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Marshalls PLC  -  MSLH   

Annual Financial Report

Released 07:00 14-Mar-2018

RNS Number : 6199H
Marshalls PLC
14 March 2018
 

 

Preliminary results for the year ended 31 December 2017

 

Marshalls plc, the specialist Landscape Products Group, announces its full year results for the year ended 31 December 2017.

 

Financial Highlights

 

       Year ended

31 December

2017

       Year ended

31 December

2016

Increase

%

 

 

 

 

Revenue

£430.2m

£396.9m

8

EBITDA

£67.9m

£60.8m

12

Operating profit

£53.4m

£47.6m

12

Profit before tax

£52.1m

£46.0m

 

13

Basic EPS

 

21.52p

18.95p

14

Total dividends - ordinary and supplementary

14.20p

11.70p

21

Final ordinary dividend - recommended

Supplementary dividend - recommended

 

Return on capital employed ("ROCE")

 

Net (debt) / cash

6.80p

4.00p

 

24.8%

 

£(24.3)m

5.80p

3.00p

 

23.0%

 

£5.4m

17

33

 

up 180

basis points

 

Notes:

(1) 2017 EBITDA, operating profit and profit before tax are disclosed after charges of approximately £1 million for acquisition costs relating to the acquisition of CPM.

(2) 2017 ROCE has been calculated on a like-for-like basis, excluding the impact of CPM.

(3) Alternative performance measures are used consistently throughout this Preliminary Announcement.  These relate to like-for-like, EBITA, EBITDA and ROCE.  For further details of their purpose, definition and reconciliation to the equivalent statutory measures see Note 2.

 

Highlights:                                                                                           

·      Revenue up 8% to £430.2 million (2016: £396.9 million), with like-for-like revenue (excluding CPM) up 6%

·      Profit before tax up 13% to £52.1 million (2016: £46.0 million), after charging approximately £1 million of acquisition costs

·      Return on capital employed improved 8% (180 basis points) to 24.8% (2016: 23.0%) on a like-for-like basis

·      EPS up 14% to 21.52 pence (2016: 18.95 pence)

·      CPM has traded strongly since acquisition and its integration is in line with our expectations

·      The Group's strong cash generation has continued

·      Net debt of £24.3 million (2016: £5.4 million cash) reflects cash outflow relating to the CPM acquisition of £41.4 million

·      Final ordinary dividend increased by 17% to 6.80 pence (2016: 5.80 pence) per share

·      Supplementary dividend of 4.00 pence (2016: 3.00 pence) per share

·      Strong start to 2018 - sales up 18% including CPM (up 4% underlying)

 

The 2020 Strategy remains on track:

·      EBITDA growth continues alongside improved ROCE and strengthened brand

·      Self help programme well advanced

·      Organic capital investment continues

·      Research and development expenditure increased in the period

·      Focus on innovation, new product development and service to drive sales growth

·      Focus on increasing the profitability of the Emerging UK Businesses continues

·      Wide-ranging digital strategy continues to drive real benefits across the business

·      Continue to target selective bolt-on acquisition opportunities after the acquisition of CPM

·      Maintain a 2 times dividend cover policy, supported by supplementary dividends

 

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

 

"The Group has again delivered strong profit growth year-on-year.  Good progress has been made in the year executing the 2020 Strategy, notably the acquisition of CPM, and the ongoing self help programme to drive organic growth is progressing well.  The underlying drivers have remained positive in our main end markets and our sales and order intake have been strong in the first 2 months of 2018.

 

We remain well placed to deliver continued growth and operational profit improvements."

 

Enquiries:

Martyn Coffey

Chief Executive

Marshalls plc

+44(0)1422 314777

Jack Clarke

 

Group Finance Director

 

 

Andrew Jaques

James White

 

MHP Communications

+44(0)20 3128 8540

 

There will be a live video webcast of the analyst presentation today at 09:00am, which you can access via the following link: http://webcasting.brrmedia.co.uk/broadcast/5a6b562216922235d7fd5a58 or from our website, www.marshalls.co.uk.  An on demand version of the webcast will be available on the website later in the day.  The presentation is also available by dial in conference call on +44 (0)330 336 9411; meeting code 1013325.

 

Group Results

Group revenue for the year ended 31 December 2017 was up 8 per cent at £430.2 million (2016: £396.9 million). Group revenue includes £9.0 million from CPM Group Limited ("CPM"), which was acquired on 19 October 2017 and on a like-for-like basis, excluding the impact of CPM, Group revenue was up 6 per cent.

 

Sales in the Domestic end market, which represented approximately 32 per cent of Group sales, continue to outperform CPA forecasts and were up 12 per cent compared with the prior year. The survey of domestic installers at the end of February 2018 revealed order books of 10.8 weeks (2017: 10.9 weeks) which compared with 11.7 weeks at the end of October 2017.

 

Excluding CPM, sales in the Public Sector and Commercial end market, which represented approximately 61 per cent of Group sales, were up 2 per cent compared with 2016. The Group continues to target those parts of the market where higher levels of growth are anticipated including New Build Housing, Water Management and Rail.

 

As a result of our continued focus on strategic growth and operational efficiency initiatives, the Group delivered an operating profit of £53.4 million in 2017 (2016: £47.6 million), an increase of 12 per cent. This profit is calculated after charging approximately £1 million of acquisition costs in relation to the Group's acquisition of CPM.

 

CPM is a precast concrete manufacturer which specialises in underground water management solutions and the acquisition is in line with our stated 2020 Strategy to complement our organic growth plans with targeted acquisitions. CPM has traded strongly since acquisition and the planned integration of the business is in line with our expectations.

 

ROCE, defined as EBITA / shareholders' funds plus net debt, was 24.8 per cent for the year ended 31 December 2017, which was up 8 per cent (180 basis points) year-on-year. This ROCE calculation excludes the impact of CPM and is therefore on a like-for-like basis. Including the acquisition of CPM towards the end of the year, ROCE on a reported basis remained strong at 20.8 per cent (2016: 23.0 per cent).

 

Profit before tax increased by 13 per cent to £52.1 million (2016: £46.0 million) and EBITDA increased by 12 per cent to £67.9 million (2016: £60.8 million) after charging approximately £1 million of acquisition costs.  Basic EPS was 21.52 pence (2016: 18.95 pence), an increase of 14 per cent.

 

Net finance costs were £1.3 million (2016: £1.6 million) and interest was covered 38.5 times (2016: 29.9 times). Interest charges on bank loans totalled £0.9 million (2016: £1.1 million) and, including scheme administration costs, there was an IAS 19 notional interest charge of £0.4 million (2016: £0.5 million) in relation to the Group's Pension Scheme. The IAS 19 notional interest includes interest on obligations under the defined benefit section of the Marshalls plc Pension Scheme net of the expected return on Scheme assets.

 

The effective tax rate was 19.1 per cent (2016: 18.5 per cent), the prior year having benefited from a deferred tax credit arising principally in relation to the settlement of share-based payments.  The Group has paid £10.5 million (2016: £7.1 million) of corporation tax during the year.

 

Marshalls has again been awarded the Fair Tax Mark, which recognises social responsibility and transparency in a company's tax affairs. The Group's approach has long been closely aligned with the Fair Tax Mark's objectives and this is supported by the Group's tax strategy and fully transparent tax disclosures.

 

Capital discipline remains a key priority and the Group's strong cash generation has continued. Net debt at 31 December 2017 was £24.3 million (2016: £5.4 million cash) and reflects the total cash outflow of £41.4 million in connection with the acquisition of CPM.  Operating cash flow was 100 per cent of EBITDA.

