Final Results

Marshalls PLC 11 March 2005 MARSHALLS PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2004 Marshalls plc, the specialist Landscape Products Group, today announces results for the year to 31 December 2004. Year to Year to Increase 31 December 2004 31 December 2003 % Â£m Â£m Turnover 362.3 349.5 3.7 EBITDA 74.3 72.1 3.1 Operating profit 53.5 53.1 0.8 Profit before tax 48.4 50.4 (4.0) Basic EPS 21.41p 20.61p 3.9 Adjusted basic EPS 22.52p 21.46p 4.9 Dividend per share 11.90p 11.00p 8.2 Key Points â€¢Turnover, EBITDA and operating profit all ahead of the prior year â€¢Adjusted basic EPS up 4.9% â€¢Dividends up 8.2% to 11.90p per share â€¢Cash inflow from operating activities of over Â£60m â€¢Scheme to return Â£75m to shareholders, equivalent to 45p per share, successfully completed â€¢Sale of Clay Products Division on 4 January 2005 for Â£65m Commenting on these results: Graham Holden, Chief Executive, said: '2004 was the seventh successive year of growth for Marshalls in what were challenging market conditions. It has also been a very active year in which we have successfully completed four acquisitions, completed a scheme to return Â£75 million to shareholders and, more recently, sold our Clay Products Division for cash proceeds of Â£65 million. The exciting new products and services that are being launched, tight control of costs and continued improvements in our manufacturing techniques and service performance allow us to face the future with confidence.' Enquiries: Graham Holden Chief Executive Marshalls plc 0207 404 5959 on 11 March 2005 Ian Burrell Finance Director 01484 438900 thereafter Jon Coles Brunswick 0207 404 5959 Sarah Tovey Group Preliminary Results Statement Group Results 2004 was the seventh successive year of growth for Marshalls in what were challenging market conditions. Group turnover in the year to 31 December 2004 increased by 3.7 per cent to Â£362.3 million (2003: Â£349.5 million). Operating profit was Â£53.5 million (2003: Â£53.1 million) up 0.8 per cent and after charging Â£1.5 million of reorganisation costs announced in January. Interest costs were higher due to financing the return of cash to shareholders leading to a lowering of profit before tax. However, adjusted basic earnings per share was up 4.9 per cent at 22.52 pence (2003: 21.46 pence). The final dividend of 8.00 pence per ordinary share (2003: 7.35 pence per share) will give a total for the year of 11.90 pence (2003: 11.00 pence per share) an increase of 8.2 per cent. The Group acquired four complementary businesses during the year for an initial cash outflow of Â£15.7 million. Like for like sales increased by 1.0 per cent, with acquisitions adding a further 2.7 per cent. Overall sales were reduced due to excessive rainfall at several key points during the year which reduced the working time available to the installers of our products, particularly by comparison with a dry 2003. Early in the second half, the scheme to return Â£75.4 million to shareholders was completed. On 4 January 2005 the Clay Products business, which contributed Â£6.0 million to operating profit during 2004, was sold for a total consideration of Â£65.0 million. Historically, Marshalls has reported the results of three operating Divisions; Landscape, Clay and Natural Stone. Landscape and Natural Stone remain and in future these will be reported as a single focussed entity. Natural Stone is an important part of the Marshalls offer. Indeed, it is where the Group started over 100 years ago. However, the business drivers of Landscape and Natural Stone are identical. Increasingly, the focus will be on the market drivers of the business not product differences. The individual Natural Stone figures are disclosed in Note 2 for the last time. Landscape Products Sales from continuing operations increased by 3.5 per cent to Â£328.3 million (2003: Â£317.4 million). EBITDA was 0.6 per cent ahead at Â£66.3 (2003: Â£66.0 million). Operating profit was marginally down at Â£47.5 million (2003: Â£48.9 million). The margin on sales has been reduced by additional depreciation and goodwill amortisation of Â£1.8 million, the inclusion of acquisitions that do not currently enjoy the same margin on sales as the pre-existing business and additional marketing investment to drive the development of the business. The domestic business