Heavy rain put dampener on Marshalls’ sales

The Huddersfield-based company said that after a satisfactory first quarter, sales did not show their usual post-Easter uplift.

Working conditions in April were dire as rainfall rose to exceptionally high levels of 138mm for the month. This was ten times the 14mm rainfall in April 2011 and up from 27mm in April 2010, according to the Met Office.

Marshalls’ chief executive Graham Holden said the rain had hampered sales and obscured underlying market trends.

“On an underlying basis we’re not doing too badly,” he said. “The move overseas is progressing well and the business is growing.”

Marshalls recently started operations in Belgium, France, Germany and parts of Holland.

Mr Holden said the group hopes to achieve 10 per cent of sales from Continental Europe by 2015. Marshalls currently generates 97 per cent of sales within the UK.

The group also hopes to increase its business in the Middle East and Asia as a “niche premium player”. It has already worked on projects such as Disneyland in Hong Kong and an F1 park in Abu Dhabi.

Mr Holden said the rainfall played an important factor in a £5m reduction in sales in April, compared with the same month last year. This was equivalent to three days’ installations.

Marshalls reported revenue of £106m for the four months to April 30, down three per cent on last year’s £106m.

Sales to the domestic end market were particularly hit by the bad weather and were eight per cent down on last year.

A survey of domestic installers at the end of April showed a higher backlog of demand with order books of 7.5 weeks, up from 6.3 weeks at the end of February.

Sales to the public sector and commercial end market, which make up 64 per cent of Marshalls’ revenue, were flat.

Asked whether the group can recover April’s lost sales, Mr Holden said: “We certainly won’t in the domestic market, installers won’t work extra hours. Maybe we will recover some sales in the public market.”

He said that May was not as bad as April and the group hopes that forecasts predicting a dry early June will prove accurate.

Analyst Jon Bell, at Shore Capital, said: “This trading update captures a particularly challenging period, notably in the domestic division where sales fell by eight per cent in the period. Price gains of three to four per cent imply that volumes fell by around 12 per cent.

“Our view, shared by management, is that these lost sales will not be recovered in subsequent periods.”

Shore Capital expects to lower its annual pre-tax profit forecasts from £12.2m to £11.5m. The consensus forecast before the announcement was for annual pre-tax profits of £13.1m.

“Our view remains that the dividend remains the key driver of the share price and that a downgrade of this magnitude will not be sufficient to compromise it,” added Mr Bell.

Mr Holden confirmed this, saying: “We won’t compromise the dividend. This is hopefully a short term, exceptional occurrence.”

The Construction Products Association is forecasting a small reduction in UK market volumes in 2012 and, against this backdrop, Marshalls said it remains cautious about the short-term outlook.

The company said it is encouraged by the continuing strength of the private commercial end market, which has offset weakness in the public sector.

It also pointed to the resilience of the installer order book and said it is well placed to outperform the market.

Analyst Rachael Waring, of Panmure Gordon, cut her full-year profit forecast by £1m to £12.5m and said it is unlikely Marshalls will recover all of the lost workload seen in April.

“On a long-term basis we remain positive on Marshalls, given our belief that the business is doing all the right things to position itself for market recovery.”

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