Interim Results

Marshalls PLC 09 September 2005 9 September 2005 MARSHALLS PLC INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2005 Marshalls plc, the specialist Landscape Products Group, delivers a resilient trading performance despite challenging market conditions â€¢ Revenue, including acquisitions, up 7.2 per cent with like for like revenue down 1.2 per cent â€¢ Operating profit before works closure costs maintained, at Â£28.6 million (2004: Â£28.7 million) â€¢ Gain on sale of Clay Products Division of Â£31.5 million â€¢ Net debt of Â£52.3 million with gearing at 32.8 per cent â€¢ Basic EPS (continuing operations) up 6.9 per cent â€¢ Interim dividend up 5.1 per cent at 4.1 pence per share These interim results are reported under International Financial Reporting Standards. Half year ended Half year ended Increase/ 30 June 2005 30 June 2004 (decrease) % Revenue Â£185.2m Â£172.7m 7.2 EBITDA* Â£37.9m Â£37.1m 2.0 Operating profit* Â£28.6m Â£28.7m (0.4) Operating profit Â£27.6m Â£28.7m (3.9) Profit before tax Â£24.2m Â£26.4m (8.5) Basic EPS (total operations **) 34.01p 12.08p 181.5 Basic EPS(continuing operations) 11.80p 11.04p 6.9 Interim dividend per share 4.10p 3.90p 5.1 * before Â£1.0 million of works closure costs. ** 2005 including gain on sale of Clay Products business. Commenting on these results, Graham Holden, Chief Executive, said: 'In a challenging market we are pleased to have maintained operating profit, and grown earnings per share on continuing operations by over 6 per cent. Order intake and despatches since the end of the half year have been at a similar level to the previous year. The continuing review of our cost base, together with our leading product portfolio, innovative marketing techniques, improving performance from recent acquisitions and strong balance sheet ensure that we are well positioned to operate within these more difficult market conditions.' Enquiries: Graham Holden Chief Executive Marshalls plc 0207 404 5959 on 9 Sept 2005 Ian Burrell Finance Director Marshalls plc 01484 438900 thereafter Jon Coles Brunswick Group 0207 404 5959 Sarah Tovey Brunswick Group 0207 404 5959 Chief Executive's Review Group Results These interim results are reported under International Financial Reporting Standards (IFRSs). Marshalls' revenue, from continuing operations, was up 7.2 per cent, including acquisitions, in the half year ended 30 June 2005 at Â£185.2 million (2004: Â£172.7 million). Like for like revenue on the same basis was down 1.2 per cent at Â£170.6 million (2004: Â£172.7 million). Acquisitions contributed an additional Â£14.6 million. Operating profit, from continuing operations, for the period was Â£27.6 million (2004: Â£28.7 million). Operating profit before the Â£1.0 million cost of a works closure was Â£28.6 million (2004: Â£28.7 million). The interest cost of Â£3.4 million (2004: Â£2.3 million) is Â£1.1 million higher due primarily to the cost of funding the return of Â£75 million to shareholders and the 2004 acquisitions, and partially offset by the receipt of Â£65 million from the proceeds on the sale of the Clay Products business. Basic earnings per share, from continuing operations, was up 6.9 per cent at 11.80 pence per share (2004: 11.04 pence). Basic earnings per share, from total operations, was 34.01 pence per share (2004: 12.08 pence) including the gain on sale of the Clay Products business. The interim dividend will be 4.1 pence per share (2004: 3.9 pence per share), an increase of 5.1 per cent. Operating Performance Market conditions in the first half of 2005 were more challenging than they have been for a number of years. Revenue from the public sector and commercial market, which represents around half of Group revenue, was ahead of 2004. After an encouraging start to the year, revenue from the domestic market in the second quarter of the year was disappointing, reflecting the widely reported consumer slowdown. In anticipation of this, Marshalls took early action to reduce costs and, as a consequence, has achieved a resilient performance as market volumes have reduced. The cost base of the Group continues to be reduced. In the first quarter of the year the production facility at Hipperholme, Halifax, was closed and production was moved to the two principal works in Halifax. Costs of Â£1.0 million were expensed in the first half of the year in connection with this closure and further costs of a similar amount are expected in the second half of the year. In July and August production output throughout the Group has been reduced further to a level which reflects the weaker demand. In line with the Group's strategy to improve consumer awareness of the Marshalls brand, in March a pilot Marshalls Garden & Driveway Transformation Centre was launched in Falkirk, Scotland. This displays a wide range of garden and driveway products in an aspirational setting. Initial visitor numbers have been encouraging and additional pilot sites are planned in two further locations. Marshalls Drivelines, the