is market focussed and future development benefits from comprehensive market research. This research clearly demonstrates a demand for higher value products and a consumer willingness to pay for them. The benefit of providing an improved product mix for the consumer, installer, distributor and Marshalls is significant and hence much of our marketing investment is focussed on unlocking this opportunity. Sales to the domestic market were 1.4 per cent ahead. Installers were fully committed throughout the year and worked whenever outdoor conditions allowed. Importantly, the Marshalls Register of approved installers grew by an encouraging 21 per cent to 1,700 installation teams during the year. Market research also drives the approach to the public sector and commercial market. The aim is to develop products that are attractive to look at but are also practical in use and to install. During 2004 fibre reinforced paving was launched to target areas of paving that may suffer from vehicle overrun. The fibres make it less likely that the paving will crack and, if it does crack, they help it retain structural integrity thus limiting the trip hazard. Sales to the public sector and commercial market were 5.0 per cent ahead. The one area of weakness was the sale of surface drainage products that resulted from lower infrastructure spending. Following consultation, it has been decided to close the smallest of the three manufacturing locations in Halifax, West Yorkshire, currently focussed on drainage products, and transfer production to one of the two remaining sites. The closure will take place in April 2005. There will be a one-off cost which is expected to be between Â£1.5 million and Â£2.0 million. Clay Products Sales in the year increased by 5.7 per cent to Â£34.0 million (2003: Â£32.1 million). Operating profit was Â£6.0 million (2003: Â£4.2 million) an improvement of 42.5 per cent. The operating performance of the business had been improved considerably over the past two years and the capital employed had been significantly reduced. However, the business was small, positioned fifth in the UK brick market, with little prospect of improving on that position. Accordingly, it was considered to be in the best interests of shareholders to sell the business. The unconditional sale of the business to Hanson PLC for a cash consideration of Â£65.0 million was completed and announced on 4 January 2005. Clay Products benefited from Group services and contracted out a number of administrative functions to Marshalls Landscape Products. The total cost of these shared services was Â£2.0 million per annum. It is anticipated that Â£1.0 million of this will be saved in 2005 with the remaining Â£1.0 million eliminated in 2006. There will be an exceptional profit on sale, estimated at Â£31 million. The Group will, during 2005, review the acquisition and investment opportunities that are available. In the absence of value adding opportunities the Group will consider a further return to shareholders. Acquisitions The acquisitions in the year reflect the Group strategy of adding complementary businesses providing quality products to enhance the Group's core product offer. The Great British Bollard Company produces a range of polymer and ferrocast bollards, cycle racks and post and rail systems primarily for Local Authorities. Woodhouse supplies modern designed street furniture for prestige schemes, for example, Kensington High Street where the street lighting, traffic lighting, bollards and seating were all supplied by Woodhouse to complement the natural stone paving supplied by Marshalls. These two businesses will both add to the variety of street furniture solutions that the Group is able to supply. Premier Mortars is a specialist business producing and selling ready to use mortar, particularly for housing and building sites, thus adding value to some of the sand that the Group produces. In December 2004 the Compton Group was acquired. It is the leading supplier of concrete garages, workshops and commercial buildings in Great Britain, with a recognised brand. The business also produces timber and aluminium greenhouses under the 'Alton' and 'Robinsons' brands. Sales from these businesses in 2004 were Â£9.3 million. Historic annualised sales for these businesses are Â£36 million. The acquisitions do not