REG - Marshalls PLC - Half-year Report
16/08/2023 07:00
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RNS Number : 4246J Marshalls PLC 16 August 2023
Management actions position the Group well for when markets normalise
Marshalls plc, a leading manufacturer of sustainable solutions for the built
environment, announces its results for the half year ended 30 June 2023
Highlights
H1 2023 H1 2022 Change (%)
£M
Revenue 354.1 348.4 2%
Adjusted results (Notes 1 and 2)
Adjusted EBITDA 58.8 64.2 (8%)
Adjusted operating profit 41.9 48.0 (13%)
Adjusted profit before tax 33.2 44.6 (26%)
Adjusted basic EPS - pence 10.2 16.4 (38%)
Adjusted proforma ROCE (%) 10.6 13.4 (2.8ppts)
Statutory results
Operating profit 26.8 27.3 (2%)
Profit before tax 16.7 23.9 (30%)
Basic EPS - pence 5.2 7.9 (34%)
Interim dividend - pence 2.6 5.7 (54%)
Net debt 230.0 252.3 9%
Pre-IFRS 16 net debt 184.6 208.2 11%
Financial, operational, and strategic highlights
· Revenue growth of two per cent over 2022 including an additional four-month
contribution from Marley; revenue contracted by 13 per cent on a like-for-like
basis
· Adjusted profit before tax of £33.2 million, a reduction of 26 per cent on
2022. Profit before tax on a statutory basis was £16.7 million (H1 2022:
£23.9 million) including the impact of adjusting items of £16.5 million (H1
2022: £20.7 million)
· Group strategy refreshed and being implemented throughout the organisation
· Decisive action taken to streamline manufacturing capacity and the cost base,
resulting in £9 million of annualised savings
· Flexibility maintained in the manufacturing network to respond rapidly to
produce higher volumes when market normalises
· Net debt of £184.6 million (on a pre-IFRS 16 basis) reduced by £23.6 million
since June 2022, with leverage of 1.6 times adjusted EBITDA. Reported net
debt of £230.0 million (H1 2022: £252.3 million)
· Syndicated bank facility extended by 12 months to April 2027 further improving
security of medium-term funding
· Exited the Group's Belgian operation allowing the Group to focus on the UK
construction market
Outlook
· The challenging trading environment is expected to persist in the second half
of the year and into 2024
· Against this backdrop, the Board will continue to focus on actions to minimise
cost, improve agility and control cash flows alongside ensuring that the
business is well positioned to respond when the Group's end markets start to
recover
· The Board remains confident that these actions, together with the long-term
market growth drivers and a focus on executing key strategic initiatives, will
underpin a material improvement in profitability when market conditions
normalise
Commenting on the results, Martyn Coffey, Chief Executive, said:
"Market conditions in new house building and private housing RMI were
challenging in the first half of the year, which led to a material reduction
in volumes across all three of our reporting segments. This resulted in a
significant decline in Group profitability compared to the first half of
2022. We have responded by taking action to improve our agility, reduce
capacity, take cost out of the business, and manage cash. Regrettably, these
actions necessitated in a reduction of approximately 250 roles across the
organisation. However, we have been careful to ensure that we have
sufficient latent manufacturing capacity that will allow us to respond quickly
when there is an improvement in market conditions.
Our refreshed strategy is underpinned by our strong market positions,
established brands and focused investment plans to drive ongoing operational
improvement. Notwithstanding short-term challenges, the Board remains
confident that the long-term market growth drivers and a focus on executing
key strategic initiatives, will underpin a material improvement in
profitability when market conditions normalise."
There will be a live presentation today at 09:00am 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/marshalls.hy.23
(https://brrmedia.news/marshalls.hy.23)
There will also be a telephone dial in facility available Tel: UK-Wide: +44
(0) 33 0551 0200 and quote password "Marshalls HY Results" if prompted by the
operator.
Notes:
1. The results for the half year ended 30 June 2023 have been disclosed
after adding back adjusting items. These are set out in note four.
2. This Half Year Financial Report 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 Half Year Financial Report, 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 one and 21 for further details.
Enquiries:
Martyn Coffey Chief Executive Marshalls plc +44 (0)1422 314777
Justin Lockwood Chief Financial Officer +44 (0)1422 314777
Tim Rowntree MHP Communications +44 (0)20 3128 8540
Charlie Barker +44 (0)20 3128 8147
Introduction
The first half of 2023 has been challenging for the Group. A weak
macro-economic backdrop has impacted the Group's key end markets, resulting in
a reduction in sales volumes, revenues, and profitability. In response,
management has taken decisive action to improve agility, reduce capacity, take
cost out of the business, and manage cash. These actions have resulted in a
leaner business that is well positioned for when its end markets improve.
Market overview
Following the disposal of the Group's business in Belgium in April 2023,
Marshalls is solely focused on the UK construction market. The Board
estimates that around 40 per cent of the Group's revenues are derived from new
build housing and 40 per cent from commercial & infrastructure end
markets. The remaining revenues of around 20 per cent are focused on private
housing repair, maintenance and improvement ('RMI') and around 12 percentage
points of this comes from driveway and patio products with the balance of
eight percentage points from less discretionary products.
The UK economy deteriorated progressively during 2022 driven by significant
cost inflation, successive base rate increases and falling real wages, all of
which put unprecedented pressure on household budgets and reduced demand for
new build housing. The Bank of England has continued its cycle of tightening
base rates in 2023 and gilt rates have increased due to concerns about the
persistent high rate of core inflation. As a result of this, the price of
fixed rate mortgages is around double the level of a year ago putting
affordability under pressure and causing a fall in house prices. Despite
these factors, the economy has been more resilient than originally expected by
economic commentators and has avoided a technical recession to date. It is now
expected to report modest growth for the year as a whole. Consumer
confidence has improved from the low point reported in the second half of
2022, but it remains weak with the benefit of material reductions in inflation
and energy bills yet to be felt in household budgets. The prospect of higher
mortgage rates when borrowers move onto new deals is also a factor for
concern.
The UK's housebuilders have responded to weaker demand for new housing,
arising from higher mortgage rates, by slowing build programmes. In
addition, subdued consumer confidence has resulted in a weaker environment for
major purchases and this, together with higher interest rates, has resulted in
lower levels of activity in the private housing RMI market. These challenges
in two of our key end markets have impacted the performance of the business in
the first half of the year. The Construction Products Association ('CPA')
reduced its forecast for construction activity during the first half of the
year and its summer forecast anticipates a contraction in activity of seven
per cent in 2023, with reductions of 19 per cent and 11 per cent in new build
housing and private housing RMI, respectively. The CPA also forecasts that
the construction industry will return to growth of one per cent in 2024 as the
macro-economic environment improves.
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 increased 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 ongoing
operational improvements.
Group results
The Group reported a two percent increase in revenue including the benefit of
an additional four-month contribution from the acquisition of Marley, offset
by the impact of the weaker macro-economic environment on market demand.
£'m H1 2023 H1 2022 Change (%)
Revenue 354.1 348.4 2%
Adjusted net operating costs (312.2) (300.4) 4%
Adjusted operating profit 41.9 48.0 (13%)
Adjusted financial expenses (8.7) (3.4) 156%
Adjusted profit before taxation 33.2 44.6 (26%)
Adjusted taxation (7.7) (8.6) 10%
Adjusted profit after taxation 25.5 36.0 (29%)
Adjusted EPS - pence 10.2 16.4 (38%)
Interim dividend - pence 2.6 5.7 (54%)
£'m H1 2023 H1 2022 Change (%)
Adjusted operating profit 41.9 48.0 (13%)
Adjusting items (15.1) (20.7) (27%)
Operating profit 26.8 27.3 (2%)
Finance costs (10.1) (3.4) 197%
Profit before taxation 16.7 23.9 (30%)
EPS - pence 5.2 7.9 (32%)
Group revenue for the six months ended 30 June 2023 was £354.1 million (H1
2022: £348.4 million) which is two per cent higher 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 and a particularly weak performance from
Marshalls Landscape Products.
