attractive market growth opportunities, the Group is well positioned for
relative outperformance in the medium-term, and this will underpin a material
improvement in profitability as end markets recover.
Matt Pullen
Chief Executive
Condensed consolidated income statement
For the year ended 31 December 2023
Audited Audited
Year ended Year ended December 2022
December
2023
Notes £'m £'m
Revenue 2 671.2 719.4
Net operating costs 3 (630.2) (671.5)
Operating profit 2 41.0 47.9
Net financial expenses 5 (18.8) (10.7)
Profit before tax 22.2 37.2
Income tax expense 6 (3.8) (10.7)
Profit for the financial year 18.4 26.5
Profit for the year attributable to:
Equity shareholders of the Parent 18.6 26.8
Non-controlling interests (0.2) (0.3)
Profit for the financial year 18.4 26.5
Earnings per share
Basic 7 7.4p 11.4p
Diluted 7 7.3p 11.3p
Dividend
Full year dividend - pence per share 8 8.3p 15.6p
A reconciliation of the Group's statutory results to the adjusted results is
set out below.
Audited Audited
Year ended Year ended December 2022
December
2023
Notes £'m £'m
Operating profit
Operating profit 41.0 47.9
Adjusting items 4 29.7 53.2
Adjusted operating profit 70.7 101.1
Profit before tax
Profit before tax 22.2 37.2
Adjusting items 4 31.1 53.2
Adjusted profit before tax 53.3 90.4
Profit after tax
Profit for the financial period 18.4 26.5
Adjusting items (net of tax) 4 23.7 46.8
Adjusted profit after tax 42.1 73.3
Earnings per share after adding back adjusting items
Basic 16.7p 31.3p
Diluted 16.7p 31.1p
Condensed consolidated statement of comprehensive income
For the year ended 31 December 2023
Audited Audited
Year ended Year ended December
December 2022
2023
Notes £'m £'m
Profit for the financial year 18.4 26.5
Other comprehensive income/(expense)
Items that will not be reclassified to the Income Statement:
Re-measurements of the net defined benefit surplus (9.8) (3.1)
Deferred tax arising 2.4 0.8
Total items that will not be reclassified to the Income Statement (7.4) (2.3)
Items that are or may in the future be reclassified to the Income Statement:
Effective portion of changes in fair value of cash flow hedges (0.6) 5.7
Fair value of cash flow hedges transferred to the Income Statement (1.1) (2.8)
Deferred tax arising 0.8 (0.7)
Reclassification on sale of subsidiary (0.6) -
Exchange difference on retranslation of foreign currency net investment 0.1 0.6
Exchange movements associated with borrowings designated as a hedge against (0.2) (0.2)
net investment
Total items that are or may be reclassified to the Income Statement (1.6) 2.6
Other comprehensive (expense)/income for the year, net of income tax (9.0) 0.3
Total comprehensive income for the year 9.4 26.8
Attributable to:
Equity shareholders of the Parent 10.2 27.0
Non-controlling interests (0.8) (0.2)
9.4 26.8
Condensed consolidated balance sheet
As at 31 December 2023
Audited Audited
December December
2023 2022
Notes £'m £m
Assets
Non-current assets
Goodwill 9 324.4 322.6
Intangible assets 10 227.5 237.1
Property, plant and equipment 11 249.4 266.5
Right-of-use assets 41.7 37.0
Employee benefits 12 11.0 22.4
Deferred taxation assets 1.1 1.3
855.1 886.9
Current assets
Inventories 125.1 138.8
Trade and other receivables 93.4 123.3
Cash and cash equivalents 34.5 56.3
Assets classified as held for sale 2.4 -
Derivative financial instruments 1.9 3.6
Corporation tax 1.7 -
259.0 322.0
Total assets 1,114.1 1,208.9
Liabilities
Current liabilities
Trade and other payables 127.5 152.4
Corporation tax - 2.1
Lease liabilities 13 8.0 9.8
Provisions 3.0 3.0
138.5 167.3
Non-current liabilities
Lease liabilities 13 36.7 36.1
Interest-bearing loans and borrowings 14 207.4 247.0
Provisions 5.0 6.7
Deferred taxation liabilities 85.2 90.7
334.3 380.5
Total liabilities 472.8 547.8
Net assets 641.3 661.1
Equity
Capital and reserves attributable to equity shareholders of the Parent
Called-up share capital 63.2 63.2
Share premium & merger reserve 341.6 341.6
Capital redemption reserve & consolidation reserve (137.7) (137.7)
Other reserves 1.1 2.0
Retained earnings 373.1 391.2
Equity attributable to equity shareholders of the Parent 641.3 660.3
Non-controlling interests - 0.8
Total equity 641.3 661.1
Condensed consolidated cash flow statement
For the year ended 31 December 2023
Audited Audited
Year ended Year ended December
December 2022
2023
Notes £'m £'m
Cash generated from operations 17 104.6 106.8
Financial expenses paid (16.5) (9.9)
Income tax paid (10.4) (11.6)
Net cash flow from operating activities 17 77.7 85.3
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 6.9 1.4
Financial income received 0.1 -
Acquisition of subsidiary undertaking (3.0) (86.2)
Acquisition of property, plant and equipment (18.3) (27.8)
Acquisition of intangible assets (2.5) (2.3)
Cash outflow from sale of subsidiary (1.4) -
Net cash flow from investing activities (18.2) (114.9)
Cash flows from financing activities
Net proceeds from issue of share capital - 182.7
Payments to acquire own shares (0.3) (1.1)
Payment in respect of share-based payment award - (1.2)
Repayment of debt on acquisition of subsidiaries - (292.0)
Repayment of borrowings (84.4) (97.7)
New loans 44.8 303.5
Cash payment for the principal portion of lease liabilities (9.6) (11.1)
Equity dividends paid (31.6) (38.7)
Net cash flow from financing activities (81.1) 44.4
Net decrease/(increase) in cash and cash equivalents (21.6) 14.8
Cash and cash equivalents at the beginning of the 56.3 41.2
year
Effect of exchange rate fluctuations (0.2) 0.3
Cash and cash equivalents at the end of the year 34.5 56.3
Condensed consolidated statement of changes in equity
for the year ended 31 December 2023
Share capital Share premium & Capital redemption & Other reserves* Retained earnings Total Non-controlling interests Total
merger reserve
consolidation reserves
equity
£'m £'m £'m £'m £'m £'m £'m £'m
At 1 January 2023 63.2 341.6 (137.7) 2.0 391.2 660.3 0.8 661.1
Total comprehensive
income/(expense) for the
period
Profit for the financial period - - - - 18.6 18.6 (0.2) 18.4
Other comprehensive
income/(expense)
Foreign currency - - - (0.1) - (0.1) - (0.1)
translation differences
Reclassification on sale of - - - 0.3 (0.3) - (0.6) (0.6)
subsidiary
Effective portion of changes - - - (0.6) - (0.6) - (0.6)
in fair value of cash flow
hedges
Net change in fair value of - - - (1.1) - (1.1) - (1.1)
cash flow hedges transferred
to the Income Statement
Deferred tax arising - - - 0.8 - 0.8 - 0.8
Defined benefit plan actuarial - - - - (9.8) (9.8) - (9.8)
loss
Deferred tax arising - - - - 2.4 2.4 - 2.4
Total other comprehensive - - - (0.7) (7.7) (8.4) (0.6) (9.0)
income/(expense)
Total comprehensive - - - (0.7) 10.9 10.2 (0.8) 9.4
income/(expense) for the
period
Transactions with owners
Shares issued - - - - - - - -
Share issue costs - - - - - - - -
Share-based payments - - - - 2.8 2.8 - 2.8
Deferred tax on - - - - (0.1) (0.1) - (0.1)
share-based payments
Corporation tax on - - - - - - - -
share-based payments
Dividends to equity shareholders - - - - (31.6) (31.6) - (31.6)
Purchase of own shares - - - (0.3) - (0.3) - (0.3)
Own shares issued under - - - 0.1 (0.1) - - -
share scheme
Total contributions by and - - - (0.2) (29.0) (29.2) - (29.2)
distributions to owners
Total transactions with - - - (0.9) (18.1) (19.0) (0.8) (19.8)
owners
At 31 December 2023 63.2 341.6 (137.7) 1.1 373.1 641.3 - 641.3
Note*: Other reserves include own shares, hedging reserve and foreign exchange
reserve.
