Marshalls PLC

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RNS Number : 1058J Marshalls PLC 15 August 2019 LEI: 213800S21IFC367J5V62 Embargoed until 7.00am on Thursday 15 August 2019 Interim results for the half year ended 30 June 2019 Marshalls plc, the specialist Landscape Products group, announces its half year results Financial Highlights Half Year ended 30 June 2019 Half Year ended 30 June 2018 Increase % Revenue £280.1m £244.3m 15 EBITDA - reported EBITDA - pre IFRS 16 £54.9m £47.3m £41.6m £41.6m 32 14 Operating profit - reported Operating profit - pre IFRS 16 £39.0m £38.4m £33.5m £33.5m 16 15 Profit before tax - reported Profit before tax - pre IFRS 16 £37.1m £37.2m £32.5m £32.5m 14 14 Basic EPS - reported 15.18p 13.24p 15 Basic EPS - pre IFRS 16 15.22p 13.24p 15 Interim dividend 4.70p 4.00p 18 ROCE - reported ROCE - pre IFRS 16 19.3% 21.4% 20.0% 20.0% Up 140 basis points Net debt - reported Net debt - pre IFRS 16 £97.7m £55.6m £48.9m £48.9m Notes: 1. The financial impact of IFRS 16 is summarised below and in Notes 2 and 3. 2. Alternative performance measures are used consistently throughout this Interim Announcement. These relate to EBITA, EBITDA and ROCE. For further details of their purpose, definition and reconciliation to the equivalent statutory measures, see Note 3. Highlights: · Revenue growth of 15% to £280.1 million (2018: £244.3 million) · Operating margins slightly ahead to 13.9% (2018: 13.7%) · Edenhall performed well in the period and its integration is on track and well advanced · The Group's strong cash generation has continued · Net debt of £55.6 million (2018: £48.9 million) on a pre IFRS 16 basis · Reported net debt of £97.7 million, after the inclusion of £42.1 million IFRS 16 lease liabilities · Payment of £23.8 million final and supplementary dividends on 28 June 2019 · Return on capital employed for the 12 months ended 30 June 2019 of 21.4% (pre IFRS 16 basis) · Trading since the period end has remained strong The newly launched 5 Year Strategy to 2023, as outlined at the Group's Capital Markets Day earlier this year, maintains the objective of delivering sustainable growth. The main elements are: · Continued focus on organic growth and investment - capital expenditure of £23 million planned for 2019 to drive growth · Increasing momentum in the delivery of the digital strategy through continued investment and continuous improvement · Increase in research and development and new product development to drive sales growth · Renewed focus on increasing the profitability of the Emerging UK Businesses · Continuing to target selective bolt-on acquisition opportunities in New Build Housing, Water Management and Minerals · Continued focus on customer service, brand, operational and manufacturing excellence and procurement efficiency · Maintaining a strong balance sheet, a flexible capital structure and a clear capital allocation policy · Maintaining a 2 times dividend cover policy, enhanced by supplementary dividends Commenting on these results, Martyn Coffey, Chief Executive, said: "The Group continues to outperform the Construction Products Association's ("CPA") growth figures, despite ongoing political and Brexit uncertainty. The CPA's recent Summer Forecast predicts a decrease in UK market volumes of 0.3 per cent in 2019, followed by an increase of 1.0 per cent in 2020, while the underlying indicators in the New Build Housing, Road, Rail and Water Management markets remain supportive. Post period-end trading has remained strong. The Board believes that the Group's new 5 year Business Strategy will continue to deliver sustainable growth, whilst maintaining a strong balance sheet and a flexible capital structure. The strategy is underpinned by strong market positions, focused investment plans and an established brand. The Board is increasingly confident of at least achieving its expectations for 2019." There will be a presentation for analysts and investors today at 9.00 am with a telephone dial in facility available tel: number +44 (0)330 336 9125 - Access Code: 7709523. Marshalls' Analyst Presentation will be available for analysts and investors who are unable to attend the presentation. The presentation can be viewed on Marshalls' website at www.marshalls.co.uk. Enquiries: Martyn Coffey Chief Executive Marshalls plc 01422 314777 Jack Clarke Group Finance Director Marshalls plc 01422 314777 Andrew Jaques MHP Communications 020 3128 8540 Charlie Barker INTERIM MANAGEMENT REPORT Group results Marshalls' revenue for the 6 months ended 30 June 2019 grew by 15 per cent to £280.1 million (2018: £244.3 million). Trading has remained strong in the first half despite the poor weather in June. Key underlying indicators remain positive in Marshalls' end markets. The Group's positive cash generation has continued in the period, with operating cash flow being around 90 per cent of EBITDA for the year to 30 June 2019. Sales to the Public Sector and Commercial end market, which represented approximately 68 per cent of Group sales, increased by 21 per cent compared with the prior year period. Edenhall, which was acquired in December 2018, has continued to trade strongly and its integration is in line with our expectations and is well advanced. Excluding the impact of Edenhall, sales to the Public Sector and Commercial end market increased by 10 per cent compared with the prior year period. The Group continues to target those parts of the market where higher levels of growth are anticipated including New Build Housing, Road, Rail and Water Management. Sales to the Domestic end market, which represented approximately 27 per cent of Group sales, increased by 3 per cent compared with the prior year period. The survey of domestic installers at the end of June 2019 shows continuing strong order books of 11.5 weeks (June 2018: 11.3 weeks; February 2019: 10.0 weeks). Sales in the International business increased by 14 per cent in the 6 months ended 30 June 2019 and represented 5 per cent of Group sales. The Group continues to develop its global supply chains and infrastructure to ensure that international operations are sustainable and aligned with market opportunities. Reported operating profit increased to £39.0 million (2018: £33.5 million). The impact of IFRS 16, which has been applied since 1 January 2019, has been to increase operating profit by £0.6 million. Post IFRS 16 EBITDA for the 6 months ended 30 June 2019 was £54.9 million, following the inclusion of an additional £7.0 million depreciation in relation to right-of-use assets. On a pre IFRS 16 basis, EBITDA improved to £47.3 million (2018: £41.6 million), an increase of 14 per cent. Group return on capital employed ("ROCE") remained strong and was 21.4 per cent for the 12 months ended 30 June 2019, on a pre IFRS 16 basis (30 June 2018: 20.0 per cent). On a reported, post IFRS 16, basis ROCE reduced to 19.3 per cent, following the inclusion of £42.1 million of additional debt from lease liabilities. ROCE is defined as EBITA divided by shareholders' funds plus cash / net debt. Net financial expenses were £1.9 million (2018: £1.0 million), including £0.7 million of additional IFRS 16 lease interest. On a reported basis interest was covered 20.2 times and, on a pre IFRS 16 basis, interest was covered 31.0 times (2018: 34.0 times). The effective tax rate was 19.0 per cent (2018: 19.5 per cent). The impact on the Income Statement of transitioning to IFRS 16 has been marginal, with reported profit before tax of £37.1 million being only £0.1 million lower than the pre IFRS 16 figure of £37.2 million. The financial impact of IFRS 16 is summarised in more detail below and in Notes 2 and 3. Basic EPS on a reported basis was 15.18 pence (2018: 13.24 pence) per share, which represented an increase of 15 per cent. The Board has declared an interim dividend of 4.70 pence (2018: 4.00 pence) per share, an increase of 18 per cent, reflecting the strong cash generation and the Group's continuing progressive dividend policy. The Board will continue to adhere to the Group's capital allocation policy and the policy of maintaining a 2 times dividend cover. The Group continues to deliver strong operational cash flows through the ongoing tight control of inventory and effective management of working capital. As a consequence of the acquisition of Edenhall in December 2018 for £16.4 million, including £4.7 million of Edenhall debt taken on, the Group reported net debt of £97.7 million at 30 June 2019. This net debt figure includes £42.1 million of additional IFRS 16 lease liabilities and is £55.6 million (30 June 2018: net debt of £48.9 million) on a pre IFRS 16 basis. The half year-end net debt is after the payment of the 2018 final and supplementary dividends of £23.8 million made to shareholders on 28 June 2019. Impact of IFRS 16 In adopting IFRS 16 from 1 January 2019, the Group has applied the modified retrospective transition approach and not restated comparative amounts for the year ended 31 December 2018. Right-of-use assets of £46.7 million and lease liabilities of £48.2 million were recognised as at 1 January 2019. In terms of the Income Statement, the application of IFRS 16 resulted