Group adjusted operating profit was £41.9 million, which is 13 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 2.0 percentage points
to 11.8 per cent (2022: 13.8 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. Selling price
increases have broadly offset input cost inflation during the first half of
the year in a more competitive marketplace. Management has taken decisive
action to improve our agility, reduce capacity, take cost out of the business,
and manage cash. This necessitated the closure of the Group's factory in
Carluke, a reduction in shifts and capacity in other facilities, and a
reorganisation of the Marshalls commercial team focused on simplifying the
business. Regrettably, these changes are expected to result in a reduction
of approximately 250 roles and will deliver annualised savings of around £9
million, with around 40 per cent of this benefit being delivered in 2023.
The Board has reduced its capital expenditure plans without impacting critical
projects, is executing a programme of surplus land disposals, and has
continued to focus on efficient working capital management in order to reduce
the Group's net debt.
The statutory operating profit is stated after adjusting items totalling
£15.1 million as summarised in the following table, further details are set
out at note 4.
£'m H1 2023 H1 2022
Amortisation of intangible assets arising on acquisitions 5.2 2.1
Restructuring costs and asset impairment charges 9.3 -
Contingent consideration 1.2 -
Disposal of Marshalls NV (0.6) -
Transaction related costs - 14.7
Fair value adjustment to inventory - 3.9
Adjusting items within operating profit 15.1 20.7
Adjusting items within financial expenses 1.4 -
Adjusting items within profit before taxation 16.5 20.7
Adjusting items in 2023 principally comprise the amortisation of intangible
assets arising on the acquisition of subsidiary undertakings of £5.2 million
(H1 2022: £2.1 million) and restructuring costs of £9.3 million (H1 2022:
zero). The restructuring costs comprise redundancy costs, impairment charges
and other expenses arising from the decisive action taken in the first half of
the year in response to the challenging market conditions. This includes
£5.2 million of non-cash charges and £4.1 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 H1 2022 are set out at note 4.
Net financial expenses were £10.1 million (H1 2022: £3.4 million) and £8.7
million after adding back adjusting items (H1 2022: £3.4 million). The
expense comprises financing costs associated with the Group's bank borrowings
of £7.1 million (H1 2022: £2.3 million), IFRS 16 lease interest of £1.3
million (H1 2022: £1.1 million) and a pension related expense of £1.7
million (H1 2022: £nil 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 six months of the additional
debt financing used to part-fund the acquisition of Marley and the increase in
base rates.
Adjusted profit before tax was £33.2 million (H1 2022: £44.6 million).
Statutory profit before tax was £16.5 million lower than the adjusted result
at £16.7 million (H1 2022: £23.9 million), reflecting the impact of the
adjusting items. The adjusted effective tax rate was 23.2 per cent (H1 2022:
19.1 per cent), which is broadly in-line with the composite UK headline
corporation tax rate for 2023. On a reported basis, the effective tax rate is
22.8 per cent. Adjusted earnings per share was 10.2 pence (H1 2022: 16.4
pence), which is a 38 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 5.2 pence (H1 2022: 7.9 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 H1 2023 H1 2022 Change (%)
Marshalls Landscape Products 15.4 30.0 (49%)
Marshalls Building Products 8.4 13.0 (35%)
Marley Roofing Products 22.0 8.6 156%
Central costs (3.9) (3.6) 8%
Adjusted operating profit 41.9 48.0 (13%)
Marshalls Landscape Products
Marshalls Landscape Products, which comprises the Group's Commercial and
Domestic landscape business, Landscape Protection and the international
businesses, delivered revenue of £174.1 million (H1 2022: £216.9 million),
which represents a contraction of 20 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 18 per cent.
£'m H1 2023 H1 2022 Change (%)
Revenue 174.1 216.9 (20%)
Segment operating profit 15.4 30.0 (49%)
Segment operating margin % 8.8% 13.8% (5.0ppts)
This reporting segment derives around 40 per cent of its revenues from
commercial & infrastructure and approximately 30 per cent from new build
housing and 30 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 our domestic products, weak consumer confidence,
product price inflation and lower real incomes. Installer order books at the
end of June 2023 increased to 16.7 weeks (February 2023: 14.7 weeks; June
2022: 17.4 weeks), which remains higher than pre COVID-19 levels and
demonstrates continued demand for professional installations. However,
levels of DIY activity remain subdued. These factors resulted in UK domestic
revenues being down by around 25 percent year-on-year, which is a continuation
of the trends reported from the second quarter of 2022. Revenues of
commercially focused products were more robust with a contraction of eight per
cent where a stronger commercial & infrastructure performance was offset
by weakness in new build housing.
Segment operating profit reduced by £14.6 million to £15.4 million. This
was driven by the combined effect of lower volumes on gross profit and a
reduction in the operational efficiency of the manufacturing network due to
reduced production volumes. In addition, the market price for Indian
sandstone contracted during the period, due to overstocking in the supply
chain and a normalisation of freight rates, resulting in a combination of
compressed or negative margins that impacted the result by around £2.8
million. 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 £7.4
million on an annualised basis, of which around £2.7 million is expected to
be realised in 2023. The cost associated with this action has been presented
as an adjusting item (see note 4). The fall in volumes together with the
impact of Indian sandstone pricing resulted in segment operating margins
reducing by 5.0 ppts to 8.8 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 nine per cent year-on-year to £87.2 million.
£'m H1 2023 H1 2022 Change (%)
Revenue 87.2 95.9 (9%)
Segment operating profit 8.4 13.0 (35%)
Segment operating margin % 9.6% 13.6% (4.0ppts)
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. The strongest performances in the segment were delivered by Bricks
and Masonry and Mortars and Screeds where revenues were broadly in-line with
2022, which was offset by a weaker performance in Civils and Drainage and
Aggregates where business volumes are more strongly correlated to new housing
starts.
Segment operating profit contracted by £4.6 million to £8.4 million. This
was driven by the impact of lower volumes on both gross margins and the
operational efficiency of the factories due to reduced production volumes.
Management has taken action to reduce manufacturing capacity through changes
to shifts in certain facilities and removed around £1.6 million from the cost
base, of which £0.9 million is expected to be realised in 2023. Segment
operating margin reduced by four ppts to 9.6 per cent reflecting the impact of
lower volumes on profitability.
Marley Roofing Products
Revenue for the reporting segment increased by £57.2 million including the
four additional months that were consolidated in 2023, however, on a
like-for-like basis Marley's revenues were seven per cent lower than the first
half of 2022.
£'m H1 2023 H1 2022 Change (%)
Revenue 92.8 35.6 161%
Segment operating profit 22.0 8.6 156%
Segment operating margin % 23.7% 24.2% (0.5ppts)
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 seven per cent, with weaker volumes of traditional
roofing partially offset by revenue growth from Viridian Solar, which
benefitted from the trend towards energy efficient solutions in the face of
higher energy prices and the start of the impact of changes to building
regulations.
Segment operating profit in the period was £22.0 million, which was £13.4
million higher than the £8.6 million included in the Group results in the
first half of 2022. However, this represents a reduction of 12 per cent
compared to the corresponding period in 2022, which includes four months of
operating profit that were not included in the Group results. This reduction
in profitability was driven by weaker volumes of traditional roofing products
partially offset by growing profitability from Viridian Solar. In early
July, management took action to reduce costs and capacity by mothballing
certain assets to manage working capital levels. Segment operating margin has
remained strong at 23.7%, representing a year-on-year reduction of 0.5 ppts.
Strategy update
Strategy
The Board has reviewed and refreshed the Group's strategy during the first
half of the year. It expects the refreshed strategy to ensure that the Group
is well positioned for when markets normalise and to support the delivery of
growth ahead of the UK construction market as structural under investment in
the Group's key end markets is addressed. This strategy and the actions that
the Board has taken to manage the current downturn are expected to support a
recovery of operating margins and ROCE to around 15 per cent when volumes
normalise. The Board targets converting 85 to 90 per cent of EBITDA into
operating cash flow, which will enable a clear focus on capital allocation
priorities.
The Board has defined the following key objectives and is developing operating
strategies in each of its businesses that will be aligned to deliver them.
1. Obtain and deliver specifications for our products and systems to grow
revenues and profitability.
2. Innovate and optimise products and solutions.
3. Improve our cost effectiveness, capital efficiency and flexibility.
4. Operate in an environment where safety and people are a key priority.
5. Be easy to work with.
To obtain and deliver specifications for our products and systems to grow
revenues and profitability.
The aim is to create pull demand for our products and systems through securing
specifications in order to optimise our market share and grow our contribution
margin.