sale of installed driveways and patios through twenty four existing Compton garage agents, has also commenced. Sales from these initiatives are installed by Marshalls Register installers who source Marshalls product through their existing builders' merchant contacts. Corporate Activity The Group continues to pursue its strategy of acquiring complementary businesses that provide quality products to enhance the core product offer. On 2 September 2005 Â£8.5 million was paid for Paver Systems (Carluke) Limited based in Scotland. This business will continue to operate as Paver Systems and be managed as part of Stonemarket, the Coventry based patio paving specialist. The process of integrating the 2004 acquisitions into the Group is proceeding according to plan. On 4 January 2005 Marshalls Clay Products Limited was sold to Hanson PLC for a cash consideration of Â£65.0 million (including the repayment of all inter-group indebtedness). The post tax gain on sale of this business was Â£31.5 million. The gain on sale and the results in 2004 of the former Clay Products business have been disclosed under discontinued operations in the Consolidated Interim Income Statement. Balance Sheet At 30 June 2005 net debt was Â£52.3 million. Following the return of Â£75 million to shareholders in 2004 and the receipt of Â£65.0 million on the sale of the Clay Products business in January 2005, gearing was 32.8 per cent and is in line with expectations. The Board is committed to ensuring that the balance sheet is efficient and is in the process of reviewing the acquisition and investment opportunities that are available. In the absence of further value adding opportunities the Group will consider a further return to shareholders. International Financial Reporting Standards (IFRSs) An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided in Note 8. This includes reconciliations of equity and profit for comparative periods previously reported under UK GAAP to the figures reported under IFRSs. The operating profit shown in the IFRS Income Statement for the half year ended 30 June 2004 is approximately Â£0.4 million below the reported UK GAAP Profit and Loss Account, of which Â£0.2 million relates to continuing operations and Â£0.2 million relates to discontinued operations. The principal changes are associated with additional pension charges following the adoption of International Accounting Standard (IAS) 19 and the absence of goodwill amortisation following the adoption of IFRS 3 and IAS 38. At the interest level an additional notional charge of Â£0.9 million, on continuing operations, arises in the half year ended 30 June 2004 in respect of the adoption of IAS 19. The most significant change to the comparative Balance Sheets under IFRS relates to the introduction of the pension deficit in each period. Other adjustments include the de-recognition of dividends not declared at the period end, which were previously accrued under UK GAAP and, as at 31 December 2004, the disclosure of assets and liabilities of the Clay Products business classified as held for sale. At 30 June 2005 pension liabilities of Â£65.1 million have been recognised upon adoption of IAS 19 and this is partially offset by a deferred tax asset of Â£19.5 million. These liabilities were not previously recognised under UK GAAP. This deficit has been calculated using the same actuarial assumptions as at 31 December 2004, modified for a known change in the AA Corporate Bond rate and a strengthening of the mortality assumption. Basic earnings per share on continuing operations for the half year ended 30 June 2004 is 11.04 pence per share under IFRS compared with 11.36 pence per share under UK GAAP. Dividend The Board has decided to declare an interim dividend of 4.1 pence (2004: 3.9 pence) per ordinary share, an increase of 5.1 per cent. This dividend will be paid on 7 December 2005 to shareholders on the register at the close of business on 4 November 2005. The ex-dividend date will be 2 November 2005. Outlook Market intelligence shows that public sector and commercial demand, which represents half of Group revenue, remains robust. The Construction Products Association forecasts that the market sectors constituting public sector and commercial are forecast to grow by 1.4 per cent in 2005 and a further 2.4 per cent in 2006. The Group would expect to benefit from large commercial contracts such as Terminal 5 at Heathrow, the preparations for the Olympic Games in London and increasing interest in the municipal environment. However, domestic markets are expected to remain challenging reflecting weaker consumer confidence. Domestic installers' average order books in July 2005 were 8.9 weeks compared with 10.2 weeks at the beginning of the year and 11.9 weeks at the same time last year. The Construction Products Association forecasts a 4.0 per cent reduction in private housing repair, maintenance and improvement expenditure in 2005 and a further reduction of 2.0 per cent in 2006 before resuming its