Marshalls : Full Year Results 2020

Embargoed until 7.00am on Thursday 11 March 2021

Strong recovery - positioned well for sustainable growth

Marshalls plc, the specialist Landscape Products group, announces its full year results for the year ended 31 December 2020.

Financial Highlights	Year ended	Year ended
31 December 2020	31 December 2019
Results before operational restructuring costs and asset
impairments1
Revenue	£469.5m	£541.8m
EBITDA	£57.6m	£103.9m
Adjusted operating profit	£27.2m	£73.7m
Profit before tax	£22.5m	£69.9m
Basic EPS	8.60p	29.36p
Recommended final dividend	4.30p	-
ROCE	8.2%	21.4%
Net debt	£75.6m	£60.0m
Net debt - pre-IFRS 16	£26.9m	£18.7m
Adjusted operating profit	£27.2m	£73.7m
Operational restructuring costs and asset impairments	£(17.8)m	-
Statutory operating profit	£9.4m	£73.7m
Statutory results
Statutory operating profit	£9.4m	£73.7m
Profit before tax	£4.7m	£69.9m
Basic EPS	1.19p	29.36p
Note:

1. Alternative performance measures are used consistently throughout this Preliminary Announcement. These relate to EBITA, EBITDA, return on capital employed ("ROCE"), net debt and results before operational restructuring costs and asset impairments. Following the transition to IFRS 16, reference has been made to "pre-IFRS 16" and "reported basis," the latter referring to amounts required under IFRS 16. For further details of their purpose, definition and reconciliation to the equivalent statutory measures, see Note 2.

Operational highlights

• • Priority given to health and safety throughout the COVID-19 crisis

• • Trading has started strongly in 2021 - at the end of February, sales are up 7% and orders are up 12% compared to same period in 2020

• • Focus on servicing our customers

• • Operational restructuring exercise completed in H1 2020 - increased manufacturing efficiency and operational flexibility, with fixed costs reduced by £12 million per annum

• • Maintained focus on innovation, ESG priorities, sales opportunities and sustainable growth over the medium term

• • Capital investment of £30 million planned for 2021

Financial highlights

• • Progressive growth in sales over the second half of 2020 - sales in quarter 4 ahead of prior year

• • Re-instatement of dividends - final dividend of 4.30 pence recommended

• • Full year revenue of £469.5 million (2019: £541.8 million)

• • Strong growth in Domestic sales - growth of 9 per cent in H2 2020

• • Increase in International sales of 16 per cent

• • Strong balance sheet and a flexible capital structure

• • Full repayment of all Government Coronavirus assistance (furlough and deferred VAT)

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

"Trading has started strongly in 2021. At the end of February, sales are up 7 per cent and orders are up 12 per cent compared to same period in 2020. The CPA's winter base case scenario predicts an increase in UK market volumes of 14.0 per cent in 2021 and 4.9 per cent in 2022. Despite wider market uncertainty, the underlying indicators in our main growth markets of New Build Housing, Road, Rail and Water Management remain positive.

Although market demand remains uncertain, we remain focused on developing future growth opportunities and delivering the strategic objectives in our 5 year Strategy. Our strategy continues to be underpinned by strong market positions, focused investment plans and an established brand. Marshalls' liquidity is strong and will support our investment priorities going forward.

Encouraged by the strong trading performance, the Board is raising its expectations for 2021."

There will be a video webcast for analysts and investors today at 09:00am. The presentation will be available for analysts and investors who are unable to view the webcast live and can be viewed on Marshalls' website atwww.marshalls.co.uk.Users can register to access the webcast using the following link:https://webcasting.brrmedia.co.uk/broadcast/6022b2aca9190e2d3caa6496.There will also be a telephone dial in facility available Tel: [phone] - Access Code: 9971592.

Certain information contained in this announcement would have constituted inside information (as defined in the Market Abuse Regulation) prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under those Regulations.

Enquiries:

Martyn Coffey	Chief Executive	Marshalls plc	[phone]
Jack Clarke	Group Finance Director	Marshalls plc	[phone]
Andrew Jaques	MHP Communications	[phone]
Charlie Barker
Group results

The positive actions taken by the Group in response to the COVID-19 pandemic have ensured the Group's much improved performance in the second half of the year, which has also seen sales growth at higher rates than was initially expected. We have prioritised the safety and well-being of our employees and customers and by maintaining robust health and safety procedures we have ensured that we could continue operating and delivering to our customers safely.

Revenue in the second half of the year improved strongly and was close to the comparative period in 2019. Better than expected trading in the final months of the year has enabled us to repay all the furlough monies (£9.4 million) and deferred VAT (£11.3 million) and still report a low year end net debt figure of £26.9 million, on a pre-IFRS 16 basis. We continue to maintain a strong balance sheet, supported by a flexible capital structure, and we maintain significant headroom against our bank facilities.