Condensed consolidated statement of changes in equity
for the year ended 31 December 2022
Share capital Share premium & Capital redemption & Other reserves* Retained earnings Total Non-controlling interests Total
merger reserve
consolidation reserves
equity
£'m £'m £'m £'m £'m £'m £'m £'m
At 1 January 2022 50.0 24.5 137.7 0.2 406.3 343.3 1.0 344.3
Total comprehensive
income/(expense) for the
period
Profit for the financial period - - - - 26.8 26.8 (0.3) 26.5
Other comprehensive
income/(expense)
Foreign currency - - - 0.3 - 0.3 0.1 0.4
translation differences
Effective portion of changes - - - 5.7 - 5.7 - 5.7
in fair value of cash flow
hedges
Net change in fair value of - - - (2.8) - (2.8) - (2.8)
cash flow hedges transferred
to the Income Statement
Deferred tax arising - - - (0.7) - (0.7) - (0.7)
Defined benefit plan actuarial - - - - (3.1) (3.1) - (3.1)
loss
Deferred tax arising - - - - 0.8 0.8 - 0.8
Total other comprehensive - - - 2.5 (2.3) 0.2 0.1 0.3
income/(expense)
Total comprehensive - - - 2.5 24.5 27.0 (0.2) 26.8
income/(expense) for the
period
Transactions with owners
Shares issued 13.2 321.8 - - - 335.0 - 335.0
Share issue costs - (4.7) - - - (4.7) - (4.7)
Share-based payments - - - - - - -
Deferred tax on - - - - (0.6) (0.6) - (0.6)
share-based payments
Corporation tax on - - - - 0.1 0.1 - 0.1
share-based payments
Dividends to equity - - - - (38.7) (38.7) - (38.7)
shareholders
Purchase of own shares - - - (1.1) - (1.1) - (1.1)
Own shares issued under - - - 0.4 (0.4) - - -
share scheme
Total contributions and 13.2 317.1 - (0.7) (39.6) 290.0 - 290.0
distributions to owners
Total transactions with 13.2 317.1 - (1.8) (15.1) 317.0 (0.2) 316.8
owners
At 31 December 2022 63.2 341.6 137.7 2.0 391.2 660.3 0.8 661.1
Note*: Other reserves include own shares, hedging reserve and foreign exchange
reserve.
Notes to the condensed consolidated financial statements
For the year ended 31 December 2023
1. Basis of preparation
The consolidated financial information, which comprises the income statement,
statement of comprehensive income, balance sheet, statement of changes in
equity, cash flow statement and related notes, is derived from the Company's
Financial Statements for the year ended 31 December 2023, which have been
prepared in accordance with International Financial Reporting Standards
("IFRS") and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS. It does not constitute full Financial Statements with
the meaning of section 434 of the Companies Act 2006.
Statutory Financial Statements for 2022 have been delivered to the Registrar
of Companies and those for 2023 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.
The accounting policies used in completing this financial information have
been applied consistently in all periods shown and are set out in detail in
the Annual Report for the year ended 31 December 2022 which can be found on
the Group's website (www.marshalls.co.uk (http://www.marshalls.co.uk) ).
The Group operates a formal risk management process, the details of which are
set out on page 66 of the Annual Report for the year ended 31 December 2022.
The risks assessed in preparing Preliminary Announcement are consistent with
those set out on pages 69 to 75 of the Annual Report and an update on those
risks is set out at Note 22 of this report.
Going concern
In assessing the appropriateness of the adopting the going concern basis in
the preparation of this Preliminary Announcement, the Board has considered the
Group's financial forecasts and its principal risks for a period of at least
12 months from the date of this report. The forecasts included projected
profit and loss, balance sheet, cash flows, headroom against debt facilities
and covenant compliance. As noted above, the Group's principal risks are set
out in the 2022 Annual Report and Accounts and an update is included in this
report.
The financial forecasts have been stress tested in downside scenarios to
assess the impact on future profitability, cash flows, funding requirements
and covenant compliance. The scenarios comprise a more severe economic
downturn (which represents the Group's most significant risk) than that
included in the base case forecast, and a reverse stress test on our financial
forecasts to assess the extent to which an economic downturn would need to
impact on revenues in order to breach a covenant. This showed that revenue
would need to deteriorate significantly from the financial forecast and the
Directors have a reasonable expectation that it is unlikely to deteriorate to
this extent.
Details of the Group's funding position are set out in Note 14. The Group has
a syndicated bank facility of £340 million that principally matures in April
2027, having repaid £30 million of the original £370 facility in January
2024. At December 2023, £160 million of the facility was undrawn (2022:
£120.1 million undrawn). There are two financial covenants in the bank
facility that are tested on a semi-annual basis and the Group maintains good
cover against these with pre-IFRS 16 net debt to EBITDA of 1.9 times (covenant
maximum of three times) and interest cover of 5.2 times (covenant minimum of
three times).
