Annual Financial Report

RNS Number : 7834J

Marshalls PLC

09 April 2015

9 April 2015

Marshalls plc

Annual Report 2014 and Notice of 2015 Annual General Meeting

The Company announces that it has published its full Annual Report for the year ended 31 December 2014 and Notice of 2015 Annual General Meeting which is to be held at 11.00am on Wednesday 20 May 2015 at The Cedar Court Hotel, Ainley Top, Huddersfield HD3 3RH.

Copies of the documents listed below have been posted to shareholders:

1. Annual Report 2014

2. Notice of 2015 Annual General Meeting

3. Form of Proxy for the 2015 Annual General Meeting

A copy of each of these documents has also been submitted to the UK Listing Authority via the National Storage Mechanism and is available for inspection at www.morningstar.co.uk/uk/NSM.

These documents are also accessible via the Company's website at www.marshalls.co.uk.

Reference is made to RNS announcement number 7004G published on 6 March 2015 (Final Results). In addition to the information in that announcement, in accordance with DTR 6.3.5(2)(b), we also set out below the following extracts from the Annual Report 2014 in full text form:-

= Statement of Directors' Responsibilities;

= Principal Risks

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Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report andthe Group and Parent Company Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. Under that law they are required to prepare the Group Financial Statements in accordance with IFRSs as adopted by the EU and applicable law, and have elected to prepare the Parent Company Financial Statements in accordance with UK Accounting Standards, including FRS 101 "Reduced Disclosure Framework".

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· for the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· for the Parent Company Financial Statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company Financial Statements; and

· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy, at any time, thefinancial position of the Parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006.

They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company'swebsite. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation

in other jurisdictions.

The Directors who held office at the date of approval of this Directors' Report and whose names and functions are listed on pages 32 and 33 of the Annual Report 2014 confirm that, to the best of each of their knowledge:

· the Financial Statements prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

· the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks anduncertainties that they face.

· The Directors consider the Annual Report and Financial Statements, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

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Principal Risks

Process

There is a formal ongoing process to identify, assess and analyse risks and those of a more material nature are included in the Group Risk Register. The Group Risk Register is reviewed and updated at least every six months and the overall process is the subject of regular review. Risks are recorded with a full analysis and risk owners are nominated who have authority and responsibility for assessing and managing the risk. All risks are analysed for impact and probability to determine exposure and impact to the business and the determination of a "gross risk score" enables risk exposure to be prioritised. External risks include the weather, political and economic conditions, the effect of legislation or other regulatory actions, the actions of competitors, foreign exchange, raw material prices and pension funding. Internal risks include investment in new products, new business strategies and acquisitions.

The Group seeks to mitigate exposure to all forms of strategic, financial and operational risk both external and internal. The effectiveness of key mitigating controls is continually monitored and such controls are subjected to internal audit and periodic testing in order to provide independent verification where this is deemed appropriate. The effectiveness and impact of key controls are evaluated and this is used to determine a "net risk score" for each risk. The process is used to develop action plans that are used to manage, or respond to, the risks and these are monitored and reviewed on a regular basis by the Group's Risk Committee.

Nature of risk

Potential impact

Mitigating factors

Change

Macro-economic and political

The Group is dependent on the level of activity in its UK and international end markets. Accordingly, it is susceptible to economic downturn and the impact of Government policy.

The lower activity levels could reduce sales and production volumes and therefore could have an adverse effect on the Group's financial results.

The Group closely monitors trends and lead indicators, invests in market research and is an active member of the CPA.

The Group benefits from the diversity of its business and end markets.

The Group focuses on sales opportunities and strategic growth initiatives, together with quality, service and its supply chain.

Economic risk has reduced as economic and sector outlook and growth rates have improved.

Government expenditure is not likely to be near the cyclical low and there is not upside potential in certain focus areas, e.g. rail.

The economic outlook for the Eurozone continues to be difficult.

Weather

The Group is exposed to the impact of prolonged periods of bad weather.

The lower activity levels could reduce sales and production volumes and therefore could have an adverse effect on the Group's financial results.

The Group has a continuing focus on new product development including landscape water management.

The Group is developing its internal flooring offer and developing its International strategy in order to diversify its activities.

Weather conditions are totally beyond the Group's control. 2014 has been a relatively benign weather year.

Customers

The UK business has a number of key customers, in particular the national merchants. This is partly as a result of the consolidated nature of the market.

The loss of a significant customer may give rise to a significant adverse effect on the Group's financial results.

The Group focuses on brand and new product development, quality and customer service improvement.

The Group maintains a national network of manufacturing and distribution sites.

The Group undertakes ongoing reviews of trading policies and relationships and maintains constant communication with customers.

The risk continues and is largely a consequence of the way the market is structured.

Competitor activity

The Group has a number of existing competitors who compete on range, price, quality and service.

Potential new low cost competitors may be attracted into the market through increased demand for imported natural stone products.

The increased competition could reduce volumes and margins on manufactured and traded products.