Group revenue for the year ended 31 December 2020 was £469.5 million (2019: £541.8 million), which represents a decrease of 13 per cent. This compares with a decrease in sales of 25 per cent in the first half of the year.

Sales in the Domestic end market were up 9 per cent in the six months ended 31 December 2020, compared with the same period last year, which compares with a decrease of 25 per cent in the first half of the year. For the full year, revenue was down 9 per cent compared with 2019 and for the year ended 31 December 2020 Domestic sales represented 27 per cent of Group revenue. The survey of domestic installers at the end of February 2021 revealed order books of 12.2 weeks (2020: 10.7 weeks) which compared with 12.8 weeks at the end of October 2020. There has been a strong demand for DIY projects with consumers spending more time at home and choosing to invest in home and garden projects. We have seen a trend towards the "Don't Move, Improve" part of the Domestic market. Our strategy continues to be to drive more sales through the Marshalls Register of approved domestic installers which comprises approximately 1,900 teams. The objectives continue to be to develop the customer experience by digitalisation, including the use of visualisation tools, and by a commitment to innovation.

Sales in the Public Sector and Commercial end market were down 6 per cent in the six months ended 31 December 2020, compared with 2019, which compares with a decrease of 28 per cent in the first half of the year. For the full year, revenue was down 17 per cent compared with 2019 and for the year ended 31 December 2020 represented 66 per cent of Group sales. We remain focused on those market areas where future demand isconsidered to be greatest including New Build Housing, Road, Rail and Water Management. Digital technology is increasingly used to showcase new concepts and designs and to facilitate the selection and specification of our ranges.

International revenue grew by 16 per cent during 2020, supported by consistently strong sales from Marshalls NV in Belgium, and now represents approximately 7 per cent of Group sales. We have continued to develop Marshalls NV's operating model and improve efficiency. In 2020 the business became profitable for the first time and there are further opportunities for improvement.

As reported at the Half Year, the Group undertook a restructuring programme which cost £17.8 million and this has been charged to the Income Statement. No further costs have been incurred in the second half of the year.

EBITDA was £57.6 million (2019: £103.9 million) before operational restructuring costs and asset impairments of £17.8 million. Operating profit before operational restructuring costs and asset impairments was £27.2 million (2019: £73.7 million). After operational restructuring costs and asset impairments the reported profit before tax for the period was £4.7 million (2019: £69.9 million). Basic earnings per share, before operational restructuring costs and asset impairments, was 8.60 pence (2019: 29.36 pence) per share. Reported earnings per share was 1.19 pence per share.

Net financial expenses were £4.7 million (2019: £3.8 million), including £1.6 million (2019: £1.3 million) of IFRS 16 lease interest. On a reported basis interest was covered 5.8 times (2019: 19.2 times), before operational restructuring costs and asset impairments. Interest charges on bank loans totalled £3.0 million (2019: £1.9 million) and, including scheme administration costs, there was an IAS 19 notional interest charge of £0.2 million (2019: £0.6 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 23.1 per cent (2019: 17.1 per cent), before operational restructuring costs and asset impairments. The 2019 Budget announced that the UK corporation tax rate will remain at 19 per cent from 2020 rather than reduce to 17 per cent, which had previously been confirmed. This change was substantively enacted on 17 March 2020 and, consequently, the deferred taxation liability at 31 December 2020 has been calculated at 19 per cent, which is the rate at which the deferred tax is expected to unwind in the future using rates enacted at the balance sheet date. This rate change has given rise to an increase to the deferred tax charge of £1.6 million. This has given rise to the increase in the effective tax rate. The Group has paid £4.6 million (2019: £9.0 million) of corporation tax during the year. A deferred tax credit of £2.1 million in relation to the actuarial loss arising on the defined benefit Pension Scheme in the year has been taken to the Consolidated Statement of Comprehensive Income.

For the seventh year running, Marshalls has been awarded the Fair Tax Mark, which recognises social responsibility and transparency in a company's tax affairs. The Group's tax 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. Taking into account not only corporation tax but also of PAYE and NI paid on our employee wages, aggregate levy, VAT, fuel duty and business rates Marshalls has funded total taxation to the UK economy of £69 million in the year ended 31 December 2020.

Operational initiatives

COVID-19 has caused operational efficiency challenges for the whole construction products sector. The growth in sales in quarter three was greater than expected and, combined with lower stocks, this gave rise to significant operational challenges, especially in quarter four. We have experienced strong order books but, in line with the rest of the construction sector, we have been faced with longer lead times, and the operational challenge of balancing supply with demand. The Group's national network of concrete manufacturing sites and quarries has continued to provide an advantage in this regard and our flexible operating framework has enabled us to rebalance supply and demand across the network.