Landscape Products secures pull demand for its products by working with
specifiers during design phases of commercial contracts and through the
Marshalls Register of domestic installers and visualisation software for
domestic projects. Within Building Products, the Drainage business generates
demand for its end-to-end integrated water management and retaining wall
solutions, with established partnerships with clients and collaborators alike,
including National Highways, Network Rail and the Environment Agency. This is
underpinned by a design and manufacture system that is well regarded by civils
specifiers. Activity in Bricks & Masonry is targeted at demand
generation from UK house builders who increasingly recognise the value offered
by concrete bricks with lower embodied carbon. The business also achieves
specification projects for walling solutions in a variety of commercial
projects and applications.
Roofing Products leverages the breadth of its product range to provide full
roof system specifications including tiles, battens, accessories and
increasingly roof-integrated solar, that are supported by a 15-year
warranty. Viridian Solar provides site layout and solar design services for
roof-integrated solar systems being supplied into new build housing, which
secures the specification of our products.
To innovate and optimise products and solutions.
The aim is to improve our product mix through new product development and to
generate competitive advantage through innovation in products and solutions,
with a particular emphasis on reducing embodied carbon.
The commissioning of the dual block plant at St Ives is well underway and it
is now producing saleable products. When fully commissioned, this plant will
be able to manufacture a wide range of innovative paving products with a
significantly lower carbon footprint than imported products. The business is
simplifying its paving product range with the twin aims of refreshing the
customer product proposition and reducing manufacturing and stock holding
complexity. Viridian Solar has launched a new range of more powerful solar
panels that have been well received by our customers and are introducing a
range of solar-system add-ons including EV chargers and inverters. In
addition, the business has launched ArcBox, an award-winning fire safety
enclosure and mounting brackets for use with pitched and flat roof solar
mounting systems.
The Group's product innovation is underpinned by developments on 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 CO(2) from other industrial processes to accelerate
the carbonation of concrete, effectively reducing the embodied carbon. This
was successfully trialled during the first half of 2023 in one of our concrete
brick manufacturing sites.
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 our ranges. Work is underway to ensure that EPDs are available
for the entire standard product portfolio by the end of 2023.
To improve our cost effectiveness, capital efficiency and flexibility.
The aim is to deliver our cost base optimisation programme and build a more
variable cost base that allows the Group to flex volumes up and down in-line
with customer demand. The Group will also effectively manage capital
expenditure to focus on maximising returns from efficiency and strategic
projects alongside optimising investment in working capital.
Management has executed several restructuring actions in the first half of the
year to reduce our manufacturing capacity and to simplify the Group, which
have delivered annualised cost savings of approximately £9 million. The
need to reduce our capacity and cost base in the short term has been balanced
with the flexibility to increase production rapidly when demand improves.
Latent capacity exists across all reporting segments that can be reactivated
to satisfy materially higher demand than that being experienced in 2023.
Capital expenditure plans in 2023 have been reduced to focus on maintaining
the existing capital base, investment to implement lower cost mixes for
concrete block paving and completing the dual block plant. Management is
also working with colleagues to develop more flexibility in our labour model,
that will be based on both seasonality of production and unexpected demand
changes.
The operational integration of Marley continues to make progress under the
guidance of the Marshalls' Group team, with continuous and sustainable
improvement being the objective. As previously reported, attraction of skilled
labour, structured performance management and targeted equipment refurbishment
remain the focus areas. The direction of travel therefore is unchanged, albeit
volume reduction in the marketplace has resulted in short term prioritisation
of cost management. We have now fully embedded the procurement, technical and
safety teams into Group both from a people and process perspective. Finally,
we now have sight of the ESG requirements for Marley and are currently
building plans to deliver the necessary projects and targets.
To operate in an environment where safety and people are key priorities.
The Group will continue to focus on ensuring the work environment is safe for
our people. Management will create plans that foster a culture and
environment of diversity, equity, respect, inclusion, and engagement across
the Group.
The Board has always had a clear roadmap of activity regarding keeping
colleagues safe and, in-line with the Group's principles, we adopt a
continuous improvement philosophy in this key area. In the first half of the
year objectives and goals were refreshed and a renewed strategy was launched
with a revamped roadmap. This ensures we keep things fresh and front of mind
when it comes to the health and safety of the Group's people.
The Board's commitment to invest in our people and hearing their voice
continued in the first half of the year. The Employee Voice Group continues to
work with HR and senior leadership to develop policy and practice as well as
providing strong channels of feedback. The Group's Code of Conduct was
refreshed and roll out commenced at the beginning of June with associated
training. Management has continued to support apprenticeships and to provide
access to learning and development opportunities.
To be easy to work with.
The aim is to improve the customer experience by simplifying process and
touchpoints, particularly through the use of digital technologies.
Management continues to focus on executing its 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. In addition
to this, visualisation software and paving installer technology have been
developed alongside the dropship offering which will be launched for
installers, merchants, architects and specifiers. This technology brings
customers closer to the Group's products and allows them and the end consumer
to better understand and visualise how these fit into wider domestic or
commercial projects. In Roofing Products, a digital channel to sell a range of
products including solar and system additions (including inverters and EV
chargers), weatherboard and roofing accessories direct to the end user, will
be launched in the third quarter of the year. Work continues and remains on
track to move the Marshalls ERP system to the cloud whilst simplifying,
digitising and automating processes through the course of this project.
Disposal of Marshalls NV
The Group successfully completed the disposal of its former Belgian subsidiary
in April 2023, which leaves the Group focused on the UK construction market.
This business contributed revenue of £21 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. The sale resulted in a profit on disposal of £0.6 million,
which has been reported as an adjusting item (see note 4).
Balance sheet, cash flow and funding
A summary of the Group's capital deployment and net assets is set out below.
£'m June 2023 June 2022 December
2022
Goodwill and intangible assets 556.6 550.9 559.7
Property, plant & equipment and right-of-use assets 298.6 324.3 303.5
Net working capital 119.7 140.6 109.7
Net pension asset 26.1 43.7 22.4
Deferred tax (89.4) (93.8) (89.4)
Other net balances (1.0) (7.6) (8.2)
Total capital employed 910.6 958.1 897.7
Pre-IFRS 16 net debt (184.6) (208.2) (190.7)
Leases (45.4) (44.1) (45.9)
Net assets 680.6 705.8 661.1
Total capital employed at June 2023 was £910.6 million, which represents an
increase of £12.9 million compared to the December 2022. This increase
principally arises from higher working capital balances of £10.0 million
driven by seasonal trading patterns, although this was more modest than in
2022 (increase of £37 million) due to proactive management of inventories and
weaker revenues.
The balance sheet value of the Group's defined benefit pension scheme was a
surplus of £26.1 million (June 2022: £43.7 million; December 2022: £22.4
million). The amount has been determined by the Scheme's pension adviser. The
fair value of the Scheme assets at June 2023 was £245.2 million (June 2022:
£306.1 million; December 2022: £254.9 million) and the present value of the
Scheme liabilities was £219.1 million (June 2022: £262.4 million; December
2022: £232.5 million). These changes, which include the finalisation of
certain historical benefit issues (see note 4), resulted in an actuarial gain,
net of deferred taxation, of £4.0 million (H1 2022: £13.5 million,
December 2022: £2.3 million) and this has been recorded in the Condensed
Statement of Comprehensive Income. The Scheme's actuarial valuation as at 5
April 2021 was a surplus of £24.3 million, on a technical provisions basis,
and the Company has agreed with the Trustee that no cash contributions are
payable under the funding plan.
Adjusted return on capital employed ('ROCE') was 10.6 per cent (H1 2022: 13.4
per cent; FY 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 on an annualised basis at June 2023 was 105 per
cent of adjusted EBITDA (June 2022: 60 per cent; December 2022: 91 per cent)
which demonstrates the cash generative nature of the Group's businesses. The
proactive management of working capital in the first half of the year combined
with the planned reduction in capital expenditure resulted in a reduction in
pre-IFRS16 net debt of £6.1 million in the period.
The Group had net debt of £230.0 million at June 2023 (June 2022: £252.3
million; December 2022: £236.6 million), including £45.4 million (June
2022: £44.1 million; December 2022: £45.9 million) of IFRS 16 lease
liabilities. Net debt on a pre-IFRS16 basis was £184.6 million with a
reduction of £23.6 million since June 2022 (June 2022: £208.2 million;
December 2022: £190.7 million). The Group extended the term of £350 million
of its syndicated debt facility by 12 months to April 2027 during the first
half of the year, further improving the security of its medium-term debt
funding. Net debt to EBITDA was 1.6 times at June 2023 on an adjusted
pre-IFRS16 annualised basis (December 2022: 1.4 times). Headroom against the
bank facility at June 2023 was £117.5 million and the covenants were
comfortably met at this date.
