Marshalls plc (LON:MSLH), a leading manufacturer of products for the built environment, has, ahead of its Annual General Meeting tomorrow, provided the following trading update for the four months to April 2023.
Group revenue for the four months ended 30 April 2023 was £227 million (2022: £202 million), which represents year-on-year growth of 12 per cent including the benefit of the acquisition of Marley. On a like-for-like basis, Group revenue contracted by 14 per cent reflecting the uncertain macro-economic climate, a reduction in new house building and continued weakness in private housing RMI activity.
In the first quarter of the year, National House Building Council new housing starts were 27 per cent lower than 2022, which had an impact on the performance of all the Group’s reporting segments. Management have acted quickly to reduce costs in the business and are accelerating plans to improve production efficiency, whilst ensuring flexibility to respond when market demand improves.
Divisional trading performance
Marshalls Landscape Products has continued to experience tough market conditions due to its exposure to new house building and the more discretionary elements of private housing RMI. Against this backdrop, it delivered revenue of £110 million (2022: £140 million), which represents a reduction of 21 per cent compared to 2022.
Marshalls Building Products delivered revenue of £55 million (2022: £61 million), which represents a contraction of nine per cent. Revenue in the bricks and masonry and mortars businesses was modestly lower year-on-year, whilst drainage and aggregates were held back by deferred new housing starts.
Marley Roofing Products delivered revenue of £61 million, which represents a contraction of six per cent compared to the corresponding period in 2022. Viridian delivered further strong growth in integrated solar revenues supported by changes in building regulations, which was offset by a weaker performance in roofing due to lower volumes of new build housing.
Strategic developments
Following the reduction in the cost base and manufacturing capacity implemented in the second half of last year in Marshalls Landscape Products, further actions have been taken to remove around 70 indirect roles in the Marshalls businesses, which will result in annualised savings of around £3.5 million. The Board will continue to monitor performance and respond flexibly to evolving market conditions to ensure that the Group’s manufacturing capacity and cost base are aligned to market demand. In addition, in order to leverage Marley’s excellent commercial strengths, we are pleased to have promoted Marley’s commercial leader to take responsibility for the trading activities of Marshalls Landscape and Building Products.
The Group successfully completed the disposal of its former Belgian subsidiary in April 2023, which simplifies operations and enhances the Group’s focus on the UK construction market. This business contributed revenue of £21 million and an operating loss of £0.7 million in 2022.
Good progress continues to be made with the integration of Marley. The early successes regarding the reduction of vacancies have been maintained. The increase in efficiencies has also been upheld across the concrete tile production lines, which has resulted in a significant reduction in lead times across several product lines. This has enabled the business to deliver a much more targeted approach to asset failures and refurbishment.
Balance sheet and liquidity
The Group’s balance sheet continues to be robust, with pre-IFRS16 net debt of £220 million at the end of April. The increase since December 2022 year end of £29 million reflects seasonal working capital trends and is in-line with the Board’s expectations. The Board’s ongoing priority is to reduce leverage utilising free cash flow generated by the Group, and its net debt expectations for the full year remain unchanged.
Outlook
The Board remains confident that the Group is well placed to deliver profitable long-term growth when market conditions improve and continues to focus on its key strategic initiatives. In the near-term, the macro-economic climate is expected to remain challenging and the trading performance in the year to date has been weaker than originally anticipated.
The Board’s expectations for 2023 were set with reference to the Construction Products Association’s (‘CPA’) Winter forecast that was published in January 2023. The CPA reduced its 2023 construction output forecast earlier this month. This was principally driven by a six-percentage point deterioration in new build housing to a year-on-year contraction of 17 per cent. The CPA cited reduced demand in the wake of the mini budget, the consequential sharp rise in mortgage rates and the end of Help to Buy as contributing factors for the downgrade.
Taking these factors together, the Marshalls Board now expects to deliver a result that is lower than its original expectations.
