77622 Marshall Annual 2012 Cover (Q8)__Cover 23/03/2013 07:48 Page 1
PRINTED B Y T A Y L OR BL O XHAM LIMITED
ANNUAL REPOR T 201 2
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77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:07 Page 1
Financial Highlights
Olympic Stadium, London
Year ended
31 December
2012
Year ended
31 December
2011
Continuing operations before operational
restructuring costs and asset impairments:
• Revenue
• EBITDA
• Operating profit
• Profit before tax
• Basic EPS
• Dividends declared and paid
• Final dividend recommended
£309.7m
£30.0m
£13.9m
£10.4m
5.87p
5.25p
3.50p
£334.1m
£35.0m
£16.7m
£13.7m
6.30p
5.25p
3.50p
• Net debt
£63.5m
£77.1m
Reported results:
•
• Basic EPS
(Loss)/profit before tax
£(11.2)m
(2.91)p
£13.7m
3.78p
Marshalls plc Annual Report 2012
1
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Corporate Objectives
Marshalls' vision is to be the supplier of choice to
the
landscape architect and contractor for
architectural landscaping and to the consumer for
garden and driveway improvement projects.
Customers are at the centre of our business.
Marshalls supplies its customers with innovatively
designed ranges of the highest quality landscape
and walling products and provides outstanding
levels of customer service in our chosen markets.
Marshalls is committed to maintaining and
developing its market leading position. At the
same time the Group is committed to conducting
business in a manner which achieves sustainable
growth whilst incorporating and demonstrating a
high degree of social responsibility.
Marshalls undertakes to deliver superior rates of
shareholders and provide
return
opportunities and reward for its employees.
its
to
Cautionary Statement
Please read the full cautionary statement which
can be found on page 58.
Woodhouse Bespoke Pier Lights,
Canary Wharf, London
2
Marshalls plc Annual Report 2012
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Woodberry Down, London – Homescapes
CONTENTS
Financial Highlights
Corporate Objectives
Chairman’s Statement
Directors’ Report
• Business Review
• Directors’ Biographical Notes and Advisers
• Corporate Responsibility
•
Environmental Report
• Other Regulatory Information
• Corporate Governance Statement
• Directors’ Remuneration Report
• Nomination Committee Report
• Report of the Audit Committee
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Reconciliation of Movements in Shareholders’ Funds
Notes to the Company Financial Statements
Shareholder Information
Financial History – Consolidated Group
1
2
4-5
6-27
28-29
30-39
40-47
48-50
51-58
59-84
85
86-87
88-89
90
91
92
93
94-95
96-135
136
137
138-142
143
144
Marshalls plc Annual Report 2012
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Chairman’s Statement
Well positioned to deal with
current uncertainties and to
achieve future growth
In my Statement last year I said that we expected
another challenging year in 2012. As it turned out
this was something of an understatement. The
combination of a weak economy and extended
periods of very wet weather resulted in some of
the most difficult trading conditions we have
experienced.
Products
Association estimates indicate a decline of 8.8 per
cent in the market for the year and consumer
confidence has remained low.
The Construction
Against this background we have responded
quickly and decisively to reduce our cost base
through plant closure and headcount reduction,
whilst maintaining our national geographic
coverage, lowest cost to market and industry
leading customer service. We have also taken
further actions to reduce our debt. We have
lowered our annual cost base by some £7 million
and reduced our year end net debt to £63.5
million, £13.6 million lower than the prior year,
and close to our target of net debt to EBITDA of 2
times by the end of 2013.
At the same time we have maintained our focus
on those parts of the market where we anticipate
growth, such as Rail Infrastructure spend and
Home Development (new house building), and
we have continued to drive innovation. In addition
to new products, including Cobbletech, we are
excited by opportunities in internal paving and
natural stone cladding. We are also seeing good
progress in our International business. Overall, I
believe your Company is well positioned to deal
with the current uncertainties and to achieve good
growth when market conditions improve, and
accordingly to deliver value for shareholders.
Inevitably, as a result of the depressed market
conditions and wet weather, sales have been
disappointing. In total, sales of £309.7 million for
the year were down some 7 per cent on last year.
Sales to the Public Sector and Commercial end
market were down 6 per cent. UK Domestic sales,
which were particularly hard hit, were down 12 per
cent. International sales were up 15 per cent from a
low base and sales from the Belgium subsidiary
have increased by 35 per cent in local currency.
Our strategies to target those areas of the Public
Sector and Commercial end market, where we
anticipate growth and provide a fully integrated
product offering, continue to be appropriate. We
are making further investment in street furniture,
security products, water management and
sustainable urban drainage to enhance our
offering. In the UK Domestic end market our
strategy continues to be based on building our
Installer Register and distributor merchandising.
We are introducing a new range of driveway paving
and also a very broad range of interior concrete and
natural stone paving. Our International business is
focused on providing specialist landscape products
into selected end markets.
Operating profit, before operational restructuring
costs and asset impairments, was £13.9 million.
This is a reduction of £2.8 million compared to the
prior year, reflecting the lower level of activity
partly offset by the benefits of the restructuring
and cost reduction actions taken part way
through the year. Whilst there was a small
improvement
in underlying margins, after
stripping out one-off factors, these remain low
and margin improvement remains a key focus for
the Board.
One-off operational restructuring and asset
impairment costs amounted to £21.5 million of
which £10.2 million will be a cash cost. The
annualised savings resulting from these actions
are some £7 million with a benefit realised in 2012
of £2.8 million. In addition, these actions will
enable inventory volumes to be reduced by a total
of some £10 million from the end of 2011 to the
end of 2013.
Looking forward, the economic background
remains uncertain and economic forecasts for
2013 are weak. The Construction Products
Association is forecasting a further small decline
in the market for 2013. Commercial demand,
particularly from Rail Infrastructure and Home
in the
Development, seems more positive
medium
Installer order books are
reasonable and we are seeing some growth in our
International business. We are also optimistic that
Government infrastructure investment will be
beneficial for the industry and wider economy
though there is some urgency required to get this
moving.
term.
4
Marshalls plc Annual Report 2012
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We will continue to focus on opportunities to grow
revenues, reduce costs and improve margins. We
will get the full annual benefit of the cost savings
from the actions taken in 2012. Marshalls has a
strong market position with unrivalled geographic
coverage and a leading brand.
We are confident in our strategy and in the
operating and financial positioning of the Group
and, accordingly, the Board has decided to
maintain the dividend at the same level as last
year, which we know is important to shareholders.
Each year we agree a number of priorities for the
Board. Last year these included ongoing focus on
strategy and value creation, contingency
planning and greater contact with investors.
The Board agenda is firmly focused on strategy. A
Board programme is agreed setting out specific
topics for discussion during the year. These
discussions generally involve other members of
the senior executive team. During 2012 they
included such matters as employee engagement,
innovation and new product development as well
as contingency planning. The Board, together
with the senior executive team, also held a
dedicated strategic planning day. These meetings
and discussions provided time for detailed
consideration of strategic matters, enhanced the
Board’s understanding of the key issues facing the
business and also enabled the Board to assess the
strength of the management team below Board
level. During the year I met a number of our major
shareholders, outside
investor
relations activities led by the Executive Directors,
and have found their insights and views helpful.
We continue to focus on Board development and
with the help of a third party facilitator arranged a
session on the respective roles of the Executive
and Non-Executive Directors with the objective of
ensuring we achieved the maximum benefit from
everyone around the Boardroom table.
the normal
include
further
for 2013
Board actions
enhancement of the strategic planning process,
succession planning, Board training on risk, and
increased shareholder engagement. I plan to
report on these initiatives next year.
2012 has been a difficult year, particularly for our
employees. I have visited many of our sites and
have been very impressed by the hard work and
commitment shown by our people, who have
continued to get on with the job, manufacture
excellent product and provide outstanding
customer
the prevailing
uncertainties. On behalf of the Board I would like
to thank all our employees for the job they do and
their ongoing support and commitment to
Marshalls.
service despite
Notwithstanding the challenges in 2012 I remain
optimistic about the future.
Andrew Allner
Chairman
8 March 2013
One New Change Street, London
Marshalls plc Annual Report 2012
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Business Review
Business Profile
Current Strategy
is a market
Marshalls
focused UK Group
combining inspirational design and innovative
products and services to aid the transformation of
Britain’s patios, driveways and urban and
commercial landscapes. Marshalls is committed to
quality in everything it does, including the
achievement of high environmental and ethical
standards and continual improvement in health
and safety performance.
The Group manufactures and supplies landscape,
driveway and garden products from a range of
materials including concrete, natural stone, iron,
steel, wood, glass and polyurethane, to the
Domestic and Public Sector and Commercial end
markets.
In Domestic end markets, home
improvement and home building projects are the
largest users of the Group’s products. In Public
Sector and Commercial end markets, customers
use Marshalls’ products to transform landscapes
including retail and industrial developments and
new build as well as repair and maintenance
projects.
Marshalls’ customers are the large builders’
independent builders’
merchant groups,
merchants, garden centres, contractors, Local
Authorities and domestic consumers.
its own quarries and
The Group operates
manufacturing sites throughout the UK, including
a national network of manufacturing and
distribution sites. Products are distributed from
this network of sites either to customers’ depots
or, at their request, direct to site. As a result of
International investment the Group has two
operating sites in Belgium and a subsidiary
company based in China. The Group is well placed
to extend its customer base into wider European
markets. Ethically sourced natural stone products
are imported from India, China, and Vietnam to
supply both UK and European markets.
During the last few years the Group’s main focus
has been to respond to the impact of the
recession and Marshalls continues to balance
short term performance with medium term
investment.
capital and
Against the backdrop of an uncertain economic
environment the Group has focused on short term
actions to create greater levels of certainty by
reducing cost and conserving cash by tight
capital
control of working
expenditure. These actions have been balanced
with the need to protect and continue to build on
Marshalls’ market leading capability for the
medium term. The Group has concentrated its
sales effort on market sectors where activity is
more robust, and has continued to invest in
innovation to reduce its operating costs and
extend its competitive advantage through new
product development and service solutions.
These
initiatives have been providing the
foundations for a return to sustainable growth .
There continues to be a potential for growth in the
Group's existing markets and also additional
opportunities in new market areas. Three areas
have been identified to generate sustainable
outperformance. These are:
1. Targeted marketing and product innovation in
the Public Sector and Commercial end market
to provide a broader range of product
solutions;
2. Enhanced merchandising
initiatives and
increasingly developed links with installers to
drive market share and improved product mix
in the Domestic end market; and
3.
International expansion, selling a range of
innovative premium landscape products into
new markets.
6
Marshalls plc Annual Report 2012
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Business Review (continued)
Long Term Strategy and
Business Objectives
Long Term Strategy
The strategy to achieve these objectives is:
The Group’s objective is to emerge from the
current economic downturn in a stronger position
and consequently, the longer term strategic
objectives which are set out below, remain the
Group’s cornerstone objectives.
The Group aims to deliver superior returns for
shareholders, in a sustainable way, from the timely
and efficient supply of high quality, value for
money landscaping and walling products. The
continued objective is to exceed the expectations
of its customers in all end markets through quality
materials produced, administered, delivered and
sold by highly motivated and engaged
employees.
Long Term Corporate Objectives
Marshalls’ long term corporate objectives are to
deliver:
1. Sustainable revenue growth of 7 per cent or
more based on a compound annual growth
rate (“CAGR”) over a three year period;
2. Annual earnings per share growth of RPI plus 9
per cent, with a target of RPI plus 21 per cent
over a three year period;
3. Annual operating cash flow growth of RPI plus
9 per cent, with a target of RPI plus 21 per cent
over a three year period;
4. A dividend policy where dividends will move
in line with medium term earnings growth;
and
5. Return on capital employed of 15 per cent per
annum.
Strategic KPI performance at 31 December 2012 is
summarised on page 19.
1. To deliver sustainable shareholder value by
improving the profitability of the Group’s
operations and optimising the operating
performance of the business.
is supported by selective
This objective
investment in market and brand development,
developing long term customer relationships,
continually innovating and introducing new
products and services to meet the needs of
consumers and
installers that have been
identified through extensive market research and
investing
to
improve the quality of products. The Group
continues to develop, innovate and improve its
unique sourcing, manufacturing and distribution
network, reducing costs wherever possible. The
business ensures it has high quality, timely
management information and analysis, and uses
this to focus on areas for improvement.
in manufacturing
technology
2. To maintain a strong market position and
sustainable profitability with the national
builders’ merchants and the Public Sector and
Commercial end market and to improve
market share in other target markets.
The Public Sector and Commercial end market
requires a range of integrated products that
deliver technical performance and visual appeal.
The Group strives to be responsive to the
requirements of all clients, architects and
contractors and to be the “best in class” for
technical and design support, product innovation,
product quality and customer service. The Group
is continually looking to deliver innovation,
improve and extend its products and services in
areas such as water management, street furniture,
education, rail and sustainability, where
it
perceives there is opportunity for growth.
Marshalls plc Annual Report 2012
7
Additional
long term KPIs have also been
developed to cover the key areas of Energy
Management and Environmental Sustainability to
support the Group’s emphasis on these key areas
of future development.
capital management
These strategic KPIs are supported by a range of
other KPIs designed to ensure that the short term
priorities of cash management, cost reduction
and working
are
consistently aligned, and that both short and long
term KPIs are closely monitored across the Group.
There are also a range of non-financial KPIs
installer membership,
covering
employee engagement,
sustainability and
Corporate Social Responsibility.
innovation,
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:07 Page 8
Business Review
3. To develop relationships with installers to
deliver more effective penetration of the key
domestic routes to market and to improve
product mix.
The Group has a long term commitment to the
Domestic end market and continues to drive more
sales through its strong relationships with quality
installers. In recent years the Group has extended
its approved installer register, and it continues to
focus on lead generation, sales and marketing
support, consistency
the
maintenance of good geographical coverage. The
“Better Business Programme” specifically focuses
on customer service, design improvement and
the consistent demonstration of quality.
in quality and
4. To invest in selective synergistic acquisitions
and organic expansion in existing and related
markets and product categories to expand our
core business.
The Group has two operational sites in Belgium
and continues to expand the geographical reach
of its specialist product portfolio into mainland
Europe. The Group aims to acquire new innovative
products and to extend and expand its routes to
market.
Strategic Key Performance Indicators
(“KPIs”)
Performance is monitored using a full suite of
KPIs, but the Directors have identified the six
measures below as the Group’s strategic KPIs. The
first three are measured over a three year period.
Target
Revenue growth:
Earnings per share growth:
7 per cent per annum
RPI + 21 per cent over
a three year period
Operating cash flow growth: RPI + 21 per cent over a
three year period
Return on capital employed: 15 per cent
Customer service index*:
95 per cent
Health & Safety reduction in
working days lost as a
result of accidents:
10 per cent per annum
* This index combines measures of product availability, on-time
delivery performance and administrative and delivery accuracy.
8
Marshalls plc Annual Report 2012
Fairstone Sawn Sandstone, Golden Sand
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:07 Page 9
Business Review (continued)
Review of the Operations
Market Outlook
The Construction Products Association (“CPA”) has
reported an 8.8 per cent decrease in construction
output in 2012 following the 2.5 per cent increase
in 2011. The CPA is forecasting a further reduction
of 2.2 per cent in 2013 before a recovery to 2.0 per
cent growth in 2014. This decrease is partly driven
by the Public Sector which accounts for one third of
total construction and continues to be adversely
affected by continuing Government expenditure
control. The CPA forecasts that following a 15 per
cent reduction in the last two years, Public Sector
construction will fall by a further 7 per cent in 2013.
Economic uncertainty regarding growth is the
main influence in Commercial which continues to
be adversely affected by poor consumer and
business confidence. Overall, construction is only
expected to recover from 2014 driven primarily by
Private Sector growth although still hindered by
continuing uncertainty in the Eurozone. The CPA
predicts a more significant rise of 3.7 per cent in
2015 and 4.6 per cent in 2016. The construction
sector as a whole is likely to benefit from
expenditure in infrastructure, especially within
rail, roads and energy, which are anticipated to
grow in the medium term. Within the Public
Sector and Commercial end market the CPA
estimates that Other New Work, a proxy for
demand, was down 14.2 per cent in 2012 and
predicts a further fall of 3.7 per cent in 2013 before
returning to growth of 2.0 per cent in 2014.
In the Domestic end market the CPA estimates
that Private Housing Repair, Maintenance and
Improvement expenditure, a proxy for Domestic
end market demand, fell by 4.0 per cent in 2012.
Growth of 1.2 per cent in 2013 is expected with
increases of 2.8 per cent and 4.0 per cent forecast
in 2014 and 2015 respectively.
Despite this economic backdrop, the strength of
the Group’s installer base and the economic
resilience and age profile of the core customer
base remain positive factors that will continue to
drive demand.
Trading Summary
Marshalls’ revenue for the year ended 31
December 2012 was £309.7 million (2011: £334.1
million), a decrease of 7 per cent. The record
rainfall during 2012 reduced sales in the year by
approximately £13 million. This particularly
affected the UK Domestic end market in which
poor working conditions, over a prolonged
period, contributed to a 12 per cent reduction in
sales compared to the prior period. Sales to the UK
Domestic
represent
approximately 32 per cent of Group sales. Sales in
the Public Sector and Commercial end market,
which represent approximately 64 per cent of
Group sales, were down 6 per cent. Continued
progress has been made in developing the
International business which is approaching 5 per
cent of Group sales.
end market
now
the
The economic environment became increasingly
uncertain over
last year and, as a
consequence, the Group fundamentally reviewed
its operations against the negative economic
outlook. The Group instigated a programme of
cost reduction and cash realisation measures and
a wide range of actions to reduce production
output, release cash and reduce cost have been
undertaken, whilst maintaining operating
flexibility. These actions have set underlying
capacity and the Group’s cost structure at a
sustainable level for the lower volume forecast
whilst retaining the capability to respond quickly
when demand improves.
for one-off operational
The net charge
restructuring costs and asset impairments was
£21.5 million (2011: £nil) of which £10.2 million
will be incurred in cash. These have been
separately identified on the face of the Income
Statement
to provide a better
in order
understanding of the Group’s results.
Alongside these actions the Group has continued
to strengthen its market position and trading
margins are improving. The Group has excellent
is
relationships with
delivering additional sales, and good progress is
being made with the many growth initiatives.
its customers, which
Marshalls plc Annual Report 2012
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Business Review (continued)
Manufacturing and Distribution
The Group has well invested modern plants which
have sufficient capacity to meet medium term
demand requirements efficiently. The Group
continues to have the operational and financial
flexibility to respond to any further changes in
market conditions.
During the last year, the Group has further
simplified and refocused its operations with
emphasis on financial and operating flexibility.
The strategy has combined established and new
initiatives to deliver growth and, despite
economic and market uncertainty, the new
initiatives have been delivering market
outperformance. A specific
initiative, has
successfully rebalanced production nationally to
meet stronger demand
in the South East,
compared to the North, in order to minimise
distribution distance and reduce costs.
Marshalls has a unique national network of
distribution sites with a wide geographical
spread. Of the Group's customers, 97 per cent are
within a two hour drive time of one of our regional
centres and this continues to be a key competitive
advantage, especially when fuel costs are high.
The Group utilises well invested modern plants
which have sufficient capacity to meet medium
term demand requirements efficiently and have
the operational and financial flexibility to respond
to any further changes in market conditions. The
same capital equipment produces products for
both the Public Sector and Commercial and
Domestic end markets and this flexibility remains
a key operational objective. The Group continues
to improve the flexibility of its manufacturing
through multi-skilling of the workforce and more
flexible shift patterns. These factors optimise
manufacturing efficiency and enable Marshalls to
maintain the lowest cost to market.
The Group’s plants are modern and well invested
and this continues to enable capital expenditure
to be maintained at historically low levels for the
medium term without any noticeable impact on
Capital
the effectiveness of the business.
investment in property, plant and equipment in
2012 totalled £8.3 million (2011: £11.8 million).
This compares with depreciation of £14.8 million
(2011: £17.3 million). The Group will continue to
invest selectively in innovation to deliver new
Natural Stone, The Savoy, London
10
Marshalls plc Annual Report 2012
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Business Review (continued)
improvement projects
products and
that
reinforce its market leading position. These
strengths support the Group’s medium term
growth ambitions and, in addition to the existing
routes to market, a number of other markets have
identified that are opening up new
been
opportunities for both existing and new products.
International offer combines natural
The
sandstone, granite and limestone from India,
China and Vietnam with specialist manufactured
products from the UK. Key synergies include
marketing and sales collateral, sales processes and
systems, a broader range of products and
manufacturing and technical expertise.
The Group continues to focus on customer service
with industry leading standards of product
quality, availability and “on time” delivery. The
customer service index KPI, measures product
availability, accuracy and timeliness of deliveries
and administrative accuracy. The Group’s industry
leading standards remained high in 2012 and the
combined customer service measure continued
to be in excess of 97 per cent. Marshalls continues
to receive good feedback from its customers and
installers for the consistency and quality of its
products and service.
remains most
The operational restructuring initiatives included
works closures and other capacity reductions
which mainly impacted those businesses that had
been particularly affected by the deterioration in
market conditions and for which the short term
outlook
challenging. The
operational restructuring measures have given
rise to a one-off charge of £21.5 million including
asset impairments of £11.3 million. These include
the write down of plant and machinery and other
assets together with the impairment of certain
intangible assets. The asset impairments relate to
the Group’s natural stone walling business, the
Scottish reconstituted walling business and the
Landscape Products' wet cast operations. An
additional manufacturing site has also been
mothballed. These actions reflect the need to
reduce capacity to meet current levels of demand,
but also provide operational flexibility to enable
the Group to benefit from any future increase in
market activity. Other operational restructuring
costs of £10.2 million will be incurred in cash and
reflect the implementation of a wide range of
measures aimed at reducing costs, reducing
inventories and releasing cash. The main element
of other operational restructuring costs are
redundancy payments associated with reducing
capacity and central overheads which in the year
ended 31 December 2012 amounted to £6.2
million.
