Marshalls braces itself for another tough year

The Huddersfield-based group said 2012 revenues fell seven per cent to £309m from £334m in 2011, as it was hurt by heavy rainfall during the summer – a normally busy period – and the austere economy.

However, the group said its international business, which is targeting Northern Europe with premium paving products, is making “steady progress” and now accounts for about five per cent of group sales.

During 2012 sales to the public sector and commercial markets – roughly two thirds of its revenues – fell six per cent. Sales to domestic users fell 12 per cent.

Marshalls said consumer confidence remains “reasonably stable, albeit at a low level”. Domestic installer order books were 8.7 weeks at the end of October from 7.8 weeks a year earlier.

“The weather had a significant effect and you would not expect that effect in the current year and beyond,” said chief executive Graham Holden. “However, conversely looking at the market forecasts for the sector they are expecting a small reduction in volume. 2013 is going to be quite difficult and we are comparing against some strong numbers in the first quarter of 2012.”

He said signs of more benign conditions in the domestic sector, such as higher mortgage approvals aided by a state lending scheme, are “encouraging”. “There’s no doubt in my mind that there’s a clear intent both from the Government and Bank of England to help get the economy growing.”

He added: “The key thing to the consumer element is confidence. It’s an intangible and depends on a lot of different factors but at the moment it’s stable but negative.

“We hope with the things being done that might gradually improve.”

Marshalls said its “decisive and proactive” cost cuts, revealed in July, were completed ahead of schedule. These included closing its Maltby paving plant and a stone walling plant in Derbyshire.

“Marshalls has strong operational and financial flexibility,” it said. “Capacity and the cost base are at a sustainable level for current market volumes. The group is well placed to take advantage of any improvement in market conditions.”

Net debt fell to £64m at the year-end, from £77m a year earlier and Marshalls said “cash realisation” is ahead of plan.

The group said it continues to target growth markets in the public and commercial arenas, such as street furniture, water management, internal natural stone flooring, rail and retail.

Mr Holden said he hopes for work on Crossrail, the rail tunnel which will run beneath London, plus about £0.5m of work on transforming the Olympic park in east London. Analysts believe cost cuts and a tax credit will mean it can maintain its dividend.

Panmure Gordon analysts said: “The group has seen a better than expected debt performance in the period. A tax credit also means our EPS (earnings per share) forecast will rise and the group’s expected dividend payment will now be covered by earnings.

“All in all, today’s update is as we’d expected at this stage and we therefore maintain our hold recommendation and 95p target price.”

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