 

Acquisition of CPM

 

Water Management is a key focus area for the Group and the acquisition of CPM, in October last year, is a significant step towards the Group's stated strategy of building a full water management capability within its product range. CPM will enable the Group to offer customers a broader product choice that complements our existing water management offering. Previously, Marshalls did not trade in below ground UK drainage products, so the acquisition has extended the Group's product range below ground.

 

CPM's product ranges include pipes, traditional and sealed manholes, attenuation tanks and flow control and rainwater harvesting systems. CPM is a growing business with a strong track record of quality and service and is able to provide a comprehensive range of technical and innovative water management solutions.

 

Operating performance

 

Marshalls benefits from being a leading brand with a strong market position and a proven growth strategy. Marshalls continues to be a benchmark for excellence and the three cornerstone themes of customer service, quality and sustainability continue to put the customer at the very heart of our business model and investment proposition.

 

The core Commercial and Domestic businesses continue to deliver benefits from operational efficiency improvements and our network of manufacturing sites remains a key competitive strength. Revenues in the Emerging UK Businesses increased by 2 per cent, compared with the prior year.  The improved performance of our Street Furniture business has been particularly encouraging in 2017, and the growth in sustainable profitability of our Emerging UK Businesses remains a key part of the 2020 Strategy.

 

International revenue grew by 19 per cent during 2017 and represents approximately 5 per cent of Group sales. Marshalls has made continued progress in developing the International business and trading performance has improved in line with the revenue growth.  The Group continues to develop opportunities by improving its global supply chains and routes to market.

 

We are continuing to focus on improving operational and manufacturing efficiency. The Group adopts a flexible operating framework that aims to drive cost efficiency improvements across the controllable cost base and to develop flexible strategies within the supply chain. Our objective is to mitigate inflation on an ongoing basis to ensure sustainable business continuity and cost control. The Group's network of 13 concrete manufacturing sites and quarries provides national geographic coverage and, with the implementation of best practice across the entire network, represents a key competitive advantage.

 

The Group's well invested sites and capital expenditure programmes provide the flexibility to manufacture products for both the Public Sector and Commercial and the Domestic end markets.  This enhances operational flexibility and remains a key priority. All the Group's operations are supported by a centrally managed logistics and distribution capability.  Manufactured products from this network, together with ethically sourced natural stone products imported from India, China and Vietnam, are supplied to distributors' depots or direct to site.

 

New product development remains a core part of the 2020 Strategy.  In the core Landscape Products business, the growth in revenue from new products continued strongly, increasing by 4.2 per cent during 2017. The objective is to deliver innovative market leading new products that are aligned with customer needs across all business areas. The development pipeline continues to be strong and the Group is committed to providing high performance product solutions. All the Group's premium driveway products now feature advanced Surface Performance Technology; examples include "Drivesys" which has been designed to look and feel like natural stone and "Priora" which has been specifically engineered to manage heavy rainfall.

 

Further development includes project engineering to improve manufacturing efficiency and our specialist engineers and technicians deliver competitive advantage for Marshalls by combining machinery design and installation with process improvement. This enables the Group to generate added value through innovation in materials, technology and product development.

 

In summary, Marshalls' operational priorities continue to focus on ensuring a consistently high standard of quality and a market leading level of customer service. The Group continues to extend its innovative product range and provide more integrated product solutions. The Group's Domestic strategy continues to drive sales growth through approved domestic installers.  The Marshalls Register comprises approximately 1,900 teams and our continued focus on training and enhanced digital collateral aims to improve further the online customer experience.

 

Delivering the 2020 Strategy

 

The Group's 2020 Strategy is now in its third year and we have again delivered on its core aspects.  The Group's strategy remains to grow the business, deliver increasing operating margins in all businesses and improve the Group's ROCE.  We are now starting to look beyond 2020 so as to progress the development of our strategic objectives over the longer term.

 

During 2017, further progress has been made with the self help capital investment programme, the development of new products and the Group's digital strategy. These organic projects have been complemented by the acquisition of CPM and its planned integration is in line with our expectations.  Both aspects have allowed us to improve the level of our sustainable operating margins, with the Group reporting an increase from 12.0 per cent to 12.4 per cent during the year.

 

Capital expenditure was £22.5 million in the year ended 31 December 2017, which included £8.6 million of additional self help investment. Capital expenditure of £28.0 million is planned for 2018. We continue to generate a good pipeline of capital investment projects that will drive future organic growth. In addition, increases in research and new product development expenditure continue to be made.

 

Notwithstanding the acquisition of CPM, we continue to target bolt-on acquisitions within our identified growth sectors of Water Management, Street Furniture and Minerals. Our approach remains cautious and any proposed acquisition target will be carefully assessed against strict criteria and will be thoroughly considered during the detailed due diligence phase.

 

Marshalls' Digital Strategy remains a key priority and continued investment is being directed to enhancing capability and to drive a "digital first" approach. The digital strategy is underpinned by continuous improvement driven by data analysis and customer insight. Our web and mobile applications enable customers to model their requirements and allow digital access to the registered installer base.

 

Capital allocation

 

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

 

The priorities for capital allocation are:

 

1. Organic growth - capital investment, with £28 million planned for 2018;

2. Increased research and development and new product development expenditure;

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

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

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

 

Balance sheet and net debt

 

Net assets at 31 December 2017 were £237.6 million (2016: £217.1 million).

 

Net debt at 31 December 2017 was £24.3 million (2016: £5.4 million cash), which reflects the payment of consideration and costs totalling £38.4 million in relation to the acquisition of CPM, together with the impact of CPM's net borrowings taken on of £3.0 million.  The ratio of net debt to EBITDA was 0.35 times, at 31 December 2017, which is comfortably within our target range, of between 0 to 1 times, and well below covenant levels. Cash management continues to be a high priority with continuing focus on the close control of inventory and the effective management of working capital. Our key working capital metrics are in line with management plans.  The Group has a good range of medium term bank facilities available to fund investment initiatives to support the Group's growth strategy.

 

The balance sheet value of the Group's defined benefit Pension Scheme was a surplus of £4.1 million (2016: £4.3 million). The amount has been determined by the scheme actuary.  The fair value of the Scheme assets at 31 December 2017 was £354.7 million (2016: £360.1 million) and the present value of the Scheme liabilities is £350.6 million (2016: £355.8 million). These changes have resulted in an actuarial gain, net of deferred taxation, of £0.3 million (2016: £1.4 million actuarial gain) and this has been recorded in the Consolidated Statement of Comprehensive Income. The Company has previously agreed with the Trustee that no cash contributions are now payable under the funding and recovery plan.

 

Dividends

 

Marshalls has strong cash generation and a robust balance sheet which underpins a progressive dividend policy aimed at achieving up to 2 times dividend cover over the business cycle. The Board is recommending a final dividend of 6.80 pence (2016: 5.80 pence) per share which, together with the interim dividend of 3.40 pence (2016: 2.90 pence) per share, makes a total ordinary dividend for the year of 10.20 pence (2016: 8.70 pence) per share, an increase of 17 per cent.

 

Given another strong performance in the year, the Board is also recommending a supplementary dividend of 4.00 pence per share for 2017 (2016: 3.00 pence). As previously, this supplementary dividend is discretionary and non-recurring. The payment of a supplementary dividend recognises the Board's objective of maintaining an efficient and prudent capital structure and providing increased returns for shareholders whilst at the same time retaining flexibility for capital and other investment opportunities.