Taking these factors into account, the Board has the reasonable expectation
that the Group has adequate resources to continue in operation for the
foreseeable future and for this reason, the Board has adopted the going
concern basis in preparing this Preliminary Announcement.
Alternative performance measures and adjusting items
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. A glossary setting out the APMs that the
Board use, how they are used, an explanation of how they are calculated, and a
reconciliation of the APMs to the statutory results, where relevant is set out
at Note 21.
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 results and to demonstrate the
Group's capacity to deliver dividends to shareholders. The adjusted results
should not be regarded as a complete picture of the Group's financial
performance, which is presented in the total results. Details of the
adjusting items are disclosed in Note 4 and Note 21.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of consolidated financial statements requires the Group to
make estimates and judgements that affect the application of policies and
reported accounts. Critical judgements represent key decisions made by the
Board in the application of the Group accounting policies. Where a significant
risk of materially different outcomes exists due to the Board's assumptions or
sources of estimation uncertainty, this will represent a critical accounting
estimate. Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates. The estimates and judgements which
have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities are discussed below.
Critical accounting judgements
The following critical accounting judgements has been made in the preparation
of the consolidated financial statements:
· As noted above, adjusting items have been highlighted separately due to their
size, nature or incidence to provide a full understanding of the Group's
results and to demonstrate the Group's capacity to deliver dividends to
shareholders. The determination of whether items merit treatment as an
adjusting item is a matter of judgement. Note 4 sets out details of the
adjusting items.
Sources of estimation uncertainty
The Directors consider the following to be key sources of estimation
uncertainty:
· In arriving at the accounting value of the Group's defined benefit pension
scheme, key assumptions have to be made in respect of factors including
discount rates and inflation rates. These are determined on the basis of
advice received from a qualified actuary. These estimates may be different
to the actual outcomes. See further information in Note 12.
· The carrying value of goodwill is reviewed on an annual basis in accordance
with IAS36. This review requires the use of cash flow projections based on
a financial forecast that are discounted at an appropriate market-based
discount rate, and a long-term growth rate. The assumption on the
market-based discount rate is determined based on the advice of a third-party
advisor. The actual cash flows generated by the business may be different
to the estimates included in the forecasts. See further information in Note 9.
2. Segmental analysis
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. The
CODM at Marshalls is the Board. The Group reports under three reporting
segments, namely Marshalls Landscape Products, Marshalls Building Products and
Marley Roofing Products. Marshalls Landscape Products comprises the Group's
Public Sector and Commercial and Domestic landscape business, Landscape
Protection and the International businesses. Marshalls Building Products
comprises the Group's Civil and Drainage, Bricks and Masonry, Mortars and
Screeds and Aggregate businesses.
Segment revenues and operating profit
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Revenue
Landscape Products 321.5 394.1
Building Products 170.1 193.1
Roofing Products 179.6 132.2
Revenue 671.2 719.4
Operating profit
Landscape Products 21.3 45.3
Building Products 12.2 26.8
Roofing Products 44.9 34.4
Central costs (7.7) (5.4)
Segment operating profit 70.7 101.1
Adjusting items (see Note 4) (29.7) (53.2)
Reported operating profit 41.0 47.9
The Group has two customers which each contributed more than 10 per cent of
total revenue in the current and prior year. The accounting policies of the
three operating segments 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.
The geographical destination of revenue is the United Kingdom £662.8 million
(2022: £687.9 million) and Rest of the World £8.4 million (2022: £31.5
million).
Segment assets
Audited Audited
December December 2022
2023 £'m
£'m
Segment assets
Landscape Products 240.8 260.5
Building Products 142.0 148.4
Roofing Products 587.7 593.1
Unallocated assets 143.6 206.9
Total 1,114.1 1,208.9
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, intangible assets and inventory. Assets used jointly by
reportable segments are not allocated to individual reportable segments.
Capital additions
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Capital additions
Landscape Products 23.1 37.0
Building Products 4.9 4.6
Roofing Products 5.9 2.0
Total 33.9 43.6
Capital additions comprise property, plant and equipment of £16.5 million
(2022: £28.4 million), right-of-use assets of £18.6 million (2022: £13.0
million) and intangible assets of £2.5 million (2022: £2.2 million).
Depreciation and amortisation
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Depreciation and amortisation
Landscape Products 19.5 22.3
Building Products 8.0 8.8
Roofing Products 5.4 3.8
Segment depreciation and amortisation 32.9 34.9
Adjusting items 10.4 7.3
Depreciation and amortisation 43.3 42.2
Depreciation and amortisation includes £10.4 million of amortisation of
intangible assets arising from the purchase price allocation exercises (year
ended December 2022: £7.3 million). This comprises £0.1 million (year
ended December 2022: £0.1 million) in Landscape Products, £1.1 million in
Building Products (year ended December 2022: £1.1 million) and £9.2 million
in Roofing Products (year ended December 2022: £6.1 million). The
amortisation has been treated as an adjusting item (Note 4).
3. Net operating costs
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Raw materials and consumables 235.4 267.3
Changes in inventories of finished goods and work in progress 12.9 6.6
Personnel costs 151.6 155.5
Depreciation of property, plant and equipment 21.4 21.8
Depreciation of right-of-use assets 9.8 11.3
Amortisation of intangible assets 12.1 9.1
Asset impairments 7.3 14.0
Own work capitalised (2.5) (3.1)
Other operating costs 177.5 189.3
Redundancy and other costs 9.3 2.9
Operating costs 634.8 674.7
Other operating income (2.6) (2.0)
Net gain on asset and property disposals (1.4) (1.2)
Net gain on disposal of subsidiary (0.6) -
Net operating costs 630.2 671.5
Adjusting items (Note 4) (29.7) (53.2)
Adjusted net operating costs 600.5 618.3
4. Adjusting items
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Amortisation of intangible assets arising on acquisitions 10.4 7.3
Restructuring and similar costs 11.3 4.2
Impairment of property, plant and equipment 7.0 8.8
Contingent consideration 1.6 3.9
Disposal / impairment of assets in Belgian subsidiary (0.6) 10.2
Transaction related costs - 14.9
Unwind of inventory fair value adjustment - 3.9
Total adjusting items within operating profit 29.7 53.2
Adjusting item in interest expense 1.4 -
Total adjusting items before taxation 31.1 53.2
Current tax on adjusting items (Note 6) (2.7) (1.6)
Deferred tax on adjusting items (Note 6) (4.7) (4.8)
Total adjusting items after taxation 23.7 46.8
· Amortisation of intangible assets arising on acquisitions is principally in
respect of values recognised for the Marley brand and its customer
relationships.