growth in 2007. Order intake and despatches since the end of the half year have been at a similar level to the previous year. The continuing review of our cost base, together with our leading product portfolio, innovative marketing techniques, improving performance from recent acquisitions and strong balance sheet ensure that the Group is well positioned to operate within these more difficult market conditions. Graham Holden Chief Executive Consolidated Interim Income Statement for the half year ended 30 June 2005 Half year Year ended ended June December Notes 2005 2004 2004 Â£'000 Â£'000 Â£'000 Revenue 2 185,202 172,717 328,343 Net operating costs (157,588) (143,982) (281,370) ------- ------- ------- Operating profit 2 27,614 28,735 46,973 Financial expenses (7,238) (5,465) (12,985) Financial income 3,815 3,160 6,267 ------- ------- ------- Profit before tax 2 24,191 26,430 40,255 Income tax expense (7,442) (7,950) (12,230) ------- ------- ------- Profit after tax but before gain on sale and post tax profit of discontinued operation 16,749 18,480 28,025 Gain on sale and post tax profit of discontinued operation 3 31,517 1,750 3,278 ------- ------- ------- Profit for the financial period 48,266 20,230 31,303 ------- ------- ------- Earnings per share (total operations including gain on sale in 2005): Basic 4 34.01p 12.08p 20.18p ------- ------- ------- Diluted 4 33.94p 12.06p 20.15p ------- ------- ------- Earnings per share (continuing operations): Basic 4 11.80p 11.04p 18.07p ------- ------- ------- Diluted 4 11.78p 11.02p 18.04p ------- ------- ------- Dividend: Pence per share 5 8.00p 7.35p 11.25p ------- ------- ------- Dividends paid 5 11,353 12,300 17,829 ------- ------- ------- Consolidated Interim Balance Sheet As at 30 June 2005 June December Notes 2005 2004 2004 Â£'000 Â£'000 Â£'000 Assets Non-current assets Property, plant and equipment 192,790 209,999 191,400 Intangible fixed assets 40,694 31,017 40,732 ------- ------- ------- 233,484 241,016 232,132 ------- ------- ------- Current assets Inventories 68,616 60,125 60,501 Trade and other receivables 67,194 69,426 37,582 Cash and cash equivalents 21 28 21 Assets classified as held for sale 3 - - 36,301 ------- ------- ------- 135,831 129,579 134,405 ------- ------- ------- Total assets 369,315 370,595 366,537 ------- ------- ------- Liabilities Current liabilities Trade and other payables 99,404 89,632 75,046 Current instalments of loans - - 229 Liabilities classified as held for sale 3 - - 8,531 ------- ------- ------- 99,404 89,632 83,806 ------- ------- ------- Non-current liabilities Trade and other payables 2,000 - 2,000 Interest bearing loans and borrowings 40,350 20,000 91,341 Employee benefits 65,118 47,820 50,855 Deferred tax 3,020 9,000 7,042 ------- ------- ------- 110,488 76,820 151,238 ------- ------- ------- Total liabilities 209,892 166,452 235,044 ------- ------- ------- Net assets 159,423 204,143 131,493 ------- ------- ------- Equity Capital and reserves attributable to equity holders Share capital 35,482 41,886 35,478 Share premium account 320 18,517 287 Own shares (444) (776) (655) Capital redemption reserve 72,138 1,483 71,237 Merger reserve (213,067) 13,091 (213,067) Hedging reserve (14) (6) (6) Retained earnings 265,008 129,948 238,219 ------- ------- ------- Equity shareholders' funds 159,423 204,143 131,493 ------- ------- ------- Consolidated Interim Cash Flow Statement for the half year ended 30 June Half year Year ended ended June December Notes 2005 2004 2004 Â£'000 Â£'000 Â£'000 Net cashflow from operating activities 6 1,555 6,883 42,212 Net cashflow from investing activities 6 54,270 (18,406) (42,111) Net cashflow from financing activities 6 (50,920) (692) (24,654) ------- ------- ------- Net increase/(decrease) in cash and cash equivalents 7 4,905 (12,215) (24,553) Cash and cash equivalents at beginning of period (16,669) (12,123) 7,884 ------- ------- ------- Cash and cash equivalents at end of period (11,764) (24,338) (16,669) ------- ------- ------- The above includes the operating, investing and financing cashflows of the discontinued operation disclosed in Note 6. The relevant cash flows of the discontinued operation are included in Note 6. Consolidated Interim Statement of Recognised Income and Expenses 2005 2004 2004 Â£'000 Â£'000 Â£'000 Cash flow hedges: effective portion of changes in fair value (12) (9) (9) Actuarial losses (13,174) - (991) Tax on items taken directly to equity 3,956 3 300 ------- ------- ------- Net expense recognised directly in equity (9,230) (6) (700) Profit for the financial period 48,266 20,230 31,303 ------- ------- ------- Total recognised income and expenses for the period (equity) 39,036 20,224 30,603 ------- ------- ------- Notes to the Consolidated Interim Financial Statements 1. Basis of Preparation Marshalls plc (the 'Company') is a company domiciled in the United Kingdom. The Consolidated Interim Financial Statements of the Company for the half year ended 30 June 2005 comprise the Company and its