 

Taken together, the ordinary and supplementary dividends represent an aggregate distribution for the year of 14.20 pence per share (2016: 11.70 pence).  Subject to shareholders' approval at the Annual General Meeting on 9 May 2018, the final ordinary dividend of 6.80 pence per ordinary share and the supplementary dividend of 4.00 pence per share will be paid on 29 June 2018 to shareholders on the register at 8 June 2018.

 

Outlook

 

The Group has again delivered strong profit growth year-on-year. Good progress has been made in the year executing the 2020 Strategy, notably the acquisition of CPM, and the ongoing self help programme to drive organic growth is progressing well. The underlying drivers have remained positive in our main end markets and our sales and order intake have been strong in the first two months of 2018.

 

We remain well placed to deliver continued growth and operational profit improvements.

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Income Statement

for the year ended 31 December 2017

 

 

 

2017

2016

 

Notes

£'000

£'000

Revenue

3

430,194

396,922

Net operating costs

4

(376,755)

(349,283)

Operating profit

3

53,439

47,639

Financial expenses

5

(1,388)

(1,594)

Financial income

5

-

1

Profit before tax

3

52,051

46,046

Income tax expense

6

(9,925)

(8,539)

Profit for the financial year

 

42,126

37,507

Profit for the year

 

 

 

Attributable to:

 

 

 

Equity shareholders of the Parent

 

42,503

37,350

Non-controlling interests

 

(377)

157

 

 

42,126

37,507

Earnings per share

 

 

 

Basic

7

21.52p

18.95p

Diluted

7

21.37p

18.61p

Dividend

 

 

 

Pence per share

8

12.20p

9.65p

Dividends declared

8

24,105

19,034

 

All results relate to continuing operations.

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2017

 

 

2017

2016

 

£'000

£'000

Profit for the financial year

42,126

37,507

Other comprehensive income / (expense)

 

 

Items that will not be reclassified to the Income Statement:

 

 

Remeasurements of the net defined benefit liability

328

1,394

Deferred tax arising

(56)

(237)

Total items that will not be reclassified to the Income Statement

272

1,157

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

146

1,123

Fair value of cash flow hedges transferred to the Income Statement

(385)

1,681

Deferred tax arising

35

(561)

Exchange difference on retranslation of foreign currency net investment

179

2,729

Exchange movements associated with borrowings

(638)

(2,641)

Foreign currency translation differences - non-controlling interests

371

169

Total items that are or may be reclassified subsequently to the Income Statement

(292)

2,500

Other comprehensive (expense) / income for the year, net of income tax

(20)

3,657

Total comprehensive income for the year

42,106

41,164

Attributable to:

 

 

Equity shareholders of the Parent

42,112

40,838

Non-controlling interests

(6)

326

 

42,106

41,164

 

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Balance Sheet

for the year ended 31 December 2017

 

 

 

2017

2016

 

Notes

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

169,093

146,995

Intangible assets

 

73,079

40,093

Trade and other receivables

 

-

208

Employee benefits

9

4,127

4,276

Deferred taxation assets

 

2,775

1,821

 

 

249,074

193,393

Current assets

 

 

 

Inventories

 

77,859

68,713

Trade and other receivables

 

68,221

49,010

Cash and cash equivalents

 

19,845

20,681

Assets classified as held for sale

 

-

624

Derivative financial instruments

 

447

657

 

 

166,372

139,685

Total assets

 

415,446

333,078

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

97,552

79,646

Corporation tax

 

9,299

7,388

Interest-bearing loans and borrowings

 

35

34

 

 

106,886

87,068

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

 

44,107

15,234

Provisions

 

11,840

-

Deferred taxation liabilities

 

14,986

13,655

 

 

70,933

28,889

Total liabilities

 

177,819

115,957

Net assets

 

237,627

217,121

Equity

 

 

 

Capital and reserves attributable to equity shareholders of the Parent

 

 

 

Called-up share capital

 

49,845

49,845

Share premium account

 

22,695

22,695

Own shares

 

(2,359)

(3,622)

Capital redemption reserve

 

75,394

75,394

Consolidation reserve

 

(213,067)

(213,067)

Hedging reserve

 

386

590

Retained earnings

 

303,274

283,821

Equity attributable to equity shareholders of the Parent

 

236,168

215,656

Non-controlling interests

 

1,459

1,465

Total equity

 

237,627

217,121

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Cash Flow Statement

for the year ended 31 December 2017

 

 

 

 

2017

2016

 

Notes

£'000

£'000

Cash flows from operating activities

 

 

 

Profit for the financial year

 

42,126

37,507

Income tax expense

6

9,925

8,539

Profit before tax

 

52,051

46,046

Adjustments for:

 

 

 

Depreciation

 

13,314

12,146

Amortisation

 

1,142

1,009

Gain on sale of property, plant and equipment

 

(948)

(609)

Equity settled share-based payments

 

2,382

2,884

Financial income and expenses (net)

 

1,388

1,593

Operating cash flow before changes in working capital

 

69,329

63,069

Decrease / (increase) in trade and other receivables

 

5,334

(4,602)

Increase in inventories

 

(4,252)

(2,419)

(Decrease)/Increase in trade and other payables

 

(320)

1,868

Operational restructuring costs paid

 

(1,217)

(476)

Acquisition costs paid

 

(193)

-

Cash generated from operations

 

68,681

57,440

Financial expenses paid

 

(911)

(940)

Income tax paid

 

(10,465)

(7,107)

Net cash flow from operating activities

 

57,305

49,393

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

 

3,891

3,839

Financial income received

 

-

1

Acquisition of subsidiary undertaking

 

(41,227)

-

Acquisition of property, plant and equipment

 

(18,895)

(12,939)

Acquisition of intangible assets

 

(1,750)

(934)

Net cash flow from investing activities

 

(57,981)

(10,033)

Cash flows from financing activities

 

 

 

Payments to acquire own shares

 

(1,068)

(1,175)

Net decrease in other debt and finance leases

 

(3,407)

(40)

Increase / (decrease) in borrowings

 

28,226

(23,791)

Equity dividends paid

 

(24,105)

(19,034)

Net cash flow from financing activities

 

(354)

(44,040)

Net decrease in cash and cash equivalents

 

(1,030)

(4,680)

Cash and cash equivalents at the beginning of the year

 

20,681

24,990

Effect of exchange rate fluctuations

 

194

371

Cash and cash equivalents at the end of the year

 

19,845

20,681

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Changes in Equity

for the year ended 31 December 2017

 

 

Attributable to equity holders of the Company

 

 

 

Share

 

Capital

 

 

 

 

Non-

 

 

Share

premium

Own

redemption

Consolidation

Hedging

Retained

 

controlling

Total

 

capital

account

shares

reserve

reserve

reserve

earnings

Total

interests

equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Current year

 

 

 

 

 

 

 

 

 

 

At 1 January 2017

49,845

22,695

(3,622)

75,394

(213,067)

590

283,821

215,656

1,465

217,121

Total comprehensive

income  for the year

 

 

 

 

 

 

 

 

 

Profit for the financial year

attributable to equity

shareholders of the Parent

-

-

-

-

-

-

42,503

42,503

(377)

42,126

Other comprehensive

income / (expense)

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

differences

-

-

-

-

-

-

(459)

(459)

371

(88)