· Restructuring and similar costs arose during major restructuring exercises
conducted when the Group took steps to reduce manufacturing capacity and the
cost base in response to a reduction in market demand.
· The impairment of property, plant and equipment arose in connection with the
major restructuring exercises noted above.
· The additional contingent consideration relates to the reassessment of the
amounts that will become payable to vendors arising in relation to Marley's
acquisition of Viridian Solar Limited in 2021.
· On 14 April 2023, the Group's interest in the former Belgian subsidiary was
sold for a nominal consideration. This consideration was higher than the net
carrying value on this date which resulted in a non-recurring profit of £0.6
million. In 2022 following a downturn in the business' performance, the assets
were impaired to fair value which was higher than the value in use. This was
based on the Directors' assessment and consideration of observable market
information. The impairment charge comprised property, plant and equipment
(£1.1 million), intangible assets (£0.7 million), right-of-use assets (£3.4
million) and inventory (£5.0 million).
· In 2022, transaction related costs relating to the acquisition of Marley Group
plc. These comprise the fees charged by professional advisors.
· In 2022, the unwind of the inventory fair value adjustment relates to the fair
value uplift of the inventory as part of the Marley acquisition that has
subsequently been sold. This item has been shown as an adjusting item to align
with the internal reporting and to present a margin consistent with that which
would have been reported in the absence of a recent acquisition transaction.
· The adjusting item in interest expense of £1.4 million is a non-cash
technical accounting charge arising from the resolution of certain historical
benefit issues. An allowance of £6.5 million was included in the net
pension scheme asset at December 2022 and following the resolution of the
benefit issues, this has been reduced to £5.5 million. This net reduction
of £1.0 million comprised a profit and loss account charge of £1.4 million
arising from the decision by the Board to not reduce pensions to payment to
certain pensioners who were receiving payments that are too high and £2.4
million credit to the condensed statement of comprehensive income relating to
adjustments to estimates. Further information on the accounting for the
retirement benefit asset is set out at Note 12.
5. Financial expenses
Audited Audited
year ended year ended
December December
2023 2022
£'m
£'m
Net interest expense on bank loans 14.7 8.2
Interest expense of lease liabilities 2.5 2.4
Net interest expense on defined benefit pension scheme 0.2 0.1
17.4 10.7
Additional interest expense in defined benefit pension scheme 1.4 -
Financial expenses 18.8 10.7
Net interest expense on the defined benefit pension scheme is disclosed net of
Company recharges for scheme administration. The additional technical
interest expense in respect of the defined benefit pension scheme arose from
the resolution of certain historical issues, is non-cash and non-recurring.
The Board decided to augment the benefits of certain pensioners who would have
otherwise suffered hardship due to a reduction in pension payments following a
review to correct the historical benefit issues. This has augmentation
charge has been accounted for as an adjusting item (see Note 4).
6. Income tax expense
Audited Audited
year ended year ended
December December
2023 2022
£'m
£'m
Current tax expense
Current year 8.8 11.6
Adjustments for prior years (1.4) (0.6)
7.4 11.0
Deferred taxation expense
Origination and reversal of temporary differences:
Current year (3.0) 0.8
Adjustments for prior years (0.6) (1.1)
Total tax expense 3.8 10.7
Current tax on adjusting items (Note 4) 2.7 1.6
Deferred tax on adjusting items (Note 4) 4.7 4.8
Total tax expenses after adding back adjusting items 11.2 17.1
7. Earnings per share
Basic earnings per share from total operations of 7.4 pence (year ended
December 2022: 11.4 pence) per share is calculated by dividing the profit
attributable to Ordinary Shareholders for the financial year, after adjusting
for non-controlling interests, of £18.6 million (year ended December 2022:
£26.8 million) by the weighted average number of shares in issue during the
period of 252,824,077 (year ended December 2022: 235,388,001).
Basic earnings per share after adding back adjusting items of 16.7 pence (year
ended December 2022: 31.3 pence) per share is calculated by dividing the
adjusted profit attributable to Ordinary Shareholders for the financial year,
after adjusting for non-controlling interests, of £42.3 million (year ended
December 2022: £73.6 million) by the weighted average number of shares in
issue during the period of 252,824,077 (year ended December 2022:
235,388,001).
Profit attributable to Ordinary Shareholders
Audited Audited
year ended year ended
December December
2023 2022
£'m
£'m
Adjusted profit after tax 42.1 73.3
Adjusting items (23.7) (46.8)
Profit for the financial year 18.4 26.5
Profit attributable to non-controlling interests 0.2 0.3
Profit attributable to Ordinary Shareholders 18.6 26.8
Weighted average number of Ordinary Shares
Audited Audited
year ended year ended December
December 2022
2023
Number Number
Number of issued Ordinary Shares 252,968,728 252,968,728
Effect of shares issued during the period - (17,299,649)
Effect of shares transferred into Employee Benefit Trust (144,651) (281,078)
Weighted average number of Ordinary Shares at the end of the year 252,824,077 235,388,001
Diluted earnings per share before adjusting items of 7.3 pence (December 2022:
11.3 pence) per share is calculated by dividing the profit for the financial
period, after adjusting for non-controlling interests of £18.6 million (year
ended December 2022: £26.8 million), by the weighted average number of shares
in issue during the period of 252,824,077 (year ended December 2022:
235,388,001), plus potentially dilutive shares of 1,026,468 (31 December 2022:
1,213,042), which totals 253,853,545 (31 December 2022: 236,601,043).
Diluted earnings per share after adding back adjusting items of 16.7 pence
(year ended 31 December 2022: 31.1 pence) per share is calculated by dividing
the profit for the financial period, after adjusting for non-controlling
interests of £42.3 million (year ended December 2022: £73.6 million), by the
weighted average number of shares in issue during the period of 252,824,077
(year ended December 2022: 235,388,001), plus potentially dilutive shares of
1,026,468 (31 December 2022: 1,213,042), which totals 253,850,545 (31 December
2022: 236,601,043).