Despite the challenges of 2020, we are driving cost efficiency improvements throughout the business and our objective continues to be to mitigate inflation on an ongoing basis to ensure sustainable business continuity and cost control. The Group's E-commerce trading business model was launched in April 2020 and has delivered approximately £5 million of sales during the year. E-commerce revenue will complement existing sales channels and is expected to double during 2021. A key aspect of the model is that it supports and respects our merchant customers.

During the year ended 31 December 2020, capital expenditure was restricted to only essential items and amounted to £14.7 million (2019: £22.9 million). The Group is now committed to increase organic investment significantly over the medium term and further capital expenditure of £30 million is planned for 2021. We continue to generate a good pipeline of capital investment projects that will drive future organic growth.

Our Maltby site was mothballed in 2012 but has continued to be maintained. We have invested in new plant during 2020 and the site was re-opened at the start of 2021 to manufacture the Marshalls concrete brick, which will allow us to grow our sales into the housebuilding sector. The site retains flexibility to produce our full range of concrete block paving products.

Reflecting our increased market confidence, in 2021 we will commence construction of a flagship dual block plant at our St. Ives site, which will be the first facility of this nature in the UK. The planned investment over the next three years will be around £20 million and the project will significantly increase capacity, improve efficiency, enable multiple secondary finishing and facilitate the launch of new products.

There will be a continued focus on innovation and new product development across all parts of the Group. Research and development expenditure of £5 million is planned for 2021. The development pipeline continues to be strong and the Group is committed to providing sustainable, high performance product solutions.

Organic growth will continue to be supported by targeted acquisitions. We will continue to focus on bolt-on acquisition targets in our key growth areas of Water Management and New Build Housing.

Marshalls 5 year Strategy and ESG agenda

We remain confident that our strategy is the right one for Marshalls, as it has in-built flexibility such that the pace of delivery can be adjusted for external and economic uncertainties. The Group's long term strategy continues to focus on organic investment to drive growth and is supported by an increasingly strong ESG agenda.

We aim to give full consideration to the long term impact of all business operations, which means that all our products and services need to be ethically sourced and sustainable. Marshalls continues to support the UN sustainable development goals and we maintain a detailed framework and comprehensive policies covering the environment, human rights, labour and governance (anti-corruption). We are pleased that for the seventh consecutive year Marshalls has been awarded Fair Tax Mark accreditation. This recognises social responsibility and transparency in our tax affairs.

We are focused on playing our part in addressing the risk of climate change and the protection of the environment. The Group continues to be committed to decarbonisation and we have aligned all greenhouse gas emission reduction targets to be well below 2ºC emissions scenarios. During 2020, we became the first company in our sector to have emission reduction targets approved by the Science Based Targets initiative as being consistent with levels required to meet the goals of the Paris Agreement.

The overall Group strategy continues to focus on the maintenance of a strong balance sheet, a flexible capital structure and a clear capital allocation policy. These objectives drive both long-term sustainable growth and shareholder returns.

Capital allocation

The impact of COVID-19 during 2020 has illustrated the importance and robustness of the Group's Capital Allocation Policy. The Group's capital allocation strategy is to maintain a strong balance sheet and flexible capital structure. The key elements of the strategy are:

• • To prioritise organic capital investment, supported by an increase in new product development and research and development expenditure;

• • To continue to target selective strategic acquisition opportunities in New Build Housing, Water Management and Minerals. Bolt-on acquisitions of up to £50 million are considered to be the current strategy;

• • To re-commence the payment of dividends;

• • To continue the policy of paying dividends on the basis of a dividend cover of 2 times earnings in 2021 and beyond. This will see dividends grow, in absolute terms, over the medium term; and

• • To maintain a target net debt: EBITDA ratio (on a reported, post-IFRS 16 basis) of between 0.5 and 1.5 times over the cycle. On a pre-IFRS 16 basis, this translates into a target of between 0 and 1 times.

Balance sheet and net debt

Net assets at 31 December 2020 were £287.8 million (2019: £295.8million). Capital discipline remains a key priority and the Group's strong cash generation has continued with operating cash flow in H2 2020 representing 93.6 per cent on a pre-IFRS 16 basis. Reported net debt was £75.6 million at 31 December 2020 (2019: £60.0 million). Net debt, on a pre-IFRS 16 basis, was £26.9 million at 31 December 2020 (2019: £18.7 million). This was significantly better than expected and is after the repayment of £9.4 million of furlough and £11.3 million of deferred VAT in the final quarter of the year. All Government COVID-19 financial assistance has been repaid. The continuing strategy is to ensure that headroom remains at comfortable levels and that we have a range of competitively priced funding lines in place, with different banks, at all times and with different maturity dates. The Group's committed bank facilities have a spread of medium-term maturities that now extends to 2024. The £90