Effective portion of changes in

fair value of cash flow hedges

-

-

-

-

-

146

-

146

-

146

Net change in fair value of

cash flow hedges transferred

to the Income Statement

-

-

-

-

-

(385)

-

(385)

-

(385)

Deferred tax arising

-

-

-

-

-

35

-

35

-

35

Defined benefit plan actuarial

gain

-

-

-

-

-

-

328

328

-

328

Deferred tax arising

-

-

-

-

-

-

(56)

(56)

-

(56)

Total other comprehensive

income

-

-

-

-

-

(204)

(187)

(391)

371

(20)

Total comprehensive

income for the year

-

-

-

-

-

(204)

42,316

42,112

(6)

42,106

Transactions with owners,

recorded directly in equity

 

 

 

 

 

 

 

 

 

Contributions by and

distributions to owners

 

 

 

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

-

2,382

2,382

-

2,382

Deferred tax on

share-based payments

-

-

-

-

-

-

885

885

-

885

Corporation tax on

share-based payments

-

-

-

-

-

-

306

306

-

306

Dividends to equity

shareholders

-

-

-

-

-

-

(24,105)

(24,105)

-

(24,105)

Purchase of own shares

-

-

(1,068)

-

-

-

-

(1,068)

-

(1,068)

Disposal of own shares

-

-

2,331

-

-

-

(2,331)

-

-

-

Total contributions by and

distributions to owners

-

-

1,263

-

-

-

(22,863)

(21,600)

-

(21,600)

Total transactions with

owners of the Company

-

-

1,263

-

-

(204)

19,453

20,512

(6)

20,506

At 31 December 2017

49,845

22,695

(2,359)

75,394

(213,067)

386

303,274

236,168

1,459

237,627

 

Marshalls plc

Preliminary Announcement of Results

Consolidated Statement of Changes in Equity (continued)

for the year ended 31 December 2017

 

 

 

Attributable to equity holders of the Company

 

 

 

Share

 

Capital

 

 

 

 

Non-

 

 

Share

premium

Own

redemption

Consolidation

Hedging

Retained

 

controlling

Total

 

capital

account

shares

reserve

reserve

reserve

earnings

Total

interests

equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Current year

 

 

 

 

 

 

 

 

 

 

At 1 January 2016

49,845

22,695

(5,529)

75,394

(213,067)

(1,653)

263,894

191,579

1,139

192,718

Total comprehensive

income  for the year

 

 

 

 

 

 

 

 

 

Profit for the financial year

attributable to equity

shareholders of the Parent

-

-

-

-

-

-

37,350

37,350

157

37,507

Other comprehensive

income / (expense)

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

differences

-

-

-

-

-

-

88

88

169

257

Effective portion of changes in

fair value of cash flow hedges

-

-

-

-

-

1,123

-

1,123

-

1,123

Net change in fair value of

cash flow hedges transferred

to the Income Statement

-

-

-

-

-

1,681

-

1,681

-

1,681

Deferred tax arising

-

-

-

-

-

(561)

-

(561)

-

(561)

Defined benefit plan actuarial

gain

-

-

-

-

-

-

1,394

1,394

-

1,394

Deferred tax arising

-

-

-

-

-

-

(237)

(237)

-

(237)

Total other comprehensive

income

-

-

-

-

-

2,243

1,245

3,488

169

3,657

Total comprehensive

income for the year

-

-

-

-

-

2,243

38,595

40,838

326

41,164

Transactions with owners,

recorded directly in equity

 

 

 

 

 

 

 

 

 

Contributions by and

distributions to owners

 

 

 

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

-

2,884

2,884

-

2,884

Deferred tax on

share-based payments

-

-

-

-

-

-

122

122

-

122

Corporation tax on

share-based payments

-

-

-

-

-

-

442

442

-

442

Dividends to equity

shareholders

-

-

-

-

-

-

(19,034)

(19,034)

-

(19,034)

Purchase of own shares

-

-

(1,175)

-

-

-

-

(1,175)

-

(1,175)

Disposal of own shares

-

-

3,082

-

-

-

(3,082)

-

-

-

Total contributions by and

distributions to owners

-

-

1,907

-

-

-

(18,668)

(16,761)

-

(16,761)

Total transactions with

owners of the Company

-

-

1,907

-

-

2,243

19,927

24,077

326

24,403

At 31 December 2016

49,845

22,695

(3,622)

75,394

(213,067)

590

283,821

215,656

1,465

217,121

 

Marshalls plc

Preliminary Announcement of Results

Notes to the Financial Statements

for the year ended 31 December 2017

 

1 Basis of preparation

Whilst the Financial Information included in this Preliminary Announcement has been prepared on the basis of the recognition and measurement criteria of IFRSs in issue, as adopted by the European Union and effective at 31 December 2017, this announcement does not itself contain sufficient information to comply with IFRS.  The Group expects to publish full Consolidated Financial Statements in April 2018.

 

The Financial Information set out in this Preliminary Announcement does not constitute the Company's Consolidated Financial Statements for the years ended 31 December 2017 or 2016, but is derived from those Financial Statements.  Statutory Financial Statements for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting.  The auditor, Deloitte LLP, has reported on those Financial Statements.  The audit reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying the reports and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2017 or 2016.

 

The Consolidated Financial Statements have been prepared in accordance with IFRSs as adopted for use in the EU and therefore the Group Financial Statements comply with Article 4 of the EU IAS Regulations. The Group has applied all accounting standards and interpretations issued by the IASB and International Financial Reporting Committee relevant to its operations and which are effective in respect of these Financial Statements.

 

Amendments to IFRSs that are mandatorily effective for the current year

 

In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board ("IASB") that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Their adoption has not had any material impact on the disclosures or on the amounts reported in these Financial Statements.

 

Amendments to IAS 7 - "Disclosure Initiative".

The Group has adopted the amendments to IAS 7 for the first time in the current year. The amendments require an entity to provide disclosures that enable users of Financial Statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Group's liabilities arising from financing activities consist of borrowings and certain derivatives. Apart from additional disclosures, the application of these amendments has had no impact on the Group's Consolidated Financial Statements.

Amendments to IAS 12 - "Recognition of Deferred Tax Assets for Unrealised Losses".

The Group has adopted the amendments to IAS 12 for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference. The application of these amendments has had no impact on the Group's Consolidated Financial Statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.

"Annual Improvements to IFRSs 2014-2016 Cycle ".

The Group has adopted the amendments to IFRS 12 included in the "Annual Improvements to IFRSs 2014-2016 Cycle" for the first time in the current year. The other amendments included in this package are not yet mandatorily effective and they have not been early adopted by the Group. IFRS 12 states that an entity need not provide summarised financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.

 

New and revised IFRSs in issue but not yet effective

 

At the date of authorisation of these Financial Statements, the Group has not applied the following new or revised IFRSs that have been issued but are not yet effective and, in some cases, have not yet been adopted by the EU:

 

IFRS 9

"Financial Instruments";

IFRS 15

"Revenue from Contracts with Customers (and the related Clarifications)";

IFRS 16

"Leases";

IFRS 17

"Insurance Contracts";

IFRS 2 (amendments)

"Classification and Measurement of Share-based Payment Transactions";

IFRS 4 (amendments)

"Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts";

IAS 40 (amendments)

"Transfers of Investment Property";

IFRS 10 and IAS 28 (amendments)

"Sale or Contribution of Assets between an Investor and its Associate or Joint Venture";

Annual Improvements to IFRSs 2014-2016 Cycle

Amendments to IFRS 1 "First-time Adoption of International Financial     Reporting Standards and IFRS 28 Investments in Associates and Joint Ventures";

Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IFRS 3 "Business Combinations, IFRS 11 Joint arrangements, IAS 12 Income tax and IAS 23 borrowing costs";

IFRIC 22

"Foreign Currency Transactions and Advanced Consideration"; and

IFRIC 23

"Uncertainty over Income Tax Treatments".