Weighted average number of Ordinary Shares (diluted)
Audited Audited
year ended year ended December
December 2022
2023
Number Number
Weighted average number of Ordinary Shares 252,824,077 235,388,001
Potentially dilutive shares 1,026,468 1,213,042
Weighted average number of Ordinary Shares (diluted) 253,850,545 236,601,043
8. Dividends
The Group maintains a dividend policy of distributions covered twice by
adjusted earnings. The Board has proposed a final dividend of 5.7 pence per
share, which taken together with the interim dividend of 2.6 pence per share,
would result in a pay-out in respect of 2023 of 8.3 pence. This is in-line
with the Group policy and would represent a year-on-year reduction of 47 per
cent driven by weaker profitability, increase in weighted average shares in
issue and a higher effective taxation rate. The dividend will be paid on 1
July 2024 to shareholders on the register at the close of business on 7 June
2024. The shares will be marked ex-dividend on 6 June 2024.
9. Goodwill
Audited Audited
December December 2022
2023
£'m
£'m
Net book value at start of period 322.6 78.5
Acquisition of a subsidiary - 244.1
Adjustments to purchase price allocation (see Note 19) 1.8 -
Net book value at end of period 324.4 322.6
All goodwill has arisen from business combinations. The carrying amount of
goodwill is allocated across cash generating units ("CGUs") which represent
the lowest level within the Group at which the associated goodwill is
monitored for management purposes and is consistent with the operating
segments set out in Note 2. The Group has three material CGUs, Landscape
Products, Building Products and Roofing Products. The carrying amount of
goodwill has been allocated to CGUs as follows:
Audited December 2023 Audited December 2022
£'m £'m
Landscape Products 34.8 34.8
Building Products 43.7 43.7
Roofing Products 245.9 244.1
324.4 322.6
Building Products and Landscape Products
The recoverable amounts of the Building Products and Landscaping Products
segments as cash-generating units are determined based on value in use
calculations which use cash flow projections based on financial budgets
approved by the directors covering a five-year period and a post-tax discount
rate of 10.4 per cent per annum (2022: 8.9 per cent per annum). Cash flows
beyond that five-year period have been extrapolated using a 2.4 per cent
(2022: 2.4 per cent) per annum growth rate. This growth rate reflects the
long-term average growth rate for the UK economy.
Roofing Products
The recoverable amount of the Roofing Products segment as a cash-generating
unit is determined based on a value in use calculation which uses cash flow
projections based on financial budgets approved by the directors covering a
five-year period and a post-tax discount rate of 10.4 per cent per annum
(2022: 8.9 per cent per annum). Cash flows beyond that five-year period have
been extrapolated using a 2.4 per cent (2022: 2.4 per cent) per annum growth
rate. This growth rate reflects the long-term average growth rate for the UK
economy.
The compound annual growth rate ('CAGR') assumed within the Roofing Products
CGU five-year forecast is 10.9 per cent which reflects industry consensus with
respect to the future recovery in the construction materials market together
with management's expectations of future growth in residential solar PV as a
consequence of amendments made to building regulations in England and Wales.
Sensitivity analysis
The group has conducted an analysis of the sensitivity of the impairment test
to changes in the key assumptions used to determine the recoverable amount for
each of the group of CGUs to which goodwill is allocated. The directors
believe that any reasonably possible change in the key assumptions on which
the recoverable amounts of Landscape Products and Building Products are based
would not cause the aggregate carrying amounts to exceed the aggregate
recoverable amounts of those CGUs.
At the end of the financial year, the recoverable amount of the Roofing
Products CGU exceeds the carrying amount by £39 million, which is
significantly lower than the other CGUs given the recency of the acquisition,
and consequently the impairment review is more sensitive to changes in
assumptions. The CAGR in the Roofing Products CGU is particularly sensitive to
future political and regulatory decisions and the industry's interpretation of
the most effective solution to building regulation requirements regarding the
use of roof-integrated solar in new homes. These factors could affect growth
rates within the residential solar PV market and may have a corresponding
impact on profit margins. Changes in regulations regarding both the UK's
ambitions for the energy efficiency of residential properties and the
specificity on how they should be achieved represent reasonably possible
downside risks that could give rise to a future impairment charge. A CAGR of
nine per cent would reduce the headroom in the Roofing Products CGU to nil.
The impairment review is also sensitive to changes in discount rate with an
increase of 60 basis points in the post-tax rate required to reduce headroom
in the Roofing Products CGU to nil, giving a breakeven point for the post-tax
rate of 11.0 per cent.
10. Intangible assets
Audited Audited
December December
2023 2022
£'m £'m
Net book value at start of period 237.1 16.5
Acquisition of a subsidiary - 228.2
Additions 2.5 2.2
Amortisation (12.1) (9.1)
Impairment - (0.7)
Net book value at end of period 227.5 237.1
Amortisation includes £10.4 million (year ended December 2022: £7.3 million)
relating to intangible assets arising on acquisitions that is accounted for as
an adjusting item (see Note 4). The impairment in the year ended December
2022 represents the assets being written down to fair value less cost to sell
of £0.7 million in relation to the Group's Belgian subsidiary (see Note 4).
Included in software additions is £1.6 million (year ended December 2022:
£1.5 million) of own work capitalised.
11. Property, plant and equipment
Audited Audited
December December 2022
2023
£'m
£'m
Net book value at start of period 266.5 173.9
Acquisition of a subsidiary - 96.2
Additions 16.5 28.4
Depreciation (21.4) (21.8)
Impairment (7.3) (9.9)
Other movements (4.9) (0.3)
Net book value at end of period 249.4 266.5
Impairment in the year ended December 2023 represents the assets being written
down to fair value less cost to sell of £7.3 million (year ended December
2022: £8.8 million) in relation to major restructuring exercises at certain
facilities in the Group's network. In addition, in the year ended December
2022, a £1.1 million impairment charge was recorded in relation to the
Group's Belgian subsidiary (see Note 4).
12. Retirement benefit asset
The amounts recognised in the balance sheet in respect of the defined benefit
asset are as follows:
Audited Audited
December December 2022
2023
£'m
£'m
Present value of Scheme liabilities (239.4) (232.5)
Fair value of Scheme assets 250.4 254.9
Net amount recognised (before deferred tax) 11.0 22.4
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 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 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
2024. 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. The last formal actuarial
valuation was carried out as at 5 April 2021 which resulted in a surplus of
£24.3 million, on a technical provisions basis. The Company has agreed with
the Trustee that no cash contributions are payable under the funding plan.
The charge recognised in the income statement in respect of the Scheme is
included in financial expenses and totalled £1.6 million in the year ended
December 2023 (year ended December 2022: £0.1 million). Net interest expense
on the defined benefit pension scheme is disclosed net of Company recharges
for scheme administration. In the year ended December 2023, this expense
included a one-off, non-cash, technical accounting charge of £1.4 million
relating to the resolution of a review into historical benefit issues. This
charge has been accounted for as an adjusting item, see Notes 4 and 5 for
further details.
