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 |
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.”
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 aftercharging 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.