 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Financial Statements of the Group in future periods, except as noted below:

 

IFRS 15 "Revenue from Contracts with Customers"

 

IFRS 15, "Revenue from Contracts with Customers" supersedes IAS 18, "Revenue", and establishes a principles-based approach to revenue recognition and measurement based on the concept of recognising revenue when performance obligations are satisfied.   An assessment of the impact of IFRS 15 has been completed and revenue recognition under IFRS 15 is expected to be consistent with the current practice for the Group's revenue. The Group has completed an assessment of the impact of IFRS 15 and determined that the standard will have no material impact on the Group's financial reporting.

 

IFRS 16 "Leases"

 

IFRS 16, which has not yet been endorsed by the EU, introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 "Leases" and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group currently expects to adopt IFRS 16 for the year ending 31 December 2019. No decision has been made about whether to use any of the transitional options in IFRS 16.

 

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.  In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.  Furthermore, extensive disclosures are required by IFRS 16.

 

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.

 

The Group has established a working group to assess the impact of the new standard.  Work performed includes assessing the accounting impacts of the change, the process of collecting the required data from across the business and the necessary changes to systems and processes.  From work performed to date, it is expected implementation of the new standard will have a significant impact on the consolidated results of the Group.  On adoption, lease agreements will give rise to both a right of use asset and a lease liability for future lease payables.  Depreciation of the right of use asset will be recognised in the Statement of Profit or Loss on a straight-line basis, with interest recognised on the lease liability.  This will result in a change to the profile of the net charge taken to the Statement of Profit or Loss over the life of the lease.  These charges will replace the lease costs currently charged to the Statement of Profit or Loss.   The Directors are currently assessing the potential impact. It is not practicable to provide a reasonable estimate of the financial effect until the Directors complete the review.

 

As at 31 December 2017, the Group has non-cancellable operating lease commitments of £64.2 million. IAS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments.

 

IFRS 9 "Financial Instruments"

 

"The Group will apply IFRS 9 from 1 January 2018. The Group has elected not to restate comparatives on initial application of IFRS 9. The full impact of adopting IFRS 9 on the Group's Consolidated Financial Statements will depend on the financial instruments that the Group has during 2018 as well as on economic conditions and  judgements made as at the year end. The Group has performed a preliminary assessment of potential impact of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial application of IFRS 9 (1 January 2018). 

 

Classification and measurement

 

With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is held and the contractual cash flow characteristics of the asset. There are 3 principal classification categories for financial assets that are debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income ("FVTOCI") and (iii) fair value through profit or loss ("FVTPL"). Equity investments in scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an irrevocable election is made to recognise gains or losses in other comprehensive income. Under IFRS 9, derivatives embedded in financial assets are not bifurcated but instead the whole hybrid contract is assessed for classification.

 

Under IFRS 9, financial assets can be designated as at FVTPL to mitigate an accounting mismatch.

 

In respect to classification and measurement of financial liabilities, changes in the fair value of a financial liability designated as at FVTPL due to credit risk are presented in other comprehensive income unless such presentation would create or enlarge an accounting mismatch in profit or loss.

 

Based on the Group's preliminary assessment, the change in the classification and measurement of listed redeemable notes will not have a material impact on the Group Financial Statements.

 

Impairment

 

The impairment model under IFRS 9 reflects "expected" credit losses, as opposed to only "incurred" credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date.

 

The new impairment model will apply to the Group's financial assets that are debt instruments measured at amortised costs or FVTOCI as well as the Group's finance lease receivables, contract assets and issued financial guarantee contracts.

 

The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its trade receivables, finance lease receivables and contracts assets as required or permitted by IFRS 9. The Group's preliminary assessment is that the loss allowance for these assets as at 1 January 2018 is not significantly different to that under IAS 39.

 

Hedge accounting

 

On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IFRS 9 hedge accounting requirements because they align more closely with the Group's risk management policies.

 

An assessment of the Group's hedging relationships under IAS 39 has been performed and it has been determined that the relationships will qualify as continuing hedging relationships under IFRS 9.

 

Details of the Group's funding position are set out in Note 11 and are subject to normal covenant arrangements. The Group's on-demand overdraft facility is reviewed on an annual basis and the current arrangements were renewed and signed on 1 August 2017. In the opinion of the Directors there are sufficient unutilised facilities held which mature after 12 months. The Group's performance is dependent on economic and market conditions, the outlook for which is difficult to predict. Based on current expectations, the Group's cash forecasts continue to meet half-year and year-end bank covenants and there is adequate headroom which is not dependent on facility renewals. The Directors believe that the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements.

 

The Consolidated Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and liabilities for cash-settled share-based payments.

 

The accounting policies have been applied consistently throughout the Group for the purposes of these Consolidated Financial Statements and are also set out on the Company's website (www.marshalls.co.uk).

 

The Consolidated Financial Statements are presented in Sterling, rounded to the nearest thousand. Sterling is the currency of the primary economic environment in which the Group operates.

 

The preparation of Financial Statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

2 Alternative performance measures

 

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 more meaningful comparative information.  In relation to the year ended 31 December 2017, certain APMs are required as a consequence of the acquisition of CPM on 19 October 2017 in order to ensure comparability with the prior year period.

 

Like-for-like revenue growth

Management uses like-for-like revenue growth as it provides a consistent measure of the percentage increases / decrease in revenue year on year, excluding the effect of acquisitions.

 

 

2017

2016

Increase

 

£000

£000

%

 

 

 

 

Reported revenue

430,194

396,922

8%

CPM post-acquisition revenue

(9,017)

-

 

Like-for-like revenue

421,177

396,922

6%

 

EBITA and EBITDA

 

EBITA represents earnings before interest, tax and the amortisation of intangibles.  This is a component of the ROCE calculation.

EBITDA is calculated by adding back depreciation to EBITA.

 

 

2017

2016

Increase

 

£000

£000

%

 

 

 

 

EBITDA

67,895

60,794

12%

Depreciation

(13,314)

(12,146)

 

EBITA

54,581

(48,648)

 

Amortisation of intangible assets

(1,142)

(1,009)

 

Operating profit

53,439

47,639

12%

 

ROCE

 

Reported ROCE is defined as EBITA divided by shareholders funds plus cash / net debt.

 

 

2017

2016

Increase

 

£000

£000

%

 

 

 

 

EBITA

54,581

48,648

 

 

 

 

 

Shareholders funds

237,627

217,121

 

Net debt / (cash)

24,297

(5,413)

 

 

261,924

211,708

 

 

 

 

 

Reported ROCE

20.8%

23.0%

 

 

ROCE on a like-for-like basis (excluding the impact of CPM) includes adjustments to report the calculation on a basis that eliminates the impact of the acquisition of CPM.  This ensures comparability with the prior year period.