Restructuring costs and asset impairments
Restructuring costs
Asset impairments
Intangible
Tangible
2012
Business area
Landscape Products
Natural Stone Walling
Scottish Operations
2012
Cash Non-cash
£’m
-
£’m
10.2
-
-
-----------------
10.2
---------------
2.8
8.5
-----------------
11.3
---------------
Total
£’m
10.2
2.8
8.5
-----------------
21.5
---------------
£’m
9.0
8.0
4.5
-----------------
21.5
---------------
The profit improvement from the restructuring
actions in the year ended 31 December 2012 has
been approximately £2.8 million and inventory
has reduced by £4.9 million, which is ahead of the
Group’s planned timescale with a
further
reduction of £5 million expected by the end of
2013. Headcount has reduced by 15 per cent
during 2012 and the fixed cost base has been
reduced by £7 million on an annualised basis.
Sustainability and the Environment
Marshalls’ has won numerous national and
international awards for its ground breaking work
labelling.
on ethical sourcing and carbon
Marshalls was the first business in its sector to
become a member of the Ethical Trading Initiative
and is also the UK’s first heavyside materials
manufacturer to be accepted into the prestigious
United Nations Global Compact. The Global
Compact is a strategic policy initiative for the
businesses that are committed to aligning their
operations and strategies with ten universally
accepted principles in the areas of human rights,
Marshalls plc Annual Report 2012
11
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Business Review (continued)
framework
labour, environment and anti-corruption. It also
the
provides a practical
development, implementation and disclosure of
sustainability policies and practices. Further
details are found in the Corporate Responsibility
Report on pages 30 to 39.
for
Looking forward, these initiatives will be a “must
have” and consequently the Group continues to
ensure that sustainability
in
everything it does.
is embedded
The Group has pioneered the ethical sourcing of
natural stone paving from India and China. With a
local partner the Group has established schools,
health facilities and health insurance programmes
in India. Marshalls’ “Fairstone” products combine
the attributes of fair trade and ethical sourcing.
As part of its ongoing commitment to the ETI Base
Code, the Group has been driving forward ethical
best practice within its Indian and Chinese natural
stone suppliers. Marshalls’ ethical sourcing
programme incorporates regular independent
supply chain audits.
found
More details
the
can be
Corporate Responsibility and Environmental
Reports on pages 30 to 39 and 40 to 47
respectively and on
the Group’s website
www.marshalls.co.uk/sustainability.
in
Domestic
Marshalls is the market leader in the domestic
driveway and patio markets and continues to lead
the development of the consumer landscape
products market. The Group’s Domestic strategy is
to drive more sales through quality installers. The
objective is to improve the product mix, continually
develop the Marshalls brand and deliver a market
leading level of service. The target customer groups
for installed patios and driveways occupy 8.9
million homes, a far bigger potential market than
new build. These customers are generally older,
have equity in their property, earn more and often
have savings. An ageing population with a retired
lifestyle should drive sales growth and the move
towards building more new houses rather than
12
Marshalls plc Annual Report 2012
flats is also a welcome trend. Quality installers
remain busy, and confirm that there is a trend
towards older customers, and a higher proportion
of cash transactions with long term home owners
rather than new home purchasers. The installed
housing base is 25 million, far higher than the new
build market of between 100,000 and 200,000
houses per year.
In the Domestic end market Marshalls' strategy is to
drive more sales through quality installers. The
Marshalls Register of approved domestic installers is
unique and, having grown to a total of 1,800 teams,
the focus is now to ensure a consistently high
standard of quality and good geographical coverage.
The Group remains committed to increasing the
marketing support of the installer base and the
Marshalls Register through increased training,
marketing materials and sales support. The Group
has also continued to focus on innovation in order to
develop areas with particular sales opportunity and
to strengthen further the Marshalls’ brand. Marshalls
also provides direct delivery to installers of value
added products not easily sourced through stockists.
Installer order books at the end of February 2013
were 7.8 weeks (February 2012: 6.3 weeks),
compared with 8.7 weeks at the end of October
2012. Consumer confidence remains reasonably
stable albeit at a low level. Marshalls continues to
receive good feedback from its customers and
installers for the consistency and quality of service.
Marshalls Register Installer Teams
1900
1800
1700
1600
1500
1400
1300
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 13
Business Review (continued)
Medium term, the Group expects the more
difficult market conditions to provide greater
opportunity to strengthen its relationships with
installers. An ageing population is combining with
a lifestyle trend towards more outdoor living and
the “outdoor room”. Through marketing and
product development the Group continues to
promote solutions which facilitate these trends.
A broad range of initiatives continue to be
developed in order to strengthen competitive
advantage and the Group invests selectively in
innovation to drive growth in the medium term.
The Group has sector leading product availability
and customer service and these attributes are
both at the heart of the Marshalls’ “Superbrand”
concept. For 2013 Marshalls has again been
awarded the accolade of a business Superbrand.
Marshalls’ Olympic involvement has also further
advanced the Group’s reputation for innovation
and service delivery. The Group continues to
generate value by “Creating Better Landscapes.”
The Group’s combined measure for product
availability and customer service is consistently
above 97 per cent.
Public Sector and Commercial
Marshalls continues to be a market leader for the
supply of a wide range of natural stone, concrete
and fabricated products to the Public Sector and
Commercial end market. This market includes PFI
expenditure on schools and hospitals. Such
products include paving, kerbs, edging, surface
drainage and street furniture. The aim is to deliver
products that are visually attractive and also
practical to use and install. Marshalls’ portfolio of
products can be combined to create an attractive
landscaped area, with its technical expertise
providing added value as part of the pre and post
sales service.
In the Public Sector and Commercial end market
Marshalls’ strategy is to build on its position as a
market leading landscape products specialist. The
Group has experienced technical and sales teams
who continue to focus on markets where future
demand
is greatest across a full range of
integrated products and sustainable solutions to
customers, architects and contractors.
In
particular, the Group has targeted those parts of
the market where it anticipates growth such as
Integrated Product Offer, Natural History Museum
Marshalls plc Annual Report 2012
13
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 14
Business Review (continued)
Rail Infrastructure and Home Improvement. The
rail sector includes Crossrail, which is the largest
construction project in Europe. The Group has
recently received technical approval for a wider
portfolio of products for both this project and the
sector generally. In the home sector, Marshalls
has secured framework agreements with eleven
of the top 25 house builders.
The Group is making further investment in water
management and sustainable urban drainage
products, street furniture and traffic management
to enhance its offer. Sales resource has also been
allocated to the natural stone internal paving
market, stone cladding for the Commercial
market and the International Public Sector and
Commercial end market. The Group’s sales teams
provide a full range of integrated projects and
sustainable solutions to support the specialist
product directories and marketing collateral. The
process of identifying projects and following
them through to completion is analytical and data
driven and utilises specialist software unique to
Marshalls. The combination of marketing,
systems, processes and highly experienced sales
teams continues to provide the Group with a
sustainable competitive advantage.
Marshalls continues to be the only landscape
products company able to provide a fully
integrated product offer to the Public Sector and
Commercial end market. This integrated offer was
created in response to the specific demand of
suppliers, distributors, and architects but its value
is now also appreciated in a wider environmental
context and increasingly by local authorities and
other Public Sector bodies. In each of the last two
years approximately 50 per cent of all sales
enquiries have covered more than one product
category with around 20 per cent covering three
or more.
The Group has experienced technical and sales
teams focused on the key growth areas and by
working with clients, architects and contractors
they are able to provide a unique overview of the
project and offer a complete solution comprising
a full suite of products.
Stanton Moor Sandstone Cladding, Derby
14
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 15
Business Review (continued)
Many projects have a lead time of two to three
years. The Group has deliberately retained its
experienced technical and sales teams whilst
some competitors have cut back. Relationships
with clients, architects and contractors and the
development of systems to identify projects are a
key priority. The visibility of projects through
externally measured sources such as Barbour ABI
gives a measure of control over securing future
volume. This approach continues to deliver good
growth in bespoke street furniture, natural stone
paving and sustainable urban drainage products.
Contract Awarded 12 Month Rolling Average of
Hard Landscape Value Adjusted
(Barbour ABI Lead Indicator with 12 Month Lag)
the Group’s total mineral reserves comprising
block stone for paving, walling stone and crushed
aggregates.
Mineral Reserves
Reserves
Reserves
tonnes (m)
2012
7.8
38.6
years
2012
52
22
tonnes (m)
2011
8.5
45.1
years
2011
57
24
Block stone
Aggregates
Notes:
1. Reserves means fully consented and available for extraction
2. Years means number of years available at current
extraction rates
International Development
330
275
s
n
o
i
l
l
i
m
£
220
165
110
555
5Jan-05
5Jul-05
5Jan-06
5Jul-06
5Jan-07
5Jul-07
5Jan-08
5Jul-08
5Jan-09
5Jul-09
5Jan-10
5Jul-10
5Jan-11
5Jul-11
5Jan-12
5Jul-12
5Jan-13
5Jul-13
Historically, the Barbour ABI chart has provided a
reliable picture of future demand. It consolidates
planning information for all the sub sectors
requiring hard landscaping. On average, there is a
12 month lag between contracts being awarded
and the landscape products being required, so
provides 12 month advance information on likely
future demand.
Corporate Development
There continues to be a potential for growth in the
Group's existing markets. The Group has
significant consented stone reserves, particularly
of dimensional stone and aggregates and
continues to seek opportunities to expand
reserves and geographical
In
dimensional stone Marshalls is the market leader
and the Group has now paved every street on the
London Monopoly Board. The Group has a
comprehensive portfolio of natural stone types
along with state of the art manufacturing
equipment and excellent specification and
technical sales resources. The table below shows
coverage.
International
strategy has
two
Marshalls’
elements. Firstly, in Western Europe, the Group’s
strategy is to be a niche, premium product
supplier to the Domestic end market. In March
2011, the Group acquired two operational sites
and manufacturing assets in Belgium, via a newly-
formed subsidiary. This enables the manufacture
of landscape products locally and provides a
physical stock location in mainland Europe from
which to supply the wider Group’s specialist
product portfolio. The aim is to provide products
that are not readily available in mainland Europe
and sales from the Belgium base have increased
by 35 per cent, in local currency, in 2012. There are
over 40 million people living within a two hour
drive from the two sites, an area that covers
Belgium, Holland, Northern France and parts of
Germany.
Secondly, the Group is investing in a specification
sales team to address the Public Sector and
Commercial end market where the lead times are
longer. The focus is on unique products that offer
the market something new and different. This
includes security products, ethically sourced
natural stone directly from India, China and
Vietnam and other specialist manufactured
products.
Technology developed by the Belgium subsidiary
has led to the launch in the UK of "Cobbletech,"
the Group’s new cobble effect driveway product.
Marshalls plc Annual Report 2012
15
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 16
Business Review (continued)
Stancliffe Iron Stone
It was launched as a Marshalls’ Installer exclusive
product and represents the first really innovative
new driveway product for over a decade.
International sales in the year ended 31 December
2012 were £13.5 million (2011: £11.7 million) and
the Group has a target of reaching £35 million by
2015.
Organisation and Key Contractual
Relationships
The Group operates a number of centrally
managed production units throughout the
United Kingdom, supported by a single
integrated logistics and distribution operation.
The Group’s operating assets produce and deliver
a range of products that are sold into each market
area. The structure gives flexibility
in the
development of individual products under the
Marshalls’ brand whilst providing strategic focus
through the integrated national and centrally
administered functions.
The Principal Risks section on pages 24 to 27
outlines the risk management aspects of the
Group’s contractual arrangements. Marshalls has a
16
Marshalls plc Annual Report 2012
wide range of suppliers and customers, and whilst
the loss of, or disruption to, certain of these
arrangements could temporarily affect the
Group’s operations, there are no significant
contractual arrangements that are considered
essential to the Group’s business in the long term.
The Group remains keen to develop partnerships
with both suppliers and customers in order to
maintain high standards of quality, value, ethics
and service throughout its operations.
Corporate Responsibility
Marshalls places special emphasis on Corporate
Responsibility and considers that this is very much
aligned with the sustainable and economic
growth objectives which are for the benefit of all
stakeholders.
Further details relating to social and community
issues, including employees, health and safety,
the policies of the Group and the effectiveness of
these policies, are set out in the Corporate
Responsibility Report on pages 30 to 39.
Research and Development
advantage
competitive
Marshalls has a world class Manufacturing,
Innovation and Development team, staffed by
high calibre engineers and technicians, which
delivers
through
machinery design and installation. Excellent
levels of product availability and on-time delivery
performance have enabled distribution costs to
be controlled despite pressures from legislation,
congestion and rising fuel prices. The Group is
continually striving to improve the flexibility and
effectiveness of product manufacture and is at
the
research and
development.
forefront of
technical
Innovation in all areas of the business over an
extended period has been a key element of the
Group’s success and significant resources will
continue to be
invested
in Research and
Development in the future. As disclosed in Note 3
research and development
on page 107,
expenditure in the year ended 31 December 2012
amounted to £2,425,000 (2011: £3,166,000).
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 17
Business Review (continued)
Financial History
Revenue (£’m)
363.9
297.8
308.8
graph has been disclosed on page 74 showing the
Group’s TSR compared with the FTSE 250 Index
and the FTSE Small Cap Index.
334.1
309.7
Financial Review of 2012
Continuing revenue for the year ended 31
December 2012 was £309.7 million (2011: £334.1
million) which represented a decrease of 7.3 per
cent.
2008
2009 2010 2011 2012
Operating profit (£’m)
- before operational restructuring and work closure
costs and asset impairments
32.3
17.6
13.0
16.7
13.9
2008
2009 2010 2011 2012
Basic earnings per share (pence)
- before operational restructuring and works
closure costs, asset impairments and redemption
of debenture
11.16
5.85
4.21
6.30
5.87
Revenue
2011
Impact of weather
Sub-total
UK
International
2012
Change
£’m
%
334.1
(13.0)
321.1
(13.1)
1.7
(3.9)
(3.9)
0.5
309.7
(7.3)
In the Public Sector and Commercial end market
revenue fell by 6 per cent. Sales volumes were
down 10 per cent, of which 3 per cent was due to
the impact of the bad weather, and sales prices
were up by 4 per cent. In the Domestic end market
revenue fell by 12 per cent. Sales volumes were
down 16 per cent, of which the weather
accounted for 6 per cent, and sales prices were up
4 per cent.
Sales to International markets increased by 15 per
cent to £13.5 million and were 4.3 per cent of
Group revenue. The Group’s target for 2013 is 5
per cent of Group revenues.
2008
2009 2010 2011 2012
2012
2011 change
Operating profit and basic earnings per share are
disclosed before operational restructuring and
works closure costs, goodwill and asset
impairments and
the
the
debenture.
redemption of
As at 31 December 2012 the Company’s share
price was 97.5 pence per share. When dividends
are
total
shareholder return (“TSR”) of 40 per cent over a
five year performance period. A performance
this gives a negative
included
Continuing operations
£’m
£’m
%
EBITDA*
30.0
35.0
(14.3)
Depreciation / amortisation
(16.1)
(18.3)
Operating profit*
13.9
16.7
(16.8)
*Excluding operational restructuring costs and asset
impairments
Operating profit, before operational restructuring
costs and asset impairments, was £13.9 million
(2011: £16.7 million). The
impact of the
unprecedented weather conditions was to reduce
Marshalls plc Annual Report 2012
17
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 18
Business Review (continued)
operating profit in the year ended 31 December
2012 by approximately £3.3 million which was
partially offset by a net gain on asset and property
disposals of £1.9 million (2011: £1.4 million). After
operational
restructuring costs and asset
impairments, the reported operating loss was £7.6
million (2011: £16.7 million profit). EBITDA, before
operational
restructuring costs and asset
impairments, was £30.0 million (2011: £35.0
million).
Margin reconciliation
Movement in
Operating Margin
Revenue
Profit
Impact
2011
Property disposals and other
one-off items
Weather impact
£’m
334.1
–
(13.0)
321.1
Price increases to recover costs
13.6
Volume
(26.7)
Organic expansion of
£’m
16.7
(0.2)
(3.3)
13.2
3.5
(5.3)
%
5.0
(0.1)
(0.8)
4.1
0.9
(1.3)
International
1.7
(0.3)
(0.1)
Profit improvement from
restructuring
2012
–
309.7
2.8
13.9
0.9
4.5
Operating profit was £13.9 million with a resulting
operating margin of 4.5 per cent (2011: 5.0 per
cent). However, once the impact of one-off
property disposals and the effect of the bad
weather in 2012 are taken into account the "like
for like" margin for 2011 was 4.1 per cent. The
impact of the unprecedented weather in 2012
reduced operating profit by approximately £3.3
million and margin by 0.8 per cent. This was
partially offset in the year by a net gain on asset
and property disposals of £1.9 million (2011: £1.4
million). In the year ended 31 December 2012
realised sales price increases were in aggregate
around 4 per cent and generated additional
revenue of £13.6 million. Once inflationary cost
increases are taken into account this generated an
additional £3.5 million of operating profit. The
in market
CPA has estimated a reduction
construction volumes in 2012 of 8.8 per cent.
Reduced sales gave rise to a fall in operating profit
of £5.3 million which represents a margin
decrease of 1.3 per cent.
£2.8 million,
The improvement in operating profit resulting
from the operational restructuring initiatives in
the year has been
the second half of
a margin
approximately
improvement of 0.9 per cent. When markets
improve, there continues to be a real opportunity
to benefit both from improved operational
gearing in both sales and production levels and
from the lower cost base.
in
Sales growth
International end markets
contributed additional revenue of £1.7 million.
The contribution from this revenue growth has
been offset by revenue investment in the Group's
International business.
Basic EPS, before operational restructuring costs
and asset impairments, was 5.87 pence (2011: 6.30
pence). EPS on a reported basis was a 2.91 pence
loss (2011: 6.30 pence profit).
Analysis of sales by
end market sector
UK Domestic
2012
2011 change
£’m
£’m
%
96.6
109.2
(11.5)
Public Sector and Commercial
199.6
213.2
International
13.5
11.7
(6.4)
15.4
309.7
334.1
(7.3)
Overall Percentage
Domestic
Public Sector and Commercial
International
%
31.3
64.4
4.3
%
32.7
63.8
3.5
The Public Sector and Commercial end market
now comprises approximately 64 per cent of the
Group revenue. Like for like revenue showed a
decrease of 6 per cent in the year. Sales to the
Domestic end market fell by 12 per cent.
18
Marshalls plc Annual Report 2012
Group’s Pension Scheme. The IAS 19 notional
interest comprises interest on obligations under
the defined benefit section of the Marshalls plc
Pension Scheme net of the expected return on
Scheme assets.
Taxation
The effective tax rate, before operational
restructuring costs and asset impairments, was a
credit of 10.7 per cent (2011: 11.1 per cent charge)
and benefited from a credit to deferred tax due to
the reduction in the rate of corporation tax, a
credit arising on the finalisation of prior year tax
computations, and the utilisation of brought
forward capital losses being applied against the
capital gain on the disposal of property assets.
There was a tax credit of £4.4 million in relation to
operational
restructuring costs and asset
impairments.
Deferred tax of £2.1 million in relation to the
actuarial loss arising on the defined benefit
Pension Scheme in the year has been taken to
the Consolidated Statement of Comprehensive
Income.
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 19
Business Review (continued)
Financial KPIs
The key financial KPIs were set out on page 8.
Performance against these targets continues to
be affected by the severe economic recession that
has impacted the UK economy and therefore the
Group’s markets. Measured at 31 December 2012,
performance was as follows:
•
Revenue growth
Against a target of 7 per cent per annum
growth, over a three year period, the Group’s
revenue has increased by 1.3 per cent (2009-
2012) on a CAGR basis.
•
Earnings per share growth
Against a target of RPI + 21 per cent over a
three year period the Group’s earnings per
share (before operational restructuring and
works closure costs and asset impairments)
has increased by 0.3 per cent (2009-2012).
• Operating cash flow growth
Against a target of RPI + 21 per cent over a
three year period the Group’s operating cash
flow has fallen by 28.9 per cent (2009-2012).
•
Return on capital employed (ROCE) is defined
as EBITA / Shareholders’ funds plus Net Debt
ROCE for 2012 was 6.1 per cent which is
compared with the long term target of 15.0
per cent.
To support these, the Group operates a range of
short term KPIs.
Net Financial Expenses
Net financial expenses were £3.5 million (2011:
£3.0 million) and interest was covered 3.9 times
(2011: 5.6 times) before operational restructuring
costs and asset impairments. Higher external
charges, totalling £4.2 million, have been partially
offset by an IAS 19 notional interest credit of £0.7
million (2011: £0.5 million) in relation to the
Classical Flagstones, Rochester
Marshalls plc Annual Report 2012
19
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:08 Page 20
Balance Sheet
Consolidated Balance Sheet
Fixed assets
Current assets
Current liabilities
Non-current liabilities
Sub-total
2012
2011
£’m
£’m
217.7
236.3
105.6
122.6
(64.3)
(63.4)
(20.1)
(25.3)
238.9
270.2
Employee benefits (before deferred tax)
8.2
13.0
Net debt
Net assets
Period end gearing
(63.5)
(77.1)
183.6
206.1
34.6% 37.4%
Net assets at 31 December 2012 were £183.6
million (2011: £206.1 million).
The Group continues to keep a tight control of
receivables and debtor days remain industry
leading. The balance sheet at 31 December 2012
shows trade and other receivables have fallen to
£30.2 million (2011: £40.3 million) due partly to
lower market activity levels but also through
continued close control of credit management
procedures. The Group maintains credit insurance
which provides excellent intelligence to minimise
the number and value of bad debts and ultimately
provides compensation if bad debts are incurred.
The Group's UK inventory reduction programme
has led to a reduction of £4.9 million and the
Group is targeting a further reduction of £5
million in 2013.
Business Review (continued)
Dividends
An interim dividend of 1.75 pence (2011: 1.75
pence) per share was paid on 7 December 2012. A
final dividend of 3.50 pence (2011: 3.50 pence) per
share is now being recommended for payment on
5 July 2013 to shareholders on the register at the
close of business on 7 June 2013. The ex-dividend
date will be 5 June 2013. This gives a total
dividend of 5.25 pence (2011: 5.25 pence) per
share for the year.