Dividend
The Group maintains a dividend policy of distributions covered twice by
adjusted earnings. The Board has declared an interim dividend of 2.6 pence
per share, which is 54 per cent lower than 2022 (5.7 pence).This reflects
the weaker financial performance of the business and the application of the
Group's dividend policy to maintain two times cover of adjusted profit after
taxation and pay one third of the expected full year dividend at the interim
stage. The dividend will be paid on 1 December 2023 to shareholders on the
register at the close of business on 20 October 2023. The shares will be
marked ex-dividend on 19 October 2023.
Outlook
The challenging trading environment is expected to persist in the second half
of the year and into 2024. Against this backdrop, the Board will continue to
focus on actions to minimise cost, improve agility and control cash flows
alongside ensuring the business is well positioned to respond when the Group's
end markets start to recover. The Board remains confident that these actions,
together with the long-term market growth drivers and a focus on executing its
key strategic initiatives, will underpin a material improvement in
profitability when market conditions normalise.
Martyn Coffey
Chief Executive
Condensed consolidated income statement
For the period ended 30 June 2023
Unaudited Unaudited
six months ended June 2023 six months ended June 2022 Audited
Year ended December 2022
Notes £'m £'m £'m
Revenue 2 354.1 348.4 719.4
Net operating costs 3 (327.3) (321.1) (671.5)
Operating profit 2 26.8 27.3 47.9
Net financial expenses 5 (10.1) (3.4) (10.7)
Profit before tax 16.7 23.9 37.2
Income tax expense 6 (3.8) (6.5) (10.7)
Profit for the financial period 12.9 17.4 26.5
Profit for the year attributable to:
Equity shareholders of the Parent 13.1 17.2 26.8
Non-controlling interests (0.2) 0.2 (0.3)
Profit for the financial period 12.9 17.4 26.5
Earnings per share
Basic 7 5.2p 7.9p 11.4p
Diluted 7 5.2p 7.9p 11.3p
Dividend
Pence per share 8 2.6p 9.6p 15.6p
A reconciliation of the Group's statutory results to the adjusted results is
set out below.
Unaudited Unaudited
six months ended June 2023 six months ended June Audited
2022 Year ended December 2022
Notes £'m £'m £'m
Operating profit
Operating profit 26.8 27.3 47.9
Adjusting items 4 15.1 20.7 53.2
Adjusted operating profit 41.9 48.0 101.1
Profit before tax
Profit before tax 16.7 23.9 37.2
Adjusting items 4 16.5 20.7 53.2
Adjusted profit before tax 33.2 44.6 90.4
Profit after tax
Profit for the financial period 12.9 17.4 26.5
Adjusting items (net of tax) 4 12.6 18.6 46.8
Adjusted profit after tax 25.5 36.0 73.3
Earnings per share after adding back adjusting items
Basic 7 10.2p 16.4p 31.3p
Diluted 7 10.1p 16.4p 31.1p
Condensed consolidated statement of comprehensive income
For the period ended 30 June 2023
Unaudited Unaudited Audited
six months ended June 2023 six months ended June Year ended December
2022 2022
£'m £'m £'m
Profit for the financial year 12.9 17.4 26.5
Other comprehensive income/(expense)
Items that will not be reclassified to the Income Statement:
Re-measurements of the net defined benefit surplus 5.4 18.0 (3.1)
Deferred tax arising (1.4) (4.5) 0.8
Total items that will not be reclassified to the Income Statement 4.0 13.5 (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 2.6 2.5 5.7
Fair value of cash flow hedges transferred to the Income Statement - (1.6) (2.8)
Deferred tax arising (0.5) 0.5 (0.7)
Reclassification on sale of subsidiary (0.6) - -
Exchange difference on retranslation of foreign currency net investment 0.2 0.3 0.6
Exchange movements associated with borrowings designated as a hedge against (0.2) (0.1) (0.3)
net investment
Foreign currency translation differences - non-controlling interests - - -
Total items that are or may be reclassified to the Income Statement 1.5 1.6 2.5
Other comprehensive income for the period, net of income tax 5.5 15.1 0.2
Total comprehensive income for the period 18.4 32.5 26.7
Attributable to:
Equity shareholders of the Parent 18.4 32.3 26.9
Non-controlling interests - 0.2 (0.2)
18.4 32.5 26.7
Condensed consolidated balance sheet
As at 30 June 2023
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
Notes £'m £'m £m
Assets
Non-current assets
Goodwill 9 324.4 308.8 322.6
Intangible assets 10 232.2 242.1 237.1
Property, plant and equipment 11 256.4 285.4 266.5
Right-of-use assets 42.2 38.9 37.0
Employee benefits 12 26.1 43.7 22.4
Deferred taxation assets 0.9 2.6 1.3
882.2 921.5 886.9
Current assets
Inventories 141.6 149.4 138.8
Trade and other receivables 132.3 151.4 123.3
Cash and cash equivalents 65.4 78.3 56.3
Assets classified as held for sale 1.3 - -
Derivative financial instruments 6.4 1.5 3.6
347.0 380.6 322.0
Total assets 1,229.2 1,302.1 1,208.9
Liabilities
Current liabilities
Trade and other payables 154.2 160.2 152.4
Corporation tax 0.6 3.2 2.1
Lease liabilities 13 8.3 8.7 9.8
Provisions 2.9 - 3.0
166.0 172.1 167.3
Non-current liabilities
Lease liabilities 13 37.1 35.4 36.1
Interest-bearing loans and borrowings 14 250.0 286.5 247.0
Provisions 5.2 5.9 6.7
Deferred taxation liabilities 90.3 96.4 90.7
382.6 424.2 380.5
Total liabilities 548.6 596.3 547.8
Net assets 680.6 705.8 661.1
Equity
Capital and reserves attributable to equity shareholders of the Parent
Called-up share capital 63.2 63.2 63.2
Share premium & merger reserve 341.6 341.6 341.6
Capital redemption reserve & consolidation reserve (137.7) (137.7) (137.7)
Other reserves 4.1 1.1 2.0
Retained earnings 409.4 436.4 391.2
Equity attributable to equity shareholders of the Parent 680.6 704.6 660.3
Non-controlling interests - 1.2 0.8
Total equity 680.6 705.8 661.1
Condensed consolidated cash flow statement
For the period ended 30 June 2023
Unaudited Unaudited Audited
six months ended June six months ended June Year ended December
2023 2022 2022
Notes £'m £'m £'m
Cash generated from operations 17 38.8 12.6 106.8
Financial expenses paid (6.8) (2.8) (9.9)
Income tax paid (8.2) (8.0) (11.6)
Net cash flow from operating activities 17 23.8 1.8 85.3
Cash flows from investing activities
Acquisition of subsidiary undertaking (3.0) (86.2) (86.2)
Acquisition of property, plant and equipment (9.2) (7.4) (27.8)
Acquisition of intangible assets (1.2) (0.4) (2.3)
Cash outflow from sale of subsidiary (1.4) - -
Proceeds from sale of property, plant and equipment 3.7 0.2 1.4
Net cash flow from investing activities (11.1) (93.8) (114.9)
Cash flows from financing activities
Net proceeds from issue of share capital - 182.7 182.7
Payments to acquire own shares (0.2) (1.1) (1.1)
Payment in respect of share-based payment award - (1.2) (1.2)
Repayment of debt on acquisition of subsidiaries - (292.0) (292.0)
Repayment of borrowings (34.4) (57.7) (97.7)
New loans 37.4 303.0 303.5
Cash payment for the principal portion of lease liabilities (6.2) (4.9) (11.1)
Equity dividends paid - - (38.7)
Net cash flow from financing activities (3.4) 128.8 44.4
Net increase/(decrease) in cash and cash equivalents 9.3 36.8 14.8
Cash and cash equivalents at the beginning of the 56.3 41.2 41.2
period
Effect of exchange rate fluctuations (0.2) 0.3 0.3
Cash and cash equivalents at the end of the period 65.4 78.3 56.3
Condensed consolidated statement of changes in equity
for the half year ended 30 June 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 - - - - 13.1 13.1 (0.2) 12.9
Other comprehensive
income/(expense)
Foreign currency - - - - - - - -
translation differences
Reclassification on sale of - - - 0.3 (0.3) - (0.6) (0.6)
subsidiary
Effective portion of changes - - - 2.6 - 2.6 - 2.6
in fair value of cash flow
hedges
Net change in fair value of - - - - - - - -
cash flow hedges transferred
to the Income Statement
Deferred tax arising - - - (0.5) - (0.5) - (0.5)
Defined benefit plan actuarial - - - - 5.4 5.4 - 5.4
gain
Deferred tax arising - - - - (1.4) (1.4) - (1.4)
Total other comprehensive - - - 2.4 3.7 6.1 (0.6) 5.5
income/(expense)
Total comprehensive - - - 2.4 16.8 19.2 (0.8) 18.4
income/(expense) for the
period
Transactions with owners
Shares issued - - - - - - - -
Share issue costs - - - - - - - -
Share-based payments - - - - 1.4 1.4 - 1.4
Deferred tax on - - - - (0.1) (0.1) - (0.1)
share-based payments
Corporation tax on - - - - - - - -
share-based payments
Purchase of own shares - - - (0.2) - (0.2) - (0.2)
Own shares issued under - - - (0.1) 0.1 - - -
share scheme
Total contributions by and - - - (0.3) 1.4 1.1 - 1.1
distributions to owners
Total transactions with - - - 2.1 18.2 20.3 (0.8) 19.5
owners
At 30 June 2023 63.2 341.6 (137.7) 4.1 409.4 680.6 - 680.6
Note*: Other reserves include own shares, hedging reserve and foreign exchange
reserve.