 

 

2017

2016

Increase

 

£000

£000

%

 

 

 

 

Reported EBITA

54,581

48,648

 

CPM post acquisition EBIT

(749)

-

 

CPM amortisation of intangible assets

132

-

 

Acquisition costs

837

-

 

Adjusted EBITA

54,801

48,648

 

 

 

 

 

Shareholders funds

237,627

217,121

 

Net debt / (cash)

24,297

(5,413)

 

 

261,924

211,708

 

Impact on net debt arising from the acquisition of CPM

(41,227)

-

 

As adjusted

220,697

211,708

 

 

 

 

 

ROCE on a like-for-like basis (excluding the impact of CPM)

24.8%

23.0%

8%

 

3 Segmental analysis

 

Segment revenues and results

 

2017

 

2016

 

Landscape

 

 

 

Landscape

 

 

 

Products

Other

Total

 

Products

Other

Total

 

£'000

£'000

£'000

 

£'000

£'000

£'000

Total revenue

339,655

94,622

434,277

 

311,100*

89,070*

400,170

Inter-segment revenue

(226)

(3,857)

(4,083)

 

(89)

(3,159)

(3,248)

External revenue

339,429

90,765

430,194

 

311,011*

85,911*

396,922

Segment operating profit

56,104

1,873

57,977

 

50,441*

3,157*

53,598

Unallocated administration costs

 

 

(4,538)

 

 

 

(5,959)

Operating profit

 

 

53,439

 

 

 

47,639

Finance charges (net)

 

 

(1,388)

 

 

 

(1,593)

Profit before tax

 

 

52,051

 

 

 

46,046

Taxation

 

 

(9,925)

 

 

 

(8,539)

Profit after tax

 

 

42,126

 

 

 

37,507

 

* The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the Chief Operating Decision Maker ("CODM*).  In line with the Group's emerging strategy, in the second half of the year the reporting to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.

 

The Group has 2 customers who each contributed more than 10 per cent of total revenue in the current and prior year.

 

The Landscape Products reportable segment operates a national manufacturing plan that is structured around a series of production units throughout the UK, in conjunction with a single logistics and distribution operation. A national planning process supports sales to both of the key end markets, namely the UK Domestic and Public Sector and Commercial end markets and the operating assets produce and deliver a range of broadly similar products that are sold into each of these end markets. Within the Landscape Products operating segment the focus is on the 1 integrated production, logistics and distribution network supporting both end markets.  Following its acquisition, the CPM business has been included within the Landscape Products operating segment.

 

Included in "Other" are the Group's Street Furniture, Mineral Products, Premier Mortars and International operations, which do not currently meet the IFRS 8 reporting requirements.

 

The accounting policies of the Landscape Products operating segment 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

 

2017

2016

 

£'000

£'000

Fixed assets and inventory:

 

 

Landscape Products

182,391

157,786*

Other

64,561

57,922*

Total segment fixed assets and inventory

246,952

215,708

Unallocated assets

168,494

117,370

Consolidated total assets

415,446

333,078

 

* The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the Chief Operating Decision Maker ("CODM*).  In line with the Group's emerging strategy, in the second half of the year the reporting to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.

 

For the purpose of monitoring segment performance and allocating resources between segments, the Group's CODM monitors the tangible fixed assets and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments.

 

Other segment information

 

Depreciation and amortisation

 

Fixed asset additions

 

2017

2016

 

2017

2016

 

£'000

£'000

 

£'000

£'000

Landscape Products

10,878

9,462*

 

17,041

9,131*

Other

3,578

3,693*

 

5,445

3,883*

 

14,456

13,155

 

22,486

13,014

 

* The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the Chief Operating Decision Maker ("CODM*).  In line with the Group's emerging strategy, in the second half of the year the reporting to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.

 

Geographical destination of revenue

 

2017

2016

 

£'000

£'000

United Kingdom

407,215

377,659

Rest of the World

22,979

19,263

 

430,194

396,922

 

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 a seasonal working capital facility.

 

4 Net operating costs

 

2017

2016

 

£'000

£'000

Raw materials and consumables

151,343

142,011

Changes in inventories of finished goods and work in progress

7,231

2,591

Personnel costs

100,811

98,128

Depreciation

13,314

12,146

Amortisation of intangible assets

1,142

1,009

Own work capitalised

(1,919)

(1,381)

Other operating costs

106,569

97,069

Operational restructuring costs

1,217

476

Acquisition costs

837

-

Operating costs

380,545

352,049

Other operating income

(2,842)

(2,157)

Net gain on asset and property disposals

(948)

(609)

Net operating costs

376,755

349,283

 

5 Financial expenses and income

 

2017

2016

 

£'000

£'000

(a) Financial expenses

 

 

Net interest expense on defined benefit pension scheme

377

445

Interest expense on bank loans, overdrafts and loan notes

1,005

1,143

Finance lease interest expense

6

6

 

1,388

1,594

(b) Financial income

 

 

Interest receivable and similar income

-

1

 

Net interest expense on defined benefit pension scheme is disclosed net of Company recharges.

 

6 Income tax expense

 

2017

2016

 

£'000

£'000

Current tax expense

 

 

Current year

11,554

10,611

Adjustments for prior years

(732)

(921)

 

10,822

9,690

Deferred taxation expense

 

 

Origination and reversal of temporary differences:

 

 

Current year

(797)

(1,098)

Adjustments for prior years

(100)

(53)

Total tax expense

9,925

8,539

 

 

 

2017

2017

2016

2016

 

%

£'000

%

£'000

Reconciliation of effective tax rate

 

 

 

 

Profit before tax

100.0

52,051

100.0

46,046

Tax using domestic corporation tax rate

19.3

10,020

20.0

9,209

Impact of capital allowances in excess of depreciation

0.3

184

0.4

173

Short-term timing differences

1.2

630

1.0

480

Adjustment to tax charge in prior year

(1.4)

(732)

(2.0)

(921)

Expenses not deductible for tax purposes

1.4

720

1.6

749

Corporation tax charge for the year

20.8

10,822

21.0

9,690

Impact of capital allowances in excess of depreciation

(1.2)

(618)

(1.0)

(443)

Short-term timing differences

(0.2)

(103)

(0.1)

(66)

Pension scheme movements

(0.1)

(77)

0.3

127

Other items

1.0

532

(0.9)

(397)

Adjustment to tax charge in prior year

(0.2)

(100)

(0.1)

(53)

Impact of the change in the rate of corporation tax on deferred taxation

(1.0)

(531)

(0.7)

(319)

Total tax charge for the year

19.1

9,925

18.5

8,539

 

The net amount of deferred taxation (debited)/credited to the Consolidated Statement of Comprehensive Income in the year was £21,000 debit (2016: £798,000 debit).

 

The majority of the Group's profits are earned in the UK with the standard rate of corporation tax being 19.25 per cent for the year to 31 December 2017.

 

Capital allowances are tax reliefs provided in law for the expenditure the Group makes on fixed assets. The rates are determined by Parliament annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending, where the expenditure on fixed assets is treated as an investment with the cost then being spread over the anticipated useful life of the asset, and / or impaired if the value of such assets is considered to have reduced materially.

 

The different accounting treatment of fixed assets for tax and accounting purposes is one reason why the taxable income of the Group is not the same as its accounting profit. During the year ended 31 December 2017 the depreciation charge for the year exceeded the capital allowances due to the Group.

 

Short-term timing differences arise on items such as depreciation in stock and share-based payments because the treatment of such items is different for tax and accounting purposes. These differences usually reverse in the years following those in which they arise, as is reflected in the deferred tax charge in the Financial Statements.