subsidiaries (together referred to as the 'Group'). EU law (IAS Regulation EC 1606/2002) requires that the next annual Consolidated Financial Statements of the Company, for the year ending 31 December 2005, be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the EU ('adopted IFRSs'). The Consolidated Interim Financial Statements have been prepared on the basis of the recognition and measurement requirements of IFRSs in issue that either are endorsed by the EU and effective (or available for early adoption) at 31 December 2005 or are expected to be endorsed and effective (or available for early adoption) at 31 December 2005, the Group's first annual reporting date at which it is required to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the Directors have made assumptions about the accounting policies expected to be applied when the first annual IFRS Financial Statements are prepared for the year ending 31 December 2005. These are set out on the Company's website (www.marshalls.co.uk). In particular, the Directors have assumed that the following IFRSs issued by the International Accounting Standards Board and IFRIC Interpretations issued by the International Financial Reporting Interpretations Committee will be adopted by the EU in sufficient time that they will be available for use in the annual IFRS Financial Statements for the year ending 31 December 2005: â€¢IAS 19 Employee Benefits (Revised) In addition, the adopted IFRSs that will be effective (or available for early adoption) in the annual Financial Statements for the year ending 31 December 2005 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be determined finally only when the annual Financial Statements are prepared for the year ending 31 December 2005. The Consolidated Interim Financial Statements do not include all the information required for full annual Financial Statements. An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided in Note 8. This note includes reconciliations of equity and profit for comparative periods reported under UK GAAP to those reported for those periods under IFRSs. The accounting policies, which as explained above are included on the Company's website, have been applied consistently to all periods presented in these Consolidated Interim Financial Statements from the date of transition on 1 January 2004. They also have been applied in preparing an opening IFRS balance sheet at 1 January 2004 for the purposes of the transition to IFRSs, as required by IFRS 1. The impact of the transition from UK GAAP to IFRSs is explained in Note 8. The accounting policies have been applied consistently throughout the Group for purposes of these Consolidated Interim Financial Statements. The comparative figures for the financial year ended 31 December 2004 have been restated to comply with adopted IFRSs and are not the Company's statutory accounts for that financial year. Those accounts, which are prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. In respect of the graphs on the inside front cover which disclose a five year performance record for certain information, the additional disclosures for 2001, 2002 and 2003 have been prepared on the basis of the historic UK GAAP figures adjusted for the following: â€¢exclusion of the activities of the Clay Products Division, which was disposed of on 4 January 2005; â€¢elimination of goodwill amortisation previously charged under UK GAAP; and â€¢inclusion of accounting entries in relation to employee benefits in accordance with information required under UK GAAP by FRS 17. In relation to the limited graphical disclosures for 2001, 2002 and 2003 these are the only adjustments that have been made to past disclosures made under UK GAAP. In terms of the transitional adjustments required for conversion to IFRSs, these are the only material adjustments considered by the Directors to be necessary to produce a five year record that discloses the results of continuing operations on a consistent, like for like, basis. 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. 2. Segmental analysis Revenue Operating Profit Half year Year ended Half year Year ended ended June December ended June December 2005 2004 2004 2005 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations 185,202 172,717 328,343 27,614 28,735 46,973 ------- ------- ------- Financial expenses (net) (3,423) (2,305) (6,718) ------- ------- ------- Profit before tax 24,191 26,430 40,255 ------- ------- ------- Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Geographical destination of revenue: United Kingdom 182,736 170,813 324,609 Rest of the world 2,466 1,904 3,734 ------- ------- ------- 185,202 172,717 328,343 ------- ------- ------- All revenue originates in the United Kingdom from continuing operations and there is no material inter-segmental turnover. 