Condensed consolidated statement of changes in equity
for the half year ended 30 June 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 - - - - 17.2 17.2 0.2 17.4
Other comprehensive
income/(expense)
Foreign currency - - - 0.2 - 0.2 - 0.2
translation differences
Effective portion of changes - - - 2.5 - 2.5 - 2.5
in fair value of cash flow
hedges
Net change in fair value of - - - (1.6) - (1.6) - (1.6)
cash flow hedges transferred
to the Income Statement
Deferred tax arising - - - 0.5 - 0.5 - 0.5
Defined benefit plan actuarial - - - - 18.0 18.0 18.0
gain
Deferred tax arising - - - - (4.5) (4.5) - (4.5)
Total other comprehensive - - - 1.6 13.5 15.1 - 15.1
income/(expense)
Total comprehensive - - - 1.6 30.7 32.3 0.2 32.5
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 - - - - (0.3) (0.3) - (0.3)
share-based payments
Corporation tax on - - - - 0.1 0.1 - 0.1
share-based payments
Purchase of own shares - - - (1.1) (1.1) - (1.1)
Own shares issued under - - - 0.4 (0.4) - - -
share scheme
Total contributions by and 13.2 317.1 - (0.7) (0.6) 329.0 - 329.0
distributions to owners
Total transactions with 13.2 317.1 - 0.9 30.1 361.3 0.2 361.5
owners
At 30 June 2022 63.2 341.6 (137.7) 1.1 436.4 704.6 1.2 705.8
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 - 0.2 - 0.2 0.1 0.3
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 - - - 2.4 (2.3) 0.1 0.1 0.2
income/(expense)
Total comprehensive - - - 2.4 24.5 26.9 (0.2) 26.7
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 - - - (1.0) - (1.0) - (1.0)
Own shares issued under - - - 0.4 (0.4) - - -
share scheme
Total contributions and 13.2 317.1 - (0.6) (39.6) 290.1 - 290.1
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 six months year ended 30 June 2023
1. Basis of preparation
These unaudited condensed consolidated interim financial statements for the
six months ended 30 June 2023 have been prepared in accordance with the
Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority
and with IAS 34 'Interim Financial Reporting' as adopted by the United
Kingdom. These condensed consolidated interim financial statements should be
read in conjunction with the Annual Report and Accounts ('the Annual Report')
for the year ended 31 December 2022, which have been prepared in accordance
with United Kingdom adopted international accounting standards and
International Financial Reporting Standards ('IFRS') as issued by the
International Accounting Standards Board ('IASB'). These condensed
consolidated interim financial statements were approved for release on 16
August 2023.
These condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The Annual Report for the year ended 31 December 2022 were approved by
the Board on 15 March 2023 and delivered to the Registrar of Companies. The
Annual Report contained an unqualified audit report and did not include an
emphasis of matter paragraph or any statement under Section 498 of the
Companies Act 2006. The Annual Report is available on the Group's website
(www.marshalls.co.uk (http://www.marshalls.co.uk) ).
The accounting policies applied to prepare these condensed consolidated
interim financial statements are consistent with those applied in the most
recent Annual Report for the year ended 31 December 2022.
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 these condensed consolidated interim financial
statements 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 Half Year Financial Report, 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
arranged a four-year syndicated bank facility in April 2022 and exercised a
one-year extension option in June 2023, which extended £350 million of
funding to April 2027. At 30 June 2023, £117.5 million of the facility was
undrawn (June 2022: £80.2 million undrawn), which is broadly in-line with
December 2022 (£120.1 million undrawn) despite the Group's seasonal increase
in working capital requirements. 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 1.6 times
(covenant maximum of three times) and interest cover of 7.8 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 Half Year Financial Report.
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 four 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 four 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. The assumption on the market-based discount rate is determined based
on the advice of the Group's financial advisor. The actual cash flows
generated by the business may be different to the estimates included in the
forecasts. See further information in note nine.
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
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Revenue
Landscape Products 174.1 216.9 394.1
Building Products 87.2 95.9 193.1
Roofing Products 92.8 35.6 132.2
Revenue 354.1 348.4 719.4
Operating profit
Landscape Products 15.4 30.0 45.3
Building Products 8.4 13.0 26.8
Roofing Products 22.0 8.6 34.4
Central costs (3.9) (3.6) (5.4)
Segment operating profit 41.9 48.0 101.1
Adjusting items (see note 4) (15.1) (20.7) (53.2)
Reported operating profit 26.8 27.3 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.
Segment assets
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m £'m £'m
Segment assets
Landscape Products 243.9 277.2 260.5
Building Products 152.9 153.8 148.4
Roofing Products 600.0 593.6 593.1
Unallocated assets 232.4 277.5 206.9
Total 1,229.2 1,302.1 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
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Capital additions
Landscape Products 12.0 14.0 37.1
Building Products 3.1 2.2 4.6
Roofing Products 4.5 0.5 2.0
Total 19.6 16.7 43.7
Capital additions comprise property, plant and equipment (£7.7 million),
right-of-use assets (£10.7 million) and intangible assets (£1.2 million).
Depreciation and amortisation
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Depreciation and amortisation
Landscape Products 10.1 10.6 22.3
Building Products 4.7 5.3 8.8
Roofing Products 2.1 0.4 3.8
Segment depreciation and amortisation 16.9 16.3 34.9
Adjusting items 5.2 2.1 7.4
Depreciation and amortisation 22.1 18.4 42.3
Depreciation and amortisation includes £5.2 million of amortisation of
intangible assets arising from the purchase price allocation exercises (six
months ended June 2022: £2.1 million; year ended December 2022: £ 7.4
million) comprising £0.1 million (six months ended June 2022: £0.1 million;
year ended December 2022: £0.1 million) in Landscape Products, £0.6 million
in Building Products (six months ended June 2022: £0.6 million; year ended
December 2022: £1.1 million) and £4.5 million in Roofing Products (six
months ended June 2022: £1.4 million; year ended December 2022: £6.2
million). The amortisation has been treated as an adjusting item (note 4).
Geographical destination of revenue
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
United Kingdom 344.3 328.8 687.9
Rest of World 9.8 19.6 31.5
354.1 348.4 719.4
The Group's revenue is subject to seasonal fluctuations resulting from demand
from customers. In particular, demand is higher in the summer months. The
Group manages the seasonal impact through the use of its revolving credit
facility.
3. Net operating costs
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Raw materials and consumables 128.2 153.5 267.3
Changes in inventories of finished goods and work in progress (3.4) (20.5) 6.6
Personnel costs 78.3 74.9 155.5
Depreciation of property, plant and equipment 10.9 10.1 21.8
Depreciation of right-of-use assets 5.1 5.3 11.3
Amortisation of intangible assets 0.9 0.9 1.8
Own work capitalised (1.3) (1.7) (3.1)
Other operating costs 95.7 78.9 159.8
Redundancy and other costs - 0.5 0.5
Operating costs 314.4 301.9 621.5
Other operating income (1.5) (1.1) (2.0)
Net gain on asset and property disposals (0.7) (0.4) (1.2)
Net operating costs before adjusting items 312.2 300.4 618.3
Adjusting items (note 4) 15.1 20.7 53.2
Total net operating costs 327.3 321.1 671.5
4. Adjusting items
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
£'m ended June 2022
2022 £'m
£'m
Amortisation of intangible assets arising on acquisitions 5.2 2.1 7.4
Redundancy and other closure costs 4.5 - 4.1
Impairment of property, plant and equipment 4.8 - 8.8
Contingent consideration 1.2 - 3.9
Disposal / impairment of assets in Belgian subsidiary (0.6) - 10.2
Transaction related costs - 14.7 14.9
Unwind of inventory fair value adjustment - 3.9 3.9
Total adjusting items within operating profit 15.1 20.7 53.2
Adjusting item in interest expense 1.4 - -
Total adjusting items before taxation 16.5 20.7 53.2
Current tax on adjusting items (note 6) (1.0) (0.8) (1.6)
Deferred tax on adjusting items (note 6) (2.9) (1.3) (4.8)
Total adjusting items after taxation 12.6 18.6 46.8
· Amortisation of intangible assets arising on acquisitions is principally in
respect of values recognised for the Marley brand and its customer
relationships.
· Redundancy and other closure costs arose during major restructuring exercises
conducted in the first half of 2023 and the second half of 2022 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
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
£'m ended June 2022
2022
£'m
£'m
Net interest expense on defined benefit pension scheme 0.3 - 0.1
Net interest expense on bank loans 7.1 2.3 8.2
Interest expense of lease liabilities 1.3 1.1 2.4
8.7 3.4 10.7
Additional interest expense in defined benefit pension scheme 1.4 - -
Financial expenses 10.1 3.4 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
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
£'m ended June 2022
2022
£'m
£'m
Current tax expense
Current year 7.0 6.5 11.6
Adjustments for prior years (0.2) (0.4) (0.6)
6.8 6.1 11.0
Deferred taxation expense
Origination and reversal of temporary differences:
Current year (3.0) 1.6 0.8
Adjustments for prior years - (1.2) (1.1)
Total tax expense 3.8 6.5 10.7
Current tax on adjusting items (note 4) 1.0 0.8 1.6
Deferred tax on adjusting items (note 4) 2.9 1.3 4.8
Total tax expenses after adding back adjusting items 7.7 8.6 17.1
7. Earnings per share
Basic earnings per share from total operations of 5.2 pence (six months ended
June 2022: 7.9 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 £13.1
million (six months ended June 2022: £17.2 million; year ended December 2022:
£26.8 million) by the weighted average number of shares in issue during the
period of 252,788,981 (six months ended June 2022: 217,846,900; year ended
December 2022: 235,388,001).
Basic earnings per share after adding back adjusting items of 10.2 pence (six
months ended June 2022: 16.4 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 £25.7 million (six months ended June 2022: £35.8 million; year
ended December 2022: £73.6 million) by the weighted average number of shares
in issue during the period of 252,788,981 (six months ended June 2022:
217,846,900; year ended December 2022: 235,388,001).
Profit attributable to Ordinary Shareholders
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
£'m ended June 2022
2022
£'m
£'m
Profit before adding back adjusting items 25.5 36.0 73.3
Adjusting items (12.6) (18.6) (46.8)
Profit for the financial year 12.9 17.4 26.5
Profit attributable to non-controlling interests 0.2 (0.2) 0.3
Profit attributable to Ordinary Shareholders 13.1 17.2 26.8
Weighted average number of Ordinary Shares
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
ended June 2022
2022
Number Number Number
Number of issued Ordinary Shares 252,968,728 252,735,330 252,968,728
Effect of shares issued during the period - (34,970,453) (17,299,649)
Effect of shares transferred into Employee Benefit Trust (179,747) (97,977) (281,078)
Weighted average number of Ordinary Shares at the end of the year 252,788,981 217,846,900 235,388,001
Diluted earnings per share before adjusting items of 5.2 pence (30 June 2022:
7.9 pence, 31 December 2022: 11.3 pence) per share is calculated by dividing
the profit for the financial period, after adjusting for non-controlling
interests of £13.1 million (30 June 2022: 17.2 million, 31 December 2022:
£26.8 million), by the weighted average number of shares in issue during the
period of 252,788,981 (30 June 2022: 217,846,900, 31 December 2022:
235,388,001), plus potentially dilutive shares of 1,100,908 (30 June 2022:
788,660, 31 December 2022: 1,213,042), which totals 253,889,889 (30 June 2022:
218,635,560; 31 December 2022: 236,601,043).
Diluted earnings per share before adjusting items of 10.1 pence (30 June 2022:
16.4 pence; 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 £25.7 million (30 June 2022: £35.8 million; 31 December 2022:
£73.6 million), by the weighted average number of shares in issue during the
period of 252,788,981 (30 June 2022: 217,846,900; 31 December 2022:
235,388,001), plus potentially dilutive shares of 1,100,908 (30 June 2022:
788,660; 31 December 2022: 1,213,042), which totals 253,889,889 (30 June 2022:
218,635,560; 31 December 2022: 236,601,043).
Weighted average number of Ordinary Shares (diluted)
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
ended June 2022
2022
Number Number Number
Weighted average number of Ordinary Shares 252,788,981 217,846,900 235,388,001
Potentially dilutive shares 1,100,908 788,660 1,213,042
Weighted average number of Ordinary Shares (diluted) 253,889,889 218,635,560 236,601,043
8. Dividends
The Board has declared an interim dividend for 2023 of 2.6 pence per
qualifying Ordinary Share amounting to £6.6 million, to be paid on 01
December 2023 to shareholders registered at the close of business on 20
October 2023. The shares will be marked ex-dividend on 19 October 2023.
9. Goodwill
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Net book value at start of period 322.6 78.5 78.5
Acquisition of a subsidiary - 230.3 244.1
Adjustments to purchase price allocation (see note 19) 1.8 - -
Net book value at end of period 324.4 308.8 322.6
All goodwill has arisen from business combinations. The carrying amount of
goodwill is allocated across cash generating units ("CGUs") and these CGUs are
independent sources of income streams and represent the lowest level within
the Group at which the associated goodwill is monitored for management
purposes. The recoverable amount of the CGUs has been determined from a
value-in-use calculation using cash flow projections based on a combination of
individual financial five-year forecasts, containing assumptions for revenue
growth and operational gearing, and perpetuity at appropriate long term growth
rates of 2.4 per cent. The long-term growth rate assumption reflects the
long-term average growth rate for the UK economy. The cash flow forecasts
are discounted back to present value using a market-based discount rate to
arrive at a value-in-use. The pre-tax discount rate used to calculate the
value-in-use was 16.2 per cent (June 2022: 14.3 per cent).
The Directors have reviewed the recoverable amounts of the CGUs, and
considered possible impacts that might arise from a range of uncertainties,
including the ongoing challenges in the construction industry and the costs of
climate change. The post-tax discount rate is 9.4 per cent (pre-tax 16.2 per
cent). The Group has two material CGUs, Marshalls (the landscaping and
building products businesses) and Marley. The recoverable amount is compared
to carrying value of non-current assets of the CGU (and directly attributable
deferred taxation) including goodwill. This review did not indicate any
impairment of the carrying amount of the non-current assets in either CGU.
Marley was acquired in 2022 and consequently the impairment review is more
sensitive to changes in assumptions than the Marshalls CGU. Applying a
sensitivity to the Marley assessment, based on a higher post-tax discount rate
of 10 per cent, results in headroom of £52 million. The breakeven point
arising from a higher discount rate that would indicate an impairment would
occur at a post-tax rate of 10.7 per cent. The compound annual growth rate
('CAGR') in the Marley five-year forecast is 11.7 per cent, which has been
estimated by the directors based on past performance of the cash-generating
unit and their expectations of market developments and opportunities. The
directors estimate that a decrease in the CAGR to 6.3 per cent would reduce
the headroom in the Marley GCU to nil based on a post-tax discount rate of 9.4
per cent (the breakeven CAGR being 9.0 per cent based on a 10 per cent
post-tax discount rate).