presently deliver the same margin as the rest of the Group. This is being addressed in a systematic manner and represents a significant opportunity. Balance Sheet Following the scheme to return Â£75.4 million to shareholders, net assets ended the year at Â£161.5 million (2003: Â£218.1 million). Capital expenditure was Â£27.2 million (2003: Â£40.8 million). The disappointing second half sales resulted in higher stock levels than were budgeted. Stock of Â£3.0 million will be managed out of the business during 2005. Borrowings The Group ended the year with net borrowings of Â£104.1 million (2003: Â£13.2 million). This gives a year end gearing of 64.5 per cent. However, after the sale of the Clay Products business pro-forma borrowings were Â£41.3 million and pro-forma gearing was 21.4 per cent. Dividend The Board is recommending a final dividend of 8.00 pence per ordinary share (2003: 7.35 pence per share). This dividend will be paid on 8 July 2005 to shareholders on the register at the close of business on 10 June 2005. The ex-dividend date will be 8 June 2005. This gives a dividend for the year of 11.90 pence per ordinary share (2003: 11.00 pence per share) an increase of 8.2 per cent. International Financial Reporting Standards (IFRS) The business is well prepared for the introduction of IFRS. The figures for 2004 which will form the comparatives for 2005 have been audited and details are included in Note 8. Outlook There is conflicting evidence about the strength of consumer demand. Independent surveys indicate consumer confidence is similar to last year. Installer order books are still at 8.3 weeks, one week less than the same time last year. There is expected to be an election mid-year and this creates uncertainty about taxation and Government expenditure. In the latest spending review the Government re-affirmed its commitment to continuing investment and the Construction Products Association are forecasting construction output growth of 0.8 per cent. Overall, trading conditions are expected to remain challenging. Action has already been taken with cuts in overheads and production levels in the final quarter of 2004. Marshalls is well invested and the workforce is well motivated. The exciting new products and services that are being launched, tight control of costs and continued improvements in manufacturing techniques and service performance allow us to face the future with confidence. AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2004 Notes 2004 2003 Â£'000 Â£'000 Turnover Continuing operations 328,343 317,351 Discontinued operations 33,966 32,130 -------- -------- 2 362,309 349,481 Operating costs (308,774) (296,353) Operating profit Continuing operations 47,546 48,926 Discontinued operations 5,989 4,202 -------- -------- 2 53,535 53,128 Interest (net) (5,132) (2,725) -------- -------- Profit on ordinary activities before taxation 2 48,403 50,403 Taxation on profit on ordinary activities 3 (15,102) (15,902) -------- -------- Profit for the financial year 33,301 34,501 Preference and 'B' share dividends: Non equity shares 4 (92) (54) -------- -------- Profit attributable to ordinary shareholders 33,209 34,447 Ordinary dividends: Equity shares 5 (16,882) (18,401) -------- -------- Retained profit for the financial year 16,327 16,046 -------- -------- Earnings per share : Basic 6 21.41p 20.61p -------- -------- Diluted 6 21.38p 20.58p -------- -------- Adjusted Basic 6 22.52p 21.46p -------- -------- Dividend per share : Pence per share 5 11.90p 11.00p -------- -------- AUDITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 Notes 2004 2003 Â£'000 Â£'000 Fixed assets Intangible 39,063 23,725 Tangible 218,408 206,650 -------- ------- 257,471 230,375 -------- ------- Current assets Stocks 66,011 56,744 Debtors 42,407 33,412 Cash at bank and in hand 24 7,884 -------- ------- 108,442 98,040 -------- ------- Creditors: Amounts falling due within one year (91,545) (68,992) -------- ------- Net current assets 16,897 29,048 -------- ------- Total assets less current liabilities 274,368 259,423 -------- ------- Creditors: Amounts falling due after more than one year (89,184) (20,000) Provisions for liabilities and charges (23,695) (21,275) -------- ------- Net assets 2 161,489 218,148 -------- ------- Capital and reserves Called up share capital 39,635 41,837 Capital redemption