The Group has a policy of 2 times dividend cover
over
the business cycle. Future dividend
payments will take into account the Group’s
underlying earnings, cash flows and capital
investment plans, and the need to maintain an
appropriate level of dividend cover.
Dividend per ordinary share (pence)*
Traditional basis
5.37
5.25
5.25
5.25
5.25
2008
2009 2010 2011 2012
Dividend per ordinary share (pence)*
IFRS basis
12.38
5.25
5.25
5.25
3.05
2008
2009 2010 2011 2012
* Dividends per share have been adjusted by the
“bonus factor” in the Rights Issue.
20
Marshalls plc Annual Report 2012
Inglestone Natural Stone
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 21
Business Review (continued)
Risk management has been a key focus for the
Group’s Pension Scheme over recent years and the
actions the Group has taken have reduced
actuarial volatility and risk. In accordance with the
Scheme-specific funding and recovery plan, the
Group made cash contributions of £3.6 million
into the Scheme in the year ended 31 December
2012. In 2013 and beyond the expected annual
contribution will be £5.6 million. The fair value of
the Scheme assets at 31 December 2012
increased to £254.8 million (2011: £250.6 million)
and the present value of funded obligations
increased to £246.6 million (2011: £237.6 million)
and this has given rise to an accounting surplus of
£8.2 million (2011: £13.0 million surplus) at the
balance sheet date. These changes have resulted
in an actuarial loss, net of deferred taxation, of
£7.0 million (2011: £7.5 million actuarial gain) and
this has been recorded in the Consolidated
Statement of Comprehensive Income. In the year
ended 31 December 2012 the AA corporate bond
rate reduced from 4.8 per cent to 4.7 per cent and
the values have been determined by the Scheme
Actuary using assumptions in line with current
market levels.
Analysis of Net Debt
Analysis of net debt
Cash and cash equivalents
Bank loans < 12 months
Bank loans > 12 months
Finance leases
2012
2011
£’m
11.1
(0.1)
£’m
6.0
(25.0)
(74.3)
(57.9)
(0.2)
(0.2)
(63.5)
(77.1)
management and tight credit control. The one-off
operational restructuring costs have given rise to a
cash outflow of £7.4 million and the operational
impact has reduced cash outflows by £5.4 million.
These changes have led to a benefit in the Income
Statement of £2.8 million.
Working capital has successfully released cash in the
year of £12.1 million. Inventory has been reduced by
£4.9 million and receivables have also been reduced,
partly due to a lower level of activity and partly
through continued close control of credit
management procedures. Cash management
continues to be a high priority and the Group remains
committed to realising value from surplus properties.
Borrowing facilities
The Group continues
its policy of having
significant committed bank facilities in place with
a positive spread of medium term maturities. In
March 2012 bank debt facilities, which were to
mature in December 2012 and January 2013
totalling £75 million in aggregate, were re-
financed with extended maturity dates to 2015
and 2016. In addition, in August 2012, the Group
renewed its short term working capital facilities
with RBS.
At 31 December 2012 net debt was £63.5 million
(2011: £77.1 million) resulting in gearing of 34.6 per
cent (2011: 37.4 per cent). This reduction is partly
due to reductions in inventory and the effective
management of working capital. In addition, the
Group has successfully completed targeted
property sales in the year realising £8.6 million. This
included the sale of an office building for £6.1
million which the Group agreed to lease back under
an operating lease over 25 years. The Group has set
a target of achieving a net debt to EBITDA ratio of 2
times by the end of 2013 and continues to focus on
expenditure
inventory
reduction,
capital
Classical Flagstone, Rosetta Grey Mosaic
Marshalls plc Annual Report 2012
21
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 22
Business Review (continued)
The strategy is to retain significant committed
facilities and the Group has no need for further
committed facility renewals for two years. The
total bank borrowing facilities at 31 December
2012 amounted to £170.0 million (2011: £170.0
million) of which £95.7 million (2011: £87.1
million) remained unutilised. In addition, the
Group has a seasonal working capital facility of
£20.0 million which is available between 1
February and 31 August each year. The Group has
significant headroom in its facilities with year end
debt at 31 December 2012
representing
approximately 37 per cent of the available
facilities.
Interest cover and net debt to EBITDA covenants
in the facilities were met at the year end. The bank
facilities are unsecured save for inter-company
guarantees between the Group and its subsidiary
undertakings in favour of the facility banks.
The Group has a robust balance sheet with a good
range of medium term bank facilities available to
fund investment initiatives to generate growth as
market conditions improve.
£m 220
200
180
160
140
120
100
80
60
40
20
0
Dec 2012
Dec 2013*
On demand: Seasonal (Feb to Aug)
On demand: Overdrafts (all year)
Committed
Net debt
*2013 based on consensus information
22
Marshalls plc Annual Report 2012
Cash generation
Group Cash Flow
Net cash from operating activitives (before
pension contributions and operational
restructuring)
Operational restructuring
Pension contributions
Net cash from operating activities
Working capital investment in International
Free cash flow
Net cash from investing activities
Net cash from financing activities
Net increase / (decrease) in cash and
2012
2011
£’m
£’m
35.7
19.6
(7.4)
(3.6)
24.7
-
24.7
(1.2)
(6.6)
11.8
4.1
15.9
(0.7)
(15.8)
(10.3)
(10.3)
cash equivalents
13.7
(10.2)
Movement in debt and lease financing
(0.1)
(0.1)
Movement in net debt in the period
Net debt at beginning of period
Net debt at end of period
13.6
(10.3)
(77.1)
(66.8)
(63.5)
(77.1)
The Group continues to be cash generative. In the
year ended 31 December 2012 the free cash flow
was £24.7 million (2011: £15.9 million). The
comparative figure reflects the fact that £4.1
million was invested in 2011 to fund the growth of
working capital in the Group’s International
operations. This has been included within the net
cash outflow from investing activities in the above
analysis. Reported net cash flow from operating
activities was £24.7 million (2011: £11.8 million)
after deducting £7.4 million (2011: £1.2 million) of
to
one-off cash expenditure
operational restructuring and works closure costs
paid and pension contributions of £3.6 million
(2011: £6.6 million).
relation
in
Reduced inventory volumes have released cash of
approximately £4.9 million. There has been a net
cash inflow of £7.2 million from monetary
working capital.
represents a significant reduction from earlier
levels. This reduction has been possible as a
consequence of the major capital investment
programme in the first half of the last decade,
which has given the Group efficient, industry
leading manufacturing and distribution facilities,
and has enabled it to reduce capital expenditure
during the downturn to preserve cash.
The Group has also invested £7.6 million in
business acquisitions in the last three years and
paid £16.8 million
in Pension Scheme
contributions. Cash generation before dividends
has been £36.5 million over the last three years. Net
debt has fallen by £5.6 million, in the same period,
with gearing falling to 34.6 per cent.
As explained earlier, the Group’s cash generation
performance against detailed cash flow targets is a
strategic KPI. In 2012, the short term targets that
were set by the Board to support this were
achieved. The Board’s current short term objective
is to conserve cash wherever possible and to
maintain gearing at around the current level.
77622 Marshalls 2012 pp001-089 (Q8)___ 27/03/2013 07:52 Page 23
Business Review (continued)
Analysis of cash utilisation
Free cash flow
Capital expenditure
Proceeds from sale of property assets
Investment/acquisitions*
Disposal proceeds
Finance leases
Cash returned to shareholders
Movement in net debt
2012
2011
£’m
24.7
£’m
15.9
(9.5)
(13.6)
8.6
-
0.2
(0.1)
5.4
(8.2)
0.6
(0.1)
(10.3)
(10.3)
13.6
(10.3)
*Including working capital relating to International expansion
in 2011 of £4.1 million.
Total expenditure on capital expenditure
(including intangible assets) in the year was £9.5
million (2011: £13.6 million). The majority of this
expenditure was invested in the replacement of
existing assets, in business improvements and new
process technology. Proceeds from the sale of
targeted property assets contributed £8.6 million.
Dividend payments in the year were £10.3 million
(2011: £10.3 million).
The utilisation of cash over the last three years is
illustrated below:
Analysis of cash utilisation, 2010-2012
Operational cash generation
Capital expenditure
Acquisitions / disposals
Pension contributions
Other financing items
Sub-total
Cash returned to shareholders
Movement in net debt
Net debt
Capital employed
Gearing
£’m
78.2
(17.2)
(7.6)
(16.8)
(0.1)
36.5
(30.9)
5.6
2009
2012
£’m
£’m
(69.1)
(63.5)
181.1
183.6
38.2% 34.6%
This chart provides a medium term three year
analysis of the cash generation capacity of the
Group and how cash generated has been utilised.
Cash generated from operating activities was £78.2
million. The Group has re-invested £17.2 million
back into the business in the last three years, which
Fairstone Driveway Setts, Autumn Bronze
Marshalls plc Annual Report 2012
23
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 24
Business Review (continued)
Principal Risks and Risk
Management
The Group’s Risk Committee determines the
Group’s approach to risk, its policies and the
procedures that are put in place to mitigate
exposure to risk. There is a formal ongoing process
to identify, assess and analyse risks and those of a
more material nature are included in the Group
Risk Register. The Group Risk Register is reviewed
and updated at least every six months and the
overall process is the subject of regular review.
Occasional modifications are made to facilitate
reporting and
the consistent
to ensure
identification and classification of risks across the
wider Group. Risks are recorded with a full analysis
and risk owners are nominated who have authority
and responsibility for assessing and managing the
risk. All risks are analysed for impact and probability
to determine exposure and impact to the business
and the determination of a “gross risk score”
enables risk exposure to be prioritised. External
risks include the weather, political and economic
conditions, the effect of legislation or other
regulatory actions, the actions of competitors,
foreign exchange, raw material prices and pension
funding. Internal risks include investment in new
products, new business strategies and acquisitions.
The Group seeks to mitigate exposure to all forms
of strategic, financial and operational risk both
external and internal. The effectiveness of key
mitigating controls is continually monitored and
such controls are subjected to internal audit and
periodic testing in order to provide independent
verification where this is deemed appropriate. The
effectiveness and impact of key controls are
evaluated and this is used to determine a “net risk
score” for each risk. The process is used to develop
action plans that are used to manage, or respond
to, the risks and these are monitored and reviewed
on a regular basis by the Group’s Risk Committee.
The principal risks and uncertainties facing the
Group are described below.
Strategic Risks
Economic Conditions
The Group is susceptible to any economic
downturn and is dependent on the level of
activity in its markets. In the Domestic end market
activity
levels are driven by many factors
including general economic conditions, interest
rates, inflation, unemployment, demographic
trends, general uncertainty in the financial
markets and the availability of credit. These
factors also affect activity levels in the Public
Sector and Commercial end market where activity
levels are also affected by the extent and speed of
delivery of planned Government investment. The
Group’s aim
to ensure an excellent
understanding of market conditions by constant
communication with customers, installers and
domestic consumers, together with significant
investment
in market research and active
membership of the CPA. Close monitoring of
trends and lead indicators enables the Group to
identify and implement necessary action plans to
address issues that are affecting trading. The
balance of revenue between the consumer driven
Domestic end market and the Public Sector and
Commercial end market also helps mitigate the
potential impact of these risks.
is
The additional investment the Group has made to
expand its International operations has increased
the Group’s exposure to European markets.
Despite the increasingly uncertain economic
backdrop the low cost nature of the investment
has helped mitigate the overall risk.
Marshalls Mistral Priora, Silver Grey
24
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 25
Business Review (continued)
Competitor Activity
A failure to compete with competitors on price,
product range, quality and service could have an
adverse effect on the Group’s financial results. The
increase in demand for imported natural stone
products may also attract new
low cost
competitors into the market but the development
of the Group’s Chinese supply chain for stone
products has helped complement the more
traditional source of supply from India. This
initiative has provided the Group with a broader
range of supply options and a wider selection of
product solutions across extended International
end markets. All these areas are monitored on a
constant basis and the Customer Service Index
remains one of the Board’s key strategic KPIs. The
Group continues to invest in strategies that
enhance the Marshalls brand.
Increases in the price of oil, utilities and
other raw materials
Any significant increases in the price of oil, utilities
and other raw materials could adversely affect the
Group’s performance. Diversity of operations
reduces the risk on any single item on supplies and
purchasing policies seek to take into account and
mitigate such risks, where possible. Where
appropriate, the Group uses hedging instruments
to mitigate the risk of significant forward increases
in fuel price.
Financial Risks
Access to Funding
The Group requires continued access to debt funding
in order to meet its trading obligations and to support
the growth of the business. In March 2012 bank debt
facilities, which were to mature in December 2012 and
January 2013 totalling £75 million in aggregate, were
re-financed with extended maturity dates to 2015 and
2016. In addition, in August 2012, the Group renewed
its short term working capital facilities with RBS.
Uncertainty in financial markets means that there is a
potential risk that the Group may be unable to obtain
additional funds when needed or may be able to do so
on unfavourable terms although the facility renewals
agreed in 2012 have served to mitigate this risk. A
breach of bank covenants could result in elements of
the Group’s borrowings becoming immediately
repayable.
The Group has significant committed facilities in place
with a good spread of medium term maturities. The
Group manages its medium term bank debt to ensure
continuity of funding and the policy continues to be to
arrange funding ahead of requirements and to
maintain sufficient un-drawn committed bank
facilities. To mitigate these risks the Group constantly
reviews its strategic forward plans to reflect changing
market conditions with the aim of maintaining
significant headroom against its facilities. Medium
term financial forecasts and shorter term budgets are
regularly reviewed to assess financing requirements to
ensure sufficient headroom against facilities.
Financial Instruments
The main risks arising from the Group’s financial
instruments are liquidity risk, interest rate risk, credit
risk, pricing risk and foreign currency risk. The Board
reviews and agrees policies for managing each of
these risks and these are summarised in Note 19 on
pages 120 to 125 of the Financial Statements. These
policies have remained unchanged since 2011. It is
the Group’s policy, and has been throughout the
period under review, that no speculative trading in
financial instruments shall be undertaken.
Escofet Bench, Olympic Athletes Village
Marshalls plc Annual Report 2012
25
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 26
Business Review (continued)
The Group enters into forward foreign currency
contract derivative transactions of relatively small
value. The purpose of such transactions is to
manage the currency risks arising from the Group’s
operations. The Group manages its insurance risk
by continuous review and by maintaining a
balance between capped self insurance and third
party cover against major catastrophes.
Pensions
the
The defined benefit section of the Pension Scheme
was closed to future service accrual on 1 July 2006
introduction of a new defined
and
contribution section to the Pension Scheme has
allowed the Group to manage risk better and
reduce volatility in the future. Nevertheless the
Group continues to be subject to various financial
risks in relation to the Pension Scheme, principally
the volatility of the discount (AA corporate bond)
rate relative to gilt yields, any downturn in the
performance of equities and increases in the
longevity of members. The sensitivity to the AA
corporate bond rate is broadly that, all other things
being equal, a 0.1 per cent movement in the
discount rate is equivalent to a movement of
approximately £4.2 million
in the Scheme
liabilities. Under the Liability Driven Investment
(“LDI”) strategy adopted by the Scheme this
26
Marshalls plc Annual Report 2012
Classical Flagstones, Aurora
sensitivity would be offset very substantially by a
movement in Scheme assets where the change in
AA corporate bond yield is simply a movement in
line with fixed interest securities in general.
The sensitivity to inflation is broadly that, all other
things being equal, a 0.1 per cent movement is
equivalent to a movement in the Scheme liabilities
of broadly £1.5 million, although this would also
be offset almost entirely by a movement in
Scheme assets. As far as mortality is concerned an
increase of one year in life expectancy would, all
other things being equal, give rise to an increase in
Scheme liabilities of approximately £8.0 million.
Risk management remains a core theme of the
Group’s Pension Scheme strategy and the previous
transfer of a proportion of Scheme assets from
equities to liability driven investments is a further
example of an action that has reduced volatility
and risk.
Operational Risk
Business Integration
Marshalls continues to make strategic business
acquisitions that might have an impact on the
performance and risk profile of the Group. These risks
are mitigated by extensive due diligence and where
practicable, by representations and indemnities from
the vendors. The integration of acquisitions also
involves a number of further risks including the
diversion of management’s attention and the
retention of key personnel within the acquired
business. In this regard each acquisition is supported
by a detailed integration plan covering all key areas of
activity and dedicated project teams containing
employees from the wider Group with the
appropriate skills required. To support and enable
future growth the Group has upgraded its IT systems
to ensure a common platform across all business
units. All IT systems development projects are
actively and carefully planned with defined
governance and control procedures in place. They are
also supported by independent risk and project
management audits to ensure that procedures and
policies are in line with leading best practice. An
important element is to ensure that the risks of
disruption to the business are controlled and
minimised.
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:09 Page 27
Business Review (continued)
The integration of the Group’s recently acquired
Belgium operations is nearing completion and
consequently the risks associated with this
investment have reduced during 2012.
Employees
Current economic uncertainty may have increased
the possible risk of staff turnover and may
potentially de-motivate remaining staff. One of
the Group’s key strengths is the quality and
experience of its employees and significant
resource continues to be directed towards
training, personal development and succession
planning.
Key Relationships
The Group has strong relationships with its
business partners while seeking to ensure that it is
not dependent on any single category of
customer, contractor or supplier. Business dealings
are governed by a combination of longer term and
single transaction written contractual terms.
Group Outlook
Marshalls acted swiftly and decisively to reduce
both production output and the cost base whilst
retaining substantial operating and financial
flexibility. Net debt has been reduced to £63.5
million and the Group is already close to achieving
its target of 2 times net debt to EBITDA by the end
of 2013.
The general economic background remains
unpredictable and economic forecasts for 2013 are
flat. Commercial demand, particularly from Rail
Infrastructure and Home Development
is
improving, the Installer market is showing good
International
order books and the Group’s
business is delivering strong year on year sales
growth. Marshalls has a leading position in its
markets with unrivalled geographic coverage. The
Group remains focused on product innovation and
service delivery initiatives to deliver sales growth
and improve trading margins. There is no change
in our expectations for the current year and the
Group continues to remain well placed to achieve
growth when market conditions improve.
Stanton Moor Sandstone Cladding, York
Marshalls plc Annual Report 2012
27
77622 Marshalls 2012 pp001-089 (Q8)___ 27/03/2013 10:21 Page 28
Directors’ Biographical Notes
Andrew Allner (59) (2,3)
Non-Executive Chairman
Ian Burrell (55)
Finance Director
Term of Office: Appointed to the Board in July
2003 and appointed as Chairman of the Board on
12 May 2010. Last re-elected in May 2012. Also
chairs the Nomination Committee.
Independent: Yes
Skills and experience: Andrew Allner is a Non-
Executive Director, Senior Independent Director
and Chairman of the Audit Committee at AZ
Electronic Materials SA and also serves as a Non-
Executive Director and Chairman of the Audit
Committee at CSR plc and Northgate plc. He is
Non-Executive Chairman of Fox Marble Holdings
plc. He is also a Senior Independent Director and
Chairman of the Audit Committee of The Go-
Ahead Group plc and will assume the role of
Chairman with effect from 25 April 2013. He was
previously Group Finance Director of RHM plc,
taking a lead role in its flotation in July 2005 on
the London Stock Exchange. Prior to joining RHM
plc, Andrew Allner was Chief Executive Officer of
Enodis plc, and he has also served in senior
executive positions with Dalgety plc, Amersham
International plc and Guinness plc. He is a former
partner of Price Waterhouse and is a Fellow of the
Institute of Chartered Accountants in England and
Wales. He is a graduate of Oxford University.
Graham Holden (53)
Chief Executive
Term of Office: Appointed to the Board in 1992.
Last re-elected in May 2012.
Independent: No
Skills and experience: Graham Holden joined the
Group in 1986. He is a Chartered Accountant and
graduate of the Harvard Advanced Management
Programme. He was previously Group Finance
Director, and has held other senior executive
positions within the Group. He was appointed to
his current position on 1 January 2004. He is also
a Non-Executive Director of KCOM Group Plc,
appointed in 2007, and chairs its Remuneration
Committee. He is Chairman of the Yorkshire and
Humber Regional Advisory Board of Business in
the Community, and served as the Prince’s
Ambassador to the region until 21 June 2012. He
also serves on the Board of the Mineral Products
Association and is a Visiting Fellow in the School
of Management at Cranfield University.
28
Marshalls plc Annual Report 2012
Term of Office: Appointed to the Board in June
2001. Last re-elected in May 2012.
Independent: No
Skills and experience:
Ian Burrell joined the
Group in 2001. He is a Chartered Accountant and
has held a number of senior financial positions in
industry, including that of Group Finance Director
at Cornwell Parker plc. He is also Chairman of the
Trustee Company of the Group’s Pension Scheme,
and is a Non-Executive Director and Chairman of
the Audit Committee of Leeds Trinity University.
David Sarti (47)
Chief Operating Officer
Term of Office: Appointed to the Board in
November 2004. Last re-elected in May 2012.
Independent: No
Skills and experience: Joined the Group in March
2001 as Group Operations Director having
previously been a business strategy consultant
with Accenture. He is a Chartered Director. He is
also a Non-Executive Director of a private group of
companies in the distribution and retail sector,
and serves on the Board of the British Pre-Cast
Concrete Federation Limited.
Alan Coppin (62) (1,2,3)
Non-Executive Director
Term of Office: Appointed to the Board in May
2010, and last re-elected in May 2012. He is the
Senior Independent Non-Executive Director and
Chairman of the Remuneration Committee.
Independent: Yes
Skills and experience: Alan Coppin has extensive
cross-sector governance and management
experience. He is a Non-Executive Director of the
Royal Air Force and of Berkeley Group Holdings
plc, where he chairs
the Remuneration
Committee. He is also a Patron of the Windsor
Leadership Trust. His previous roles include
chairmanship of the Prince’s Foundation for the
Built
Non-Executive
directorships at Capital and Regional plc and
Carillion plc.