13. Lease liabilities
Audited Audited
December December 2022
2023 £'m
£'m
Analysed as:
Amounts due for settlement within twelve months 8.0 9.8
Amounts due for settlement after twelve months 36.7 36.1
44.7 45.9
The interest expense on lease liabilities amounted to £2.5 million (year
ended December 2022: £2.4 million). Lease liabilities are calculated at the
present value of the lease payments that are not paid at the commencement
date. For the year ended December 2023, the average effective borrowing rate
was 4.2 per cent (December 2022: 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 total cash outflow in relation to leases amounts to £11.6 million (year
ended December 2022: £13.5 million). The total cash outflow in relation to
short-term and low value leases was £7.1 million (year ended December 2022:
£7.0 million).
14. Interest bearing loans and borrowings
Audited Audited
December December
2023 2022
£ £'m
Analysed as:
Non-current liabilities 207.4 247.0
Interest bearing loans and borrowings are stated net of unamortised debt
arrangement fees of £2.6 million (December 2022: £3.0 million).
The total syndicated bank facility at December 2023 was £370.0 million
(December 2022: £370.0 million), of which £160 million (December 2022:
£120.1 million) remained unutilised. The undrawn facility available at
December 2023 expires between two and five years. In January 2024, the Group
repaid £30 million of the term loan and therefore reduced the total facility
to £340 million, which provides significant liquidity to fund its strategic
and operational plans going forward.
The Group's committed bank facilities are charged at variable rates based on
SONIA plus a margin. The Group's bank facility continues to be aligned with
the current strategy to ensure that headroom against the available facility
remains at appropriate levels and are structured to provide committed
medium-term debt.
Marshalls is party to a reverse factoring finance arrangement between a
third-party UK bank and one of the Group's key customers. The principal
relationship is between the customer and its partner bank. The agreement
enables Marshalls to receive advance payment of approved invoices, and this
provides a facility of up to around £15 million which the Group utilises
periodically in order to help manage its short-term funding requirements. The
credit risk is retained by the customer and Marshalls pays a finance charge
upon utilisation.
15. Analysis of net debt
Audited Audited
December December 2022
2023 £'m
£'m
Cash at bank and in hand 34.5 56.3
Debt due after 1 year (207.4) (247.0)
Lease liabilities (44.7) (45.9)
Net debt (217.6) (236.6)
16. Reconciliation of net cash flow to movement in net debt
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Net decrease in cash equivalents (20.3) (19.3)
Cash outflow from movement in bank borrowings 39.8 86.2
On acquisition of subsidiary undertakings - (259.5)
On disposal of subsidiary undertakings (1.4) -
Cash outflow from lease repayments 9.6 11.1
New leases entered into (13.7) (14.0)
Lease liability terminated on disposal of subsidiary undertaking 5.3 -
Effect of exchange rate fluctuations (0.3) -
Movement in net debt in the year 19.0 (195.5)
Net debt at beginning of the year (236.6) (41.1)
Net debt at end of the year (217.6) (236.6)
17. Reconciliation of profit after taxation to cash generated
from operating activities
Audited Audited
year ended year ended December
December 2022
2023
Notes £'m £'m
Profit after taxation 18.4 26.5
Income tax expense on continuing operations 3.8 10.7
Profit before tax 22.2 37.2
Adjustments for:
Depreciation of property, plant and equipment 21.4 21.8
Asset impairments 7.3 14.0
Depreciation of right-of-use assets 9.8 11.3
Amortisation 12.1 9.1
Gain on disposal of subsidiary (0.6) -
Gain on sale of property, plant and equipment (1.4) (1.2)
Equity settled share-based payments 2.8 1.2
Financial income and expenses (net) 18.8 10.7
Operating cash flow before changes in working capital 92.4 104.1
Decrease in trade and other receivables 25.8 22.9
Decrease/(increase) in inventories 10.1 (4.1)
Decrease in trade and other payables (23.7) (16.1)
Cash generated from operations 104.6 106.8
Financial expenses paid (16.5) (9.9)
Income tax paid (10.4) (11.6)
Net cash flow from operating activities 77.7 85.3
18. Fair values of financial assets and financial liabilities
A comparison by category of the book values and fair values of the financial
assets and liabilities of the Group at 31 December 2023 is shown below:
Book value Fair value
Audited Audited Audited Audited
year ended December year ended December year ended year ended December
2023 2022 December 2022
£'m £'m 2023 £'m
£'m
Trade and other receivables 87.5 113.5 87.5 113.5
Cash and cash equivalents 34.5 56.3 34.5 56.3
Bank loans (207.4) (247.0) (202.2) (259.1)
Trade payables, other payables and provisions (116.8) (136.5) (116.8) (136.5)
Derivatives 1.9 3.6 1.9 3.6
Contingent consideration (8.0) (8.9) (8.0) (8.9)
Financial instrument assets and liabilities - net (208.3) (219.0)
Non-financial instrument assets and liabilities - net 849.6 880.1
Net assets 641.3 661.1
Estimation of fair values
The following summarises the major methods and assumptions used in estimating
the fair values of financial instruments reflected in the table. Other than
contingent consideration, which uses a level three basis, all use level two
valuation techniques.
(a) Derivatives
Derivative contracts are either marked to market using listed market prices or
by discounting the contractual forward price at the relevant rate and
deducting the current spot rate. For interest rate swaps, broker quotes are
used.
(b) Interest-bearing loans and borrowings
Fair value is calculated based on the expected future principal and interest
cash flows discounted at the market rate of interest at the balance sheet
date.
(c) Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the
notional amount is deemed to reflect the fair value. All other
receivables/payables are discounted to determine the fair value.
(d) Contingent consideration
The contingent consideration has been calculated based on the Group's
expectation of what it will pay in relation to the post-acquisition
performance of the acquired entities.
(e) Fair value hierarchy
The table below analyses financial instruments, measured at fair value, into a
fair value hierarchy based on the valuation techniques used to determine fair
value.
· Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities.
· Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
£'m £'m £'m £'m
December 2023
Derivative financial assets - 1.9 - 1.9
Contingent consideration - - (8.0) (8.0)
- 1.9 (8.0) (6.1)
December 2022
Derivative financial assets - 3.6 - 3.6
Contingent consideration - - (8.8) (8.8)
- 3.6 (8.8) (5.2)
19. Acquisition of subsidiary
On 29 April 2022 Marshalls Group Limited acquired 100 per cent of the issued
share capital of Marley Group plc, a leader in the manufacture and supply of
pitched roofing systems to the UK construction market. Marley Group plc
operates within the UK and is registered in England and Wales.
The Group concluded its review of the fair value of assets and liabilities
acquired, and final adjustments were made to the provision assessment that was
disclosed in the 2022 Annual Report in Note 25 on page 182. These increased
the provisions for deferred tax and contingent consideration together with an
increase in goodwill of £1.8 million (see Note 9).