10. Intangible assets
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Net book value at start of period 237.1 16.5 16.5
Acquisition of a subsidiary - 228.2 228.2
Additions 1.2 0.4 2.2
Amortisation (6.1) (3.0) (9.1)
Impairment - - (0.7)
Net book value at end of period 232.2 242.1 237.1
Amortisation includes £5.2 million (six months ended June 2022: £2.1
million; year ended December 2022: £7.4 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 £0.8 million (six months ended June 2022: £1.0
million; year ended December 2022: £1.8 million) of own work capitalised.
11. Property, plant and equipment
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Net book value at start of period 266.5 173.9 173.9
Acquisition of a subsidiary - 111.3 96.2
Additions 7.7 10.5 28.4
Depreciation (10.9) (10.1) (21.8)
Impairment (4.8) - (9.9)
Other movements (2.1) (0.2) (0.3)
Net book value at end of period 256.4 285.4 266.5
Impairment in the half year ended June 2023 represents the assets being
written down to fair value less cost to sell of £4.8 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:
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Present value of Scheme liabilities (219.1) (262.4) (232.5)
Fair value of Scheme assets 245.2 306.1 254.9
Net amount recognised (before deferred tax) 26.1 43.7 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 defined benefit section of 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 defined benefit section of 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 £1.7 million for the six months
ended June 2023 (six months ended June 2022: £nil million; 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 six months ended 30 June 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
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Analysed as:
Amounts due for settlement within twelve months 8.3 8.7 9.8
Amounts due for settlement after twelve months 37.1 35.4 36.1
45.4 44.1 45.9
The Group does not face a significant liquidity risk with regard to its lease
liabilities. The interest expense on lease liabilities amounted to £1.3
million (six months ended June 2022: £1.1 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 half year
ended 30 June 2023, the average effective borrowing rate was 3.5 per cent
(June 2022: 3.3 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 £7.5 million (six
months ended June 2022: £6.0 million; year ended December 2022: £13.5
million). The total cash outflow in relation to short-term and low value
leases was £3.9 million (six months to June 2022: £3.5 million; year ended
December 2022: £7.0 million).
14. Interest bearing loans and borrowings
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Analysed as:
Current liabilities - - -
Non-current liabilities 250.0 286.5 247.0
250.0 286.5 247.0
Interest bearing loans and borrowings are stated net of unamortised debt
arrangement fees of £2.5 million (June 2022: £3.3 million; December 2022:
£2.9 million).
The total syndicated bank facility at June 2023 was £370.0 million (June
2022: £370.0 million; December 2022: £370.0 million), of which £117.5
million (June 2022: £80.2 million; December 2022: £120.1 million) remained
unutilised. The undrawn facility available at June 2023 expires between two
and five years.
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 benefit from additional credit against approved invoices
and, in practice, this provides a facility of up to £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
Unaudited Unaudited Audited
June 2023 June 2022 December 2022
£'m
£'m
£'m
Cash at bank and in hand 65.4 78.3 56.3
Debt due within 1 year - - -
Debt due after 1 year (250.0) (286.5) (247.0)
Lease liabilities (45.4) (44.1) (45.9)
(230.0) (252.3) (236.6)
16. Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
£'m ended June 2022
2022
£'m
£'m
Net increase / (decrease) in cash equivalents 10.6 2.7 (19.3)
Cash (inflow) / outflow from movement in bank borrowings (3.0) 46.6 86.2
On acquisition of subsidiary undertakings - (259.5) (259.5)
On disposal of subsidiary undertakings (1.4) - -
Cash outflow from lease repayments 6.2 4.9 11.1
New leases entered into (11.0) (6.0) (14.0)
Lease liability terminated on disposal of subsidiary undertaking 5.3
Effect of exchange rate fluctuations (0.1) 0.1 -
Movement in net debt in the period 6.6 (211.2) (195.5)
Net debt at beginning of the period (236.6) (41.1) (41.1)
Net debt at end of the period (230.0) (252.3) (236.6)
17. Reconciliation of profit after taxation to cash generated
from operating activities
Unaudited Unaudited Audited
six months ended June 2023 six months year ended December
ended June 2022
2022
Notes £'m £'m £'m
Profit after taxation 12.9 17.4 26.5
Income tax expense on continuing operations 6 7.7 8.6 17.1
Income tax credit on adjusting items 6 (3.9) (2.1) (6.4)
Profit before tax 16.7 23.9 37.2
Adjustments for:
Depreciation of property, plant and equipment 11 10.9 10.1 21.8
Asset impairments 4 4.8 - 14.0
Depreciation of right-of-use assets 5.1 5.3 11.3
Amortisation 0.9 0.9 1.8
Adjusting items 4 10.3 20.7 39.2
Gain on sale of property, plant and equipment (0.7) (0.4) (1.2)
Equity settled share-based payments 1.4 0.8 1.3
Financial income and expenses (net) 5 10.1 3.4 10.7
Operating cash flow before changes in working capital 59.5 64.7
136.1
(Increase)/decrease in trade and other receivables (16.3) (6.3) 22.9
Increase in inventories (6.7) (18.6) (14.0)
Increase/(decrease) in trade and other payables 3.9 (12.2) (20.8)
Adjusting items paid (1.6) (15.0) (17.4)
Cash generated from operations 38.8 12.6 106.8
Financial expenses paid (6.8) (2.8) (9.9)
Income tax paid (8.2) (8.0) (11.6)
Net cash flow from operating activities 23.8 1.8 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 30 June 2023 is shown below:
Book value Fair value
Unaudited Unaudited Audited Unaudited Unaudited Audited
six months ended June 2023 six months year ended December six months ended June 2023 six months year ended December
£m ended June 2022 £m ended June 2022
2022 £m 2022 £m
£m £m
Trade and other receivables 122.3 136.8 113.5 122.3 136.8 113.5
Cash and cash equivalents 65.4 78.2 56.3 65.4 78.2 56.3
Bank loans (250.0) (286.5) (247.0) (243.2) (276.9) (259.2)
Trade payables, other payables and (135.0) (134.1) (136.5) (135.0) (134.1) (136.5)
provisions
Derivatives 6.4 1.5 3.7 6.4 1.5 3.7
Contingent consideration (7.6) (4.9) (8.9) (7.6) (4.9) (8.9)
Financial instrument assets and (198.5) (209.0) (218.9)
liabilities - net
Non-financial instrument assets and 879.1 914.8 880.0
liabilities - net
Net assets 680.6 705.8 661.1
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
June 2023
Derivative financial assets - 6.4 - 6.4
Contingent consideration - - (7.6) (7.6)
- 6.4 (7.6) 1.2
June 2022
Derivative financial assets - 1.5 - 1.5
Contingent consideration - (4.9) (4.9)
- 1.5 (4.9) (3.4)
December 2022
Derivative financial assets - 3.7 - 3.7
Contingent consideration - - (8.9) (8.9)
- 3.7 (8.9) (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.
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 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 together with an explanation of how they are
calculated and why the Board use them is set out below.
APM Definition and purpose
Adjusted operating profit, adjusted profit before tax, adjusted profit after These performance measures are all calculated using the relevant statutory
tax and adjusted earnings per share measure and are stated after adding back adjusting items. The Group's
accounting policy on adjusting items is set out in note 1, basis of
preparation. The Directors assess the performance of the Group using these
measures including when considering dividend payments.
EBITA and adjusted 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. Adjusted EBITA is stated after
adding back adjusting items.
EBITDA and adjusted 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. Adjusted
EBITDA is EBITDA stated after adding back adjusting items. It provides users
with additional information about the performance of the Group.
Adjusted pre-IFRS16 EBITDA Adjusted pre-IFRS16 EBITDA is earnings before interest, taxation, depreciation
(but not right-of-use asset depreciation), amortisation and after adding back
adjusting items and profit or losses on the sale of property, plant and
equipment and is used to assess compliance with the Group's banking covenants.
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.
Net debt Net debt comprises cash at bank and in hand, bank loans and lease
liabilities. It shows the overall net indebtedness of the Group.
Pre-IFRS16 net debt Net debt comprises cash at bank and in hand and bank loans. It shows the
overall net indebtedness of the Group excluding leases and is used in
assessing compliance with the Group's banking covenants.