Environment
and
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 29
Directors’ Biographical Notes (continued)
Mark Edwards (58) (1,2,3)
Non-Executive Director
Tim Pile (60) (1,2,3)
Non-Executive Director
Term of Office: Appointed to the Board in May
2010, and last re-elected in May 2012. Chairman
of the Audit Committee.
Independent: Yes
Skills and experience: Mark Edwards is a
Chartered Accountant with a strong financial
background and wide UK and international
experience, especially in the manufacturing
sector. He is Chief Executive Officer of AIM
Aviation Limited, and was
formerly Chief
Executive of the Baxi Group. He has also served as
Vice President of the Construction Products
Association.
Advisers
Stockbrokers
Citigroup Global Markets Limited
Numis Securities Limited
Auditors
KPMG Audit Plc
Legal Advisers
Herbert Smith LLP
Eversheds LLP
Pinsent Masons LLP
Financial Advisers
N M Rothschild & Sons Limited
Bankers
Royal Bank of Scotland plc
Lloyds TSB Bank plc
HSBC Bank plc
Barclays Bank plc
the
Term of Office: Appointed to the Board in
October 2010 and last re-elected in May 2012.
Independent: Yes
Skills and experience: Tim Pile is the Executive
Chairman of Cogent Elliott,
leading
independent marketing agency, and was formerly
Chief Executive Officer of Sainsbury's Bank. He has
held a number of senior roles in the financial
services and marketing industries and has wide
business experience. Tim is a Non-Executive
Director of The Royal Orthopaedic Hospital and is
the President elect of the Greater Birmingham
Chambers of Commerce. He is also a Governor of
Bromsgrove School. Previous Non-Executive
Director roles include Cancer Research UK.
Board Committee Membership
1 - Member of the Audit Committee
2 - Member of the Nomination Committee
3 - Member of the Remuneration Committee
Cathy Baxandall
Group Company Secretary
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Shareholders’ enquiries should be addressed
to the Registrars at the above address
(Tel: 0870 707 1134)
Registered Office
Birkby Grange
Birkby Hall Road
Huddersfield HD2 2XB
Telephone: 01484 438900
Facsimile: 01484 438945
Internet address:
www.marshalls.co.uk
Registered in England and Wales: No. 5100353
Marshalls plc Annual Report 2012
29
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 30
Corporate Responsibility
“Against a challenging economic backdrop, 2012 saw Marshalls take further steps along
its continuing Corporate Responsibility journey and further embed responsible business
practices with the Group. We aim to align our business values, purpose and strategy with
the social, economic and environmental needs of our stakeholders, embedding
responsible and ethical business policies and practices in everything we do.”
Marshalls is widely regarded as a leader in its
sector for Corporate Responsibility ("CR") and
Sustainable business practices. The Group
continues to find increasingly innovative and
meaningful ways to communicate, consult and
engage with customers, employees, suppliers,
partners and wider stakeholders on sustainable
issues.
The Group’s drive to maintain high standards and
operate in a sustainable manner is headed up by
Board Director David Sarti who is responsible for
managing the key elements of the Group’s
Corporate Responsibility Policy and who regularly
reports to the Board on its application and
development. He is supported directly by the
Group Marketing Director and the Group Head of
Sustainability. As CR and Sustainability become
increasingly embedded throughout operations
more employees are becoming directly involved
with the Group’s commitment to the sustainability
agenda.
Marshalls’ approach is driven by transparency and
membership of a carefully selected number of key
that provide both an effective
initiatives
framework for implementation and a learning
environment as the Group seeks to understand
these complex issues.
The Group continues to be a constituent member
of the FTSE4Good UK Index. The Group is a
member of Business in the Community ("BITC"), a
signatory of the United Nations Global Compact
("UNGC") and a member of the Ethical Trade
Initiative ("ETI"). In addition we work with
internationally recognised expert bodies such as
the Carbon Trust, the Wildlife Trust and the
Woodland Trust.
The United Nations
Global Compact
The UNGC is a strategic policy
initiative for businesses that are
committed
their
operations and strategies with ten
universally accepted principles in the areas of human
rights, labour, environment and anti-corruption.
to aligning
The UNGC now has over 10,000 corporate
participants and other stakeholders from over 130
countries and it is the largest voluntary corporate
responsibility initiative in the world. *
* United Nations Global Compact website, “About
us”, 11 February 2012
w w w.unglobalcompac t.org/AboutTheGC/
index.html.
The UNGC is a practical framework for the development,
implementation, and disclosure of sustainability policies
and practices, offering participants a wide spectrum of
workstreams, management tools and resources that are
all designed to help advance sustainable business
models and markets.
Overall, the UNGC pursues two complementary
objectives:
1. Mainstream the 10 principles in business
activities around the world.
Human Rights
•
Principle 1: Businesses should support and
respect the protection of internationally
proclaimed human rights; and
Principle 2: Businesses should make sure that
they are not complicit in human rights abuses.
•
30
Marshalls plc Annual Report 2012
Labour
•
Principle 3: Businesses should uphold the
freedom of association and the effective
recognition of the right to collective bargaining;
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 31
Corporate Responsibility (continued)
•
•
•
Principle 4: The elimination of all forms of
forced and compulsory labour;
Principle 5: The effective abolition of child
labour; and
Principle 6: The elimination of discrimination
in respect of employment and occupation.
Environment
•
Principle 7: Businesses should support a
precautionary approach to environmental
challenges;
Principle 8: Businesses should undertake
initiatives to promote greater environmental
responsibility; and
Principle 9: Businesses should encourage the
development and diffusion of environmentally
friendly technologies.
•
•
Anti-Corruption
•
Principle 10: Businesses should work against
corruption in all its forms, including extortion
and bribery.
2. Catalyse actions in support of broader UN
goals, including the Millennium Development
Goals ("MDGs").
The UNGC asks companies to embrace, support
and enact, within their sphere of influence, a set of
core values in the areas of human rights, labour
standards, the environment and anti-corruption.
The UNGC has shaped an initiative that provides
collaborative solutions to the most fundamental
challenges facing both business and society. The
initiative seeks to combine the best properties of
the United Nations (“UN”), such as moral authority
and convening power, with the Private Sector’s
solution-finding strengths, and the expertise and
capacities of a range of key stakeholders.
Marshalls sees the following benefits from
engagement:
• Adopting an established and globally
the
recognised policy
development, implementation, and disclosure
of environmental, social, and governance
policies and practices;
framework
for
•
Sharing best and emerging practices to
advance practical solutions and strategies to
common challenges;
• Advancing
solutions
sustainability
in
partnership with a range of stakeholders,
including UN agencies, governments, civil
society,
labour, and other non-business
interests;
Linking business units and subsidiaries across
the value chain with the UNGC's Local
Networks around the world;
•
• Accessing the UN’s extensive knowledge of
and experience with sustainability and
development issues; and
• Utilising UNGC management tools and
resources, and the opportunity to engage in
specialised workstreams in the environmental,
social and governance realms.
as
policy
known
The UNGC incorporates a transparency and
accountability
the
Communication on Progress ("COP"). The annual
posting of a COP is an important demonstration of
a participant's commitment to the UNGC and its
principles. Participating companies are required
to follow this policy, as a commitment to
transparency and disclosure is critical to the
success of the initiative.
Marshalls’ annual COP can be found on the UNGC
website: www.unglobalcompact.org/participant/
6385-Marshalls-plc.
At the end of 2012 Marshalls Group Marketing
Director, Chris Harrop, became the Chairman of
the UNGC UK Network, further demonstrating
Marshalls’ commitment to the UNGC and its CR
journey.
Business in the Community
and
Marshalls’ continued membership of BITC both
the Group’s
demonstrates
commitment to responsible business practice and
engagement with employees, customers and the
communities in which it operates.
enables
Marshalls plc Annual Report 2012
31
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 32
Corporate Responsibility (continued)
Marshalls has attained ‘Gold’ status in the 2012
results ranked against this assessment.
Details can be found via the BITC website:
www.bitc.org.uk/our-services/benchmarking-
recognition/cr-index.
Superbrand
Building upon its rating for 2012, Marshalls once again
achieved Business to Business Superbrand status for
2013. This accolade follows a robust research process
administered independently by The Centre for Brand
Analysis which analyses the views of a council of
experts and 2,000 UK business professionals.
The BITC CR Index is a robust tool to help
companies systematically measure, manage and
integrate responsible business practice, under
which companies are assessed using the
following framework:
•
Corporate Strategy looks at the main CR risks
and opportunities to the business and how
these are being identified and then addressed
through strategy, policies and responsibilities
held at a senior level in the Company;
Integration is about how companies
organise, manage and embed CR into their
through KPIs, performance
operations
management,
stakeholder
engagement and reporting;
• Management builds on the
effective
•
of
Integration
looking at how companies are
section
managing their risks and opportunities in the
areas
Environment,
Community,
Marketplace and Workplace; and
Performance and Impact asks companies to
report performance in a range of social and
environmental impacts areas. Participants
complete three environmental and three social
areas based on the relevance to their business.
•
The Marshalls Brand Manifesto
We are all influenced by our environments and the better our environment the better we can be.
Marshalls believe that we all need places that make us feel safer, happier and more sociable. Places to be
ourselves, where we can live, play, create and grow. That belief drives us to be the best we can be. To design and
produce new products which are better than anything else available. To make them from the best materials we
can source and to care about the impact that our Company and its products have on our society.
Above all, our belief fuels the passion on which Marshalls is built.
To architects, town planners, civil engineers, builders merchants, paving installers and home owners, we pledge a
passion to bring to life all that you can imagine. A passion that will enable you to breathe new life into those
corners of the landscape where potential lies unfulfilled and unchallenged.
Our passion pervades everything we do. We use our expertise to create integrated landscapes which promote
wellbeing to the benefit of everyone. So, whether it’s through fairly traded stone, providing products which
alleviate flood risks, enabling our business partners to share in our success or creating innovative street furniture
that protects us from attack we proudly strive to make our world a better place. One stone, patio, pavement, town
square or car park at a time.
Marshalls, Creating Better Landscapes
32
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 33
Corporate Responsibility (continued)
The Market Place
The Group recognises the importance of building
and maintaining positive relationships with its
is
customers, suppliers and contractors and
continuous
to a process of
committed
improvement in meeting customers’ requirements.
Building upon the previous Certificate of
Approval, Responsible Sourcing of Building
Products in compliance with the requirements
identified in BES 6001 – Framework Standard for
the Responsible Sourcing of Construction
Products - Marshalls maintained its ‘Very Good’
performance rating in 2012.
The Group’s established customer service
improvement programme again resulted
in
significant and sustained
in
improvement
customer order delivery, on time, in full and with
and
increasingly
administration.
the
Performance
Customer Service KPI is reported monthly to
management and the Board and is a component
of senior management’s performance-related
incentive scheme.
product
against
error
free
The Group Purchasing Policy sets out the
standards and ethics for dealings with suppliers.
It seeks to ensure that there is no bias or conflict of
interest and that all suppliers are treated fairly. The
policy is regularly reviewed and updated in the
light of changes to regulation and best practice.
The Group negotiates terms and conditions,
including payment terms, with all its principal
suppliers. Save in the case of a dispute, payments
are made in accordance with such negotiated
arrangements. The Group values and derives
considerable competitive advantage from active
co-operation with its established suppliers in
terms of innovation and product development.
Ethical Responsibilities
The Group remains wholly committed to ethical
business practice. It is an active signatory to the
UNGC and member of the ETI with Marshalls’
Group Marketing Director, Chris Harrop, holding
the post of ETI board member.
Within the ETI framework Marshalls continues to
implement the ETI Base Code throughout its
supply chains with particular focus on natural
stone paving from India, China and Vietnam.
Marshalls’ Head of Sustainability, David Morrell,
chairs the ETI stone group.
Stonemarket, Opera Black
Marshalls plc Annual Report 2012
33
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Corporate Responsibility (continued)
The ETI Base Code can be found on the ETI
website; www.ethicaltrade.org.
Marshalls continues to provide annual progress
reports to the ETI, building upon a range of
capacity building and supplier compliance
auditing.
further progress
its
The Group made
programme of Human Rights Impact Assessments
("HRIA") in India, China, Vietnam and the UK,
building upon its ‘Human Rights Policy’.
in
introduced during 2012
In line with the Group’s Anti-Bribery Code, specific
training was
for
employees, particularly in sensitive positions, to
reinforce the principle of zero tolerance of
corruption in business, and there are monthly
reporting mechanisms to ensure that the policies
and procedures in relation to the prevention of
bribery and corruption are being adhered to. This is
a key element of Group’s systems and procedures
to ensure that the Group remains fully compliant
with the legal and regulatory requirements.
The Group’s ethical standards are fast becoming
synonymous with its brands. The Group’s ability to
compete in both the Domestic and Public Sector
and Commercial end markets are strengthened by
its ethical stance.
The Environment
is committed
Marshalls
to assessing and
managing the environmental impacts of all its
operations. Further details are set out in the
Environmental Report on pages 40 to 47.
The Community
By aligning the Group’s community activities with
appropriate BITC programmes
the Group
continues to be actively involved in programmes
which promote good community relations, such
as encouraging and empowering employees to
engage in volunteering and community projects
as a way of positively interacting with the
communities in which it operates. This work spans
all Marshalls Group sites and operations in the UK.
34
Marshalls plc Annual Report 2012
Escofet Benches, Olympic Athletes Village
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 35
Corporate Responsibility (continued)
During the year the Group made charitable
donations of £44,362 (2011: £58,034). Marshalls’
Charity of the Year for 2012 was ‘Together for
Short Lives’, the leading UK charity for all
children with life-threatening and life-limiting
conditions and all those who support, love and
care for them. Further details can be found at
www.togetherforshortlives.org.uk.
Employees
The people within Marshalls are key to the success
of the organisation. Marshalls’ employees are
encouraged and expected to adhere to the
Group’s Statement of Values and Principles. The
statement
includes guidance on business
practice, employee relations and equality of
opportunity and is subject to regular review to
ensure that
it continues to set stretching
standards in terms of trust, honesty and integrity,
leadership, ownership and excellence. There is
also a published process (the “Serious Concerns
Policy”) through which employees can raise, in
confidence, serious concerns about possible
improprieties.
Marshalls recognises and appreciates diversity
within its workforce and the wider community
and is committed to promoting and maintaining a
working environment based on mutual respect,
where individual talent is recognised and valued
and to providing training designed to raise levels
of awareness and sensitivity to matters of equality
and dignity at work. Marshalls’ aim
is to
implement fair and merit-based employment
policies and to adhere to relevant legislation as
the minimum acceptable standard. This includes
compliance with the provisions of the Equality Act
2010, which harmonises and strengthens
previous discrimination-based
legislation to
provide a simpler and more consistent framework
for the effective prevention of discrimination
against individuals with protected characteristics.
In particular, the Group welcomes and gives full
and fair consideration to applications from
individuals with recognised disabilities and will
ensure they are provided with equal opportunity
for employment and career development.
Wherever reasonably practicable, training is
offered, and adjustments are made, to ensure that
disabled employees or those who become
disabled, are not disadvantaged in the workplace.
Marshalls continues to expand its framework of
engagement initiatives, introduced to enhance
the Group’s ability to respond to the needs and
aspirations of its employees and to improve
overall business performance. The importance of
the engagement agenda has been reinforced with
the appointment in 2012 of a dedicated resource
within the HR team, focusing specifically on co-
framing our engagement
ordinating and
activities,
local
management teams and employee focus groups.
interaction with
through
The financial results of the Group and reports on
the Company’s performance and overall direction
are communicated to employees through an
internal intranet, via site notice boards and
through bi-annual face to face briefings between
senior management and various employee
groups. There is also an employee share purchase
plan that facilitates the purchase by employees of
Company shares, through monthly contributions
from salary.
The Marshalls’
‘Options’ platform serves to
underpin employee engagement activities,
through the offer of a wide range of employee-
focused benefits; amongst others, a Childcare
Voucher Scheme and a Cycle to Work Scheme for
employees. Both have been welcomed
enthusiastically by participating employees as
well as providing access to a range of discounted
‘lifestyle’ benefits. These are reviewed on a regular
basis against current developments in employee
benefit structures and underline the importance
of employee well-being as an organisational
agenda item.
Notable progress has been made during 2012 in
establishing a consistent, credible Development
Review process, which provides an opportunity
for all employees within the Group for a one-to-
one discussion with their manager, covering work
objectives, performance, personal development
Marshalls plc Annual Report 2012
35
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 36
Corporate Responsibility (continued)
and career aspirations. This was successfully
supported during the year by a facilitated
programme of training and awareness-building,
designed to focus on the importance and quality
of these conversations and open dialogues
between employees.
important feature during the significant reduction
in employment costs during the remainder of
2012. Collective pay negotiations for 2013, and
potentially beyond, are currently progressing with
recognised trades unions under the Group’s Joint
National Forum negotiating framework.
During the last quarter of 2012, the Group again
participated in the Best Companies Workplace
Engagement Survey, with a notable increase in the
overall level of participation amongst employees.
This further commitment to the engagement
agenda continues to help us benchmark the
Group’s activities against other similar sized
companies focused on organisational excellence
and to access and adopt examples of best practice
wherever appropriate. The feedback from the Best
Companies Survey is key to increasing our
understanding of the impact of our employee
engagement activities and determining how they
can be progressed and embedded further across
the Group. Significant effort is being made to
ensure that results are fed back to all areas of the
local business units are
business and that
encouraged and supported in putting together
tailored and relevant action plans.
The emphasis on greater engagement with
employees is further supported by the continued
involvement of employee ‘Ambassadors’ from
across the business, each providing a touch point
for the communication and interchange of views
and ideas on a wide range of business issues. The
Group has also continued its work on identifying
and articulating its organisational competencies,
which continue to provide a valuable source of
sustainable competitive advantage in a very
demanding trading environment.
During the first quarter of 2012, significant
progress was made in harmonising historically
different terms and conditions of employment
and working practices across a number of sites,
resulting directly from a highly consultative and
collaborative interaction with recognised trades
unions and our broader employee base. This close
co-operation and dialogue with employees and
their representatives was a constant and
36
Marshalls plc Annual Report 2012
Broader training and personal development has
continued across the Group, with initiatives in
place designed to identify and nurture potential,
reinforce the application of consistently good
management practices and provide opportunities
for succession wherever possible. This will be
further enhanced during 2013 with the addition
of on-line toolkits and self-help programmes,
designed to highlight and encourage managerial
best practice and personal self-insight. The
Group’s ‘Dignity at Work’ programme, designed to
raise awareness of the dangers of bullying and
harassment in the workplace is proactively
communicated and universally well-received
across Group sites. This
joint collaboration
between the Company, recognised trades unions
and ACAS will continue into 2013. There is a
continuous programme across Group sites to
support the development of Marshalls’ employees
through NVQ accreditation and there has been a
notable silver Investors In People accreditation
during 2012 at one of the Group’s major
manufacturing sites.
Natural Slate Paving, Midnight Blue
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 37
Corporate Responsibility (continued)
Following the further integration of the Group’s
European and Chinese business interests, the
Belgian-based manufacturing operations are
benefitting from the earlier recruitment of
dedicated country–specific sales resource, to
facilitate further sales growth in Europe.
Health and Safety
are
and managers,
The improvement of both the Health and Safety
Management System and annual Health and
Safety Performance remain key priorities for the
business. The Safety, Health and
Incident
Prevention ("SHIP") teams, consisting of employee
representatives
the
cornerstone of the safety management system at
level, and have continued to operate
site
throughout the year. Over recent years, the
Group’s operating sites have progressively
implemented
Management
Integrated
Registration systems accredited by the British
Standards
incorporating
accreditation to OHSAS (“Occupational Health
and Safety Accreditation Standard”) 18001:2007.
At the end of 2012 the Group held a total of 53 BS
OHSAS (18001:2007) registrations, an increase of
Institution
(“BSI”)
13 over the prior year; this equates to a
production tonnage manufactured under a
registered safety management system of 97 per
cent. Only 3 operational sites are awaiting
registration, of which 2 are scheduled for
registration in 2013, whilst the 3rd is dependent
upon changes to existing planning consent.
Training throughout the year continued to focus
on
the development of managers and
supervisors to manage proactively health and
safety in the workplace. A further 26 managers
attended the four day IOSH Managing Safely
course, whilst 20 supervisors attended the three
day IOSH Safe to Supervise course. In addition a
further 153 managers and supervisors attended
appropriate refresher training courses. There has
also been significant progress made in aligning
with the Mineral Products Association’s ("MPA")
Policy of having a demonstrable competency
programme in place for the quarrying sector. All
employees appointed in a supervisory capacity in
our quarry operations have achieved at least a
Level 3 SHE NVQ, whilst 92 per cent of those
appointed in a capacity of direct responsibility
Stonemarket Vintage Stone
Marshalls plc Annual Report 2012
37
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:10 Page 38
Corporate Responsibility (continued)
have achieved at least a level 4 SHE NVQ and 85
per cent of quarry operatives have achieved a
Level 2 qualification in their respective roles. The
Group is now engaged in identifying a suitable
accredited training qualification for employees
within our pre-cast concrete operations.
The Group’s principles regarding the health and
safety of employees, and their application
throughout the business, are set out in the
Group’s written Health and Safety Policy, which is
reviewed at least annually by the Board. David
Sarti is the Director with primary board-level
responsibility for health and safety performance.
The Group’s health and safety performance is
monitored by the Board on a monthly basis using
a number of KPIs. These measure the number and
type of workplace accidents.
Accident frequency and severity rates
(per 100,000 hrs worked)
All accidents
2008
9.74
2009
10.43
2010
9.49
2011
8.32
2012
6.95
All lost time accidents
1.69
2.16
1.60
1.55
1.40
All RIDDOR’s
0.98
1.11
0.94
0.81
0.61
All days lost
27.14
25.18
14.76
20.44
15.42
Average UK headcount
2,774
2,464
2,391
2,456
2,252
in days
Whilst the primary target for 2012 was a 10 per
cent reduction
lost resulting from
reduction
workplace accidents, the actual
achieved was 24.6 per cent. The all accident
frequency rate recorded in 2012 was 16.4 per cent
lower than in 2011, and the number of lost time
accidents (“LTAs”) recorded was 9.7 per cent lower
during the same period (Table above and Graphs
1 and 2 respectively).