 

Adjustments to tax charges arising in earlier years arise because the tax charge to be included in a set of accounts has to be estimated before those financial statements are finalised. Such charges therefore include some estimates that are checked and refined before the Group's corporation tax returns for the year are submitted to HM Revenue & Customs, which may reflect a different liability as a result.

 

Some expenses incurred may be entirely appropriate charges for inclusion in the Financial Statements but are not allowed as a deduction against taxable income when calculating the Group's tax liability for the same accounting period. Examples of such disallowable expenditure include business entertainment costs and some legal expenses.


As can be seen from the tax reconciliation, the process of adjustment that can give rise to current year adjustments to tax charges arising in previous periods can also give rise to revisions in prior year deferred tax estimates. This is why the current year adjustments to the current year charge for capital allowances and short-term timing differences are not exactly replicated in the deferred taxation charge for the year.

 

The Group's overseas operations comprise a manufacturing operation in Belgium and sales and administration offices in the USA, China and Dubai. The sales of these units, in total, were less than 5 per cent of the Group's turnover in the year ended 31 December 2017. In total, the trading profits were not material and no tax was due.

 

7 Earnings per share

Basic earnings per share of 21.52 pence (2016: 18.95 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders for the financial year, after adjusting for non-controlling interests, of £42,503,000 (2016: £37,350,000) by the weighted average number of shares in issue during the period of 197,518,109 (2016: 197,130,419).

 

Profit attributable to Ordinary Shareholders

 

2017

2016

 

£'000

£'000

Profit for the financial year

42,126

37,507

Result attributable to non-controlling interests

377

(157)

Profit attributable to Ordinary Shareholders

42,503

37,350

 

Weighted average number of Ordinary Shares

 

2017

2016

 

Number

Number

Number of issued Ordinary Shares

199,378,755

199,378,755

Effect of shares transferred into employee benefit trust

(1,860,646)

(2,248,336)

Weighted average number of Ordinary Shares at end of the year

197,518,109

197,130,419

 

Diluted earnings per share of 21.37 pence (2016: 18.61 pence) per share is calculated by dividing the profit for the financial year, after adjusting for non-controlling interests, of £42,503,000 (2016: £37,350,000) by the weighted average number of shares in issue during the period of 197,518,109 (2016: 197,130,419) plus potentially dilutive shares of 1,384,707 (2016: 3,561,243), which totals 198,902,816 (2016: 200,691,662).

 

Weighted average number of Ordinary Shares (diluted)

 

2017

2016

 

Number

Number

Weighted average number of Ordinary Shares

197,518,109

197,130,419

Potentially dilutive shares

1,384,707

3,561,243

Weighted average number of Ordinary Shares (diluted)

198,902,816

200,691,662

 

8 Dividends

After the balance sheet date a final dividend of 6.80 pence (2016: 5.80 pence) per qualifying Ordinary Share was proposed by the Directors. In addition a supplementary dividend of 4.00 pence (2016: 3.00 pence) per qualifying Ordinary Share was proposed by the Directors. These dividends have not been provided for and there are no income tax consequences. The total dividends proposed in respect of the year are as follows:

 

 

Pence per

2017

2016

 

qualifying share

£'000

£'000

2017 supplementary

4.00

7,904

 

2017 final

6.80

13,436

 

2017 interim

3.40

6,718

 

 

14.20

28,058

 

2016 supplementary

3.00

 

5,927

2016 final

5.80

 

11,460

2016 interim

2.90

 

5,720

 

11.70

 

23,107

 

The following dividends were approved by the shareholders and recognised in the year:

 

Pence per

2017

2016

 

qualifying share

£'000

£'000

2017 interim

3.40

6,718

 

2016 supplementary

3.00

5,927

 

2016 final

5.80

11,460

 

 

12.20

24,105

 

2016 interim

2.90

 

5,720

2015 supplementary

2.00

 

3,945

2015 final

4.75

 

9,369

 

9.65

 

19,034

 

The Board recommends a 2017 final dividend of 6.80 pence per qualifying Ordinary Share (amounting to £13,436,000), alongside a supplementary dividend of 4.00 pence per qualifying Ordinary Share (amounting to £7,904,000), to be paid on 29 June 2018 to shareholders registered at the close of business on 8 June 2018.

 

9 Employee benefits

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 Trustee is required to use prudent assumptions to value the liabilities and costs of the Scheme whereas the accounting assumptions must be best estimates.

 

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 3 years. The next actuarial valuation is expected to be carried out with an effective date of 5 April 2018. 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.

 

A formal actuarial valuation was carried out as at 5 April 2015. The results of that valuation have been projected to 31 December 2017 by a qualified independent actuary. The figures in the following disclosure were measured using the projected unit method.

 

The amounts recognised in the Consolidated Balance Sheet were as follows:

 

 

2017

2016

2015

 

£'000

£'000

£'000

Present value of Scheme liabilities

(350,554)

(355,793)

(298,812)

Fair value of Scheme assets

354,681

360,069

302,239

Net amount recognised at year end (before any adjustments for deferred tax)

4,127

4,276

3,427

 

The current and past service costs, settlements and curtailments, together with the net interest expense for the year, are included in the employee benefits expense in the Statement of Comprehensive Income. Remeasurements of the net defined benefit surplus are included in other comprehensive income.

 

 

2017

2016

 

£'000

£'000

Net interest expense recognised in the Consolidated Income Statement

477

545

Remeasurements of the net liability:

 

 

Return on scheme assets (excluding amount included in interest expense)

(2,819)

(59,837)

Loss arising from changes in financial assumptions

10,158

62,332

Gain arising from changes in demographic assumptions

(7,667)

-

Experience gain

-

(3,889)

Credit recorded in other comprehensive income

(328)

(1,394)

Total defined benefit charge / (credit) 

149

(849)

 

The principal actuarial assumptions used were:

 

2017

2016

 

£'000

£'000

Liability discount rate

2.50%

2.65%

Inflation assumption - RPI

3.15%

3.20%

Inflation assumption - CPI

2.15%

2.20%

Rate of increase in salaries

n/a

n/a

Revaluation of deferred pensions

2.15%

2.20%

Increases for pensions in payment:

 

 

CPI pension increases (maximum 5% p.a.)

2.15%

2.20%

CPI pension increases (maximum 5% p.a., minimum 3% p.a.)

3.20%

3.10%

CPI pension increases (maximum 3% p.a.)

1.95%

2.10%

Proportion of employees opting for early retirement

0%

0%

Proportion of employees commuting pension for cash

50.0%

50.0%

Mortality assumption - before retirement

Same as

post retirement

Same as

post retirement

Mortality assumption - after retirement (males)

S2PMA tables

S2PMA tables

Loading

105%

105%

Projection basis

Year of birth

Year of birth

 

CMI_2016 1.0%

CMI_2015 1.0%

Mortality assumption - after retirement (females)

S2PFA tables

S2PFA tables

Loading

105%

105%

Projection basis

Year of birth

Year of birth

 

CMI_2016 1.0%

CMI_2015 1.0%

Future expected lifetime of current pensioner at age 65:

 

 

Male aged 65 at year end

86.2

86.5

Female aged 65 at year end

88.0

88.5

Future expected lifetime of future pensioner at age 65:

 

 

Male aged 45 at year end

87.2

87.8

Female aged 45 at year end

89.2

89.8

 

10 Acquisition of subsidiary

On 19 October 2017, Marshalls Mono Limited acquired 100 per cent of the issued share capital of CPM Group Limited, a precast concrete manufacturer which specialises in underground water management solutions.  The acquisition is in line with the Group's 2020 Strategy.  CPM Group Limited operates within the United Kingdom and is registered in England and Wales.