3. Assets held for sale and discontinued operations On 4 January 2005 Marshalls Clay Products Limited (the Clay Products Division) was sold to Hanson PLC for a cash consideration of Â£65.0 million (including the repayment of all inter-group indebtedness) and a pre-tax gain of Â£31.5 million was realised. No tax is payable on the gain due to the utilisation of capital losses. The results of this Division have been disclosed under discontinued activities in the Consolidated Interim Income Statement. Towards the end of December 2004 the transaction had become highly probable and consequently the assets and liabilities have been classified as held for sale in the Balance Sheet. The discontinued assets and liabilities of the Clay Products Division as at 31 December 2004 were as follows: December 2004 Â£'000 Assets Property, plant and equipment 27,008 Inventories 5,510 Trade and other receivables 3,780 Cash and cash equivalents 3 ------ 36,301 ------ Liabilities Trade and other payables 5,415 Deferred tax 3,116 ------ 8,531 ------ Post tax profit of discontinued operation: Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Revenue - 17,445 33,966 Net operating costs - (14,606) (28,521) ------- ------- ------- Operating profit - 2,839 5,445 Gain on sale of discontinued operation 31,517 - - Financing expenses - (295) (564) ------- ------- ------- Profit before tax 31,517 2,544 4,881 Income tax expense - (794) (1,603) ------- ------- ------- Gain on sale and post tax profit of discontinued operation 31,517 1,750 3,278 ------- ------- ------- Geographical destination of revenue: United Kingdom - 17,005 33,102 Rest of the world - 440 864 ------- ------- ------- - 17,445 33,966 ------- ------- ------- 4. Earnings per share Basic earnings per share on total operations of 34.01p (30 June 2004: 12.08p) (31 December 2004: 20.18p) is calculated by dividing the profit attributable to ordinary shareholders from total operations of Â£48,266,000 (30 June 2004: Â£20,230,000) (31 December 2004: Â£31,303,000) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546) (31 December 2004: 155,107,622). Basic earnings per share on continuing operations of 11.80p (30 June 2004: 11.04p) (31 December 2004: 18.07p) is calculated by dividing the profit attributable to ordinary shareholders from continuing operations of Â£16,749,000 (30 June 2004: Â£18,480,000) (31 December 2004: Â£28,025,000) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546) (31 December 2004: 155,107,622). Basic earnings per share on discontinued operations of 22.21p (30 June 2004: 1.04p) (31 December 2004: 2.11p) is calculated by dividing the profit attributable to ordinary shareholders from discontinued operations of Â£31,517,000 (30 June 2004: Â£1,750,000) (31 December 2004: Â£3,278,000) (see Note 3) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546) (31 December 2004: 155,107,622). Profit attributable to ordinary shareholders Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Profit attributable to ordinary shareholders - Continuing operations 16,749 18,480 28,025 - Discontinued operations 31,517 1,750 3,278 ------- ------- ------- Total 48,266 20,230 31,303 ------- ------- ------- Weighted average number of ordinary shares Half year Year ended ended June December 2005 2004 2004 Number Number Number Issued ordinary shares at beginning of period 141,913,313 167,346,883 167,346,883 Effect of shares issued in the period 4,698 55,663 155,631 Effect of reduction of share capital and shares cancelled in the period - - (12,394,892) ----------- ----------- ----------- Weighted average number of ordinary shares at end of period 141,918,011 167,402,546 155,107,622 ----------- ----------- ----------- Diluted earnings per share on total operations of 33.94p (30 June 2004: 12.06p) (31 December 2004: 20.15p) is calculated by dividing the profit attributable to ordinary shares and potentially dilutive ordinary shares from total operations of Â£48,266,000 (30 June 2004: Â£20,230,000) (31 December 2004: Â£31,303,000) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546) (31 December 2004: 155,107,622) plus dilutive shares of 303,107 (30 June 2004: 272,383) (31 December 2004: 241,303) which totals 142,221,118 (30 June 2004: 167,674,929) (31 December 2004: 155,348,925). Diluted earnings per share on continuing operations of 11.78p (30 June 2004: 11.02p) (31 December 2004: 18.04p) is calculated by dividing profit attributable to ordinary shares and potentially ordinary dilutive shares from continuing operations of Â£16,749,000 (30 June 2004: Â£18,480,000) (31 December 2004: Â£28,025,000) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546) (31 December 2004: 155,107,622), plus dilutive shares of 303,107 (30 June 2004: 272,383) (31 December 2004: 241,303) which totals 142,221,118 (30 June 2004: 167,674,929) (31 December 2004: 155,348,925). Diluted earnings per share on discontinued operations of 22.16p (30 June 2004: 1.04p) (31 December 2004: 2.11p) is calculated by dividing profit attributable to ordinary shares and potentially ordinary dilutive shares from discontinued operations of Â£31,517,000 (30 June 2004: Â£1,750,000) (31 December 2004: Â£3,278,000) by the weighted average