in a decrease in other operating expenses of £7.6 million and an increase in depreciation of £7.0 million for the 6 months ended 30 June 2019. The interest expense increased by £0.7 million due to additional IFRS 16 lease interest. Marshalls' strategy: 5 years to 2023 The Group's 2020 Strategy, launched 5 years ago, has delivered strong profit growth and has been firmly aligned with the Group's aims and core values. In launching the new 5 year Business Strategy to 2023, our continuing objective is to deliver sustainable growth. Our strategic goal is to become the UK's leading manufacturer of products in the Built Environment. The core theme of our strategy for the next 5 years will be to extend and further develop the Group's priority of driving growth. First and foremost, there will be a continued focus on organic growth and investment, with capital expenditure of £23 million planned for 2019. Further investment will drive an increasing momentum in the delivery of the Group's digital strategy and new product development, whilst the new strategy will also see a renewed focus on increasing the profitability of the Emerging UK Businesses. We will also continue to target selective bolt-on acquisition opportunities in New Build Housing, Water Management and Minerals. The Group will continue to focus on service, quality, design, innovation, continuous improvement and sustainability. The strategy continues to recognise the importance of a strong balance sheet, a flexible capital structure and a clear capital allocation policy. These objectives seek to drive both long-term growth and shareholder returns. The Group will continue to support a progressive dividend policy, maintaining 2 times dividend cover enhanced, where appropriate, by supplementary dividends. Operating performance The reported operating margin was 13.9 per cent (30 June 2018: 13.7 per cent). Pre IFRS 16 operating margins were in line with the prior half year period at 13.7 per cent. Excluding the impact of Edenhall, the operating margin increased to 14.0 per cent. The operating margin at Edenhall has historically been lower than in Marshalls' core business and this represents an opportunity. Both Edenhall and CPM have continued to deliver strong trading results and the half year performance is in line with expectations. Revenue increased by £15.2 million and operating profit by £2.7 million in the Landscape Products business, which is a reportable segment serving both the Public Sector and Commercial and Domestic end markets. Operating margins within the Landscape Products business increased, reflecting the continued delivery of sustainable cost reductions and operational efficiency improvements as part of our previous 2020 Strategy programmes. Revenue increased by £20.6 million and operating profit by £2.2 million in our other businesses, which now includes Edenhall. Increasing profitability in the Emerging UK Businesses remains a key priority and Landscape Protection, Mineral Products and Premier Mortars remain important growth drivers for the Group. In the Domestic end market, the Group's strategy continues to be to drive more sales through the Marshalls Register of approved domestic installers. This ensures a consistently high standard of quality, customer service and marketing support. The Marshalls Register is unique and comprises approximately 1,900 installer teams. We remain focused on providing outstanding customer experience by extending digitisation and our commitment to innovation. The aim is to ensure that Marshalls is the supplier of choice. In the Public Sector and Commercial end market, Marshalls' strategy is to offer sustainable integrated solutions to customers, architects and contractors, focusing on those market areas where future demand is considered to be greatest, including New Build Housing, Road, Rail and Water Management. Our "Design Space" office in Central London showcases the Group's brand-leading capabilities and technical and design solutions. We are currently in the process of opening another "Design Space" office in Birmingham to service the growing market demand and the major redevelopment of the City. The Group continues to focus on innovation and new product development to drive sales growth. Research and development expenditure in the 6 months ended 30 June 2019 was £2.5 million (2018: £2.2 million). This investment includes project engineering to enhance manufacturing capabilities, concrete and other materials technology innovations and extending the new product pipeline. New product ranges incorporating the Group's new surface performance technology ("SPT") have seen significant recent growth and new initiatives also include the low maintenance "vitrified paving" range. Technology advances are also building in additional resilience to our Landscape Protection products, such as the Super Shallow 100 Bollard. Revenue from new products in the core Landscape Products business has continued strongly and represented 13 per cent of Group sales in the 6 months ended 30 June 2019. Continued investment is being directed at enhancing the Group's digital capability. The aim is to provide a world-class experience throughout the entire customer journey and to ensure that customers receive the right data, at the right time, in the right format. The digital strategy is underpinned by continuous improvement and we are currently integrating artificial intelligence into key business systems. This will create a new artificial intelligence infrastructure upon which other business initiatives will be able to leverage. Capital investment in property, plant and equipment in the 6 months ended 30 June 2019 totalled £10.0 million (2018: £14.1 million) and this compares with pre IFRS 16 depreciation of £7.7 million (2018: £7.4 million). The Group's self help investment programme remains an important part of our strategy and total capital expenditure of £23 million is planned in 2019. A number of major manufacturing projects are currently in progress across the network. CPM's new precast factory at Mells in Somerset was completed in 2018 and has increased the manufacturing capability for bespoke water management solutions. Edenhall has recently commissioned a new £6 million state-of-the-art factory in South Wales. Manufacturing is now well underway and the new facility will drive growth and have the capacity to deliver 100 million brick equivalents per annum. Balance sheet and cash flow Net assets at 30 June 2019 were £278.2 million (June 2018: £244.6 million). Cash generation remains strong, and reported net cash flows from operating activities were £24.3 million in the 6 months ended 30 June 2019. On a pre IFRS 16 basis net cash flows from operating activities were £16.6 million (2018: £14.0 million). The Group continues to focus on robust capital disciplines, with strong cash management continuing to be a high priority area. The Group operates tight control over business, operational and financial procedures, and continues to focus on inventory levels and the close control of credit management procedures. The Group maintains credit insurance which provides excellent intelligence to minimise the number and value of bad debts. The Group does not engage in debt factoring. The Group's existing bank facilities provide headroom against available facilities at appropriately conservative levels. In addition to our short-term working capital facilities with RBS, we maintain a policy of having a range of committed facilities in place with a positive spread of medium-term maturities, which now extend to 2024. In August 2019 we also increased our committed facilities by entering into a new revolving credit facility of £35 million with HSBC. This has increased the capacity within our banking facilities to fund organic investment and selective "bolt-on" acquisitions. The balance sheet value of the Group's defined benefit pension scheme was a surplus of £20.6 million at 30 June 2019 (December 2018: £13.5 million surplus; June 2018: £11.5 million surplus). The surplus has been determined by the scheme actuary using assumptions that are considered to be prudent and in line with current market levels. During the last 6 months the AA corporate bond rate has fallen from 2.75 per cent to 2.35 per cent and this is in line with market movements. The expected rate of CPI inflation has remained at 2.15 per cent. The balance sheet value continues to benefit from the high proportion of liability-driven investments whose performance matches the liabilities. Dividend The Group has a progressive dividend policy with a stated objective of achieving up to 2 times dividend cover over the business cycle. The Board has declared an interim dividend of 4.70 pence (June 2018: 4.00 pence) per share, an increase of 18 per cent, which reflects the Group's strong cash generation. This dividend will be paid on 4 December 2019 to shareholders on the register at the close of business on 18 October 2019. The ex-dividend date will be 17 October 2019. Risks and uncertainties There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining 6 months of the financial year and could cause actual results to differ materially from expected and historical results. The Board does not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 December 2018. A detailed explanation of the risks, and how the Group seeks to mitigate these risks, can be found on pages 23 to 27 of the 2018 Annual Report, which is available at www.marshalls.co.uk/investor/annual-and-interim-reports. Going concern As stated in Note 1 of the 2019 Half Year Report, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Half Year Report. Outlook The Group continues to outperform the Construction Products Association's ("CPA") growth figures, despite ongoing political and Brexit uncertainty. The CPA's recent Summer Forecast predicts a decrease in UK market volumes of 0.3 per cent in 2019, followed by an increase of 1.0 per cent in 2020, while the underlying indicators in the New Build Housing, Road, Rail and Water Management markets remain supportive. Post period-end trading has remained strong. The Board believes that the Group's new 5 year Business Strategy will continue to deliver sustainable growth, whilst maintaining a strong balance sheet and a flexible capital structure. The strategy is underpinned by strong market positions, focused investment plans and an established brand. The Board is increasingly confident of at least achieving its expectations for 2019. Martyn Coffey Chief Executive Condensed Consolidated Income Statement for the half year ended 30 June 2019 Half year ended June Year ended December 2019 2018 2018 Notes £'000 £'000 £'000 Revenue 4 280,107 244,340 490,988 Net operating costs 5 (241,085) (210,827) (426,154) Operating profit 4 39,022 33,513 64,834 Financial expenses 6 (1,931) (986) (1,904) Financial income 1 - 5 Profit before tax 4 37,092 32,527 62,935 Income tax expense 7 (7,055) (6,350) (11,307) Profit for the financial period 30,037 26,177 51,628 Profit for the period Attributable to: Equity shareholders of the Parent 30,100 26,158 51,958 Non-controlling interests (63) 19 (330) 30,037 26,177 51,628 Earnings per share Basic 8 15.18p 13.24p 26.29p Diluted 8 15.07p 13.13p 26.08p Dividend Pence per share 9 8.00p 6.80p 10.80p Supplementary 4.00p 4.00p 4.00p Dividends declared 9 23,802 21,344 29,250 All results relate to continuing operations. Condensed Consolidated Statement of Comprehensive Income for the half year ended 30 June 2019 Half year ended June Year ended December 2019 £'000 2018 £'000 2018 £'000 Profit for the financial period 30,037 26,177 51,628 Other comprehensive income / (expense) Items that will not be reclassified to the Income Statement: Remeasurement of the net defined benefit asset 7,590 7,699 9,985 Deferred tax arising (1,290) (1,309) (1,698) Total items that will not be reclassified to the Income Statement 6,300 6,390 8,287 Items that are or may in the future be reclassified to the Income Statement: Effective portion of changes in fair value of cash flow hedges 216 500 528 Fair value of cash flow hedges transferred to the Income Statement (62) (262) (668) Deferred tax arising (26) (38) 27 Exchange difference on retranslation of foreign currency net investment 27 62 (208) Exchange movements associated with borrowings (17) (84) 199 Foreign currency translation differences - non-controlling interests (5) (5) (35) Total items that are or may be reclassified subsequently to the Income Statement 133 173 (157) Other comprehensive income for the period, net of income tax 6,433 6,563 8,130 Total comprehensive income for the period 36,470 32,740 59,758 Attributable to: Equity shareholders of the Parent 36,538 32,726 60,123 Non-controlling interests (68) 14 (365) 36,470 32,740 59,758 Condensed Consolidated Balance Sheet as at 30 June 2019 June December Notes 2019 £'000 2018 £'000 2018 £'000 Assets Non-current assets Property, plant and equipment 190,036 173,662 190,991 Right-of-use assets 10 40,934 - - Intangible assets 89,727 73,318 89,645 Employee benefits 12 20,609 11,498 13,516 Deferred taxation assets 2,399 1,324 1,406 343,705 259,802 295,558 Current assets Inventories 93,260 84,867 84,361 Trade and other receivables 101,923 94,644 80,430 Cash and cash equivalents 11,169 20,617 45,709 Derivative financial instruments 430 654 276 206,782 200,782 210,776 Total assets 550,487 460,584 506,334 Liabilities Current liabilities Trade and other payables 127,025 114,394 121,953 Corporation tax 11,635 8,282 9,683 Short-term lease liabilities 11 10,175 - - Interest-bearing loans and borrowings 21,301 34 2,974 170,136 122,710 134,610 Non-current liabilities Long-term lease liabilities 11 32,702 - - Interest-bearing loans and borrowings 44,688 69,484 80,168 Provisions 6,462 7,540 7,288 Deferred taxation liabilities 18,328 16,274 17,553 102,180 93,298 105,009 Total liabilities 272,316 216,008 239,619 Net assets 278,171 244,576 266,715 Equity Capital and reserves attributable to equity shareholders of the Parent Share capital 50,017 49,845 49,998 Share premium account 24,532 22,695 24,326 Own shares (1,406) (919) (888) Capital redemption reserve 75,394 75,394 75,394 Consolidation reserve (213,067) (213,067) (213,067) Hedging reserve 401 586 273 Retained earnings 341,274 308,569 329,585 Equity attributable to equity shareholders of the Parent 277,145 243,103 265,621 Non-controlling interests 1,026 1,473 1,094 Total equity 278,171 244,576 266,715 Condensed Consolidated Cash Flow Statement for the half year ended 30 June 2019 Half year ended June Year ended December 2019 £'000 2018 £'000 2018 £'000 Profit for the financial period 30,037 26,177 51,628 Income tax expense 7,055 6,350 11,307 Profit before tax 37,092 32,527 62,935 Adjustments for: Depreciation 14,740 7,427 14,199 Amortisation 1,183 717 1,759 Net gain on sale of property, plant and equipment (108) (954) (738) Share-based payment expense 1,313 534 534 Financial income and expenses (net) 1,930 986 1,899 Operating cash flow before changes in working capital 56,150 41,237 80,588 Increase in trade and other receivables (21,672) (26,729) (6,927) Increase in inventories (8,925) (7,045) (4,314) Increase in trade and other payables 5,069 14,830 6,909 Operational restructuring costs paid - (917) (1,244) Acquisition costs paid (375) (594) (594) Cash generated from operations 30,247 20,782 74,418 Financial expenses paid (740) (707) (1,308) Income tax paid (5,225) (6,057) (9,855) Net cash flow from operating activities 24,282 14,018 63,255 Cash flows from investing activities Proceeds from sale of property, plant and equipment 108 1,571 1,637 Financial income received 1 - 5 Acquisition of subsidiary undertaking - - (11,726) Acquisition of property, plant and equipment (8,799) (13,539) (27,296) Acquisition of intangible assets (1,266) (557) (1,995) Net cash flow from investing activities (9,956) (12,525) (39,375) Cash flows from financing activities Proceeds from issue of share capital 225 - 1,784 Payments to acquire own shares (1,470) (1,210) (1,210) Payments in respect of share-based awards - (3,683) (3,683) (Decrease) / increase in bank borrowings (16,149) 25,500 39,000 Increase in debt on acquisition of subsidiaries - - (4,742) Cash payments in respect of lease liabilities (7,673) - - Equity dividends paid (23,802) (21,344) (29,250) Net cash flow from financing activities (48,869) (737) 1,899 Net (decrease) / increase in cash and cash equivalents (34,543) 756 25,779 Cash and cash equivalents at the beginning of the period 45,709 19,845 19,845 Effect of exchange rate fluctuations 3 16 85 Cash and cash equivalents at the end of the period 11,169 20,617 45,709 Condensed Consolidated Statement of Changes in Equity for the half year ended 30 June 2019 Attributable to equity holders of the Company Share capital Share premium account Own shares Capital redemption reserve Consolid- ation reserve Hedging reserve Retained earnings Total Non-con- trolling interests Total Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Current half yearat At 1 January 2019 Period 49,998 24,326 (888) 75,394 (213,067) 273 329,585 265,621 1,094 266,715 Effect of initial application of IFRS 16 (Note 2) - - - - - - (1,842) (1,842) - (1,842) At 1 January 2019 - as restated 49,998 24,326 (888) 75,394 (213,067) 273 327,743 263,779 1,094 264,873 Total comprehensive income / (expense) for the period Profit for the financial period attributable to equity shareholders of the Parent - - - - - - 30,100 30,100 (63) 30,037 Other comprehensive income / (expense) Foreign currency translation differences - - - - - - 10 10 (5) 5 Effective portion of changes in fair value of cash flow hedges - - - - - 216 - 216 - 216 Net change in fair value of cash flow hedges transferred to the Income Statement - - - - - (62) - (62) - (62) Deferred tax arising - - - - - (26) - (26) - (26) Defined benefit plan actuarial gain - - - - - - 7,590 7,590 - 7,590 Deferred tax arising - - - - - - (1,290) (1,290) - (1,290) Total other comprehensive income / (expense) - - - - - 128 6,310 6,438 (5) 6,433 Total comprehensive income / (expense) for the period - - - - - 128 36,410 36,538 (68) 36,470 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Share-based payments - - - - - - 1,313 1,313 - 1,313 Deferred tax on share-based payments - - - - - - 410 410 - 410 Corporation tax on share- based