All Accidents per 100,000 hrs
Graph 1
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2006
2007
2008
2009
2010
2011
2012
Accident Frequency Rate
Graph 2
Lost Time Accidents per 100,000 hrs
2.50
2.00
1.50
1.00
0.50
0.00
2006
2007
2008
2009
2010
2011
2012
Lost Time Accident Severity rate
The rate of accidents reportable to the HSE under
the Reporting of Injuries, Diseases and Dangerous
Occurrence Regulations ("RIDDOR") also fell in
2012 by 24.7 per cent (Graph 3). Whilst the
changes made to the reporting criteria within
RIDDOR will have assisted in this reduction, it
should be noted that there has been an overall
reduction in the severity of LTA’s as depicted in the
declining severity rate (Graph 4).
Graph 3
Reportable Accidents per 100,000 hrs
2.50
2.00
1.50
1.00
0.50
0.00
2000
2001
2002
2003
2004
2005
2006
2007 2008 2009 2010 2011 2012
Reportable incidents per 100,000 hrs
38
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 39
Corporate Responsibility (continued)
Average Days Lost per LTA
Graph 4
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2006
2007
2008
2009
2010
2011
2012
Reportable incidents per 100,000 hrs
The Group’s health and safety performance for
2012 has been encouraging with positive
improvements in all of the major KPIs. However,
increasing the rate of improvement in LTA’s
remains a priority. In 2013 the Group will embark
on a behavioural safety programme which will
help better define and improve the safety culture
of the business. The initial step will be to introduce
the widely adopted concept of ‘visible felt
leadership’ during 2013.
The Group continues to strive to improve the
quality and safety of the working environment for
employees. Marshalls remains committed to
meeting the highest safety standards for all its
employees, to reinforce and develop its safety
processes, and to develop a competent workforce
with a view to achieving long term improvement
gains. Once again, the primary target for 2013 will
be a 10 per cent reduction in days lost resulting
from workplace accidents.
Fairstone Sawn Sandstone, Multi
Marshalls plc Annual Report 2012
39
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Environmental Report
“Marshalls clearly understands the value to be derived from managing the business with
due regard for the environment. Notwithstanding the need to comply with relevant
legislation, there are benefits to be gained from reducing the use of scarce and costly
resources; maintaining good relations with the communities within which we operate and,
increasingly, meeting our customers’ needs for environmentally sensitive solutions.“
Overall we consider that we have made good
progress in reducing the intensity of the Group’s
environmental impact across a broad front.
Virtually all measures
show year-on-year
improvements and indicate progress both in the
short term and towards the very long term
objectives set in accordance with UK Government
and European targets.
A full review of the suite of environmental
measures and targets has been conducted in
2012, with the next review now scheduled for
2015. The long term nature of environmental
management
to
roll
progressively over a number of years and short
term changes of direction would be inappropriate
in any case.
targets which
leads
in
It was intended to review and incorporate
measures
2012.
for Marshalls NV
Reprioritisation of resource during the year in
response to general market conditions and other
challenges resulted in this aspect of the plan
being deferred. Data for Marshalls NV, which we
would not expect to be material in the context of
the Group as a whole, will be incorporated as soon
as suitable resource can be allocated to the task.
There is a change to the basis of the emissions
declaration in this year’s report. We have adopted
CO2e as the unit of measure, in readiness for that
becoming mandatory for FTSE listed companies.
The change from CO2 to CO2e is just a conversion as
other greenhouse gas (“GHG”) emissions from
Marshalls’ activities are insignificant and non-
material.
Board Responsibility
The Group’s Chief Operating Officer, David Sarti, is
the Director responsible for the environmental
the Group. The Group’s
performance of
Environmental Policy is approved by the Board
and is reviewed at least annually. The full text of
40
Marshalls plc Annual Report 2012
the Policy can be found on the Group’s website
www.marshalls.co.uk/sustainability.
Environmental Policy - Key Features
Target – To operate within the relevant legal
frameworks and comply with appropriate
legislation.
•
•
of
standards
The Group has a commitment to achieving the
highest
environmental
performance, preventing pollution and
minimising the impact of its operations.
• All operations should meet or exceed the
requirements of legislation and applicable
best practice. Where no legislation exists, best
practice will remain an integral part of
Marshalls’ business strategy.
The Group is committed to considering the
environmental impacts associated with its
products throughout their life cycle.
Policy
is supported by monitoring and
measuring environmental performance using
appropriate external guidelines wherever
practicable. Operating sites have assessed the
environmental aspects of their activities, and
objectives and targets aimed at improving the
overall environmental
those
activities have been set. These are reviewed
on at least an annual basis.
impact of
•
• Marshalls will continue to raise environmental
awareness within the Group through the
development and training of its employees
and will communicate openly and consult
with
suppliers and other
stakeholders on relevant environmental
matters.
customers,
• Marshalls strives to protect and enhance
biodiversity and natural habitats within its
landholdings where possible. The Group also
sympathetic
recognises
restoration and after-use of quarry and other
operational sites.
the need
for
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 41
Environmental Report (continued)
• Marshalls considers the character of the local
environment and the concerns of the local
community and other stakeholders in relation
to its activities.
Environmental Management
Target – 90 per cent of Group production
manufactured at sites operating an integrated
in accordance with
management system
Publicly Available Specification 99:2006 (“PAS
99”) by 2012.
Marshalls exceeded its target, as during the year
46 (2011: 32) sites were operated to the PAS 99
specification, representing 97 per cent of the
Group’s manufacturing output. The Group’s new
target is to maintain the 90 per cent measure until
2020.
By the end of 2012 the Group had 54 operational*
sites (2011: 54). Of these sites:
•
51 (2011: 46) had BS EN ISO 9001:2008 Quality
Management Systems in place representing
98 per cent of the Group’s manufacturing
output;
48 (2011: 39) had BS EN ISO 14001:2004 for
Environmental Management Systems in place
representing 97 per cent of the Group’s
manufacturing output; and
50 (2011: 40) had BS OHSAS 18001:2007 for
Health and Safety Management Systems in
place representing 98 per cent of the Group’s
manufacturing output.
•
•
In addition to these, the Group also had PAS 99-
compliant management systems in place at its
Group Laboratory and Marketing Support
Department.
* Operational is defined as a site in the UK with production
output.
Environmental Impact
The business redefined its Key Performance
Indicators in 2012 to increase the accuracy and
measurability of its environmental initiatives
while improving performance. These are referred
in the relevant section of this Report.
to
Explanatory notes have been included with the
charts.
Marshalls is a signatory to the Sustainable
Concrete Forum which published a new road
in
map, with time-bound targets to 2020,
February 2012. The Group reviewed its own
targets in line with its commitment as a signatory.
Carbon
Target – to reduce our absolute CO2e
consumption in line with UK Government
targets (34 per cent by 2020 and 80 per cent by
2050 from a 1990 baseline).
Marshalls’ Energy and Climate Change Policy
approved by the Board during the year confirms
the Group’s commitment to reducing the Energy
and Carbon impact of its business activities. The
current reduction is in line with the 2020 and 2050
targets.
Carbon
Government’s
The Group complied with its legal obligation in
Reduction
the
Commitment Energy Efficiency Scheme (“CRC”)
by submitting both its Footprint and Annual
Reports together with surrendered Carbon
allowances for the period April 2011 to March
2012 within the time limits imposed by the
legislation. The Group currently has the Carbon
Trust Standard, which certifies its continued
carbon reduction and forward commitment to
reduce emissions. It is likely that the Group will
recertify in 2013, subject to changes in the CRC
and mandatory GHG reporting.
The business energy and carbon KPIs are aligned
to CRC through the measurement of energy at
both absolute and relative intensity levels and the
Marshalls plc Annual Report 2012
41
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 42
Environmental Report (continued)
business remains committed to reducing energy
use on both these measures. The Group has
previously reported CO2 emissions from its energy
use which represents the vast majority of its GHG
emissions. From this year the Group will report
total direct GHG emissions using the GHG
Protocol and the latest available emission factors
from Defra as this is considered best practice and
inline with the proposed mandatory carbon
reporting which
is anticipated will be a
requirement from October 2013.
The Group continues to recognise that renewable
energy will be required to achieve the absolute
reduction target. Options to develop the use of
wind, photovoltaic, anaerobic digestion and
biomass continue to be developed. Such options
will be progressed if found to be economically
viable.
During 2012 the business commenced a trial to
report automatically on the dispensing of liquid
fuels, the findings of which are to be assessed in
the first half of 2013.
The chart below illustrates the Group’s absolute
CO2 emissions in tonnes, excluding transport
activities, between 2008 and 2012.
Absolute CO2 e emissions from operations
excluding transport (k tonnes CO2 e)
55.1
52.1
46.6
43.0
43.6 44.1
40.8
44.0
38.9
e
2
O
C
-
k
s
e
n
n
o
T
2009
2008
2012
2010
Defra CO2 emission factors (previous reported figures)
2011
Defra current GHG emission factors
This chart illustrates previously reported figures
and the total direct GHG emissions as a
comparison. The Group will continue to use the
latest published figures from Defra as they
become available.
42
Marshalls plc Annual Report 2012
The Group’s GHG emissions for 2012 have
dropped by over 5,000 tonnes from its reported
emissions in 2011, representing an 11.8 per cent
fall. The net reduction in absolute emissions is the
result of energy savings which are within the
control of the business and other factors, such as
product mix and weather, which are not.
All the Group’s operational sites and main
buildings have an energy plan with monthly
reporting which highlights each site’s progress
towards its GHG emission reduction. This has
resulted in the reduction of 639 tonnes of GHG
emissions during the year. In addition, the
completion of a project to improve the efficiency
of the business’s internal and external lighting is
estimated to save 1,050 tonnes of GHG emissions
per annum. During this project further potential
savings have been identified. Other projects
include the
introduction of reporting and
awareness schemes to improve management of
key production utilities such as compressed air.
The mix of products manufactured will impact on
the Group’s absolute carbon footprint. The Group
recognises that if production of low carbon
products increases its footprint will be reduced.
The Group acknowledges that the heating degree
days in 2012 increased over 2011 and therefore
the energy required by the business for comfort
and process heat increased during the year. A
number of best practice projects are being
considered in 2013 to improve the energy
efficiency of its heating systems.
The business
improving the
is continually
reliability of its energy data to enable better
forecasting and management of its energy and
carbon footprint. The business has a forecast of its
GHG emissions until 2020 and a measure of the
required investment to achieve its targets.
The Group has changed its reporting of relative
carbon intensity of production by using total
direct GHG emissions rather than CO2. This relative
intensity measure, excluding transport, has
decreased from 7.85 kg CO2e per tonne of
production to 7.63 kg CO2e per tonne of
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 43
Environmental Report (continued)
production. The reduction is a combination of
product mix, energy efficiency measures and the
decision to manage its reduction of base load
energy usage.
The chart below illustrates the Group’s CO2e
(measured as direct GHG from 2012) intensity
emissions as a proportion of production output,
excluding transport activities, between 2008 and
2012.
r
e
p
d
e
s
u
r
e
t
a
W
3
M
e
n
n
o
t
n
o
i
t
c
u
d
o
r
p
The chart below illustrates the Group’s water
performance between 2008 and 2012.
Mains & licensed water used per tonne
of production output
0.067
0.063
0.055
0.052
0.043
Relative CO2 e per production tonnage,
excluding transport (kg CO2 e per tonne)
11.2
10.3
10.4 10.6
9.8
9.2
7.9
7.3
7.6
f
o
e
n
n
o
T
r
e
p
e
2
O
C
G
K
t
u
p
t
u
o
n
o
i
t
c
u
d
o
r
p
2008
2010
Defra CO2 emission factors (previous reported figures)
2009
2011
2012
Defra current GHG emission factors
While the Group must report its carbon footprint
as part of CRC
legislation, which excludes
transport, it will continue to report voluntarily to
the “Carbon Disclosure Project”, which includes a
wider carbon management performance over
time and also provides an insight for shareholders
regarding the Group’s energy, carbon and climate
change impact management programme. The
Group reported 65,109 tonnes of CO2 for the year
2011 (2010: 66,037 tonnes). This data includes
scope 1 and 2 emissions as defined in the
Greenhouse Gas Protocol ("GHG Protocol"). The
proportion of the GHG emissions from transport
dropped to 32 per cent.
Water
Target – reduce use of water from mains and
licensed boreholes to 0.05m3 per tonne of
production by 2015.
The Group understands the future value of water.
The business has demonstrated a commitment to
water harvesting and recycling on numerous sites
and utilises quarry water where appropriate in its
operations.
2008 2009
2010 2011
2012
The reduction in water intensity has been helped
by Marshalls’ previous and continued investment
in water management projects, particularly water
harvesting which has continued to be developed
during 2012. The UK rainfall in 2012 was the
second wettest year on record at 1,330.7mm
(Y2000: 1,337.3mm) and 115 per cent of the 1981-
2010 average. Greater volumes of rainfall have a
positive impact on the Group’s reported figures as
the business prioritises the use of harvested
rainwater or quarry water before mains or
borehole water. During the year a rainwater
harvesting system was
introduced at the
business’s Sittingbourne site. Management, staff
awareness and product mix have also contributed
to the reduction in water intensity.
Woodhouse Bespoke Lights, Canary Wharf, London
Marshalls plc Annual Report 2012
43
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 44
Environmental Report (continued)
Transport
Target – to meet the challenge of reducing
emissions whilst striving to maintain and
improve upon customer service.
Fuel usage has a significant business impact.
Marshalls undertakes one-on-one “green” driver
training for its fleet drivers, which has the added
advantage of gaining a broader understanding of
the problems being faced by the drivers, allowing
management to address the issues. The fuel
efficiency of the Marshalls Large Goods Vehicle
fleet (“LGV”) improved by 0.1 mile per gallon
during 2012.
The Group is a member of the voluntary freight
transport led Logistic Carbon Reduction Scheme
(“LCRS”) which has a collective commitment to
reduce the carbon dioxide emissions by eight per
cent by 2015 (compared to 2010 levels). The
business drafted an internal Transport Policy
Statement during the year to provide focus on the
key metrics to improve vehicle efficiency. The
business also continues to investigate LGV speed
restriction and alternative fuel trials.
The Group uses rail for stock movement to reduce
carbon emissions and will continue to look at
different modes of
transport whenever
practicable.
in-house automated
The Group’s company car fleet has an average
emission of 130 carbon dioxide grams per
kilometre reduced from 140 in the last 18 months.
report using a
An
combination of total mileage travelled and the
achieved efficiency (miles per gallon) is being
developed with a view to providing each driver
with a ‘green’ driving score during 2013.
Waste Reduction
Target – to reduce by 3 per cent the total waste
to landfill per tonne of production output per
annum over a three year rolling average.
The Group has continued to measure the amount
of waste, including material for recycling, leaving
sites as a percentage of total production output.
The business aims to eliminate waste and where it
is generated it investigates the opportunity for
reuse or recycling within the business. The Group
is currently ahead of its target.
The chart below illustrates the Group’s off-site
waste performance between 2008 and 2012.
Waste taken off site as a percentage of
total production output
2.35%
2.18%
1.97%
1.65%
1.49%
)
s
e
n
n
o
t
(
e
t
i
s
f
f
o
n
e
k
a
t
e
t
s
a
W
t
u
p
t
u
o
n
o
i
t
c
u
d
o
r
p
f
o
%
s
a
2008 2009
2010
2011
2012
This chart does not differentiate between waste
leaving site for reuse / recycling and waste leaving
site for landfill. The absolute waste total for the
year has decreased by 11,465 tonnes (2011:
46,312 tonnes) to 123,482 tonnes. The introduction
of waste recovery as a trial and other efforts
around recycling has meant that the Group has
increased its recycling/recovery rate to 92.3 per
cent (2011: 91.8 per cent) and reduced its waste
sent to landfill to 7.7 per cent (2011:8.2 per cent).
The Group continues to improve the accuracy of
its data. Product mix is a factor in measuring waste
generation across the Group, with certain product
lines being associated with higher levels of waste
generation than others.
Packaging
Target - reduce by 2 per cent per annum, over a
3 year cycle, while ensuring that the pack and
product safety is not compromised.
The Group reports packaging used which aligns
with the duty to report under the Producer
Responsibility Obligations (Packaging Waste)
Regulations.
44
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 45
Environmental Report (continued)
The chart below illustrates the Group’s packaging
performance between 2008 and 2012.
Packaging bought/used as a percentage
of production output
0.27%
0.23%
0.21%
0.22%
0.22% 0.22%
0.22%
)
s
e
n
n
o
t
(
d
e
s
u
/
t
h
g
u
o
b
g
n
g
a
k
c
a
P
i
t
u
p
t
u
o
n
o
i
t
c
u
d
o
r
p
%
s
a
2008 2009
2010
Packaging bought
Packaging used
2011
2012
The Group used 10,461 tonnes of packaging in the
reporting year which was a reduction on previous
years and nearly one per cent more than the
reduction in production output. The intensity of
packaging used to production output remains at
0.22 per cent which is ahead of our target.
This measure is affected by product mix, so a
reduction can be achieved by selling a higher
volume of those products that have
less
packaging. The Group uses packaging only to the
extent appropriate, for example, to ensure safe
handling, storage and transport of its products
and to minimise damage to the product and
hence waste. In addition, packaging may be used
to provide health and safety information to
prospective users of the products and instructions
on installation. Packaging principally comprises
timber pallets and polythene.
The Group continues to concentrate on the
reduction of timber and plastic which represent
86 per cent and 12 per cent respectively of the
reported packaging tonnage.
The Group’s Timber and Paper policy continues to
support its commitment to obtain pallets from
FSC accredited suppliers where available. During
the year the Group has extended a trial of pallet
repatriation which has the potential to reduce its
timber impact. A limited trial on 3 pallet designs
at two sites reduced the number of new pallets by
approximately 2.5 per cent.
Work continues on the reduction of polythene
film thickness to deliver material savings, with an
estimated full year saving of 29 per cent at the
initial trial site. If successful, the benefit will be
rolled out to other Group operating sites.
Suppliers and Contractors
The Group has an effective Procurement Policy in
place. The policy provides a framework which all
employees engaged in procurement activities are
expected to operate. It contains a clear statement
with regard to Marshalls’ commitment to
responsible sourcing. The Group will continue to
Argent Walling and Water Feature
Marshalls plc Annual Report 2012
45
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 46
Environmental Report (continued)
work with our key suppliers to ensure they have
appropriate management systems to minimise
risk and environmental impacts in place. Where
significant risk is identified with a supplier, a
rigorous audit will be carried out.
Marshalls’ Anti-Bribery Code reinforces policies
and procedures already
is
suppliers and
communicated
contractors as well as within the organisation.
in place and
to external
Environmental Impact of Products
The Group maintains its policy of producing
products intended for a long life with low
maintenance. Marshalls is a world leader in terms
of the number of its products (over 2,000) having
a measured carbon footprint (using the Publicly
Available Specification 2050:2008, “Specification
for the assessment of the life cycle greenhouse
gas emissions of goods and services”), all of which
have been verified by the Carbon Trust. It is
expected that the data obtained through this
process will enable the business to focus on
energy savings throughout its supply chain. The
results are available online for our customers to
use in their selection of most suitable product for
their project.
During 2012 the Group completed its annual
audit for its Responsible Sourcing Certification to
the Building Research Establishment Standard
BES6001 for its concrete paving and walling
products. The products have been rated as “Very
Good.”
The Group’s products are considered to have low
environmental risk and in the majority of cases are
readily re-usable and recyclable at the end of their
life.
Sustainability
The Group has a sustainable business plan and
has set KPIs for the key areas of this plan. It
addresses economic, social and environmental
aspects of Marshalls’ operations underpinned by
development
systems
recognised by an independent third party (BSI).
of management
46
Marshalls plc Annual Report 2012
Biodiverse Permeable Paving
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 47
Environmental Report (continued)
Group. Operational employees received Toolbox
Talk training on a range of environmental topics
including waste, environmental permits and
biodiversity.
Biodiversity
Target – to have biodiversity action plans in
place at all appropriate sites by the end of
2012.
The Groups’ biodiversity strategy was written in
consultation with external stakeholders and it
documents a systematic approach to our legal,
protection and enhancement commitment to the
biodiversity on our sites. This strategy includes a
priority approach to defining appropriate sites
together with evaluation of the biodiversity
ecosystem services delivered. During the year, in
view of the operational changes within the
business, this target was adjusted to focus on
maintaining legal compliance.
Marshalls continues to maintain its accreditation
to the Wildlife Trusts’ Biodiversity Benchmark at
three sites.
Legal Compliance
There were no environmental prosecutions at any
of Marshalls’ operating sites during 2012.
Verification
the work undertaken,
This section of the Annual Report has been
audited by a qualified verifier on behalf of BSI. On
the
the basis of
Environmental Report is considered to be a fair
reflection of the environmental performance of
the organisation during 2012 and contains no
misleading information.
Marshalls plc Annual Report 2012
47
its website
The Group’s publishes targets, progress and data
on
at www.marshalls.co.uk/
sustainability to communicate its agenda on the
triple bottom line of environmental, social and
economic issues. The aim is to have a platform
which allows interested stakeholders access to the
latest information on our activities.
Marshalls is an active member of the British
Precast Concrete Federation Sustainability
Committee and a signatory of the Precast Sector
Sustainability Charter. The business is also a
signatory to, and an active member of, the
Sustainable Concrete Forum.
Land Management
During 2012 all development projects were either
located on brownfield land, within Marshalls’ sites,
or acquired on-going operations.
Environmental Awareness
and Training
The Group recognises the need to raise the
environmental awareness and competencies of its
employees and has targeted energy management
with a poster campaign aimed at improving the
energy culture across the Group.