The Group has unique selling points that differentiate the Marshalls branded offer.

The Group focuses on quality, service, reliability and ethical standards that differentiate Marshalls from competitor products.

The Group continues to have the lowest cost to market.

The Group has a continuing focus on new product development.

The improved market outlook has increased demand (relative to available supply) and this has led to a reduction in such competitive pressure.

Continuing demand for imported natural stone potentially serves to maintain this risk.

Cost and availability of raw materials

The Group is susceptible to significant increases in the price of raw materials, utilities, fuel oil, haulage costs and vehicle availability.

As demand increases, the Group is potentially more exposed to the risk of temporary raw material shortages.

The increased costs could reduce margins and may be further impacted in the event of imbalances in the mix of regional activity.

The risk of market demand exceeding raw material supply could lead to inefficient production which could reduce margins.

The Group benefits from the diversity of its business and end markets.

The Group focuses on its supplier relationships, flexible contracts and the use of hedging instruments.

The Group utilises sales pricing and purchasing policies designed to mitigate the risks.

The Group has its own fleet of specialist delivery vehicles.

Cost inflation remains a risk as demand for raw materials increases.

The improved market outlook has increased demand (relative to available supply) and there is an increased risk of temporary shortages.

Pension

The Defined Benefit Pension Scheme may be impacted by volatility in financial markets and the longevity of members.

These risks could increase pension scheme liabilities or reduce assets, putting pressure on accounting notional interest and therefore downward pressure on PBT and EPS. This could also result in the need for additional cash contributions.

The defined benefit section of the Pension Scheme is closed to new members and future service accrual.

The Group uses liability driven investments to hedge interest rate and inflation risks.

De-risking strategies continue to be pursued and risk management is a key control used by the Trustee.

Professional advisers are consulted to minimise risk.

The risks surrounding the continuing funding of the past service liability remain unchanged as many of these are driven by financial markets and factors outside the Group's control.

Environmental

An environmental contamination event may lead to a prosecution and to reputational loss.

An incident could lead to disruption to production and to financial penalties as well as a potential negative impact on the Group's reputation.

The Group uses professional specialists covering carbon reduction, water management and biodiversity.

The Group focuses on the implementation of ISO standards.

The Group has a formal Group sustainability strategy focusing on impact reduction.

The Group is unable to predict future changes in environmental laws or policies or the ultimate cost of compliance with such laws or policies.

Corporate, Legal and Regulatory

The Group may be adversely affected by an unexpected reputational event, for example, in its ethical supply chain.

An incident could lead to a disruption to the supply of products for customers and to increased costs as well as a potential negative impact on the Group's reputation.

Group employs compliance procedures, policies and independent audit processes which seek to ensure that local, national and international regulatory and compliance procedures are fully complied with.

The extension of the Group's activities into new international markets causes this risk to continue, notwithstanding the additional compliance procedures within the supply chain.

Access to Funding

The Group continues to require debt funding in order to meet its trading obligations and to grow the business.

Insufficient access to funding could limit the Group's ability to achieve the desired levels of growth.

The Group has significant committed facilities in place with a good spread of medium term maturities and significant headroom.

The Group's policy continues to be to arrange funding ahead of requirements and to maintain sufficient undrawn committed bank facilities.

The improved economic outlook and the Group's reduced gearing has served to reduce this risk. There is also improved liquidity and increased competition within the banking sector.

IT Infrastructure

Disruption to the IT environment could affect the Group's ability to conduct its ongoing operations.

Ineffective procedures could lead to an adverse effect on the Group's financial results.

All IT system development projects are actively and carefully planned with defined governance and control procedures.

To support and enable future growth the Group has upgraded its IT systems to ensure a common platform across all business units.

Regular independent risk and project management audits are undertaken.

The Group ensures that industry standards are adopted and disaster recovery plans and procedures exist and are regularly tested.

The continued investment in and maintenance of IT systems across the Group gives rise to good control of this risk.

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Cautionary statement and Directors' liability

The Annual Report 2014 has been prepared for, and only for, the members of the Company, as a body, and no other persons.

Neither the Company nor the Directors accept or assume any liability to any person to whom the Annual Report is shown or into whose hands it may come except to the extent that such liability arises and may not be excluded 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.

The Annual Report contains certain forward-looking statements with respect to the Group's financial condition, results, strategy, plans and objectives. These statements are not forecasts or guarantees of future performance and 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, implied or forecast by these forward looking statements. All forward-looking statements in the Annual Report are based on information known to the Group as at the date of the Annual Report and the Group has no obligation publicly to update or revise any forward looking statements, whether as a result of new information or future events. Nothing in the Annual Report should be construed as a profit
forecast.

Annual General Meeting

The Notice convening the Annual General Meeting to be held at The Cedar Court Hotel, Ainley Top, Huddersfield HD3 3RH at 11.00 am on Wednesday 20 May 2015 together with explanatory notes on the resolutions to be proposed is contained in a circular sent to shareholders with the Annual Report.