payments - - - - - - 152 152 - 152 Dividends to equity shareholders - - - - - - (23,802) (23,802) - (23,802) Shares issued 19 206 - - - - - 225 - 225 Purchase of own shares - - (1,470) - - - - (1,470) - (1,470) Disposal of own shares - - 952 - - - (952) - - - Total contributions by and distributions to owners 19 206 (518) - - - (22,879) (23,172) - (23,172) Total transactions with owners of the Company 19 206 (518) - - 128 13,531 13,366 (68) 13,298 At 30 June 2019 50,017 24,532 (1,406) 75,394 (213,067) 401 341,274 277,145 1,026 278,171 Condensed Consolidated Statement of Changes in Equity (continued) for the half year ended 30 June 2019 Attributable to equity holders of the Company Share capital Share premium account Own shares Capital Redemption Reserve Consolid- ation reserve Hedging reserve Retained earnings Total Non-con- trolling interests Total equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Prior half year At 1 January 2018 49,845 22,695 (2,359) 75,394 (213,067) 386 303,274 236,168 1,459 237,627 Total comprehensive income / (expense) for the period Profit for the financial period attributable to equity shareholders of the Parent - - - - - - 26,158 26,158 19 26,177 Other comprehensive income / (expense) Foreign currency translation differences - - - - - - (22) (22) (5) (27) Effective portion of changes in fair value of cash flow hedges - - - - - 500 - 500 - 500 Net change in fair value of cash flow hedges transferred to the Income Statement - - - - - (262) - (262) - (262) Deferred tax arising - - - - - (38) - (38) - (38) Defined benefit plan actuarial gain - - - - - - 7,699 7,699 - 7,699 Deferred tax arising - - - - - - (1,309) (1,309) - (1,309) Total other comprehensive income / (expense) - - - - - 200 6,368 6,568 (5) 6,563 Total comprehensive income / (expense) for the period - - - - - 200 32,526 32,726 14 32,740 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Share-based payments - - - - - - (3,149) (3,149) - (3,149) Deferred tax on share- based payments - - - - - - (352) (352) - (352) Corporation tax on share- based payments - - - - - - 264 264 - 264 Dividends to equity shareholders - - - - - - (21,344) (21,344) - (21,344) Purchase of own shares - - (1,210) - - - - (1,210) - (1,210) Disposal of own shares - - 2,650 - - - (2,650) - - - Total contributions by and distributions to owners - - 1,440 - - - (27,231) (25,791) - (25,791) Total transactions with owners of the Company - - 1,440 - - 200 5,295 6,935 14 6,949 At 30 June 2018 49,845 22,695 (919) 75,394 (213,067) 586 308,569 243,103 1,473 244,576 Condensed Consolidated Statement of Changes in Equity (continued) for the half year ended 30 June 2019 Attributable to equity holders of the Company Share capital Share premium account Own shares Capital Redemption reserve Consolid- ation reserve Hedging reserve Retained earnings Total Non-con- trolling interests Total equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Prior year At 1 January 2018 49,845 22,695 (2,359) 75,394 (213,067) 386 303,274 236,168 1,459 237,627 Total comprehensive income / (expense) for the year Profit for the financial period attributable to equity shareholders of the Parent - - - - - - 51,958 51,958 (330) 51,628 Other comprehensive income / (expense) Foreign currency translation differences - - - - - - (9) (9) (35) (44) Effective portion of changes in fair value of cash flow hedges - - - - - 528 - 528 - 528 Net change in fair value of cash flow hedges transferred to the Income Statement - - - - - (668) - (668) - (668) Deferred tax arising - - - - - 27 - 27 - 27 Defined benefit plan actuarial gain - - - - - - 9,985 9,985 - 9,985 Deferred tax arising - - - - - - (1,698) (1,698) - (1,698) Total other comprehensive income / (expense) - - - - - (113) 8,278 8,165 (35) 8,130 Total comprehensive income / (expense) for the year - - - - - (113) 60,236 60,123 (365) 59,758 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Share-based payments - - - - - - (2,249) (2,249) - (2,249) Deferred tax on share-based Payments - - - - - - (171) (171) - (171) Corporation tax on share- based payments - - - - - - 426 426 - 426 Dividends to equity shareholders - - - - - - (29,250) (29,250) - (29,250) Shares issued 153 1,631 - - - - - 1,784 - 1,784 Purchase of own shares - - (1,210) - - - - (1,210) - (1,210) Disposal of own shares - - 2,681 - - - (2,681) - - - Total contributions by and distributions to owners 153 1,631 1,471 - - - (33,925) (30,670) - (30,670) Total transactions with owners of the Company 153 1,631 1,471 - - (113) 26,311 29,453 (365) 29,088 At 31 December 2018 49,998 24,326 (888) 75,394 (213,067) 273 329,585 265,621 1,094 266,715 Notes to the Condensed Consolidated Financial Statements for the half year ended 30 June 2019 1. Basis of preparation Marshalls plc (the "Company") is a company domiciled in the United Kingdom. The Condensed Consolidated Financial Statements of the Company for the half year ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as the "Group"). The Condensed Consolidated Financial Statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and the requirements of IAS 34 "Interim Financial Reporting" as adopted by the European Union ("EU"). The Condensed Consolidated Financial Statements do not constitute statutory financial statements and do not include all the information and disclosures required for full annual financial statements. The Condensed Consolidated Half Year Financial Statements were approved by the Board on 15 August 2019. The Condensed Consolidated Half Year Financial Statements are not statutory accounts as defined by Section 434 of the Companies Act 2006. The Condensed Consolidated Financial Statements for the half year ended 30 June 2019 and the comparative period have not been audited. The Auditor has carried out a review of the Half Year Financial Information and its report is set out below. The financial information for the year ended 31 December 2018 has been extracted from the Annual Financial Statements, included in the Annual Report 2018, which has been filed with the Registrar of Companies. The report of the Auditor was: (i) unqualified; (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying its report; and (iii) did not contain a statement under Section 498 (2) and (3) of the Companies Act 2006. The Annual Financial Statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU. As required by the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority and, other than in respect of IFRS 16 which applied from 1 January 2019, the condensed set of Financial Statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published Consolidated Financial Statements for the year ended 31 December 2018. The Condensed Consolidated Half Year Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and liabilities for cash settled share-based payments. The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. In preparing these Condensed Consolidated Half Year Financial Statements, other than in respect of IFRS 16, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements of the Group for the year ended 31 December 2018. Significant judgements were made in applying IFRS 16 in relation to the incremental borrowing rates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Details of the Group's funding position are set out in Note 15 and are subject to normal covenant arrangements. The Group's on-demand overdraft facility is reviewed on an annual basis and the current arrangements were renewed and signed on 6 August 2019. Management believes that there are sufficient unutilised facilities held which mature after 12 months. The Group's performance is dependent on economic and market conditions, the outlook for which is difficult to predict. Based on current expectations, the Group's cash forecasts continue to meet half year and year-end bank covenants and there is adequate headroom that is not dependent on facility renewals. After considering relevant uncertainties, the Directors believe that the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the Condensed Consolidated Half Year Financial Statements. 