The Contractor Handbook includes more detailed
environmental
information and has been
delivered to those working on behalf of the
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 48
Directors’ Report - Other Regulatory Information
incorporates
The Directors’ Report
the
management report for the purpose of the Listing
Rules (DTR 4.1.8R). Marshalls plc is registered with
company number 5100353.
Principal Activities and
Business Review
The principal activities of the Group are described
in the Business Review. The Business Review,
Corporate Responsibility and Environmental
Reports, Corporate Governance Statement and
Directors’ Remuneration Report are each a part of
the Directors’ Report. Those matters required to
be included in the Directors’ Report, including the
information and analysis required by Section 417
of the Companies Act 2006 to be included in a
Business Review, appear in those sections of the
Report. In particular:
Business Performance during 2012: A detailed
review of the principal activities of the Group is
contained in the Chairman’s Statement on pages 4
and 5 and the Business Review on pages 6 to 27.
Key Financial and other Performance
Indicators: The strategic KPIs used by the
business are set out on page 8. Performance
against these indicators is commented on in the
Chairman’s
Review,
Corporate Responsibility and Environmental
sections of this Report.
Statement,
Business
Principal Risks and Uncertainties: An indication
of the main risks and uncertainties faced by the
Group and its objectives and policies for the
management of financial and general risk,
including its use of, and policies in respect of,
financial instruments and its exposure to price,
credit, liquidity and cash flow risk, are set out in
the Business Review on pages 6 to 27. The process
for identifying significant risks and uncertainties
and managing risk is in accordance with the
Revised Guidance for Directors on the Combined
Code issued by the Financial Reporting Council in
October 2005.
Charitable and Political Donations: The
Corporate Responsibility Report on pages 30 to 39
48
Marshalls plc Annual Report 2012
gives details of the Group’s policy and information
on charitable donations. The Group has made no
donations during the year to any political party or
political organisation or to any independent
election candidate, whether in the European
Union or elsewhere (2011: nil).
Environment and Community:
Information
about environmental matters and the impact of
the Group’s business on the environment is given
in the Environmental Report on pages 40 to 47.
The Group’s approach to social and community
the Corporate
matters
Responsibility Report on pages 30 to 39.
is described
in
Employees: The Company’s policies in relation to
disabled employees and employee involvement
are explained in the Corporate Responsibility
Report on pages 30 to 39.
Corporate Governance: Details of the Group’s
policies in relation to Corporate Governance and
how they are applied are set out on pages 51 to 58.
Key Relationships: The Business Review on
pages 6 to 27 includes information about persons
with whom the Group has contractual or other
arrangements that are essential to the Group's
business.
Group Results and Group Events since 31
Income
December 2012: The Consolidated
Statement for the year ended 31 December 2012
is shown on page 90. Details of any important
Group events and developments since the
financial year end 31 December 2012 are included
in the Business Review on pages 6 to 27.
Dividends
The Board is recommending a final dividend of
3.50 pence (2011: 3.50 pence) per share which,
together with the interim dividend of 1.75 pence
(2011: 1.75 pence) per share, makes a combined
dividend of 5.25 pence (2011: 5.25 pence) per
share. Payment of the final dividend, if approved
at the Annual General Meeting, will be made on 5
July 2013 to shareholders registered at the close
of business on 7 June 2013.
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 49
Directors’ Report - Other Regulatory Information (continued)
The dividend paid in the year to 31 December
2012 and disclosed in the Consolidated Income
Statement is 5.25 pence (2011: 5.25 pence) per
share being the previous year's final dividend of
3.50 pence (2011: 3.50 pence) per share and the
interim dividend of 1.75 pence (2011: 1.75 pence)
per share in respect of the year ended 31
December 2011 and paid on 7 December 2012.
Share Capital and Authority to
Purchase Shares
The Company’s share capital at 1 January 2012
was 199,378,755 Ordinary Shares of 25 pence.
There has been no change between 31 December
2012 and 8 March 2013. Details of the share
capital are set out in Note 22 on pages 130 to 131.
The Company held 2,425,000 Treasury Shares on
31 December 2012, and made no sales or
purchases of Treasury Shares during the year or in
the period up to 8 March 2013. Save for the
Treasury Shares and some of the shares held by
the Marshalls plc Employee Benefit Trust (the
"EBT") as set out below, the Ordinary Shares of the
Company carry equal rights to dividends, voting
and return of capital on the winding up of the
Company, as set out in the Company’s Articles of
Association. There are no restrictions on the
transfer of securities in the Company and there
are no restrictions on any voting rights or
deadlines, other than those prescribed by law, nor
is the Company aware of any arrangement
between holders of its shares which may result in
restrictions on the transfer of securities or voting
rights, nor any arrangement whereby a
shareholder has waived or agreed to waive
dividends (other than the EBT).
The EBT holds shares in the Company on trust for
employees
(Investment Shares) and also
purchases shares from time to time to satisfy
awards granted to Directors and Senior Executives
(Matching Shares and Performance Shares) subject
to the achievement of performance targets under
the Marshalls plc Long Term Incentive Plan (the
“LTIP”). At 31 December 2012 the EBT held
1,446,563 ordinary shares in the Company (2011:
1,584,441 shares) of which 531,209 represented
Investment Shares beneficially owned by LTIP
participants, with the balance held in respect of
future Matching and Performance Share awards.
The decrease in holding since 2011 is accounted
for by transfers of Investment Shares to individuals
upon the lapse of corresponding Matching Shares
under the LTIP. Details of outstanding awards
under the LTIP are set out in Note 20 on pages 128
and 129. The EBT has waived its right to receive
dividends on shares that it holds beneficially in
respect of future awards. The Trustee of the EBT
exercises any voting rights on such shares in
accordance with the Directors’ recommendations.
UK based employees of the Group with more than
six months service may participate
in the
Marshalls plc Share Purchase Plan. Employees
purchase ordinary shares in the Company with
pre-tax salary. The shares are purchased in the
market and then held in Trust by Yorkshire
Building Society. Employees receive dividends on
these shares and may give voting instructions to
the Trustee.
At the Annual General Meeting in May 2012
shareholders gave authority to the Directors to
purchase up to 29,523,367 shares representing
approximately 14.99 per cent of the Company’s
issued share capital in the Company in the market
during the period expiring at the next Annual
General Meeting at a price to be determined within
certain limits. No ordinary shares in the Company
were purchased during the year or between 31
December 2012 and 8 March 2013 under this
authority, which will expire at the Annual General
Meeting in May 2013. The Directors will seek to
renew the authority at that meeting.
Contracts of Significance and
Related Parties
There were no contracts of significance between
any member of the Group and (a) any undertaking
in which a Director has a material interest, or (b) a
controlling shareholder (other than between
members of the Group). There have been no
related party transactions between any member
of the Group and a related party since the
publication of the last Annual Report.
Marshalls plc Annual Report 2012
49
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 50
Directors’ Report - Other Regulatory Information (continued)
Articles of Association
The Company’s Articles of Association give powers
to the Board to appoint Directors. Newly appointed
Directors are required to retire and submit
themselves for re-election by shareholders at the
first Annual General Meeting following their
appointment. Specific rules regarding the re-
election of the Directors are set out in the Corporate
Governance Statement on pages 51 to 58.
The Board of Directors may exercise all the powers
of the Company subject to the provisions of
relevant laws and the Company’s Memorandum
and Articles of Association. These include specific
provisions and
the
restrictions
Company’s power to borrow money. Powers
relating to the issuing and buying back of shares are
included in the Articles of Association and such
authorities are renewed by shareholders each year
at the Annual General Meeting.
regarding
The Articles of Association may be amended by
Special Resolution of the shareholders.
Directors
The names and biographical details of each of the
Directors who served during the year are set out
on pages 28 and 29. The rules on appointment,
retirement and removal of directors under the
Company’s Articles of Association, and the powers
of the Board, are set out in the Corporate
Governance Statement on pages 51 to 58. All
currently serving Directors will offer themselves
for election or re-election at the next Annual
General Meeting of the Company.
The information required by the Combined Code
in relation to Directors’ service contracts,
and
compensation,
performance
attendance
in the Corporate
is contained
Governance Statement on pages 51 to 58.
Board
Directors’ Indemnities
The Company has granted indemnities to each of its
Directors in respect of their performance of their
duties as a Director of any member of the Marshalls
group of companies. In addition, the Company has
granted indemnities to Graham Holden and David
Sarti in respect of, their participation in, and/or
membership of, the governing bodies of certain
third party trade representative organisations on
behalf of the Company. The indemnities are limited
to what is permitted by law and the Company’s
Articles of Association and copies are available for
inspection at the Registered Office of the Company.
There were no other such indemnities in force
during the year, and no payments were made under
the indemnities.
Directors’ Interests
Details of Directors’ remuneration, interests in the
share capital (or derivatives or other financial
instruments relating to those shares) of the
Company and of their share based payment
the Directors’
awards are contained
Remuneration Report on pages 59 to 84.
in
Value of Land and Buildings
In the opinion of the Directors, the market value of
the Group’s interests in land and buildings at 31
December 2012 remains in excess of the book
value.
Payments to Creditors
The Group follows the CBI’s Prompt Payment Code
and operates and abides by a clearly defined
payment policy which has been agreed with all major
suppliers. The Group’s creditor payment period at 31
December 2012 was 53 days (2011: 55 days).
Substantial Shareholdings
As at 8 March 2013, the Company had been
notified, in accordance with Rule 5 of the
Disclosure and Transparency Rules, of the
following disclosable interests of 3 per cent or
more in its voting rights.
As at
8 March
2013
%%
9.70
9.13
7.10
5.36
4.60
4.16
3.70
3.45
As at
31 December
2012
9.79
9.18
8.40
5.30
5.00
4.42
4.27
3.51
Majedie Asset Management
Aviva Investors
JO Hambro
Schroder Investment Management
M&G Investment Management
Standard Life
L&G Investment Management
AXA Investment Managers
50
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 51
Corporate Governance Statement
Chairman’s Introduction
Marshalls is committed to business integrity, high
ethical values and professionalism in all its
activities. As an essential part of this commitment,
the Board supports the highest standards in
corporate governance, which
it regards as
fundamental to the effective performance of the
business. The Board acknowledges that it is
for corporate
accountable to shareholders
governance matters, and seeks to promote
consistently high standards of governance
throughout the Group which are recognised and
understood by all.
This statement, which is part of the Directors’
Report, has been prepared in accordance with the
principles of the UK Corporate Governance Code
published in June 2010 (the “Code”) which the
Board fully supports. In addition, the Board is
mindful of the changes to the Code which will
apply to reporting periods after October 2012 and
is reviewing its procedures and policies in light of
the principles set out in this later edition of the
Code with a view to reporting compliance in 2013.
In this statement, we have sought to explain how
the Board has applied the principles of the Code,
in relation to the role and
in particular
effectiveness of the Board in Sections A and B. An
explanation of the Company’s approach to value
creation and strategy is contained in the Business
Review on pages 6 to 27.
Andrew Allner
Chairman
Statement of Compliance with
the Code
Throughout the year ended 31 December 2012
the Company has complied with the relevant
provisions of the Code in all material respects.
The paragraphs below, together with the Reports
of the Audit, Nomination and Remuneration
Committees on pages 59 to 87, describe how
these principles are applied within the Company.
Board Leadership and Effectiveness
Code Provision A.1: The Role of the Board
The Board comprises an independent Non-
Executive Chairman, three Executive Directors
and three Non-Executive Directors who are
equally responsible for the proper stewardship
and leadership of the Company. Biographical
details of the Directors are on pages 28 and 29.
There is a written Schedule of Matters Reserved
for the Board, which includes approval of the
Company’s risk management processes, and its
policies in relation to health and safety, social
and community matters, the environment and
ethical trading.
The Board reviews the monthly financial results
of the Group at each regular Board Meeting, with
reference to the detailed annual business plan
and budget. The Board also considers forward
trends and performance against other key
indicators. Executive Directors comment on
areas where performance departs from forecasts
and on contingency plans. The Board regularly
reviews and discusses medium and long-term
strategy, and meetings with members of senior
management are included within the Board
programme to update the Board on business
and strategic issues.
The Board has delegated specific responsibilities
to the Audit, Remuneration and Nomination
Committees. Other Board Committees are
established periodically for particular purposes.
For example, during the year, Board Committees
were established to approve dividend payments
and Preliminary and Half-yearly announcements.
The Group’s reporting structure below Board
level is designed so that all decisions are made
by the most appropriate people in a timely
manner. The Directors and senior management
are tasked with the delivery of targets approved
by the Board and for the implementation of
Group strategy and policy across the Group.
Management teams report to members of the
Marshalls plc Annual Report 2012
51
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 52
Corporate Governance Statement (continued)
Details of Board and principal Board Committee meetings in 2012, with Directors attending, are shown
below. Other meetings were held during the year for specific purposes, including reviewing strategy and
Board effectiveness, and in addition to these, all the Non-Executive Directors made visits to operational
sites.
Board
(8 meetings)
Audit
Committee
(4 meetings)
Remuneration
Committee
(4 meetings)
Nomination
Committee
(1 meeting)
Andrew Allner
Ian Burrell
Alan Coppin
Mark Edwards
Graham Holden
Tim Pile
David Sarti
84
8-
84
84
8-
84
8-
41
--
31
41
--
41
--
Senior Executive Committee. This committee
currently consists of seven senior managers,
including the three Executive Directors. Business
issues considered by the Senior Executive
Committee are reported by the Executive
Directors to the Board. These policies and
procedures collectively enable the Board to
make informed decisions on a range of key
issues including those relating to strategy and
risk management.
Eight full Board meetings are scheduled during
2013. There will be additional meetings of the
Board
in 2013 to review strategy, Board
performance and the Company’s longer term
objectives.
The Company maintains Directors’ and Officers’
Insurance in respect of legal action against the
Directors.
Conflicts of Interest
The Board has powers to authorise and has
adopted procedures for the authorisation of
existing situations and for considering (and
authorising where appropriate) new situations
which may give rise to a conflict of interest on the
part of any Director.
The procedures give guidance to Directors as to
what situations may be affected and of their
obligations to notify the Company, through the
Chairman of the Nomination Committee, of any
such situations. The Company maintains a Section
175 Conflicts Register showing those situations
which have been authorised and the relevant date
of such authorisation.
The Board has authorised a number of situations
advised to it by the Directors, all of which are the
holding of directorships or similar offices with
companies or organisations not connected with
the Company. The Board has not, in relation to any
of those situations, identified any actual conflict of
interest, and has authorised such situations in
accordance with its powers. These authorisations
are recorded in the Conflicts Register of the
Company maintained by the Secretary. The Board
has delegated general authority
the
Nomination Committee to carry out a review of
such authorisations no less than annually and to
make recommendations to the Board on
particular situations notified to it in future.
to
Code provision A.2: Division of
responsibilities
Code provisions A.3, A.4: Chairman and
Non-Executive Directors
The positions of Chairman and Chief Executive are
held by separate individuals with a clear division
of responsibilities. The Chairman leads the Board
and sets its agenda, ensuring that all Directors,
particularly the Non-Executive Directors, are able
to make an effective contribution. He ensures that
52
Marshalls plc Annual Report 2012
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Corporate Governance Statement (continued)
responsibility
there is a constructive relationship between the
Executive and the Non-Executive Directors. The
for all
Chief Executive has
operational matters which
the
implementation of the Group Strategy and
policies approved by the Board. The Board has
approved written Terms of Reference for the
Chairman and Chief Executive.
include
Each of the Chairman and the Non-Executive
Directors were independent on appointment, and
the Board considers each of the Non-Executive
Directors to be independent in character and
judgement in accordance with the principles set
out in Code Provision B.1.1.
The Board has appointed a Senior Independent
Non-Executive Director, Alan Coppin. He
is
available to shareholders if they have concerns
which are not resolved through the normal
channels of contact or where it would be
inappropriate to raise those concerns through
such channels. He is also available as a sounding
board for the Chairman and an intermediary for
other Non-Executive Directors. At least once a
year the Chairman holds a meeting with the Non-
Executive Directors without
the Executive
Directors being present. The Non-Executive
Directors also meet without the Chairman being
present, at
least annually, to appraise the
Chairman’s performance.
Directors have the right to ensure that any
concerns they raise about the running of the
Company or a proposed action is recorded in the
Board minutes. Further, on resignation, if a Non-
Executive Director did have any such concerns,
the Chairman would invite him to provide a
written statement for circulation to the Board.
Code Provisions B.1, B.2: Board
Composition, and Appointments to
the Board
The Board considers it is of sufficient size and has
an appropriate balance of skills and experience to
meet the needs of the business. The Board
appreciates that Board diversity is likely to
enhance its performance and this is a key factor
when seeking candidates for future Board
appointments. As stated above, the Board
considers each of the Non-Executive Directors to
be independent in character and judgement.
The Board has established the Nomination
Committee to
lead the process for Board
appointments and to make recommendations to
the Board. The Terms of Reference of the
Nomination Committee are available on the
Company’s website at www.marshalls.co.uk.
These Terms of Reference explain the role of the
Committee and the authority delegated to it by
the Board. The Company’s Articles of Association
contain powers of removal, appointment, election
and re-election of Directors. Under the Articles, at
least one-third of the Board must retire at each
Annual General Meeting and each Director must
retire by rotation every three years. The Company
has since 2011 adopted the policy that all
Directors should stand for re-election at each
Annual General Meeting. The Nomination
Committee Report on page 85 explains the
process for nominations and succession planning
in more detail. There were no new Board
appointments during the year.
Code Provision B.3: Commitment
The Company does not set an upper limit on the
number of other appointments that may be held
by Non-Executive Directors, although on
appointment Board members, in particular the
Chairman and the Non-Executive Directors,
disclose their other commitments and must agree
to allocate sufficient time to the Company to
discharge their duties effectively and ensure that
these other commitments do not affect their
contribution. The current Board commitments of
the Chairman are identified in the biographical
details on pages 28 and 29. The position is
reviewed regularly, and changes are notified to
the Company. The process for recording and
managing conflicts of interest is explained under
“Conflicts of Interest” above.
None of the full time Executive Directors holds a
Non-Executive Directorship
in a FTSE 100
company. Appointments to the boards of other
non-FTSE 100 companies are held by the
Executive Directors subject to the prior approval
of the Board.
Marshalls plc Annual Report 2012
53
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Corporate Governance Statement (continued)
Code Provisions B.4, B.5: Board
Development, and Information and
Support
The Chairman, supported by the Chief Executive
and the Company Secretary, ensures that new
Directors receive full, formal, and tailored
induction on joining the Board. Directors receive
training as part of the annual Board programme of
work, and are also expected to attend external
courses and seminars as appropriate to maintain
and develop their Board competencies. During
2012 the Board received in-depth briefings
relating to the business from the Group’s sales,
marketing, operational management and HR
teams, and from the Group’s Health and Safety
Manager. Other training needs are identified
through the Board evaluation process or through
individual reviews between the Directors and the
Chairman. Non-Executive Directors have also
availed themselves of opportunities to meet
shareholders during 2012, and would be available
to meet major shareholders if a meeting were
requested.
All Directors are supplied in a timely manner with
relevant documentation and financial information
to assist them in the discharge of their duties. This
includes information on the Group’s operational
and financial performance, on Health and Safety,
and on forward trends. Directors have access to
the advice and services of the Company Secretary
and are entitled to rely on the impartial and
independent nature of that advice and those
services. The Company Secretary is responsible for
ensuring that Board procedures are complied
with and, through the Chairman, advises the
Board on Corporate Governance matters. Both the
appointment and removal of the Company
Secretary are a matter for the Board as a whole.
The Board has an approved procedure for all
Directors to take independent professional advice
at the Company’s expense. Board Committees are
provided with sufficient resources to undertake
their duties, including the option to appoint
external advisers when they deem it appropriate.
54
Marshalls plc Annual Report 2012
Code Provision B.6: Evaluation
The Company carries out a full evaluation of Board
performance and that of its three principal
Committees annually. During 2012, this was
conducted using a detailed questionnaire and
one-to–one confidential discussions between
each of the Directors and the Company Secretary.
The questionnaire included questions about the
effectiveness of the Executive and the Non-
Executive Directors, and the performance of the
Board, referencing external guidance on Board
effectiveness published during 2011 by the FRC
and the ABI. The evaluation also asked Directors
other than the Chairman to evaluate the
performance of the Chairman, and the Senior
Independent Director separately reviewed the
Chairman’s performance with other Non-
Executive Directors.
the
formal Board
The results of the evaluation were reviewed by the
Chairman and the Company Secretary and
discussed by the Board. The key themes emerging
from this evaluation have been applied in
developing specific Board objectives for 2013,
including further work on strategic risk and
providing opportunities
for Non-Executive
Directors to participate in events and meetings
timetable. The
outside
evaluation also validated the results of the action
plan for 2012, which were believed to have
improved the effectiveness of the Board. The
Board considered whether to use an external
assessor for the evaluation in 2012 and concluded
that the evaluation process using
internal
resource,
the Company Secretary,
continues to be a very effective and robust
process and has demonstrably helped to improve
Board effectiveness since its inception. The Board
will keep this under review for future years.
led by
Code Principle B.7: Re-election of
Directors
The Company’s Articles of Association provide for
re-election of Directors at regular intervals. No
Director may serve more than three years without
retiring and being proposed for re-election. All the
current Directors stood for election or re-election
at the Annual General Meeting in May 2012, and it
is the intention that the full Board will retire and
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 55
Corporate Governance Statement (continued)
stand for re-election at the 2013 Annual General
Meeting. Biographical details of the Directors can
be found on pages 28 and 29. The processes for
appointment and evaluation of the Directors are
set out in the Nomination Committee Report on
page 85. The current terms of appointment of
Directors are set out on page 70.
Accountability and Audit
Code Provision C.1: Financial and
Business Reporting
In presenting the Annual and Half-yearly Financial
Statements the Directors seek to present a fair,
balanced and understandable assessment of the
Group’s position and prospects and to explain the
Company’s approach to preserving longer term
value and its strategic objectives. The Directors
in
have adopted the going concern basis
preparing
in
these Financial Statements
accordance with “Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies
2009” published by the Financial Reporting
Council in October 2009.