number of shares in issue during the period of 141,918,011 (30 June 2004: 167,402,546 ) (31 December 2004: 155,107,622), plus dilutive shares of 303,107 (30 June 2004: 272,383) (31 December 2004: 241,303) which totals 142,221,118 (30 June 2004: 167,674,929) (31 December 2004: 155,348,925). Weighted average number of ordinary shares (diluted) Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Weighted average number of ordinary shares 141,918,011 167,402,546 155,107,622 Effect of share options on issue 303,107 272,383 241,303 ----------- ----------- ----------- Weighted average number of ordinary shares (diluted) 142,221,118 167,674,929 155,348,925 ----------- ----------- ----------- 5. Dividends The following dividends were paid by the Group. Half year Year ended ended June December Approved by shareholders in the period: 2005 2004 2004 Â£'000 Â£'000 Â£'000 8.00 pence per qualifying ordinary share (30 June 2004: 7.35 pence) (31 December 2004: 11.25 pence) 11,353 12,300 17,829 ------ ------ ------ In accordance with International Accounting Standards, the proposed interim dividend of 4.10 pence (30 June 2004: 3.90 pence) per ordinary share has not been accrued in the Financial Statements for the half year ended June 2005. 6. Notes to the cash flow statement Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Cashflows from operating activities Operating profit of continuing operations 27,614 28,735 46,973 Operating profit of discontinued operation (Note 3) - 2,839 5,445 ------ ------ ------ Operating profit 27,614 31,574 52,418 Adjustments for: Depreciation 9,155 9,390 19,051 Amortisation 111 8 55 Loss / (gain) on sale of property, plant & equipment 4 (12) (41) Equity settled share based payment expenses - 64 128 Loss in hedging instrument - 155 330 ------ ------ ------ Operating profit before changes in working capital and provisions 36,884 41,179 71,941 (Increase) in inventories (7,995) (2,807) (7,000) (Increase) in trade and other receivables (29,613) (35,288) (3,500) Increase/(decrease) in trade and other payables 9,608 10,613 (3,288) Increase in provisions and employee benefits 704 987 2,328 ------ ------ ------ Cash generated from operations 9,588 14,684 60,481 Financial expenses paid (2,902) (1,669) (4,589) Non equity dividends paid (76) - (92) Income tax paid (5,055) (6,132) (13,588) ------ ------ ------ Net cash flow from operating activities 1,555 6,883 42,212 ------ ------ ------ Cash flows from investing activities Proceeds from sale of plant and equipment 274 92 673 Financial income received 40 79 105 Disposal of subsidiary, net of cash disposed of 65,000 - - Acquisition of subsidiaries (291) (7,586) (17,968) Bank balance acquired with subsidiaries - 1,030 2,297 Acquisition of property, plant and equipment (10,753) (12,021) (27,218) ------ ------ ------ Net cash flow from investing activities 54,270 (18,406) (42,111) ------ ------ ------ Cash flows from financing activities Proceeds from issue of share capital 37 428 751 Increase in other debt and lease financing - - 66,779 Redemption of B shares (764) - (71,036) Repayment of borrowings (50,126) (1,120) (1,124) Payment of transaction costs (67) - (2,195) Equity dividends paid - - (17,829) ------ ------ ------ Net cash flow from financing activities (50,920) (692) (24,654) ------ ------ ------ Analysis of discontinued items Half year Half year ended June 2005 ended June 2004 Continuing Discontinued Group Continuing Discontinued Group operations operations operations operations Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net cash flow from operating activities 1,555 - 1,555 1,783 5,100 6,883 ----- ----- ----- ----- ----- ----- Net cash flow from investing activities (10,730) 65,000 54,270 (18,126) (280) (18,406) ----- ----- ----- ----- ----- ----- Net cash flow from financing activities (920) (50,000) (50,920) (692) - (692) ----- ----- ----- ----- ----- ----- Year ended December 2004 Continuing Discontinued Group operations operations Â£'000 Â£'000 Â£'000 Net cash flow from operating activities 34,309 7,903 42,212 ------- ----- ------ Net cash flow from investing activities (42,976) 865 (42,111) ------- ----- ------ Net cash flow from financing activities (24,654) - (24,654) ------- ----- ------ 7. Reconciliation of net cash flow to movement in net debt Half year Year ended ended June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Net increase / (decrease) in cash and cash equivalents 4,905 (12,215) (24,553) Cash outflow / (inflow) from decrease / (increase) in debt and lease financing 51,027 1,120 (69,812) Finance leases acquired on acquisition of subsidiary undertakings - - (631) ------- ------- ------- Movement in net debt in the period 55,932 (11,095) (94,996) Net debt at the beginning of the period (108,239) (13,243) (13,243) ------- ------- ------- Net debt at the end of the period (52,307) (24,338) (108,239) ------- ------- ------- 8. Explanation of transition to IFRSs As stated in Note 1, these are the Group's first Consolidated Interim Financial