20. Disposal of subsidiary
On 13 April 2023, the Group sold its interest in Marshalls NV, its former
Belgian subsidiary, for a nominal sum. The sale resulted in a profit on
disposal of £0.6 million, which has been accounted for as an adjusting item
(see Note 4). This business contributed revenue of £21.3 million and a loss
before taxation of £1.1 million in 2022. In the period until the disposal
on 13 April 2023, the business generated revenue of £5.0 million and a loss
before taxation of £0.6 million.
21. Alternative performance measures
The APMs set out by the group are made-up of earnings-based measures and ratio
measures with a selection of these measures being stated after adjusting
items.
Measures stated after excluding adjusting items
These performance measures are calculated using either the associated
statutory measure or alternative performance measure after adding back the
adjusting items detailed in Note 4. The Group's accounting policy on adjusting
items is set out in Note 1, basis of preparation.
APM Definition and/or purpose
Adjusted operating profit, adjusted profit before tax, adjusted profit after The Directors assess the performance of the Group using these measures
tax, adjusted earnings per share, adjusted EBITA, adjusted EBITDA and adjusted including when considering dividend payments.
operating cash flow
Adjusted return on capital employed Adjusted return on capital employed is calculated as adjusted EBITA (on
annualised basis) divided by shareholders' funds plus net debt at the period
end. It is designed to give further information about the returns being
generated by the Group as a proportion of capital employed.
Adjusted operating cash flow conversion Operating cash flow conversion is calculated by dividing adjusted operating
cash flow by adjusted EBITDA (both on an annualised basis). Adjusted
operating cash flow is calculated by adding back adjusting items paid, net
financial expenses paid, and taxation paid. It illustrates the rate of
conversion of profitability into cash flow.
Pre-IFRS 16 measures
The Group's banking covenants are assessed on a pre-IFRS 16 basis. In order to
provide transparency and clarity regarding how the Group's compliance with
banking covenants, the following performance measures and their calculations
have been presented:
APM Definition and purpose
Pre-IFRS16 adjusted EBITDA Pre-IFRS16 adjusted EBITDA is adjusted EBITDA excluding right-of-use asset
depreciation and profit or losses on the sale of property, plant and
equipment.
Pre-IFRS16 net debt Pre-IFRS 16 net debt comprises cash at bank and in hand and bank loans but
excludes lease liabilities. It shows the overall net indebtedness of the
Group on a pre-IFRS 16 basis.
Pre-IFRS16 net debt leverage This is calculated by dividing pre-IFRS16 net debt by adjusted pre-IFRS16
EBITDA (on an annualised basis) to provide a measure of leverage.
Like-for-like
A number of the APMs are stated on a like-for-like basis in 2022 to include
the relevant information for Marley for the period between 1 January 2022 and
28 April 2022 in order to show the measure as if the business had been owned
by the Group for the whole of 2022.
APM Definition and purpose
Like-for-like revenue growth Like-for-like revenue growth is revenue growth generated by the Group that
includes revenue for acquired businesses and excludes revenue for businesses
that have been sold for the corresponding periods in the prior year. This
provides users of the financial statements with an understanding about revenue
growth that is not impacted by acquisitions or disposals.
Other definitions
APM Definition and purpose
EBITDA EBITDA is earnings before interest, taxation, depreciation, and amortisation
and provides users with further information about the profitability of the
business before financing costs, taxation, and non-cash charges.
EBITA EBITA is earnings before interest, taxation and amortisation and provides
users with further information about the profitability of the business before
financing costs, taxation, and amortisation.
Reconciliations of IFRS reported income statement measures to income statement
APMs is set out in the following three tables. A reconciliation of operating
profit to like-for-like pre-IFRS16 adjusted EBITDA is set out below:
Audited Audited
year ended year ended
December December
2023 2022
£'m £'m
Operating profit 41.0 47.9
Adjusting items (Note 4) 29.7 53.2
Adjusted operating profit 70.7 101.1
Amortisation (excluding amortisation of intangible assets arising on 1.7 1.8
acquisitions)
Adjusted EBITA 72.4 102.9
Depreciation 31.2 33.1
Adjusted EBITDA 103.6 136.0
Marley pre-acquisition EBITDA - 18.1
Profit on sale of property, plant and equipment (1.4) (1.2)
Right-of-use asset principal payments (9.6) (11.1)
Like-for-like pre-IFRS16 adjusted EBITDA 92.6 141.8
Audited Audited
year ended year ended
December December
2023 2022
£'m £'m
Adjusted EBITA 72.4 102.9
Marley pre-acquisition EBITA - 16.4
Adjusted like-for-like EBITA 72.4 119.3
Disclosures required under IFRS are referred to as on a reported basis.
Disclosures referred after adding back adjusting items basis are restated and
are used to provide additional information and a more detailed understanding
of the Group's results. Certain measures are reported on an annualised basis
to show the preceding 12-month period where seasonality can impact on the
measure.
Like-for-like revenue growth
Audited Audited
year ended year ended
December December
2023 2022 Change
£'m £'m %
Marshalls Landscape Products 321.5 381.9 (16)
Marshalls Building Products 170.1 193.1 (12)
Marley Roofing Products 179.6 196.5 (9)
Like-for-like revenue 671.2 771.5 (13)
The Group sold its Belgian subsidiary on 13 April 2023 and therefore Marshalls
Landscape Products 2022 revenue has been restated to exclude £12.2 million of
revenue generated by that subsidiary between 14 April and 31 December 2022.
Marley revenue in 2022 has been restated to include £64.3 million of revenue
for the pre-acquisition period from 1 January 2022 to 28 April 2022. No
adjustments have been to Marshalls Building Products revenue.
Pre-IFRS 16 net debt and pre-IFRS16 net debt leverage
Net debt comprises cash at bank and in hand, bank loans and leasing
liabilities. An analysis of net debt is provided in Note 15. Net debt on a
pre-IFRS 16 basis has been disclosed to provide additional information and to
align with reporting required for the Group's banking covenants. Pre-IFRS16
net debt leverage is defined as pre-IFRS16 net debt divided by like-for-like
adjusted pre-IFRS16 EBITDA. Net debt as reported in Note 15 is reconciled to
pre-IFRS 16 net debt and pre-IFRS 16 net debt leverage below:
Audited Audited
year ended year ended December
December 2022
2023 £'m
£'m
Net debt 217.6 236.6
IFRS 16 leases (44.7) (45.9)
Net debt on a pre-IFRS16 basis 172.9 190.7
Like-for-like adjusted pre-IFRS16 EBITDA 92.6 141.8
Pre-IFRS16 net debt leverage 1.9 1.4
Return on capital employed ('ROCE')
ROCE is defined as adjusted EBITA divided by shareholders' funds plus net
debt.