 

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below:

 

 

 

 

Provisional

fair

 

 

 

values

 

 

 

acquired

 

 

 

£'000

Land buildings

 

 

8,437

Plant, machinery and vehicles

 

 

7,639

Identifiable intangible assets

 

 

7,233

Inventory

 

 

4,580

Trade and other receivables

 

 

12,334

Cash and cash equivalents

 

 

(2,955)

Trade and other payables

 

 

(16,931)

Provisions

 

 

(11,840)

Borrowings

 

 

(3,407)

Corporation tax

 

 

(1,825)

Deferred tax

 

 

(2,138)

 

 

 

 

Total identifiable assets

 

 

1,127

 

 

 

 

Goodwill

 

 

25,145

Initial cash consideration

 

 

26,272

Monies paid into escrow

 

 

12,000

Total cash payments in connection with the acquisition

 

 

38,272

 

 

 

 

Analysis of amounts paid in connection with the acquisition

 

 

 

 

 

 

 

Total cash payments

 

 

38,272

Net borrowings acquired

 

 

2,955

 

 

 

41,227

 

Initial cash consideration paid to the vendors was £26,272,000 and, in addition, a further £12,000,000 was paid into an escrow account in relation to certain ongoing legal and regulatory matters identified during the course of due diligence carried out prior to concluding the acquisition.  Provisions of £11,840,000 have been recorded at the date of acquisition for the estimated liabilities arising from concluding these ongoing matters.  The Group has a right of reimbursement of amounts held in an escrow account to the extent that any liability crystallises in respect of these ongoing legal and regulatory matters to enable the Group to settle these liabilities, up to the full value of the £12,000,000 held in escrow and consequently a reimbursement asset of £12,000,000 has been recognised within other debtors.  To the extent that any liabilities arising from these ongoing legal and regulatory matters are resolved at a lower amount than the escrow balances, the excess balance remaining in escrow is payable to the vendors as additional consideration.

 

Due to their contractual dates, the fair value of the receivables (shown above) approximate to the gross contractual amounts receivable.  The amount of gross contractual receivables not expected to be recovered is immaterial.

 

The goodwill arising from the acquisition represents the opportunity to grow by utilising the capabilities and technical expertise of the acquired workforce and by developing synergistic opportunities.  The goodwill arising from the acquisition is not expected to be deductible for income tax purposes.

 

Transaction costs incurred on acquisition were £837,000 and these have been fully expensed in the period.

 

CPM Group Limited contributed revenue of £9,017,000 and profit of £749,000 to the Group's profit for the period between the date of acquisition and the balance sheet date.

 

If the acquisition of CPM Group Limited had been completed on the first day of the financial year, Group revenue for the period would have been £485,532,000 and Group profit would have been £56,255,000.

 

11 Analysis of net debt

 

 

1 January

 

On acquisition of

subsidiary

Other

31 December

 

2017

Cash flow

undertaking

changes

2017

 

£'000

£'000

£'000

£'000

£'000

Cash at bank and in hand

20,681

1,925

(2,955)

194

19,845

Debt due after 1 year

(14,975)

(25,413)

(2,847)

(648)

(43,883)

Finance leases

(293)

594

(560)

-

(259)

 

5,413

(22,894)

(6,362)

(454)

(24,297)

 

Reconciliation of net cash flow to movement in net debt

 

2017

2016

 

£'000

£'000

Net increase / (decrease) in cash equivalents

1,925

(4,680)

Cash (inflow) / outflow from decrease in debt and lease financing

(24,819)

23,831

On acquisition of subsidiary undertaking

(6,362)

-

Effect of exchange rate fluctuations

(454)

(2,276)

Movement in net debt in the year

(29,710)

16,875

Net debt at 1 January

5,413

(11,462)

Net debt at 31 December

(24,297)

5,413

 

Borrowing facilities

The total bank borrowing facilities at 31 December 2017 amounted to £115.0 million (2016: £95.0 million), of which £71.1 million (2016: £80.0 million) remained unutilised. There are additional seasonal bank working capital facilities of £10.0 million available between 1 February and 31 August each year. The undrawn facilities available at 31 December 2017, in respect of which all conditions precedent had been met, were as follows:

 

2017

2016

 

£'000

£'000

Committed:

 

 

Expiring in more than 2 years but not more than 5 years

50,617

65,025

Expiring in 1 year or less

5,500

-

Uncommitted:

 

 

Expiring in 1 year or less

15,000

15,000

 

71,117

80,025

 

On 17 August 2017, the Group renewed its short-term working capital facilities of £25.0 million.  On 16 October 2017 the Group took out an additional committed facility of £20.0 million with a 2022 maturity date. The committed facilities are all revolving credit facilities with interest charged at variable rates based on LIBOR. The Group's bank facilities continue to be aligned with the current strategy to ensure that headroom against available facilities remains at appropriate levels.

 

 

The maturity profile of borrowing facilities is structured to provide balanced, committed and phased medium-term debt. The current facilities are set out as follows:

 

 

 

Cumulative

 

Facility

facility

 

£'000

£'000

Committed facilities:

 

 

Q3: 2022

20,000

20,000

Q3: 2021

20,000

40,000

Q3: 2020

20,000

60,000

Q3: 2019

20,000

80,000

Q3: 2018

20,000

100,000

On-demand facilities:

 

 

Available all year

15,000

115,000

Seasonal (February to August inclusive)

10,000

125,000

 

12 Principal risks and uncertainties

 

The principal risks and uncertainties that could impact the Group for the remainder of the current financial year are set out in the 2017 Annual Report.  These cover the strategic, financial and operational risks.

 

Strategic risks include those relating to general economic conditions, Government policy, the actions of customers, suppliers and competitors and also weather conditions.  Cyber risk within the wider market is also an increasing risk for the Group and an area of major focus.  The Group also continues to be subject to various financial risks in relation to access to funding and 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 weather, political and economic conditions, the effect of legislation or other regulatory actions, the actions of competitors, raw material prices and threats from cyber security, new technologies and business models.  Internal operational risks include investment in new products, new business strategies, acquisitions and the integration of CPM.

 

The Group continues to monitor all these risks and pursue policies that take account of, and mitigate, the risks where possible.

 

13 Annual General Meeting

 

The Annual General Meeting will be held at The Holiday Inn, Clifton Village, Brighouse, HD6 4HW at 11.00am on Wednesday 9 May 2018.

 

The Board

 

The Directors serving during the year ended 31 December 2017 were as follows:

 

Andrew Allner                Chairman

Janet Ashdown              Non-Executive Director

Jack Clarke                   Finance Director

Martyn Coffey                Chief Executive

Mark Edwards               Non-Executive Director (retired 10 May 2017)

Tim Pile                        Non-Executive Director

Graham Prothero           Non-Executive Director (appointed 10 May 2017)

 

By order of the Board

Cathy Baxandall

Company Secretary

14 March 2018

 

 

Cautionary Statement

 

This Preliminary Results announcement contains certain forward looking statements with respect to the financial condition, results, operations and business of Marshalls plc.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts.  Nothing in this Preliminary Results announcement should be construed as a profit forecast.

 

Directors' Liability

 

Neither the Company nor the Directors accept any liability to any person in relation to the contents of this Preliminary Results announcement except to the extent that such liability arises under English law.  Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.

 


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Annual Financial Report - RNS