reserve 71,237 1,483 Share premium account 287 18,138 Revaluation reserve 5,166 5,166 Merger reserve (213,067) 13,091 Profit and loss account 258,231 138,433 -------- ------- Shareholders' funds 161,489 218,148 -------- ------- Analysis of shareholders' funds Equity 157,332 218,148 Non equity 4,157 - -------- ------- 161,489 218,148 -------- ------- AUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 Notes 2004 2003 Â£'000 Â£'000 Cash inflow from operating activities 7 60,481 81,261 Returns on investments and servicing of finance (4,576) (2,831) Taxation (13,588) (14,018) Capital expenditure (26,545) (39,802) Acquisitions and disposals (15,671) (2,014) Equity dividends paid (17,829) (17,300) -------- ------- Cash (outflow)/inflow before financing (17,728) 5,296 Financing (6,825) (4,719) -------- ------- (Decrease)/increase in cash in the year (24,553) 577 -------- ------- Reconciliation of net cash flow to movement in net debt Decrease)/increase in cash in the year (24,553) 577 Cash (inflow)/outflow from (increase)/decrease in debt and lease financing (65,655) 4,075 Finance leases acquired on acquisition of subsidiary undertakings (631) - -------- ------- Movement in net debt in the year (90,839) 4,652 Net debt at beginning of year (13,243) (17,895) -------- ------- Net debt at end of year (104,082) (13,243) -------- ------- Net gearing 64.5% 6.1% AUDITED CONSOLIDATED PRIMARY STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 Consolidated Reconciliation of Movements in Shareholders' Funds 2004 2003 Â£'000 Â£'000 Profit for the financial year 33,301 34,501 Dividends (preference and ordinary) (16,974) (18,455) -------- ------- Retained profit for the financial year 16,327 16,046 New share capital issued 751 464 Issue/redemption expenses (2,500) - Redemption of B shares (71,237) - Repayment of cumulative redeemable preference shares - (1,108) -------- ------- Net (reductions in)/additions to shareholders' funds (56,659) 15,402 Shareholders' funds at beginning of year 218,148 202,746 -------- ------- Shareholders' funds at end of year 161,489 218,148 -------- ------- The Group had no other recognised gains or losses other than those disclosed in the Consolidated Profit and Loss Account in either the current or preceding financial year. There is no material difference between historical cost profits and those reported in the profit and loss account. AUDITED CONSOLIDATED NOTES FOR THE YEAR ENDED 31 DECEMBER 2004 1 Scheme of Arrangement On 8 July 2004 Marshalls plc ('the Company' and formerly Marshalls Group plc) was introduced as the new holding company of the Group by way of a Court approved Scheme of Arrangement ('the Scheme') under Section 425 of the Companies Act 1985. The Company had previously been incorporated as Ever 2338 Limited on 13 April 2004. It changed its name on 30 April 2004 to Marshalls Group Limited and on 5 May 2004 re-registered as a public limited company. Following the Scheme becoming effective on 8 July 2004, Marshalls Group plc changed its name to Marshalls plc. The restructuring has been accounted for as a capital reorganisation and for the year ended 31 December 2004 merger accounting principles have been applied as if the Company had always been the holding company of the Group. 2 Segmental analysis Turnover Operating costs Operating profit 2004 2003 2004 2003 2004 2003 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations 328,343 317,351 280,797 268,425 47,546 48,926 Discontinued operations 33,966 32,130 27,977 27,928 5,989 4,202 ------- ------- ------- ------- ------- ------- 362,309 349,481 308,774 296,353 53,535 53,128 ------- ------- ------- ------- Interest (net) (5,132) (2,725) ------- ------- Profit on ordinary activities before taxation 48,403 50,403 ------- ------- Net Assets 2004 2003 Â£'000 Â£'000 Continuing operations 271,205 232,260 Discontinued operations 31,937 37,089 -------- -------- 303,142 269,349 Unallocated net liabilities (141,653) (51,201) -------- -------- 161,489 218,148 -------- -------- On 4 January 2005 the Group completed the unconditional sale of the entire issued share capital of Marshalls Clay Products Limited (the Clay Products Division) to Hanson PLC, for a cash consideration of Â£65.0 million including the repayment of all intergroup indebtedness. Since the disposal of the Clay Products Division meets the