Audited Audited
year ended year ended
December December
2023 2022
£'m £m
Like-for-like adjusted EBITA 72.4 119.3
Shareholders' funds 641.3 661.1
Net debt 217.6 236.6
Capital employed 858.9 897.7
ROCE 8.4% 13.3%
Adjusted operating cash flow conversion
Adjusted operating cash flow conversion is the ratio of adjusted operating
cash flow to adjusted EBITDA (on an annualised basis) and is calculated as set
out below:
Audited Audited
year ended year ended
December December
2023 2022
£'m £m
Net cash flow from operating activities 77.7 85.3
Adjusting items paid 5.5 17.4
Net financial expenses paid 16.5 9.9
Taxation paid 10.4 11.6
Adjusted operating cash flow 110.1 124.2
Adjusted EBITDA 103.6 136.0
Adjusted operating cash flow conversion 106% 91%
22. Principal risks and uncertainties
Risk management is the responsibility of the Marshalls plc Board and is a key
factor in the delivery of the Group's strategic objectives. The Board
establishes the culture of effective risk management and is responsible for
maintaining appropriate systems and controls. The Board sets the risk appetite
and determines the policies and procedures that are put in place to mitigate
exposure to risks. The Board plays a central role in the Group's Risk Review
process, which covers emerging risks and incorporates scenario planning and
detailed stress testing.
There continue to be external risks and significant volatility in UK and world
markets with high and persistent levels of cost inflation and an uncertain
outlook. In an addition to the macro-economic environment, the key risks for
the Group are cyber security, competitor activity and an increased focus in
climate change and other ESG related issues. In all these cases, specific
assessments continue to be reviewed, certain new operating procedures have
been implemented and mitigating controls continue to be reviewed as
appropriate. A summary of these risks is set out below.
· Macro-economic uncertainty - The Group is dependent on the level of activity
in its end markets. Accordingly, it is susceptible to economic downturn, the
impact of Government policy, changes in interest rates, the increasing impact
of wider geo-political factors (including the conflict in Ukraine and the
Middle East) and volatility in world markets. The Group closely monitors
trends and lead indicators, invests in market research and is an active member
of the Construction Products Association. The Group's response to
macro-economic uncertainty has been a major focus during the period and action
has been taken to reduce capacity and costs in the challenging
macro-environment.
· Cyber security - the risk of a cyber security attack continues to increase
with more incidents being reported in UK businesses. In response, the Group
appointed a dedicated Head of Cyber Security and has a risk-based approach to
the continued development of our cyber security controls, including immutable
back-ups, alongside procuring cyber insurance for the Marshalls businesses.
· Competitor activity - It has become more challenging to recover input cost
inflation through higher selling prices due to weaker demand levels resulting
in heightened competition for volumes in the marketplace and not all input
costs were covered by price increases in the second half of 2023. In order
to protect profitability, the Group is focusing on reducing its cost base and
simplifying processes with the aim of being easier to deal with whilst
continuing to invest in its brands, specification selling and new product
development.
· Climate change and other ESG issues - to ensure the effective management of
all relevant risks and opportunities. The Group remains committed to full
transparency for all stakeholders and the Group's sustainability objectives
remain core to the Group's business model and strategy. The Group employs
experienced, dedicated staff to support our ESG agenda.
The other principal risks and uncertainties that could impact the business for
the remainder of the current financial year are those set out in the 2022
Annual Report and Accounts on pages 69 to 75. These cover the strategic,
financial and operational risks and have not changed significantly during the
period. Strategic risks include those relating to the ongoing Government
policy, general economic conditions, the actions of customers, suppliers and
competitors, and weather conditions. The Group also continues to be subject to
various financial risks in relation to the pension scheme, principally the
volatility of the discount (AA corporate bond) rate, any downturn in the
performance of equities and increases in the longevity of members. The other
main financial risks arising from the Group's financial instruments are
liquidity risk, interest rate risk, credit risk and foreign currency risk.
External operational risks include the cyber security and information
technology, the effect of legislation or other regulatory actions and new
business strategies.
The Group continues to monitor all these risks and pursue policies that take
account of, and mitigate, the risks where possible.
23. Annual General Meeting
The Annual General Meeting will be held at the offices of Walker Morris, 33
Wellington Street, Leeds, West Yorkshire, LS1 4DL at 11.00am on Wednesday 15
May 2024.
Board members
The Directors serving during the year ended 31 December 2023 and up to the
date of this report were as follows:
Vanda Murray OBE Chair
Simon Bourne Chief Operating Officer
Angela Bromfield Non-Executive Director
Martyn Coffey Former Chief Executive (resigned 29 February 2024)
Avis Darzins Non-Executive Director
Diana Houghton Non-Executive Director
Justin Lockwood Chief Financial Officer
Graham Prothero Senior Non-Executive Director
Matt Pullen Chief Executive (appointed 8 January 2024)
By order of the Board
Shiv Sibal
Group Company Secretary
18 March 2024
Cautionary Statement
This Preliminary Results announcement contains certain forward-looking
statements with respect to the financial condition, results, operations and
business of Marshalls plc. These statements and forecasts involve risk and
uncertainty because they relate to events and depend upon circumstances that
will occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements and forecasts. Nothing in this
Preliminary Results announcement should be construed as a profit forecast.
Directors' Liability
Neither the Company nor the Directors accept any liability to any person in
relation to the contents of this Preliminary Results announcement except to
the extent that such liability arises under English law. Accordingly, any
liability to a person who has demonstrated reliance on any untrue or
misleading statement or omission shall be determined in accordance with
section 90A of the Financial Services and Market Act 2020.
Shareholder Information
Financial calendar
Report and accounts for the year ended December 2023 10 April 2024
Annual General Meeting 15 May 2024
Final dividend for the year ended December 2023 (subject to shareholder 1 July 2024
approval)
Results for the half year ending June 2024 14 August 2024
Results for the year ending December 2024 March 2025
Registrars
All administrative enquiries relating to shareholdings should, in the first
instance, be directed to Computershare Investor Services PLC, PO Box 82, The
Pavilions, Bridgwater Road, Bristol BS99 6ZZ (telephone: 0870 707 1134) and
should clearly state the registered shareholder's name and address.
Dividend mandate
Any shareholder wishing dividends to be paid directly into a bank or building
society should contact the Registrars for a dividend mandate form. Dividends
paid in this way will be paid through the Bankers' Automated Clearing System
("BACS").
Website
The Group has a website that gives information on the Group and its products
and provides details of significant Group announcements. The address is
www.marshalls.co.uk (http://www.marshalls.co.uk) .
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