Statements for part of the period covered by the first IFRS annual Consolidated Financial Statements prepared in accordance with IFRSs. The accounting policies have been applied in preparing the Consolidated Interim Financial Statements for the six months ended 30 June 2005, the comparative information for the six months ended 30 June 2004, the Financial Statements for the year ended 31 December 2004 and the preparation of an opening IFRS balance sheet at 1 January 2004 (the Group's date of transition). In preparing its opening IFRS balance sheet, comparative information for the six months ended 30 June 2004 and Financial Statements for the year ended 31 December 2004, the Group has adjusted amounts reported previously in Financial Statements prepared in accordance with UK GAAP. An explanation for how the transition from UK GAAP to IFRSs has affected the Group's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables. Notes on reconciliation of equity The most significant adjustment relates to employee benefits. Pension liabilities of Â£45,775,000, Â£47,820,000 and Â£50,855,000 at 1 January 2004, 30 June 2004 and 31 December 2004, together with the associated deferred tax adjustments, have been recognised upon adoption of IAS 19 Employee Benefits (Revised). These liabilities were not previously recognised under UK GAAP. Other adjustments include the de-recognition of dividends not declared at the period end which were previously accrued under UK GAAP and, as at 31 December 2004, the disclosure of assets and liabilities of the Clay Products Division classified and measured as held for sale. Notes on reconciliation of profit The most significant adjustments are in relation to the recognition of pension costs disclosed in accordance with the as yet unendorsed accounting standard, IAS 19 Employee Benefits (Revised), and the reversal of the goodwill amortisation charge that was previously recognised under UK GAAP. In addition, the results of the Clay Products Division, which was sold on 4 January 2005, have been disclosed under discontinued operations. Reconciliation of equity at 1 January 2004 and 30 June 2004 1 January 2004 30 June 2004 UK Effect of IFRSs UK Effect of IFRSs GAAP transition GAAP transition to IRFSs to IFRSs Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets Non-current assets Property, plant and equipment 206,650 - 206,650 209,999 - 209,999 Intangible fixed assets 23,725 - 23,725 30,246 771 31,017 ------- ------ ------- ------- ------ ------- 230,375 - 230,375 240,245 771 241,016 ------- ------ ------- ------- ------ ------- Current assets Inventories 56,744 - 56,744 60,125 - 60,125 Trade and other receivables 33,412 - 33,412 69,426 - 69,426 Cash and cash equivalents 7,884 - 7,884 28 - 28 ------- ------ ------- ------- ------ ------- 98,040 - 98,040 129,579 - 129,579 ------- ------ ------- ------- ------ ------- Total assets 328,415 - 328,415 369,824 771 370,595 ------- ------ ------- ------- ------ ------- Liabilities Current liabilities Trade and other payables 68,992 (11,380) 57,612 88,612 1,020 89,632 ------- ------ ------- ------- ------ ------- 68,992 (11,380) 57,612 88,612 1,020 89,632 ------- ------ ------- ------- ------ ------- Non-current liabilities Loans 20,000 - 20,000 20,000 - 20,000 Employee benefits - 45,775 45,775 - 47,820 47,820 Deferred tax 21,275 (11,968) 9,307 21,626 (12,626) 9,000 ------- ------- ------- ------- ------ ------- 41,275 33,807 75,082 41,626 35,194 76,820 ------- ------- ------- ------- ------ ------- Total liabilities 110,267 22,427 132,694 130,238 36,214 166,452 ------- ------- ------- ------- ------ ------- Net assets 218,148 (22,427) 195,721 239,586 (35,443) 204,143 ------- ------- ------- ------- ------ ------- Equity Capital and reserves attributable to equity holders Share capital 41,837 - 41,837 41,886 - 41,886 Share premium account 18,138 - 18,138 18,517 - 18,517 Own shares - (1,047) (1,047) - (776) (776) Revaluation reserve 5,166 (5,166) - 5,166 (5,166) - Capital redemption reserve 1,483 - 1,483 1,483 - 1,483 Merger reserve 13,091 - 13,091 13,091 - 13,091 Hedging reserve - - - - (6) (6) Retained earnings 138,433 (16,214) 122,219 159,443 (29,495) 129,948 ------- ------- ------- ------- ------- ------- Equity shareholders' funds 218,148 (22,427) 195,721 239,586 (35,443) 204,143 ------- ------- ------- ------- ------- ------- Reconciliation of equity at 31 December 2004 UK GAAP Effect of transition IFRSs to IFRSs Total Discontinued operations operations Â£'000 Â£'000 Â£'000 Â£'000 Assets Non-current assets Property, plant and equipment 218,408 - (27,008) 191,400 Intangible fixed assets 39,063 1,669 - 40,732 ------- ------ ------- ------- 257,471 1,669 (27,008) 232,132 ------- ------ ------- ------- Current assets Inventories 66,011 - (5,510) 60,501 Trade and other receivables 42,407 (1,045) (3,780) 37,582 Cash and cash equivalents 24 - (3) 21 Assets classified as held for sale - - 36,301 36,301 ------- ------ ------- ------- 108,442 (1,045) 27,008 134,405 ------- ------ ------- ------- Total assets 365,913 624 - 366,537 ------- ------ ------- ------- Liabilities Current liabilities Trade and other payables 91,316 (10,855) (5,415) 75,046 Current instalments of loans 229 - - 229 Liabilities classified as held for sale - - 8,531 8,531 ------- ------ ------- ------- 91,545 (10,855) 3,116 83,806 ------- ------ ------- ------- Non-current liabilities Trade and other payables 2,000 - - 2,000 Loans 87,184 4,157 - 91,341 Employee benefits - 50,855 - 50,855 Deferred tax 23,695 (13,537) (3,116) 7,042 ------- ------ ------- ------- 112,879 41,475 (3,116) 151,238 ------- ------ ------- ------- Total liabilities 204,424 30,620 - 235,044 ------- ------ ------- ------- Net assets 161,489 (29,996) - 131,493 ------- ------ ------- ------- Equity Share capital 39,635 (4,157) - 35,478 Share premium account 287 - - 287 Own shares - (655) - (655) Revaluation reserve 5,166 (5,166) - - Capital redemption reserve 71,237 - - 71,237 Merger reserve (213,067) - - (213,067) Hedging reserve - (6) - (6) Retained earnings 258,231 (20,012) - 238,219 ------- ------ ------- ------- Equity shareholders' funds 161,489 (29,996) - 131,493 ------- ------ ------- ------- Reconciliation of profit For the half year ended 30 June 2004 Total Restated IFRS IFRS UK GAAP effect of IFRS Discontinued Continuing transition to (Total) operations operations IFRSs Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue 190,162 - 190,162 (17,445) 172,717 Operating costs (158,153) (435) (158,588) 14,606 (143,982) ------- ------ ------- ------ ------- Operating profit 32,009 (435) 31,574 (2,839) 28,735 Net financing costs (1,599) (1,001) (2,600) 295 (2,305) ------- ------ ------- ------ ------- Profit before tax 30,410 (1,436) 28,974 (2,544) 26,430 Income tax expense (9,400) 656 (8,744) 794 (7,950) ------- ------ ------- ------ ------- Net profit 21,010 (780) 20,230 (1,750) 18,480 ------- ------ ------- ------ ------- For the year ended 31 December 2004 Total Restated IFRS IFRS UK GAAP effect of IFRS Discontinued Continuing transition to (Total) operations operations IFRSs Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue 362,309 - 362,309 (33,966) 328,343 Operating costs (308,774) (1,117) (309,891) 28,521 (281,370) ------- ------ ------- ------ ------- Operating profit 53,535 (1,117) 52,418 (5,445) 46,973 Net financing costs (5,132) (2,150) (7,282) 564 (6,718) ------- ------ ------- ------ ------- Profit before tax 48,403 (3,267) 45,136 (4,881) 40,255 Income tax expense (15,102) 1,269 (13,833) 1,603 (12,230) ------- ------ ------- ------ ------- Net profit 33,301 (1,998) 31,303 (3,278) 28,025 ------- ------ ------- ------ ------- Interim Review Report on the first period for which the entity is preparing IFRS financial information Independent review report by KPMG Audit Plc to Marshalls plc Introduction We have been engaged by the Company to review the Financial Information set out on pages 4 to 18 and we have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the Financial Information. This Report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 reached. Directors' responsibilities The Interim Report, including the Financial Information contained therein, is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the Interim Report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual Financial Statements except where any changes, and the reasons for them, are disclosed. As disclosed in Note 1 to the Financial Information, the next annual Financial Statements of the Group will be prepared in accordance with IFRSs adopted for use in the European Union. This Interim Report has been prepared in accordance the requirements of IFRS 1, First-time Adoption of International Financial Reporting Standards relevant to Interim Reports. The accounting policies that have been adopted in preparing the Financial Information are consistent with those that the Directors currently intend to use in the next annual Financial Statements. There is however a possibility that the Directors may determine that some changes to these policies are necessary when preparing the full annual Financial Statements for the first time in accordance with those IFRSs adopted for use by the European Union. This is because, as disclosed in Note 1, the Directors have anticipated that certain standards, which have yet to be formally adopted for use by the European Union, will be so adopted in time to be applicable to the next annual Financial Statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim Financial Information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the Financial Information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Financial Information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the Financial Information as presented for the half year ended 30 June 2005. KPMG Audit Plc Chartered Accountants 9 September 2005 This information is provided by RNS The company news service from the London Stock Exchange

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