definition of a discontinued operation as defined by FRS3 the results of this Division have been disclosed under discontinued activities. Following the disposal of the Clay Products Division the Group has undertaken a review of its continuing operations and the business risks associated with the Group. The Directors consider that the continuing operations should be reported as a single business segment and have adjusted the Group's internal reporting framework accordingly. The analysis of the 2004 continuing operations for the former Landscape Products and Natural Stone Divisions for turnover would have been Â£298,438,000 (2003: Â£288,819,000) and Â£29,905,000 (2003: Â£28,532,000) respectively, in respect of operating profit, Â£43,484,000 (2003: Â£44,874,000) and Â£4,062,000 (2003: Â£4,052,000) respectively and, in respect of net assets, Â£230,231,000 (2003: Â£200,026,000) and Â£40,974,000 (2003: Â£32,234,000). Unallocated net liabilities comprise non-operating assets and liabilities of a financing nature, principally net borrowings, corporation tax, deferred tax and dividends payable. 2004 2003 Â£'000 Â£'000 Geographical destination of sales: Continuing operations United Kingdom 324,609 313,143 Rest of the world 3,734 4,208 -------- -------- 328,343 317,351 -------- -------- Discontinued operations United Kingdom 33,102 31,466 Rest of the world 864 664 -------- -------- 33,966 32,130 -------- -------- 3 Taxation on profit on ordinary activities 2004 2003 Â£'000 Â£'000 United Kingdom corporation tax at 30.0% (2003:30.0%) Current year 14,510 14,688 Prior year (1,719) (209) ------ ------- 12,791 14,479 Deferred taxation Current year 1,552 1,394 Prior year 759 29 ------ ------- 15,102 15,902 ------ ------- 4 Preference dividends: non equity shares 2004 2003 per share Â£'000 per share Â£'000 B shares of 45p each 0.775p 92 - -------- Cumulative redeemable preference shares of 20p each - 6.50p 54 -------- ------ ------ 92 54 ------ ------ On 31 December 2004 dividends totalling Â£92,000, amounting to 0.775p per share, were paid to the B shareholders (11,876,624 B shares ranking for dividend) in respect of the calculation period ended 31 December 2004. On 1 October 2003, the Company repaid the cumulative redeemable preference shares of 20p each. 5 Ordinary dividends: equity shares 2004 2003 per share Â£'000 per share Â£'000 Interim: paid 8 December 2004 3.90p 5,529 3.65p 6,101 Final: proposed 8.00p 11,353 7.35p 12,300 -------- ------- -------- ------- 11.90p 16,882 11.00p 18,401 -------- ------- -------- ------- On 8 July 2004, and following the Scheme of Arrangement, the number of shares in issue was reduced from 167,542,319 to 141,766,577. Accordingly, the interim dividend paid and the proposed final dividend payable are based on the new lower number of shares. 6 Earnings per share 2004 2003 Â£'000 Â£'000 Profit for the financial year attributable to ordinary shareholders 33,209 34,447 --------- --------- Profit for the financial year attributable to ordinary shares and potentially ordinary dilutive shares 33,209 34,447 --------- --------- Adjusted basic earnings per share reconciliation: Profit for the financial year attributable to ordinary shareholders 33,209 34,447 Goodwill amortisation 1,724 1,430 --------- --------- 34,933 35,877 --------- --------- Weighted average number of shares 155,107,622 167,159,671 ---------- ---------- Weighted average number of shares 155,107,622 167,159,671 Potentially dilutive shares 241,303 202,054 ---------- ---------- 155,348,925 167,361,725 ---------- ---------- Basic earnings per share 21.41p 20.61p ---------- ---------- Diluted earnings per share 21.38p 20.58p ---------- ---------- Adjusted basic earnings per share 22.52p 21.46p ---------- ---------- Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of Â£33,209,000 (2003: Â£34,447,000) by the weighted average number of shares in issue during the year of 155,107,622 (2003: 167,159,671). Diluted earnings per share is calculated by dividing profit attributable to ordinary shares and potentially ordinary dilutive shares of Â£33,209,000 (2003: Â£34,447,000) by the weighted average number of shares in issue during the year of 155,107,622 (2003: 167,159,671), plus dilutive shares of 241,303 (2003: 202,054) which totals 155,348,925 (2003: 167,361,725). An adjusted basic earnings per share has been prepared in order to show the underlying performance of the business. The adjusted basic earnings per share is adjusted for goodwill amortisation. In accordance with the provisions of FRS14, 'Earnings per Share', earnings per share for prior periods have not been restated as a result of the Scheme of Arrangement. 