2. Accounting policies The Group has applied IFRS 16 "Leases", with effect from 1 January 2019. Other than in respect of IFRS 16, the accounting policies have been applied consistently throughout the Group for the purposes of these Condensed Consolidated Half Year Financial Statements and are also set out on the Company's website (www.marshalls.co.uk). Other than in respect of IFRS 16, the same accounting policies and methods of computation are followed in the Condensed Consolidated Half Year Financial Statements as compared to the most recent Annual Financial Statements. The Condensed Consolidated Half Year Financial Statements are presented in Sterling, rounded to the nearest thousand. IFRS 16 "Leases" IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as for the impact of lease modifications, amongst others. The classification of cash flows is affected because operating lease payments under IAS 17 are presented as operating cash flows, whereas, under the IFRS 16 model, the lease payments are split into a principal and an interest portion which are presented as financing and operating cash flows respectively. Depreciation of the right-of-use asset is recognised in the Income Statement on a straight line basis, with interest recognised on the lease liability. In adopting IFRS 16 from 1 January 2019, the Group has applied the modified retrospective transition approach and not restated comparative amounts for the year ended 31 December 2018. Right-of-use assets of £46,719,000 and lease liabilities of £48,218,000 were recognised as at 1 January 2019. For certain leases the Group has elected to measure the right-of-use asset as if IFRS 16 had been applied since the start of the lease, but using the incremental borrowing rate at 1 January 2019, with the difference between the right-of-use asset and the lease liability taken to retained earnings. In other cases, the Group has elected to measure right-of-use assets at the amount of the lease liability on adoption (adjusted for any lease prepayments or accrued lease expenses, onerous lease provisions and leased assets which have subsequently been sub-leased). The Group has elected to adopt the following practical expedients on transition: · where an onerous lease provision is in existence, to utilise this provision to reduce the right-of-use asset value rather than undertaking an impairments review; · to use hindsight in determining the lease term; · to exclude initial direct costs from the measurement of the right-of-use asset; and · to apply the portfolio approach where a group of leases has similar characteristics. Financial impact of IFRS 16 (a) Impact on transition On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below: 1 January 2019 £'000 Right-of-use assets 46,719 Lease liabilities (48,218) Retained earnings 1,842 Deferred tax 415 Reclassification of prepayments and accruals (3) Reclassification of finance leases (755) - Included in the transition values for right-of-use assets and lease liabilities are £1,696,000 and £941,000 respectively in relation to previously recognised finance leases under IAS 17. The net assets value in respect of these items was £755,000. Of the total right-of-use assets of £46,719,000 recognised at 1 January 2019, £20,910,000 related to leases of property and £25,809,000 to leases of plant and machinery. The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised at 1 January 2019. £'000 Operating lease commitments disclosed under IAS 17 at 31 December 2018 66,508 Exclusion of service / maintenance elements of a contract from the lease liability (8,934) Effect of discounting (10,297) Finance lease liabilities recognised under IAS 17 at 31 December 2018 941 Lease liabilities recognised at 1 January 2019 48,218 The lease liabilities were discounted at the incremental borrowing rate at 1 January 2019. The weighted average discount rate applied was 2.9 per cent. (b) Impact for the period In terms of the Income Statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in depreciation and interest expense compared to IAS 17. During the 6 months ended 30 June 2019, in relation to leases under IFRS 16, the Group recognised the following amounts in the Consolidated Income Statement. £'000 Depreciation 7,065 Interest expense 693 Other lease payments including short-term and low value lease expenses 1,604 9,362 The reconciliation of the Income Statement is as follows: Pre IFRS 16 June 2019 Impact of IFRS 16 As reported June 2019 June 2018 £'000 £'000 £'000 £'000 Revenue 280,107 - 280,107 244,340 Net operating costs (241,673) 588 (241,085) (210,827) Operating profit 38,434 588 39,022 33,513 Finance charges (net) (1,237) (693) (1,930) (986) Profit before tax 37,197 (105) 37,092 32,527 Income tax (7,055) - (7,055) (6,350) Profit after tax 30,142 (105) 30,037 26,177 (c) Impact on the Cash Flow Statement Under IFRS 16 the cash payments for leasing are presented within financing activities and amount to £7,673,000 in the Consolidated Cash Flow Statement. Under IAS 17 operating lease payments were presented as operating cash outflows. The impact on the Consolidated Cash Flow Statement for the half year ended 30 June 2019 has been to increase net cash flow from operating activities to £24,282,000. On a pre IFRS 16 basis net cash flows from operating activities would have been £16,609,000. (d) Impact on financial metrics Pre IFRS 16 June 2019 Impact of IFRS 16 As reported June 2019 June 2018 Profit before tax (£'000) 37,197 (105) 37,092 32,527 EBITDA (£'000) 47,292 7,653 54,945 41,657 EPS (pence) 15.22 (0.04) 15.18 13.24 Net debt (£'000) 55,629 42,068 97,697 48,901 ROCE (%) 21.4 (2.1) 19.3 20.0 Debt debt : EBITDA 0.6 0.4 1.0 0.7 Gearing (%) 19.8 15.3 35.1 20.0 3. Alternative performance measures The Group used alternative performance measures ("APMs") which are not defined or specified under IFRS. The Group believes that its APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide more meaningful comparative information. EBITA and EBITDA EBITA represents earnings before interest, tax and the amortisation of intangibles. This is a component of the ROCE calculation. EBITDA is calculated by adding back depreciation to EBITA. As reported June 2019 Pre IFRS 16 June 2019 Pre IFRS 16 June 2018 Pre IFRS 16 December 2018 Increase £'000 £'000 £'000 £'000 % EBITDA 54,945 47,292 41,657 80,792 14 Depreciation (14,740) (7,675) (7,427) (14,199) EBITA 40,205 39,617 34,230 66,593 Amortisation of intangible assets (1,183) (1,183) (717) (1,759) Operating profit 39,022 38,434 33,513 64,834 15 ROCE Reported ROCE is defined as EBITA divided by shareholders' funds plus net debt. As reported June 2019 Pre IFRS 16 June 2019 Pre IFRS 16 June 2018 Pre IFRS 16 December 2018 £'000 £'000 £'000 £'000 EBITA - half year ended 30 June 40,205 39,617 34,230 34,230 EBITA - half year ended 31 December 32,363 32,363 24,248 32,363 EBITA - year ended 30 June 72,568 71,980 58,478 66,593 Shareholders' funds 278,171 280,425 244,576 266,715 Net debt 97,697 55,629 48,901 37,433 375,868 336,054 293,477 304,148 Reported ROCE 19.3% 21.4% 20.0% 21.9% 4. Segmental analysis IFRS 8, "Operating Segments," requires operating segments to be identified on the basis of discrete financial information about components of the Group that are regularly reviewed by the Group's Chief Operating Decision Maker ("CODM") to allocate resources to the segments and to assess their performance. As far as Marshalls plc is concerned, the CODM is regarded as being the Executive Directors. The Directors have concluded that the detailed requirements of IFRS 8 support the reporting of the Group's Landscape Products business as a reportable segment, which includes the UK operations of the Marshalls Landscape Products hard landscaping business, servicing both the UK Domestic and the UK Public Sector and Commercial end markets. Financial information for Landscape Products is reported to the Group's CODM for the assessment of segmental performance and to facilitate resource allocation. The Landscape Products reportable segment operates a national manufacturing plan that is structured around a series of production units throughout the UK, in conjunction with a single logistics and distribution operation. A national planning process supports sales to both of the key end markets, namely the UK Domestic and UK Public Sector and Commercial end markets, and the operating assets produce and deliver a range of broadly similar products that are sold into each of these end markets. Within the Landscape Products operating segment, the focus is on the one integrated production, logistics and distribution network supporting both end markets. Included in "Other" are the Group's Landscape Protection, Mineral Products, Premier Mortars and International operations, which do not currently meet the IFRS 8 reporting requirements. Following its acquisition, the Edenhall business has been included within "Other". The accounting policies of the Landscape Products operating segment are the same as the Group's accounting policies. Segment profit represents the profit earned without allocation of certain central administration costs that are not capable of allocation. Centrally administered overhead costs that relate directly to the reportable segment are included within the segment's results. Segment revenues and results Half year ended June 2019 Half year ended June 2018 Year ended December 2018 Landscape Products Other Total Landscape Products Other Total Landscape Products Other Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 External revenue 213,824 68,350 282,174 197,545 48,745 246,290 398,128 96,943 495,071 Inter-segment revenue (143) (1,924) (2,067) (105) (1,845) (1,950) (228) (3,855) (4,083) Total revenue 213,681 66,426 280,107 197,440 46,900 244,340 397,900 93,088 490,988 Segment operating profit 38,831 3,158 41,989 35,489 1,010 36,499 68,418 2,095 70,513 Unallocated administration costs (2,967) (2,986) (5,679) Operating profit 39,022 33,513 64,834 Finance charges (net) (1,930) (986) (1,899) Profit before tax 37,092 32,527 62,935 Taxation (7,055) (6,350) (11,307) Profit after tax 30,037 26,177 51,628 Segment assets June 2019 June 2018 December 2018 £'000 £'000 £'000 Property, plant, equipment and inventory: Landscape Products 210,937 