The respective responsibilities of the Directors’
and the Auditors in connection with the Financial
Statements are explained in the Statement of
Directors’ Responsibilities and the Auditor’s
Report on pages 57 to 58 and 88 to 89 respectively.
Code Provision C.2: Risk Management
and Internal Control
The Board acknowledges its responsibility for
determining the nature and extent of the
significant risks it is willing to take in achieving its
strategic objectives, and for the Group’s system of
internal control. Such a system is designed to
manage, rather than eliminate, the risk of failure
to achieve business objectives and can only
provide reasonable and not absolute assurance
against material misstatement or loss.
The Board is responsible for reviewing the
effectiveness of the system of ongoing control,
and for ensuring that it meets the necessary
standards. There is a bi-annual formal review of the
Group’s risk management system and the system
of internal control. The risk management system
and internal control system are also subject to a
regular rolling programme of review, the results of
which are periodically reported to the Board. The
Board has appointed a Risk Committee,
comprising the Executive Directors, which reports
directly to the Board. Its task is to identify, evaluate
and manage any material risks which might
threaten the Group’s business objectives. In
undertaking this work, it receives regular risk
reviews and an annual risk assessment report
carried out by the relevant senior managers. From
this information, the Risk Committee compiles a
Register which identifies the Group’s key risk areas,
the probability of these risks occurring and the
impact they would have, giving each risk a relative
weighting reflecting its potential impact on the
Group. Against each such risk, the controls that
exist to manage and, where possible, minimise or
eliminate those risks are listed. The Risk Register
helps to identify areas for action, and uses
programmes
independent audit
assessments that are designed to test the
effectiveness of the Group’s risk control systems.
Information in relation to the management of risks
and any changes to key risks or weighting is
regularly reported to the Board. The Risk Register is
reviewed by the Board and the Audit Committee at
least every six months and updated to reflect
changes in circumstances or priorities. To the
extent that any failings or weaknesses are
identified during the review process, appropriate
measures are taken to remedy these. During 2012,
work was undertaken to extend the systems
controls to the Group’s Belgian business and to its
purchasing operations in China.
including
In addition to the major risk review process, the
internal control
Group has an established
framework, the key features of which include
clearly defined reporting lines and authorisation
procedures and a comprehensive budget and
monthly reporting system. The internal control
framework governs
financial
reporting process of the business, with checks
and balances built into the system that are
designed to reduce the likelihood of material error
or fraud. The Report of the Audit Committee,
internal
the
Marshalls plc Annual Report 2012
55
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Corporate Governance Statement (continued)
which is incorporated by reference into this
Report, provides further information on the
internal control and risk management systems in
place in connection with financial reporting.
The Audit Committee has carried out an
assessment of the effectiveness of the Group’s risk
internal control system,
management and
its
covering all material controls
financial, operational and compliance controls
and risk management systems for the year to 31
December 2012.
including
Code Provision C.3: Audit Committee
and Auditors
regarding
Information relating to the Audit Committee
and how the Company has complied with
the Code Principles
financial
reporting and internal controls is set out in the
Report of the Audit Committee on pages 86
and 87. The Terms of Reference of the Audit
Committee are available on the Company’s
website at www.marshalls.co.uk.
Directors’ Remuneration
Code Provisions D.1 and D.2: Level and
make-up of Remuneration, and
procedure for developing policy and
fixing executive remuneration
packages
The Board has delegated to its Remuneration
Committee responsibility for ensuring compliance
with the Code’s requirements on remuneration.
The remuneration policies and procedures, and
details of Executive Directors’ remuneration are
set out in the Remuneration Report on pages 59
to 84. The Terms of Reference of the Remuneration
Committee were reviewed during the year and are
available on
the Company’s website at
www.marshalls.co.uk.
Relations with Shareholders
Code Provision E.1: Dialogue with
Shareholders
The Board is accountable to shareholders for the
Company’s continued success. The Board
accordingly places great emphasis on maintaining
good communications with shareholders. The
Chief Executive and Finance Director meet
regularly with major shareholders to discuss the
Group’s performance, strategic
issues and
shareholder investment objectives. The Company
periodically arranges site visits for investors.
During 2012, 51 such meetings were held, at
which at least 78 institutional shareholders were
represented. Reports of these meetings and any
shareholder communications during the year are
provided to the Board. The Board also regularly
receives copies of analysts’ and brokers’ briefings.
The Chairman
is available to meet major
shareholders on request to discuss governance
and strategy, and held a number of such meetings
during 2012. When appropriate, the Non-
Executive Directors attend meetings or site visits
with major shareholders. The Board will be
seeking further opportunities to increase contact
with shareholders during 2013. The Senior
Independent Director is also available to meet
shareholders separately if requested. There is a
regular reporting and announcement schedule to
ensure that matters of importance affecting the
Group are communicated to investors.
The Annual and Half-yearly Reports, together with
the Marshalls website, are substantial means of
communication with all shareholders during the
year.
Code Provision E.2: Constructive Use of
the Annual General Meeting
is
The Notice of Annual General Meeting
dispatched to shareholders, together with
explanatory notes or a circular on items of special
business, at least 20 working days before the
meeting. It is the Company’s practice to propose
separate resolutions on each substantially
separate issue including a resolution relating to
the Report and Accounts. As in previous years, the
Company intends to put all resolutions to an
electronic poll at
its 2013 Annual General
Meeting.
56
Marshalls plc Annual Report 2012
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Corporate Governance Statement (continued)
All Directors normally attend the meeting,
the Audit,
the Chairmen of
including
Remuneration and Nomination Committees, who
are available to answer questions. The Board
welcomes questions from shareholders who have
an opportunity to raise issues informally or
formally before or at the Annual General Meeting.
For each resolution the proxy appointment forms
provide shareholders with the option to direct
their proxy vote either for or against the
resolution or to withhold their vote. The proxy
form and any announcement of the results of a
vote will make it clear that a ‘vote withheld’ is not
a vote in law and will not be counted in the
calculation of the proportion of the votes for and
against the resolution.
All valid proxy appointments are properly
Information on the
recorded and counted.
number of shares represented by proxy, the proxy
votes for and against each resolution, and the
number of shares in respect of which the vote was
withheld for each resolution, together with the
voting result, are given at the meeting and made
available on the Company’s web site at
www.marshalls.co.uk.
Statement of Directors’
Responsibilities in respect of the
Annual Report and the Financial
Statements
The Directors are responsible for preparing the
Annual Report and the Group and Parent
Company Financial Statements in accordance
with applicable law and regulations.
to prepare
Company law requires the Directors to prepare
Group and Parent Company Financial Statements
for each financial year. Under that law they are
the Group Financial
required
Statements in accordance with IFRSs as adopted
by the European Union ("EU") and applicable law,
and they have elected to prepare the Parent
Company Financial Statements in accordance
with UK Accounting Standards and applicable law
(UK Generally Accepted Accounting Practice).
Under company law the Directors must not
approve the Financial Statements unless they are
satisfied that they give a true and fair view of the
state of affairs of the Group and Parent Company
and of their profit or loss for that period. In
preparing each of the Group and Parent Company
Financial Statements, the Directors are required to:
select suitable accounting policies and then
•
apply them consistently;
• make judgements and estimates that are
•
•
•
they have been prepared
reasonable and prudent;
for the Group Financial Statements, state
whether
in
accordance with IFRSs as adopted by the EU;
for the Parent Company Financial Statements,
state whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained
in the Parent Company Financial Statements;
and
prepare the Financial Statements on the going
concern basis unless it is inappropriate to
presume that the Group and the Parent
Company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient to
the Parent Company's
show and explain
transactions and disclose with
reasonable
accuracy, at any time, the financial position of the
Parent Company and enable them to ensure that
its Financial Statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and
other irregularities.
Under applicable
law and regulations, the
Directors are also responsible for preparing a
Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement each of
which complies with that
law and those
regulations.
Marshalls plc Annual Report 2012
57
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Corporate Governance Statement (continued)
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company's website.
Legislation in the UK governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors who held office at the date of
approval of this Directors' Report and whose names
and functions are listed on pages 28 and 29 confirm
that, to the best of each of their knowledge:
(a) the Group Financial Statements in this Annual
Report, which have been prepared
in
accordance with
International Financial
Reporting Standards ("IFRSs") as adopted by the
EU, IFRIC interpretation and those parts of the
Companies Act 2006 applicable to companies
reporting under IFRS, give a true and fair view
of the assets, liabilities, financial position and
loss of the Group taken as a whole; and
(b) the Parent Company’s Financial Statements in
this Annual Report, which have been prepared
in accordance with United Kingdom
Accounting Standards
(United Kingdom
GAAP) and applicable law give a true and fair
view of the assets, liabilities, financial position
and profit of the Parent Company; and
fair
includes a
(c) the Business Review contained in this Annual
the
review of
Report
development and performance of
the
business and the position of the Company and
the Group taken as a whole, together with a
risks and
description of
uncertainties that they face.
the principal
Disclosure of Information
to Auditors
The Directors who held office at the date of
approval of this Directors’ Report confirm that, so
far as they are each aware, there is no relevant
audit
information of which the Company’s
Auditors are unaware, and each Director has taken
all the steps that he ought to have taken as a
Director to make himself aware of any relevant
audit information and to establish that the
Company’s Auditors are aware of that information.
58
Marshalls plc Annual Report 2012
Cautionary Statement and
Directors’ Liability
This Annual Report 2012 has been prepared for,
and only for, the members of the Company, as a
body, and no other persons. Neither the Company
nor the Directors accept or assume any liability to
any person to whom this Annual Report is shown
or into whose hands it may come except to the
extent that such liability arises and may not be
excluded 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.
This Annual Report contains certain forward
looking statements with respect to the Group’s
financial condition, results, strategy, plans and
objectives. These statements are not forecasts or
guarantees of future performance and 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, implied or
forecast by these forward looking statements. All
forward looking statements in this Annual Report
are based on information known to the Group as
at the date of this Annual Report and the Group
has no obligation publicly to update or revise any
forward looking statements, whether as a result of
new information or future events. Nothing in this
Annual Report should be construed as a profit
forecast.
Annual General Meeting
The Notice convening the Annual General
Meeting to be held at Birkby Grange at 11.00am
on Wednesday 15 May 2013 together with
explanatory notes on the resolutions to be
proposed is contained in a circular to be sent to
shareholders with this Annual Report.
By Order of the Board
Cathy Baxandall
Group Company Secretary
8 March 2013
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:11 Page 59
Directors’ Remuneration Report
A Statement to Shareholders
from the Chairman of the
Remuneration Committee
Dear Shareholder
activities of
I am pleased to report to shareholders on the
aims, objectives
the
and
Remuneration Committee during 2012. A
resolution to approve this report will be proposed
at the Company’s Annual General Meeting on 15
May 2013.
Overview of 2012
During the year we have, as a Committee,
reviewed our remuneration policy as a whole, to
ensure it meets the need to attract, retain and
continue to motivate talented Executive Directors
while recognising wider shareholder interests. In
our work, we have also sought to reflect
developing best practice
the area of
remuneration, to recognise the importance of
alignment with the objectives of shareholders and
to encourage behaviours that will ensure the
sustainability and long term health of the
business and avoid inappropriate risk-taking. We
are conscious of the continuing debate around
remuneration and have taken it into account in
our deliberations.
in
2012 has been a challenging year for the business,
with an 8.8 per cent decline in construction
activity according to the Construction Products
Association, high rainfall affecting our markets
and low consumer confidence. The present team
of Executive Directors, which has served the
business since 2001, has responded decisively to
the challenge and taken action designed to
sustainable
business
position
improvement
economic
throughout
downturn. The outcome of this action is expected
to give a strong foundation to help Marshalls
maintain and develop its market-leading position
so that it is well placed to return to growth in the
future and deliver value to shareholders.
the
the
for
Key Committee decisions in the
year
The members of the Committee are identified on
pages 28 and 29. The Committee met four times
during 2012. In addition, to the four formal
meetings, there were additional meetings with
remuneration consultants during the year. The
Committee’s programme of work included:
•
•
•
the
reviewing
executive
policy
remuneration and the structure of executive
remuneration packages;
for
checking pay and benefit levels of Directors by
reference to (a) external independent reports,
(b) Marshalls’ pay policies for
its other
employees and (c) the wider economic and
social environment;
reviewing, and updating as appropriate, the
Company’s annual and long term executive
incentive schemes, and setting performance
targets for annual performance-related pay
under the Performance Incentive Plan (the
"PIP") and three year performance targets
under the Long Term Incentive Plan (the
“LTIP”);
• measuring performance against the targets
set, making awards under the PIP and the LTIP,
and agreeing principles for 2013; and
•
reviewing the Board expenses policy.
Marshalls plc Annual Report 2012
59
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Directors’ Remuneration Report (continued)
Meeting
Agenda items discussed
25.1.12
Review of Executive Directors' pension provision; 2011 PIP outcome and targets for
2012; current status of LTIP awards; review of Board expenses policy and expenses paid.
29.2.12
8.10.12
Conclusion of review and approval of 2011 awards under the PIP and LTIP; PIP and LTIP
target setting for 2012 and approval of 2012 PIP and LTIP awards; review of 2011
Remuneration Committee Report.
Review of remuneration framework policy, benchmarking report from external
advisers; initial consideration of proposals for 2013 salary and benefits for Executive
Directors and senior management; progress report on PIP and LTIP; review of
contractual termination obligations of Executive Directors.
12.12.12
Discussion of PIP performance and measurement criteria; report on pay and benefit
conditions elsewhere in the business; approval of salary and benefit proposals for 2013;
review of Chairman’s fee.
The Remuneration Committee has made the following decisions in relation to the Executive Directors’
remuneration for 2013 and the outcomes of the variable performance-related elements for 2012:
Element
Change
Rationale for Change (if any)
Salary
No change.
Benefits
Pension
No change.
No change.
No change in operation and types
of performance condition.
Marshalls plc
Performance
Incentive Plan
(the “PIP”)
No PIP payment for 2012 based
on EPS performance test.
It would be usual to consider an inflation-related
increase; however the Executive Directors have
voluntarily agreed not to seek any increase in basic
salary for 2013 as part of a wider salary and wage freeze.
The current benefits are considered to be appropriate.
The level of Company contribution is considered
appropriate; two out of the three Directors have elected
for Fixed Protection so receive salary supplement instead
of contributions to the Pension Scheme.
The Remuneration Committee feels that these types of
performance condition remain appropriate for the
Company for 2013 (see Policy section of the Report for
details).
Adjusted EPS declined between 2011 and 2012.
Maximum PIP payment for 2012
based on Cash performance test.
Exceptional performance in relation to achievement of
year end net debt reduction in 2012.
Reduction of maximum award as
percentage of salary from 250 per
cent to 200 per cent for 2013.
Scaling back of new awards reduces overall cash impact
of PIP without prejudicing the beneficial retention effect
of previously earned deferred element.
Overall remuneration of the Chief
Executive is to be reduced by 20 per
cent from 1 January 2013 by deduction
from anticipated PIP payments.
The Committee has agreed to this reduction proposed by
Graham Holden as part of the cost reduction initiatives
throughout the business.
Marshalls plc
LTIP
No change in operation and
types of performance condition.
- Performance
Share element
The Remuneration Committee feels that these types of
performance condition remain appropriate for the
Company for 2013 (see Policy section of the Report for
details).
60
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
PIP can only be achieved if the growth targets are
achieved in each year of the full holding period.
For 2013, the Committee has reduced the
maximum opportunity under the PIP to 200 per
cent of salary, from 250 per cent, because the
values accrued in individual PIP accounts in Years
1 and 2 are considered to fulfil adequately our
retention objective. The PIP targets for 2013 have
been set so there will only be a payment if there is
an improvement in underlying profit before tax or
net debt. The Committee continues to use the
Group’s LTIP to make Performance Share awards,
although no awards of either Performance Shares
or Matching Shares made in previous years have
vested.
I hope you
informative.
find this report helpful and
Alan Coppin
Chairman of the Remuneration Committee
Context to the Committee’s
decisions
Sales fell by around 7 per cent year on year,
reflecting weaker economic conditions and the
impact of poor weather through the key summer
sales period. Management responded promptly
and robustly to the business challenges of the
current economy, taking decisive action to cut
cost and conserve cash. This helped to maintain
net profitability and reduce net debt levels
significantly in 2012 despite the challenging
trading conditions. Earnings per share, before
operational
restructuring costs and asset
impairments, fell to 5.87 pence (2011: 6.30 pence)
and although this was within the target range set
at the beginning of the year (4.05 pence to 6.88
pence), after adjustment,
the Committee
determined that no element of bonus was
attributable to this measure. Net debt at the end
of the year, at £63.5 million, was at the lower
(better) end of the target range of £73.1 million
(nil) to £63.1 million (maximum) and, after
impact of the
reflect the
adjustment to
operational cost reductions, the target was
achieved in full. Overall, the variable element of
Executive Directors’ remuneration earned in 2012
was substantially less than in 2011.
The Remuneration Committee has discretion to make
adjustments to ensure that one - off transactions or
factors that are not under the control of
management have a neutral effect on the
measurement of target achievement for incentive
schemes.
The PIP was introduced in 2011 after shareholder
consultation. It requires a significant element of
annual variable pay to be deferred in shares.
Further detail is provided in this Report.
The PIP helps to meet the key objective of the
Committee of retention of our talented managers
at Board and senior level, while allowing a flexible
approach in the setting of targets on an annual
basis. The PIP has replaced both the previous
annual bonus scheme and the Matching Share
element of the Group’s LTIP. The full benefit of the
Marshalls plc Annual Report 2012
61
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Directors’ Remuneration Report (continued)
related
incentive
The Committee has, in the design and application
of the Company’s annual and long term variable
performance
schemes,
incorporated risk adjustment mechanisms to
encourage consistent and sustainable levels of
Company performance and to ensure, when
selecting performance conditions and the level of
challenge within those conditions, that they
support the long term future of the Company.
reviewing
In
its policy and determining
remuneration the Committee considers the wider
economic conditions and pay and reward
packages elsewhere in its sector and within the
business.
Policy Report
Introduction
This Report covers the reporting period from 1
January 2012 to 31 December 2012 and provides
details of the remuneration policy for the
Company. This Report has been prepared by the
Committee having regard to the proposed
regulations put forward by the UK Government
Department of Business, Innovation and Skills
(“BIS”). The Company has opted to include certain
of the BIS requirements in this 2012 Remuneration
Report on a transitional basis, while retaining
those features that remain compulsory for the
2012 financial year, with a view to adopting fully
the new requirements for its 2013 Remuneration
Report. An advisory resolution to approve this
Report will be proposed at the Company's Annual
General Meeting on 15 May 2013.
Remuneration Committee Policy
is
to
The Committee’s policy
target a
remuneration package that is at around median
for median performance and in the upper quartile
for exceptional performance.
In setting all
elements of remuneration the Committee is
independent consultants and
advised by
periodically uses data from external research into
the salaries and benefits paid by companies of a
comparable size and complexity to the Company.
The aim of the policy is to attract, retain and
continue to motivate talented Executive Directors
while aligning remuneration with shareholder
interests. This is achieved by balancing a basic
fixed package, which is periodically benchmarked
against the median of the comparator group, with
the opportunity to achieve upper quartile
remuneration from a combination of stretching
but achievable short and long term incentives.
The terms of reference for the Committee include
the responsibility for setting the policy on
incentive reward
in
particular those who could have a material impact
on the risk profile of the Group.
for senior employees,
62
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Directors’ Remuneration Report (continued)
Operation
Opportunity
Element
Base salary
Purpose and how
it supports
the strategy
Policy: Median
It is the intention of the
Remuneration
Committee to set base
salaries at the median
compared to
comparable companies.
Base salary recognises
the market value of the
Executive’s role, skill,
responsibilities,
performance and
experience.
The Committee wishes
to ensure that fixed
costs are minimised and
that an above median
level of total
remuneration is only
provided where the
performance elements
of the package are
earned.
The performance
elements are directly
linked to the
achievement of the
Company’s strategy
(see below).
An Executive Director’s basic salary
is considered by the Committee on
their appointment and then
reviewed periodically or when an
individual changes position or
responsibility.
When making a determination as
to the appropriate remuneration,
the Committee considers firstly
remuneration practices within the
Group as a whole and, where
considered relevant, conducts
objective research on companies
within the Company’s peers.
As is currently the case, the results
of the benchmarking will only be
one of many factors taken into
account by the Remuneration
Committee. Other factors include:
•
the individual performance
and experience of the
Executive Director;
pay and conditions for
employees across the Group;
the general performance of
the Company; and
the economic environment.
•
•
•
Changes
for 2013
(if any)
No change.
No increase
in Executive
Director
salaries for
2013.
Performance
measures and
period
There are no performance
conditions attached to
the payment of salary
although there are a
number of performance
based factors both at the
individual and Company
level that influence the
level of salaries provided
to Executive Directors
The Remuneration Committee policy in
relation to salary is:
•
up to median salary on appointment
depending on the experience and
background of the new Executive
Director;
on promotion up to the median salary
for the new role;
otherwise pay increases are set by
reference to inflation and other pay
rises generally for employees.
•
•
The salaries for the Executive
Directors are:
Role
Chief Executive
(Graham Holden)
Finance Director
(Ian Burrell)
Chief Operating Officer
(David Sarti)
Salary 2012
£
412,000
236,900
236,900
The Committee is satisfied that the salaries
accord with its policy whilst remaining
competitive against similar roles within the
relevant peer group.
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Directors’ Remuneration Report (continued)
Element
Purpose and how it
supports the strategy
Operation
Opportunity
Performance
measures and
period
Changes
for 2013 (if
any)
None.
No change.