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. It is used
in assessing compliance with the Group's banking covenants.
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 This measure is net cash flow from operating activities stated after adding
back adjusting items paid, net financial expenses paid, and taxation paid.
It is used to calculate the ratio of adjusted operating cash flow to adjusted
EBITDA.
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.
Reconciliations of IFRS reported income statement measures to income statement
APMs is set out in the following three tables. A number of the APMs were
stated on a proforma 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. A reconciliation of operating profit to adjusted proforma
pre-IFRS16 EBITDA is set out below.
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended
2022 December
2022
£'m £'m £'m
Operating profit 26.8 27.3 47.9
Adjusting items (note 4) 15.1 20.7 53.2
Adjusted operating profit 41.9 48.0 101.1
Amortisation (excluding amortisation of intangible assets arising on 0.9 0.9 1.8
acquisitions)
Adjusted EBITA 42.8 48.9 102.9
Depreciation 16.0 15.4 33.1
Adjusted EBITDA 58.8 64.3 136.0
Marley pre-acquisition EBITDA - 18.1 18.1
Profit on sale of property, plant and equipment (0.7) (0.4) (1.2)
Right-of-use asset charges (6.2) (4.6) (11.1)
Adjusted proforma pre-IFRS16 EBITDA 51.9 77.4 141.8
A reconciliation of operating profit to adjusted EBITDA is set out below.
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Operating profit 26.8 27.3 47.9
Depreciation and amortisation 22.1 18.4 42.3
Reported EBITDA 48.9 45.7 90.2
Adjusting items (excluding amortisation of intangible assets arising on 9.9 18.6 45.8
acquisitions)
Adjusted EBITDA 58.8 64.3 136.0
A reconciliation of operating profit to adjusted proforma EBITA is set out
below.
Unaudited Unaudited Audited
six months ended June 2023
six months ended June
year ended December
£'m 2022 2022
£'m £'m
Operating profit 26.8 27.3 47.9
Amortisation 6.1 3.0 9.2
EBITA 32.9 30.3 57.1
Adjusting items (excluding amortisation of intangible assets arising on 9.9 18.6 45.8
acquisitions)
Adjusted EBITA 42.8 48.9 102.9
Marley pre-acquisition EBITA - 16.4 16.4
Adjusted proforma EBITA 42.8 65.3 119.3
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
Unaudited Unaudited
six months ended June 2023
six months ended June 2022
£'m £'m Change
%
Marshalls Landscape Products 174.1 211.3 (17.6)
Marshalls Building Products 87.2 95.9 (9.1)
Marley Roofing Products 92.8 99.9 (7.1)
Like-for-like revenue 354.1 407.1 (13.0)
The Group sold its Belgian subsidiary on 13 April 2023 and therefore Marshalls
Landscape Products revenue in the first six months of 2022 has been restated
to exclude £5.5 million of revenue generated by that subsidiary between 14
April and 30 June 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.
Net debt
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. Net debt on
both a reported basis and on a pre-IFRS 16 basis is set out below:
Unaudited Unaudited Audited
six months ended June 2023 six months ended June year ended December
£'m 2022 2022
£'m £'m
Net debt on a reported basis 230.0 252.3 236.6
IFRS 16 leases (45.4) (44.1) (45.9)
Net debt on a pre-IFRS16 basis 184.6 208.2 190.7
Pre-IFRS16 net debt leverage
Pre-IFRS16 net debt leverage is defined as pre-IFRS16 net debt divided by
adjusted pre-IFRS16 EBITDA (on an annualised basis).
Unaudited Unaudited Unaudited Audited year ended December 2022
six months ended June 2023
six months ended December 2022
12 months ended June 2023 £m
£'m £'m £'m
Adjusted pre-IFRS16 EBITDA 51.9 64.5 116.4 141.8
Pre-IFRS16 net debt 184.6 190.7 184.6 190.7
Pre-IFRS16 net debt leverage - - 1.6 1.4
The adjusted pre- IFRS16 EBITDA for December 2022 has been prepared on a
proforma basis.
Return on capital employed ('ROCE')
ROCE is defined as EBITA (on an annualised basis) divided by shareholders'
funds plus net debt.
Unaudited Unaudited Unaudited Audited year ended December 2022
six months ended June 2023
six months ended December 2022
12 months ended June 2023 £m
£'m £'m £'m
Adjusted EBITA 42.8 54.0 96.8 119.2
Shareholders' funds - - 680.6 661.1
Net debt - - 230.0 236.6
Capital employed - - 910.6 897.7
ROCE - - 10.6% 13.3%
Operating cash flow conversion
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:
Unaudited Unaudited Unaudited Audited year ended December 2022
six months ended June 2023
six months ended December 2022
12 months ended June 2023 £m
£'m £'m £'m
Net cash flow from operating activities 23.8 83.5 107.3 85.3
Adjusting items paid 1.6 2.4 4.0 17.4
Net financial expenses paid 6.8 7.1 13.9 9.9
Taxation paid 8.2 3.6 11.8 11.6
Adjusted operating cash flow 40.4 96.6 137.0 124.2
Adjusted EBITDA 58.8 71.7 130.5 136.0
Operating cash flow conversion - - 105% 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
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 resilience and flexibility in
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, we have
appointed a dedicated Head of Cyber Security and have a risk-based approach to
the continued development of our cyber security controls.
· Competitor activity - Whilst the Group has recovered input price inflation
in its selling prices, this has become more challenging due to weaker demand
levels resulting in heightened competition for volumes in the marketplace.
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.
Responsibility Statement
The following statement is given by each of the directors, namely Vanda Murray
OBE, Chair; Simon Bourne, Chief Operating Officer; Angela Bromfield,
Non-executive Director; Martyn Coffey, Chief Executive; Avis Darzins,
Non-Executive Director; Diana Houghton, Non-executive Director; Justin
Lockwood, Chief Financial Officer; and Graham Prothero, Senior Non-executive
Director.
The Directors confirm to the best of their knowledge:
· The Condensed Consolidated Half Year Financial Statements have been prepared
in accordance with IAS 34 "Interim Financial Reporting" as contained in UK
adopted IFRS, give a true and fair view of the assets, liabilities, financial
position and profit and loss account of the issuer as required by DTR 4.2.4R
· The Half Year Report includes a fair review of the information required under
DTR 4.2.7R (indication of important events during the six months and
description of the principal risks and uncertainties for the remaining six
months of the year); and
· The Half Year Report includes a fair review of the information required by DTR
4.2.8 (disclosure related parties' transactions and changes therein).
Board members
As at 30 June 2023, the Group's Board members were as follows:
Vanda Murray OBE Chair
Simon Bourne Chief Operating Officer
Angela Bromfield Non-Executive Director
Martyn Coffey Chief Executive
Avis Darzins Non-Executive Director
Diana Houghton Non-Executive Director
Justin Lockwood Chief Financial Officer
Graham Prothero Senior Non-Executive Director
The responsibilities of the Directors during their period of service were as
set out on pages 133 and 134 of the 2022 Annual Report.
By order of the Board
Shiv Sibal
Group Company Secretary
16 August 2023
Independent Review Report to Marshalls plc
Conclusion
We have been engaged by the Company to review the condensed set of Financial
Statements in the Half Year Financial Report for the six months ended 30 June
2023 which comprises the Income Statement, the Balance Sheet, the Statement of
Changes in Equity, the Cash Flow Statement and related notes 1 to 22.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of Financial Statements in the Half-Year
Financial Report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual Financial Statements of the Group are
prepared in accordance with United Kingdom adopted International Accounting
Standards. The condensed set of Financial Statements included in this
Half-Year Financial Report has been prepared in accordance with United Kingdom
adopted International Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Half-Year Financial Report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the Half-Year Financial Report, the Directors are responsible for
assessing the Group's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half-Year Financial Report, we are responsible for expressing
to the Group a conclusion on the condensed set of Financial Statements in the
Half-Year Financial Report. Our conclusion, including our Conclusion Relating
to Going Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
16 August 2023
Shareholder Information
Financial calendar
Half year results for the year ending December 2023 Announced 16 August 2023
Interim dividend for the year ending December 2023 Payable 1 December 2023
Results for the year ending December 2023 Announcement March 2024
Report and accounts for the year ending December 2023 April 2024
Annual General Meeting May 2024
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) .
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
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.
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