200,973 201,489 Other 72,359 57,556 73,863 Total segment property, plant, equipment and inventory 283,296 258,529 275,352 Unallocated assets 267,191 202,055 230,982 Consolidated total assets 550,487 460,584 506,334 For the purpose of monitoring segment performance and allocating performance between segments, the Group's CODM monitors the property, plant and equipment and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments. Right-of-use assets are not currently monitored by the Group's CODM on a segmental basis and have been included in unallocated assets. Other segment information Depreciation and amortisation (pre IFRS 16) Property, plant and equipment additions Half year ended June Year ended December Half year ended June Year ended December 2019 2018 2018 2019 2018 2018 £'000 £'000 £'000 £'000 £'000 £'000 Landscape Products 7,009 5,816 13,251 7,307 11,376 21,060 Other 1,849 2,328 2,707 1,494 713 6,256 8,858 8,144 15,958 8,801 12,089 27,316 Geographical destination of revenue Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 United Kingdom 264,724 230,784 467,032 Rest of the World 15,383 13,556 23,956 280,107 244,340 490,988 The Group's revenue is subject to seasonal fluctuations resulting from demand from customers. In particular, demand is higher in the summer months. The Group manages the seasonal impact through the use of a seasonal working capital facility. 5. Net operating costs Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 Raw materials and consumables 98,141 81,871 172,175 Changes in inventories of finished goods and work in progress 5,317 6,241 6,267 Personnel costs 64,185 57,633 116,588 Depreciation of property, plant and equipment 7,675 7,427 14,199 Depreciation of right-of-use assets 7,065 - - Amortisation of intangible assets 1,183 717 1,759 Own work capitalised (1,368) (1,494) (3,340) Other operating costs 58,531 50,570 102,827 Leasing costs 1,604 8,913 17,360 Restructuring costs - 917 1,244 Acquisition costs - - 375 Operating costs 242,333 212,795 429,454 Other operating income (1,140) (1,014) (2,562) Net gain on asset and property disposals (108) (954) (738) Net operating costs 241,085 210,827 426,154 * This reflects the proceeds of the sale of a domain name and is net of the associated digital strategy costs. In the prior year period operating lease costs were expensed in accordance with the requirements of IAS 17. For the period ended 30 June 2019, leasing expenses for short-term leases as well as leases of low value assets remain within leasing costs, because the Group has applied the recognition exemption for those contracts provided by IFRS 16. Right-of-use assets are depreciated over the lease term. 6. Financial expenses and income Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 Financial expenses Net interest expense on defined benefit pension scheme 447 278 496 Interest expense on bank loans, overdrafts and loan notes 791 705 1,403 Interest expense on lease liabilities 693 3 5 1,931 986 1,904 Net interest expense on the defined benefit pension scheme is disclosed net of Company recharges. 7. Income tax expense Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 Current tax expense Current year 8,067 5,624 11,269 Adjustments for prior years (291) (320) (934) 7,776 5,304 10,335 Deferred taxation expense Origination and reversal of temporary differences: Current year (469) 998 921 Adjustments for prior years (252) 48 51 Total tax expense 7,055 6,350 11,307 Half year ended June Year ended December 2019 2018 2018 % £'000 % £'000 % £'000 Reconciliation of effective tax rate Profit before tax 100.0 37,092 100.0 32,527 100.0 62,935 Tax using domestic corporation tax rate 19.0 7,047 19.0 6,180 19.0 11,957 Impact of deprecation in excess of capital allowances 2.2 809 0.1 27 (0.6) (402) Short-term timing differences 0.9 308 1.0 328 0.9 595 Adjustment to tax charge in prior period (0.8) (291) (1.0) (320) (1.5) (934) Expenses not deductible for tax purposes (0.3) (97) (2.8) (911) (1.4) (881) Corporation tax charge for the year 21.0 7,776 16.3 5,304 16.4 10,335 Impact of capital allowances in excess of depreciation (0.4) (138) 0.3 82 (0.2) (130) Short-term timing differences (0.5) (176) 2.6 860 1.8 1,139 Pension scheme movements (0.2) (84) - - (0.2) (101) Other items 0.4 151 - (3) 0.5 300 Adjustment to tax charge in prior period (0.7) (252) 0.1 48 0.1 51 Impact of the change in the rate of corporation tax on deferred taxation (0.6) (222) 0.2 59 (0.4) (287) Total tax charge for the year 19.0 7,055 19.5 6,350 18.0 11,307 The net amount of deferred taxation debited to the Consolidated Statement of Comprehensive Income in the period was £1,316,000 (30 June 2018: £1,347,000 debit; 31 December 2018: £1,671,000 debit). The effective tax rate used is management's best estimate of the average annual effective tax rate expected for the full year, applied to pre-tax income for the 6-month period. 8. Earnings per share Basic earnings per share of 15.18 pence (30 June 2018: 13.24 pence; 31 December 2018: 26.29 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders for the financial period after adjusting for non-controlling interests of £30,100,000 (30 June 2018: £26,158,000; 31 December 2018: £51,958,000) by the weighted average number of shares in issue during the period of 198,330,626 (30 June 2018: 197,619,775; 31 December 2018: 197,669,293). Profit attributable to Ordinary Shareholders Half year ended June Year ended December 2019 £'000 2018 £'000 2018 £'000 Profit for the financial period 30,037 26,177 51,628 Result attributable to non-controlling interests 63 (19) 330 Profit attributable to Ordinary Shareholders 30,100 26,158 51,958 Weighted average number of Ordinary Shares Half year ended June Year ended December 2019 2018 2018 Number Number Number Number of issued Ordinary Shares 200,044,482 199,378,755 199,419,571 Effect of shares transferred into employee benefit trust (1,713,856) (1,758,980) (1,750,278) Weighted average number of Ordinary Shares 198,330,626 197,619,775 197,669,293 Diluted earnings per share of 15.07 pence (30 June 2018: 13.13 pence; 31 December 2018: 26.08 pence) per share is calculated by dividing the profit for the financial period, after adjusting for non-controlling interests of £30,100,000 (30 June 2018: £26,158,000; 31 December 2018: £51,958,000), by the weighted average number of shares in issue during the period of 198,330,626 (30 June 2018: 197,619,775; 31 December 2018: 197,669,293), plus potentially dilutive shares of 1,395,396 (30 June 2018: 1,609,647; 31 December 2018: 1,548,929), which totals 199,726,022 (30 June 2018: 199,229,422; 31 December 2018: 199,218,222). Weighted average number of Ordinary Shares (diluted) Half year ended June Year ended December 2019 2018 2018 Number Number Number Weighted average number of Ordinary Shares 198,330,626 197,619,775 197,669,293 Dilutive shares 1,395,396 1,609,647 1,548,929 Weighted average number of Ordinary Shares (diluted) 199,726,022 199,229,422 199,218,222 9. Dividends After the balance sheet date, the following dividends were proposed by the Directors. The dividends have not been provided and there were no income tax consequences. Pence per qualifying share Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 2019 interim 4.70 9,323 - - 2018 supplementary 4.00 - - 7,930 2018 final 8.00 - - 15,860 2018 interim 4.00 - 7,906 7,906 9,323 7,906 31,696 The following dividends were approved by the shareholders in the period: Pence per qualifying share Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 2018 supplementary 4.00 7,934 - - 2018 final 8.00 15,868 - - 2018 interim 4.00 - - 7,906 2017 supplementary 4.00 - 7,905 7,905 2017 final 6.80 - 13,439 13,439 23,802 21,344 29,250 The 2018 final dividend of 8.00 pence per qualifying Ordinary Share alongside a supplementary dividend of 4.00 pence per qualifying Ordinary Share (total value £23,802,000) was paid on 28 June 2019 to shareholders registered at the close of business on 7 June 2019. The Board has declared an interim dividend of 4.70 pence (June 2018: 4.00 pence) per share. This dividend will be paid on 4 December 2019 to shareholders on the register at the close of business on 18 October 2019. The ex-dividend date will be 17 October 2019. 10. Right-of-use assets 30 June 2019 1 January 2019 £ £ Right-of-use assets by class of underlying assets Property, plant and equipment: Freehold land and buildings 20,910 20,910 Plant and equipment 27,089 25,809 47,999 46,719 Depreciation charge for right-of-use assets Property, plant and equipment: Freehold land and buildings 1,091 - Plant and equipment 5,974 - 7,065 - Net book value Property, plant and equipment: Freehold land and buildings 19,819 20,910 Plant and equipment 21,115 25,809 40,934 46,719 Short-term leases have been accounted for in accordance with the recognition exemption in IFRS 16 and hence related payments are expensed as incurred. The Group also made use of the option to apply the recognition exemption for low value assets, which means that related payments have been expensed as incurred. Expenses for short-term and low value assets amounted to £1,604,000 in the half year ended 30 June 2019. The Group plans the replacement of right-of-use assets which have been derecognised due to expired lease agreements. About one-fifth of the right-of-use assets are affected by this. 11. Lease liabilities 30 June 2019 1 January 2019 £ £ Analysed as: Amounts due for settlement within 12 months (shown under current liabilities) 10,175 11,523 Amounts due for settlement after 12 months 32,702 36,695 42,877 48,218 The Group does not face a significant liquidity risk with regard to its lease liabilities. The interest expense on lease liabilities amounted to £693,000 for the half year ended 30 June 2019. Lease liabilities are calculated at the present value of the lease payments that are not paid at the commencement date. For the half year ended 30 June 2019, the average effective borrowing rate was 2.9 per cent. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The vast majority of lease obligations are denominated in Sterling. 12. Employee benefits The Company sponsors a funded defined benefit pension scheme in the UK (the "Scheme"). The Scheme is administered within a trust which is legally separate from the Company. The Trustee Board is appointed by both the Company and the Scheme's membership and acts in the interests of the Scheme and all relevant stakeholders, including the members and the Company. The Trustee is also responsible for the investment of the Scheme's assets. The defined benefit section of the Scheme provides pension and lump sums to members on retirement and to dependants on death. The defined benefit section closed to future accrual of benefits on 30 June 2006 with then active members becoming entitled to a deferred pension. Members no longer pay contributions to the defined benefit section. Company contributions to the defined benefit section after this date are used to fund any deficit in the Scheme and the expenses associated with administering the Scheme as determined by regular actuarial valuations. The Trustee is required to use prudent assumptions to value the liabilities and costs of the Scheme whereas the accounting assumptions must be best estimates. The defined benefit section of the Scheme poses a number of risks to the Company, for example longevity risk, investment risk, interest rate risk, inflation risk and salary risk. The Trustee is aware of these risks and uses various techniques to control them. The Trustee has a number of internal control policies, including a risk register, which are in place to manage and monitor the various risks it faces. The Trustee's investment strategy incorporates the use of liability-driven investments ("LDIs") to minimise sensitivity of the actuarial funding position to movements in interest rates and inflation rates. The defined benefit section of the Scheme is subject to regular actuarial valuations, which are usually carried out every 3 years. The next actuarial valuation is expected to be carried out with an effective date of 5 April 2021. These actuarial valuations are carried out in accordance with the requirements of the Pensions Act 2004 and so include deliberate margins for prudence. This contrasts with these accounting disclosures which are determined using best estimate assumptions. A formal actuarial valuation was carried out as at 5 April 2018. The results of that valuation have been projected to 30 June 2019 by a qualified independent actuary. The figures in the following disclosure were measured using the projected unit method. The amounts recognised in the Consolidated Balance Sheet were as follows: June December 2019 2018 2018 £'000 £'000 £'000 Present value of Scheme liabilities (344,178) (342,992) (330,222) Fair value of Scheme assets 364,787 354,490 343,738 Net amount recognised (before any adjustment for deferred tax) 20,609 11,498 13,516 The current and past service costs, settlements and curtailments, together with the net interest expense for the period, are included in the employee benefits expense in the Statement of Comprehensive Income. Remeasurements of the net defined benefit liability are included in other comprehensive income. Half year ended June Year ended December 2019 2018 2018 £'000 £'000 £'000 Service cost: Net interest expense recognised in the Consolidated Income Statement 497 328 596 Remeasurements of the net liability: Return on scheme assets (excluding amount included in interest expense) (24,947) (762) 7,872 Loss / (gain) arising from changes in financial assumptions 24,140 (6,937) (16,326) Gain arising from changes in demographic assumptions (11,948) - (1,531) Experience loss 5,165 - - Credit recorded in other comprehensive income (7,590) (7,699) (9,985) Total defined benefit credit (7,093) (7,371) (9,389) The principal actuarial assumptions used were: June December 2019 2018 2018 Liability discount rate 2.35% 2.60% 2.75% Inflation assumption - RPI 3.15% 3.10% 3.15% Inflation assumption - CPI 2.15% 2.10% 2.15% Rate of increase in salaries n/a n/a n/a Revaluation of deferred pensions 2.15% 2.10% 2.15% Increases for pensions in payment: CPI pension increases (maximum 5% per annum) 2.15% 2.10% 2.15% CPI pension increases (maximum 5% per annum, minimum 3% per annum) 3.20% 3.20% 3.20% CPI pension increases (maximum 3% per annum) 1.95% 1.90% 1.95% Proportion of employees opting for early retirement 0% 0% 0% Proportion of employees commuting pension for cash 80.0% 50.0% 50.0% Mortality assumption - before retirement Same as post retirement Same as post retirement Same as post retirement Mortality assumption - after retirement (males) S2PXA tables S2PMA tables S2PXA tables Loading 110% 105% 105% Projection basis Year of birth Year of birth Year of birth CMI_2018 1.0% CMI_2016 1.0% CMI_2017 1.0% Mortality assumption - after retirement (females) S2PXA tables S2PFA tables S2PXA tables Loading 110% 105% 105% Projection basis Year of birth Year of birth Year of birth CMI_2018 1.0% CMI_2016 1.0% CMI_2017 1.0% Future expected lifetime of current pensioner at age 65: Male aged 65 at year end 85.6 86.2 86.1 Female aged 65 at year end 87.5 88.0 88.0 Future expected lifetime of future pensioner at age 65: Male aged 45 at year end 86.6 87.2 87.1 Female aged 45 at year end 88.7 89.2 89.2 13. Acquisition of subsidiary On 11 December 2018, Marshalls Mono Limited acquired 100 per cent of the issued share capital of Edenhall Holdings Limited, a concrete brick manufacturer. Initial cash consideration paid to the vendors was £10,759,000 and, in addition, a further £1,000,000 was paid into an escrow account in relation to certain ongoing legal and regulatory matters identified during the course of due diligence carried out prior to concluding the acquisition. The Group has a right to be reimbursed from amounts held in escrow to the extent that any liability crystallises in respect of these ongoing legal and regulatory matters, up to the full value of the £1,000,000 held in escrow and consequently a reimbursement asset of £1,000,000 was recognised within other debtors. To the extent that any such liabilities are resolved at a lower value than the escrow balances, the excess balance remaining in escrow is payable to the vendors as additional consideration. 14. Analysis of net debt 1 January 2019 IFRS 16 Cash flow Other changes 30 June 2019 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 45,709 - (34,543) 3 11,169 Debt due within 1 year (22,493) - 1,149 43 (21,301) Debt due after 1 year (59,708) - 15,000 20 (44,688) Finance leases (941) 941 - - - Lease liabilities - (48,218) 7,673 (2,332) (42,877) (37,433) (47,277) (10,721) (2,266) (97,697) Reconciliation of net cash flow to movement in net debt Half year ended June Year ended December 2019 £'000 2018 £'000 2018 £'000 Net increase in cash and cash equivalents (34,543) 756 25,746 IFRS 16 (47,277) - - Cash outflow / (inflow) from increase in bank borrowings 16,149 (25,443) (34,063) Cash outflow / (inflow) from increase in lease financing 5,341 - - On acquisition of subsidiary undertaking - - (4,709) Effect of exchange rate fluctuations 66 83 (110) Movement in net debt in the period (60,264) (24,604) (13,136) Net debt at the beginning of the period (37,433) (24,297) (24,297) Net debt at the end of the period (97,697) (48,901) (37,433) 15. Borrowing facilities The total bank borrowing facilities at 30 June 2019 amounted to £150.0 million (30 June 2018: £125.0 million; 31 December 2018: £140.0 million), of which £84.0 million (30 June 2018: £55.7 million; 31 December 2018: £60.5 million) remained unutilised. These figures include an additional seasonal working capital facility of £10.0 million available between 1 February and 31 August each year. The undrawn facilities available at 30 June 2019, in respect of which all conditions precedent had been met, were as follows: June December 2019 £'000 2018 £'000 2018 £'000 Committed: Expiring in more than 5 years 25,000 - 25,000 Expiring in more than 2 years but not more than 5 years 34,011 30,379 20,292 Expiring in 1 year or less - 365 180 Uncommitted: Expiring in 1 year or less 25,000 25,000 15,000 84,011 55,744 60,472 The total borrowing facilities at 15 August 2019 amounted to £165.0 million. On 6 August 2019, the Group renewed its short-term working capital facilities of £25.0 million and