Marshalls sees healthier landscape

The Huddersfield-based group yesterday revealed a 3.7 per cent increase in sales to £323.1m in 2010 from £311.7m a year earlier, despite the impact of heavy snowfall.

Marshalls returned to the black with pre-tax profits of £9.2m compared with £2.4m losses the prior year.

On an underlying basis, stripping out the cost of site closures a year earlier, pre-tax profits fell from £12.1m in 2009 to £9.2m.

Marshalls said it managed to recover sales worth £6m lost to snow at the start of 2010. However, it was unable to claw back another £5m in sales lost in November and December, again due to snow. Analyst Chris Millington at joint house brokers Numis Securities estimated the bad weather wiped £2.8m from Marshalls’ profits.

Sales to the public sector and commercial markets, which make up around 60 per cent of its revenues, were up six per cent. Sales to the domestic market increased only one per cent as consumer sentiment recovered slowly, with modest growth in the second half of 2010.

Installer order books – a key measure of demand from householders – had returned to pre-recession levels by the end of February, hitting “an encouraging” 7.2 weeks compared with 6.8 weeks a year earlier. The number of installer teams approved to fit its products in homes and gardens now stands at 1,640 and grew by 12 per cent in 2010.

“Sales have started to move forward a little bit,” said chief executive Graham Holden. “It just feels like in the second half of last year there was a degree of momentum starting to build.

“There are some big questions around the general economic picture but certainly for the two markets we are directly involved in (it) shows a positive.

“Like everybody else we’ve got to be a little nervous about what might happen to the consumer.”

With council budgets slashed by the public sector spending squeeze, Mr Holden admitted it is “inevitable” that the public sector will weaken in 2010.

But he said the commercial sector, where Marshalls works on projects ranging from shopping centres to office developments, “is coming back from a low level”.

Mr Holden said inflation will mean the group has to increase prices by about three per cent in 2011 to cover its costs. Fuel costs surged 20 per cent in 2010, bumping Marshalls’ fuel bill from £5m in 2009 to £6m.

Net debt was whittled down to £66.8m from £69.2m a year earlier. The group’s gearing now stands at 33.7 per cent compared with 38.2 per cent a year ago. Its pension liabilities shrunk to £4.1m compared with £38m a year earlier. Marshalls proposed a 3.5p per share total dividend, level with a year ago.

Mr Holden added its financial firepower gives Marshalls scope to boost overseas sales of natural stone from their current level of about 1.5 per cent of revenues. Potential growth markets include Germany, Middle East and Asia.

Marshalls added the group now has the “lowest cost to market across the widest geographical range”, and is well placed to benefit when markets recover.

It said its modern and well-invested plants allow it to keep capital spending at “historically low levels without any noticeable impact on the effectiveness of the business”. Mr Millington said the results were in line with its expectations, but moved from a ‘buy’ to an ‘add’ recommendation.

Shares in the group XXX to XXXX.

Numis sees Marshalls reporting pre-tax profits of £12.2m in 2012, based on a “cautious view” of the market’s recovery.

“We continue to believe that Marshalls has an unrivalled market position, which should ensure that the group benefits disproportionately once demand returns in earnest,” he said.

“Marshalls continues to navigate a difficult market successfully. Furthermore, with lead indicators suggesting a more positive demand profile, Marshalls is well placed to capitalise on this through its nationwide structure and high level of market share.”

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