7 Reconciliation of operating profit to cash inflow from operating activities 2004 2003 Â£'000 Â£'000 Operating profit 53,535 53,128 Amortisation charges 1,724 1,430 Depreciation charges 19,051 17,538 (Profit)/loss on sale of tangible fixed assets (41) 317 (Increase)/decrease in stocks (7,000) 6,711 Increase in debtors (3,500) (1,382) (Decrease)/increase in creditors (3,288) 3,519 ------- ------- Cash inflow from operating activities 60,481 81,261 ------- ------- 8 International Financial Reporting Standards (IFRS) This is the last year the results will be presented under UK GAAP. From 1 January 2005 all European Union Listed Groups are required to adopt IFRS and consequently future financial statements will be presented in accordance with IFRS, including all comparative information. We have completed a detailed review of the impact of IFRS and, in respect of the year ended 31 December 2004, the principal areas affected are as set out below. The IFRS Income Statement for 2004 is approximately Â£1.0 million below the reported UK GAAP Profit and Loss Account at the operating profit level, of which Â£0.4 million relates to continuing operations and Â£0.6 million relates to discontinued operations. The principal changes are associated with additional pension charges following the adoption of IAS 19 (Â£2.3 million at the operating profit level) and the absence of goodwill amortisation following the adoption of IFRS 3 and IAS 38 (Â£1.7 million). The net effect of all other items is an additional operating charge of Â£0.4 million. At the interest level an additional notional charge of Â£2.1 million arises in respect of the adoption of IAS 19. An additional tax credit of Â£1.2 million arises as a result of the additional pension and associated interest charges referred to above. The IFRS Balance Sheet net assets as at 31 December 2004 are Â£28.4 million lower at Â£133.1 million compared with the UK GAAP net assets of Â£161.5 million at the same date. The principal changes are associated with the introduction of the net pension deficit onto the balance sheet of Â£50.9 million and the related deferred taxation asset of Â£15.3 million, the absence of the proposed final dividend for the year in the balance sheet which at 31 December 2004 was Â£11.4 million and the re-analysis of the B shares as debt of Â£4.2 million. The net effect of all other items is not considered to be material. In addition, IFRS will also impact on certain key financial ratios. Interest cover reduces to 7.2 times under IFRS compared with 10.4 times under UK GAAP as at 31 December 2004. Gearing increases to 81.3 per cent under IFRS compared with 64.5 per cent under UK GAAP at the same date and before the benefit of the cash proceeds from the disposal of the Clay Products Division. Basic EPS is 20.24 pence per share under IFRS compared with 21.41 pence per share as reported for 2004 under UK GAAP. The adoption of IFRS will result in changes to the format and disclosure requirements of both the primary financial statements and notes to the financial statements. 9 Annual General Meeting The Annual General Meeting will be held at Birkby Grange, Birkby Hall Road, Birkby, Huddersfield, West Yorkshire, HD2 2YA at 12.00 (noon) on Tuesday 24 May 2005. 10 Other With the exception of the adoption of merger accounting referred to in Note 1, the audited consolidated figures have been prepared on the basis of the accounting policies set out in the 2003 financial statements. The above financial information does not constitute statutory accounts for the year ended 31 December 2004 or for the year ended 31 December 2003 but is derived from those financial statements. Statutory accounts for the year ended 31 December 2003 have been delivered to the Registrar of Companies. The auditors have reported on the year ended 31 December 2003 financial statements and their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2004 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock Exchange

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