took out an additional committed facility of £35.0 million with a 2023 maturity date. The committed facilities are all revolving credit facilities with interest charged at variable rates based on LIBOR. The Group's bank facilities continue to be aligned with the current strategy to ensure that headroom against available facilities remains at appropriate levels. The maturity profile of borrowing facilities is structured to provide balanced, committed and phased medium-term debt. Following the recent refinancing of bank facilities, the current facilities are set out as follows: Facility Cumulative facility £'000 £'000 Committed facilities: Q4: 2024 25,000 25,000 Q3: 2023 55,000 80,000 Q3: 2022 20,000 100,000 Q3: 2021 20,000 120,000 Q3: 2020 20,000 140,000 On-demand facilities: Available all year 15,000 155,000 Seasonal (February to August inclusive) 10,000 165,000 16. Fair values of financial assets and financial liabilities A comparison by category of the book values and fair values of the financial assets and liabilities of the Group at 30 June 2019 is shown below: June June December 2019 2018 2018 Book amount Fair value Book amount Fair value Book amount Fair value £'000 £'000 £'000 £'000 £'000 £'000 Trade and other receivables 90,387 90,387 84,713 84,713 71,710 71,710 Cash and cash equivalents 11,169 11,169 20,617 20,617 45,709 45,709 Bank overdrafts - - - - (2,673) (2,673) Bank loans (65,989) (61,114) (69,256) (70,639) (79,528) (77,931) Lease liabilities (42,877) (42,877) (262) (280) (941) (1,037) Trade and other payables (114,441) (114,441) (100,260) (100,260) (107,908) (107,908) Interest rate swaps, forward contracts and fuel hedges 430 430 654 654 276 276 Contingent consideration (2,420) (2,420) - - (2,420) (2,420) Financial instrument assets and liabilities - net (123,741) (63,794) (75,775) Non-financial instrument assets and liabilities - net 401,912 308,370 342,490 278,171 244,576 266,715 Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table. Other than contingent consideration, which uses a level 3 basis, all use level 2 valuation techniques. (a) Derivatives Derivative contracts are either marked to market using listed market prices or by discounting the contractual forward price at the relevant rate and deducting the current spot rate. For interest rate swaps broker quotes are used. (b) Interest-bearing loans and borrowings Fair value is calculated based on the expected future principal and interest cash flows discounted at the market rate of interest at the balance sheet date. (c) Lease liabilities The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect changes in interest rates. (d) Trade and other receivables / payables For receivables / payables with a remaining life of less than 1 year, the notional amount is deemed to reflect the fair value. (e) Contingent consideration Contingent consideration has been calculated based on the Group's expectation of what it will pay in relation to the post acquisition performance of the acquired entities. (f) Fair value hierarchy The table below analyses financial instruments, measured at fair value, into a fair value hierarchy based on the valuation techniques used to determine fair value. · Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. · Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). · Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total £'000 £'000 £'000 £'000 30 June 2019 Derivative financial assets - 430 - 430 30 June 2018 Derivative financial assets - 654 - 654 31 December 2018 Derivative financial assets - 276 - 276 17. Principal risks and uncertainties The principal risks and uncertainties that could impact the Group for the remainder of the current financial year are those detailed on pages 23 to 27 of the 2018 Annual Report. These cover the strategic, financial and operational risks and have not changed during the period. Strategic risks include those relating to general economic conditions, Government policy, the actions of customers, suppliers and competitors, and also weather conditions. Cyber security risk within the wider market is also an increasing risk for the Group and an area of major focus. The Group also continues to be subject to various financial risks in relation to access to funding and to the pension scheme, principally the volatility of the discount (AA corporate bond) rate, any downturn in the performance of equities and increases in the longevity of members. The other main financial risks arising from the Group's financial instruments are liquidity risk, interest rate risk, credit risk and foreign currency risk. External operational risks include the weather, political and economic conditions, the potential impact of Brexit, the effect of legislation or other regulatory actions, the actions of competitors, raw material prices and threats from cyber security, new business strategies, acquisitions and the integration of Edenhall. The Group continues to monitor all these risks and pursue policies that take account of, and mitigate, the risks where possible. Responsibility Statement The Directors who held office at the date of approval of these Financial Statements confirm that to the best of their knowledge: · the Condensed Consolidated Half Year Financial Statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union; and · the Half Year Management Report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the half year ended 30 June 2019 and their impact on the Condensed Consolidated Half Year Financial Statements, and a description of the principal risks and uncertainties for the remaining second half of the year; and (b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the half year ended 30 June 2019 and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last Annual Report that could do so. The Board The Directors serving during the half year ended 30 June 2019 were as follows: Vanda Murray OBE Chair of the Board Janet Ashdown Senior Non-Executive Director Jack Clarke Group Finance Director Martyn Coffey Chief Executive Tim Pile Non-Executive Director Graham Prothero Non-Executive Director The responsibilities of the Directors during their period of service were as set out on pages 40 and 41 of the 2018 Annual Report. By order of the Board Cathy Baxandall Group Company Secretary 15 August 2019 Cautionary statement This Half Year Report contains certain forward-looking statements with respect to the financial condition, results, operations and business of Marshalls plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Half Year Report should be construed as a profit forecast. Directors' liability Neither the Company nor the Directors accept any liability to any person in relation to this Half Year Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A of the Financial Services and Markets Act 2000. Independent Review Report to Marshalls plc Introduction We have been engaged by the Company to review the condensed set of Financial Statements in the Half Year Financial Report for the 6 months ended 30 June 2019 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement, the Condensed Consolidated Statement of Changes in Equity and related Notes 1 to 17. We have read the other information contained in the Half Year Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements. This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The Half Year Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Year Financial Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in Note 1, the Annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of Financial Statements included in this Half Year Financial Report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the Half Year Financial Report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Half Year Financial Report for the 6 months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. Deloitte LLP Statutory Auditor Manchester, United Kingdom 15 August 2019 Shareholder Information Financial calendar Half year results for the year ending December 2019 Announced 15 August 2019 Half year dividend for the year ending December 2019 Payable 4 December 2019 Results for the year ending December 2019 Announcement March 2020 Report and accounts for the year ending December 2019 April 2020 Annual General Meeting May 2020 Final dividend for the year ending December 2019 Payable June 2020 Registrars All administrative enquiries relating to shareholdings should, in the first instance, be directed to Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ (telephone: 0870 707 1134) and should clearly state the registered shareholder's name and address. Dividend mandate Any shareholder wishing dividends to be paid directly into a bank or building society should contact the Registrars for a dividend mandate form. Dividends paid in this way will be paid through the Bankers' Automated Clearing System ("BACS"). Website The Group has a website that gives information on the Group and its products and provides details of significant Group announcements. The address is www.marshalls.co.uk. This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. END IR EAXPLFENNEFF

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