Non-Executive Directors have
specific terms of engagement
provided in formal letters of
appointment and their
remuneration is determined by the
Board within the limits set by the
Articles of Association and based
on equivalent roles in the same
comparators as are used for the
Executive Directors. The fees for
Non-Executive Directors are
considered periodically. Non-
Executive Directors are usually
appointed for a three year term,
subject to annual re-election by
the Shareholders at the Company’s
Annual General Meeting.
The Company’s policy in relation to
fees is:
•
up to median level fees on appointment
depending on the experience and background of
the new Non-Executive Director; and
any increase will be set by reference to inflation
and other pay rises generally.
•
The Non-Executive Director fees are made up of:
•
basic fee of £40,170 per annum; and
•
Chairman of Board Committee fee of £6,180 per
annum.
The Chairman’s fee is £128,750 per annum
The following table shows the Fees paid to Non-
Executive Directors in 2012:
Non-Executive Directors do not
receive any bonus, do not
participate in awards under the
Company’s incentive plans, and are
not eligible to join the Company’s
pension scheme.
Name
Andrew Allner
Alan Coppin
Mark Edwards
Tim Pile
£
128,750
46,350
46,350
40,170
Non-Executive Directors also
receive a fixed annual payment to
cover expenses incurred in the
performance of their duties. For
2012 this was £10,000 for the
Chairman and £6,000 for the other
Non-Executive Directors.
Executive Directors are entitled to a
fully expensed company car and
medical insurance.
The Committee is satisfied that the fees accord with
its policy.
The following table shows the annual cost of benefits
provided to the Executive Directors in 2012:
None.
No change.
Name
Graham Holden
Ian Burrell
David Sarti
£
12,237
12,255
16,327
Non-
Executive
Directors’
Fees
Policy: - Median
The Company sets fee
levels necessary to
attract and retain
experienced and skilled
Non-Executive
Directors with the
necessary experience
and expertise to advise
and assist with
establishing and
monitoring the
strategic objectives of
the Company. Fees
also reflect the time
commitment and
responsibilities of the
roles.
An additional fee is
paid for Chairmanship
of a Board Committee.
Benefits
Policy: - Market
Practice
The Company provides a
benefits package in line
with standard market
practice.
The Company is required
to provide this benefits
package in order to be
competitive and to
ensure it is able to
recruit and retain
Executive Directors.
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Directors’ Remuneration Report (continued)
Element
Pension
Purpose and how
it supports the
strategy
Policy: - Median
To enable Executive
Directors to make
appropriate provision
for retirement and to
protect their spouse /
dependents.
Operation
Opportunity
Executive Directors are entitled to
membership of the defined
contribution section of the
Marshalls plc Pension Scheme to
which the Company contributes at
an agreed percentage of basic
salary.
The defined benefit section of the Scheme closed to
new members in 2000 and to future service accrual in
2006. Graham Holden elected to take his Scheme
benefits as pension at age 50 in December 2009. He
therefore ceased to be able to take a transfer of
accrued pension benefits and no further benefits will
accrue.
Performance
measures and
period
Changes
for 2013
(if any)
None.
No change.
This is regarded as an
important element of
the basic benefits
package to attract and
retain talent.
Executive Directors may take a
salary supplement in place of the
Company’s contribution to the
Scheme where circumstances make
this necessary.
It should be noted that salary
supplements are excluded for the
purposes of calculating any other
element of an Executive Director’s
remuneration based on a
percentage of salary.
Ian Burrell and Graham Holden have elected for Fixed
Protection under the Pensions Act and consequently
no further contributions may be made into the
Scheme for their benefit. Each of them receives a
salary supplement of 30 per cent of basic salary in
lieu of pension contributions.
David Sarti is entitled to a Company contribution to
the Scheme of 30 per cent of basic salary with a
minimum employee contribution of 4 per cent.
Executive Directors are also eligible for a lump sum
payment and dependant’s pension benefits on death
in service. Life assurance is based on a multiple of
salary.
The following table sets the annual cost of Company
contributions provided to the Executive Directors:
Name
Graham Holden
Ian Burrell
David Sarti
Company Pension
Contribution
/Salary
Supplement
£
123,600
71,000
71,000
Marshalls plc Annual Report 2012
65
Changes
for 2013
(if any)
The
Maximum
Company
Annual
Contribution
will be 200
per cent of
salary for
Executive
Directors in
2013.
The 2013
targets
mean there
will only be a
contribution
in 2013 if
there is an
improvement
in underlying
profit before
tax or net
debt.
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Directors’ Remuneration Report (continued)
Element
Purpose and how it supports
the strategy
PIP
Policy: - Upper Quartile
Note 1 on
page 69
sets out the
operation of
the PIP
Performance Conditions
The following are the key performance conditions for
the PIP and how they are
linked to the successful implementation
of the Company’s strategy.
Opportunity
Performance measures and period
The Maximum
Company Annual
Contribution may
not exceed 250 per
cent of salary for
Executive Directors.
The performance criteria and weighting are
as follows:
Criteria
EPS
Cash
Percentage of maximum
contribution
based on criteria
67%
33%
Additional performance conditions:
•
customer service (at or above 95 per cent); and
•
health and safety incidence (reduction of 10 per
cent).
There is a reduction of contributions earned under the
primary criteria by 15 per cent if these two additional
conditions are not met.
1. EPS (67 per cent of Maximum Contribution)
EPS growth derived from sustainable profit growth is
one of the measures demonstrating the successful
execution of the Company’s strategy objectives:
•
to deliver superior returns for shareholders, in
a sustainable way, from the timely and
efficient supply of high quality value for
money products. The Company aims to
maximise profitability through optimising
operating performance and investing
selectively in market and brand development;
•
•
growth in EPS also is one of the measures of
success of other elements of the Company
strategy including:
o maintaining a strong market position and
developing robust and sustainable
relationships with customers to improve
market share and penetration;
o the reduction of costs and improvement of
margins through operational efficiencies; and
o evaluation of the benefits of potential
synergistic acquisitions or organic growth
opportunities in existing and related markets.
EPS growth supports a progressive dividend
policy and capital growth thereby maximising
total shareholder returns.
2. Cash (33 per cent of Maximum Contribution)
This measure is limited to the achievement of the
following strategic objectives:
•
to grow OCF by more than RPI;
•
•
to permit the payment of dividends in line
with medium term earnings growth; and
to maintain the sustainability of the core
business while continuing to invest in
technology to improve capabilities and
allowing for opportunity to make synergistic
acquisitions.
66
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Directors’ Remuneration Report (continued)
Element
Purpose and how it supports the strategy
PIP
3. Additional Performance Conditions
The Remuneration Committee considers that an element of the Company Maximum Annual Contribution under the PIP should be dependent on achieving
qualitative criteria in the areas of customer service and employee safety in addition to the main financial measures of EPS growth and cash. These are:
•
•
Where EPS and cash targets are met but the non-financial targets are not, the contribution earned can be reduced by a maximum of 15 per cent.
the achievement of a pre-determined target (10 per cent reduction) in relation to employee health and safety improvement during the year.
a minimum customer service level (95 per cent); and
Structure of the PIP
This note explains the features of the PIP and how they support the successful long term execution of the Company strategy:
1.
2.
Flexibility – the markets in which the Company operates, including the Public and Commercial end market and the Domestic end market, are
strongly correlated to the construction sector which is very sensitive to external economic conditions and to policy decisions by Government. The
Company makes periodic adjustments to strategy as market dynamics evolve. Annual targets allow the Committee to reflect the challenges faced by
the Company at that point in the cycle.
Risk Adjustment and Sustainable Performance – the Remuneration Committee is sensitive to the potential for short term objectives to
encourage focus on short term growth at the expense of long term sustainable performance. The PIP has the following features designed to mitigate
against this risk:
• Deferral into shares or share equivalent– 50 per cent of the earned Maximum Annual Contribution is deferred in a pool whose value is held in
shares or notional shares. This provides a risk adjustment mechanism, in that the value of at least half of earned bonus is subject to the share price
performance of the Company for a further holding period after the period in respect of which it was earned. It is assumed that the share price will
reflect to a degree the market’s view of the continuing performance of the Company as well as performance in the period for which the bonus was
earned. In addition, because the deferred element is locked-in until the end of the holding period, with the ultimate value when it vests being
based on the share price at the end of the holding period, this achieves closer alignment between Executives’ interests and shareholders interests.
The Committee may also at its discretion use shares to replace a cash element that vests;
• Risk Adjustment through Forfeiture – in addition to the usual claw back provisions relating to financial fraud and/or the need to re-state
accounts, contributions to the bonus pool may be clawed back if minimum threshold performance levels are not met in subsequent years. If there is
a material deterioration in performance, there is a claw back of up to 50 per cent of the bonus pool; and
• Long term improvement – if performance does not improve against the targets set annually, the value of the bonus pool will not grow. It is only
by fully achieving targets in each of the relevant plan years that the maximum value can be earned by a participant.
3.
Encouraging Retention – the PIP has strong retention and lock-in features for the Executive Directors and senior management responsible for
delivering the Company’s strategic objectives:
• the ability to earn bonus by reference to annual performance targets that reflect current circumstances and priorities reduces the risk of the PIP
becoming irrelevant to Executives because the performance conditions are no longer appropriate;
• arrangements are simple and clear, with participants able to see rewards accruing over the plan period introducing a long term focus; and
• the deferred element of bonus is at risk of forfeiture if a participant leaves the business (there are exceptions for “good leavers”). As the key
financial performance criteria will have already been met for this element, this provides a more effective lock-in than the potential opportunity of
earning shares based on performance conditions set at the date of grant but which are only measured three years later, which is the case with a
standard long term incentive plan.
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
Element
Purpose and how it
supports the strategy
Operation
Opportunity
Performance measures
and period
Performance Share awards are
made annually linked to
performance conditions measured
over a three year period.
The maximum
annual
Performance
Share award for
Executive
Directors is 100
per cent of
salary.
Performance conditions are measured
over three financial years.
Performance measures and relative
weightings are:
•
50% EPS; and
•
50% OCF
LTIP
Policy: - Median
To incentivise Executives to achieve
long term performance objectives
and to align the interests of
Executives with those of
shareholders through the holding of
share based incentives.
The Remuneration Committee
believes that the use of EPS and OCF
targets for the three year
performance period under the LTIP
remains relevant, despite the levels
being manifestly stretching. Only
exceptional performance will result
in awards vesting under the LTIP,
and the Committee believes this
achieves a balance with the more
flexible structure of the PIP.
In addition, the Remuneration
Committee feels that the use of EPS
and OCF for the three year
performance period under the LTIP
encourages Executives to take a
sustainable view of performance
over the longer term and provides a
further safeguard to any short term
focus not dealt with under the
structure of the PIP.
Changes
for 2013
(if any)
No change to
performance
criteria.
Chief
Executive’s
2013
Performance
Share award
has been
scaled back to
maximum 80
per cent of
salary.
No change.
Vesting of 50 per cent of the award
subject to EPS performance
conditions:
Performance
(EPS Growth)
RPI+9%
RPI+21%
*Straight line vesting between points.
% of Award
Vesting*
12.5%
50%
Vesting of 50 per cent of the award
subject to OCF Growth:
Performance
(OCF Growth)
RPI + 9%
RPI +21%
*Straight line vesting between points.
% of Award
Vesting*
12.5%
50%
Definitions and Calculations
EPS is measured using International
Financial Reporting Standards based on
the audited results of the Company and
subject to the discretion of the
Remuneration Committee with regard to
one-off items. OCF growth is calculated
by taking the aggregated OCF for the
three financial years preceding the year
of grant of the award and comparing it
with the aggregate OCF.
There are no performance conditions
attached to the shares purchased.
However, the value of the shares will
depend on the share price performance
of the Company and the tax efficiency is
linked to continued employment with
the Company for specified holding
periods (a minimum of 3 years).
Marshalls
plc Share
Purchase
Plan
(“SPP”)
The Company operates an all
employee share purchase plan to
facilitate the acquisition of shares.
The Committee believes that the
SPP is an effective way of
maximising the number of
employee shareholders within the
Company providing greater
alignment with the interests of
external shareholders.
The SPP is a HM Revenue & Customs
approved Employee Share Incentive
Plan which was approved by
shareholders in 2006. All employees
with more than 6 months service,
including Executive Directors, are
eligible to participate in the SPP
which entitles them to purchase
shares in the Company out of pre-
tax salary.
Participants
may purchase
a maximum of
£1,500 per
annum in
shares from
pre-tax salary.
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Directors’ Remuneration Report (continued)
Funding
of Share
Plans
The Company would normally expect to meet its obligations to satisfy awards under share incentive plans from shares purchased in the market by the
Marshalls Employee Benefit Trust (“EBT”), although it also has the right to fulfil awards through the issue of new shares, subject to the limits below. The
Company monitors the levels of share grants likely to vest and the impact of these on the ongoing requirement for shares.
In accordance with the guidelines set out by the Association of British Insurers the Company can issue a maximum of 10 per cent of its issued share capital
in a rolling ten year period to employees under all its share plans and a maximum of 5 per cent within this 10 per cent for discretionary share plans.
The following table summarises the current level of theoretical dilution resulting from Company share plans. The Company would not expect to issue more
than 7.5 per cent of the issued share capital for Share Awards within any rolling three-year period without prior consultation with shareholders.
Type of Plan
Share Awards as a percentage of
Issued Share Capital as at 31 December
2012 in a rolling ten year period
Share Awards as a percentage of
Issued Share Capital as at 31 December
2012 granted during the year
All Employee Share Plans (10% Limit)
Discretionary Share Plans (5% Limit)
2.56%
1.95%
-
0.87%
As at 31 December 2012 the EBT held 1,446,563 ordinary shares in Marshalls plc which were acquired in the open market. The EBT is funded to purchase
shares through cash drawn down under the terms of a Loan Facility Agreement established at the time of the creation of the EBT. During 2012 the EBT did
not acquire any shares. The total holding by the EBT is shown in the Directors Report on page 49.
Notes:
1. Operation of the PIP
The PIP is intended to operate as follows:
•
•
•
•
•
•
•
•
•
at the beginning of the Plan Period of 3 financial years, Participants have a Plan Account to which contributions may be made;
no contribution will be made to a Participant’s Plan Account unless the performance criteria, set annually in advance by the Remuneration Committee, have been met for
the year in question;
each Participant has a Maximum Annual Contribution as a percentage of salary;
the Maximum Annual Contribution for Executive Directors in Years 1 and 2 was 250 per cent of salary. This has been scaled back to 200 per cent of salary for Year 3. Because
at least 50 per cent of any annual contribution is deferred, this limits the maximum annual payment to a lower percentage of salary over the four year period. Consequently,
an Executive Director who participates in the PIP and earns the maximum potential award in each year with a 50 per cent deferral would receive the following as a
maximum percentage of salary:
Year 1
125%
Year 2
187.5%
Year 3
193.75%
Year 4
193.75%
the contribution to the PIP is based on the achievement of annual performance criteria for each year. These are set by the Remuneration Committee in advance at the
beginning of the measurement year;
the Remuneration Committee also sets minimum threshold performance criteria (“Forfeiture Threshold”). Where the Forfeiture Threshold is not achieved, up to 50 per cent
of the deferred balance in a Participant’s Plan Account is forfeited;
participants are entitled to receive no more than 50 per cent of the balance of their Plan Account at the end of each Plan Year. The remaining unpaid balance is deferred,
either in shares or notional shares, the value of which will vary according to the Company’s share price;
the balance in the Plan Account is also forfeited if the Participant leaves before the final Plan Account payment date or may be applied to meet a claw back if results have
to be re-calculated following any misstatement or fraud; and
the balance of Participants’ Accounts will become payable following the fourth anniversary of the start of the Plan Period.
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
Service contracts
Each of the Executive Directors has a service
agreement with the Company which is terminable
by the Company on not less than twelve months
notice and by the Director on six months notice.
usually for a term of three years. Either the
Company or the Non-Executive Director may
terminate the appointment before the end of the
current term on six months notice. If the unexpired
term is less than six months notice does not need
to be served.
Non-Executive Directors, including the Chairman,
are appointed under letters of appointment,
The following table summarises the current term of the Directors’ service agreements and/or appointments.
Term
Date of Agreement/
Appointment
Notice Period in Months
(Director)
Ian
Burrell
Graham
Holden
David
Sarti
June
2001
12
(6)
August
1992
12
(6)
November
2004
12
(6)
Andrew
Allner
July 2003
(renewed in
May 2010)
66
(6)
Alan
Coppin
Mark
Edwards
May
2010
(6)
May
2010
6
(6)
Tim
Pile
October
2010
6
(6)
In the event of termination an Executive Director would normally be entitled to a payment not exceeding an
aggregated amount equal to one year’s remuneration.
Maximum Entitlements during Notice Period
££
££
Salary / Fees
Benefits
Pension
PIP
Performance Shares
236,900
12,255
71,000
236,900
16,327
71,000
412,000
12,237
123,600
See Exit Payments
See Exit Payments
64,375
5,000
--
--
--
££
23,175
3,250
23,175
3,250
-
-
-
£
20,085
3,250
-
-
-
Note: The compensation commitments on termination may also include loss of the cost of life cover and long
term disability insurance for Executive Directors.
Where appropriate, the Company would expect the departing Director to mitigate any loss and the
Committee would take this into account in calculating the Company’s compensation obligation and
approving any termination payment.
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Directors’ Remuneration Report (continued)
Remuneration Scenarios
The composition and value of the Executive
Directors’ remuneration packages at below
threshold, threshold, target and outperformance
scenarios are set out in the charts below.
The policy of the Committee is to align Executive
Directors’ interests with those of shareholders and
to give the Executive Directors incentives to
perform at the highest levels. To achieve this it
seeks to ensure that a significant proportion of the
remuneration package varies with the financial
performance of the Group and that targets are
the Group’s stated business
aligned with
objectives.
Chief Executive
Outperformance
Target
Threshold
Below Threshold
Outperformance
Target
Threshold
Below Threshold
£0
Salary
£500,000 £1,000,000 £1,500,000 £2,000,000
Benefits
Pension
PIP
LTIP
0%
Salary
20%
Benefits
40%
Pension
60%
PIP
80%
LTIP
100%
Finance Director
Outperformance
Target
Threshold
Below Threshold
Outperformance
Target
Threshold
Below Threshold
£0
Salary
£500,000 £1,000,000 £1,500,000 £2,000,000
Benefits
Pension
PIP
LTIP
0%
Salary
20%
Benefits
40%
Pension
60%
PIP
80%
LTIP
100%
Chief Operating Officer
Outperformance
Target
Threshold
Below Threshold
Outperformance
Target
Threshold
Below Threshold
£0
Salary
£500,000 £1,000,000 £1,500,000 £2,000,000
Benefits
Pension
PIP
LTIP
0%
Salary
20%
Benefits
40%
Pension
60%
PIP
80%
LTIP
100%
from
the
in this Report. Base salary
The base salary, benefits and pension information
used to generate the scenario charts above is
information on Directors’
taken
remuneration
is
representative of 2012, the benefits value reflects a
fully expensed company car and medical
insurance, and pension includes the level of salary
supplement paid instead of contractual employer
pension contributions where applicable.
The PIP at outperformance represents the full 250
per cent of salary potential. At target this is 150 per
cent of salary, threshold equals 62.5 per cent of
salary and below threshold 0 per cent of salary.
In each scenario we have assumed
that
remuneration is at Year 2 of the PIP and that the
minimum forfeiture threshold would be met in
future years. Therefore both the cash element and
the deferred element going into the plan account
is recognised in these scenarios. The reduction in
maximum PIP potential for Year 3, to 200 per cent
of salary, is not reflected in the above illustrations.
The LTIP at outperformance assumes full vesting of
the award, 60 per cent vesting at target, 25 per
cent vesting at threshold and 0 per cent at below
threshold performance. The maximum LTIP award
is 100 per cent of salary for Executive Directors.
Non-Executive Directors do not
receive
performance related pay.
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
Exit Payment Policy
Service contracts do not contain
liquidated
damages clauses. If a contract is to be terminated
the Committee will determine such mitigation as it
considers fair and reasonable in each case. In
determining any compensation it will take into
account the best practice provisions of the UK
Corporate Governance Code and published
guidance from recognised institutional investor
bodies and will take legal advice on the Company’s
liability to pay compensation and the appropriate
amount. The Committee periodically considers
what compensation commitments the Executive
Directors’ contracts would entail in the event of
early termination. There are no contractual
arrangements that would guarantee a pension
with limited or no abatement on severance or early
retirement. There is no agreement between the
Company and
its Directors, or employees,
providing for compensation for loss of office or
employment that occurs because of a takeover bid.
Remuneration
element
Base Salary
Benefits
Treatment on exit
Salary will be paid over the notice period. The Company has discretion to make a lump sum payment on termination equal to
the volume of the salary payable during the notice period. In all cases the Company will seek to mitigate any payments due.
Benefits will normally be provided over the notice period. The Company has discretion to make a lump sum payment on
termination equal to the value of the benefits payable during the notice period. In all cases the Company will seek to
mitigate any payments due.
Pension / Salary
Supplement
Company pension contributions / salary supplement will normally be provided over the notice period. The Company has
discretion to make a lump sum payment on termination equal to the value of the Company pension contributions / salary
supplement during the notice period. In all cases the Company will seek to mitigate any payments due.
PIP
Normal Cessation
Good Leaver
Change of Control
No entitlement for year of cessation.
Pro-rated bonus to time and
performance for year of cessation.
Unvested balances in participant’s
plan accounts are forfeited.
Unvested balances in participant’s plan
accounts are paid.
Cessation of employment where the
Executive is not a good leaver.
Cessation of employment for one of the
following reasons:
- death;
- injury or disability;
- retirement;
- redundancy; and
- at the discretion of the Committee (if
exercised a full explanation will be
provided to shareholders).
The extent to which the performance
requirements are satisfied will
determine the bonus which is earned
for the year of the change of control.
Unvested balances in participant’s
plan accounts are paid.
Excludes a reorganisation or
reconstruction where ownership does
not materially change.
LTIP
Performance
Shares
Normal Cessation
Good Leaver
Change of Control
Unvested awards lapse.
Subsisting awards are pro-rated to
time and performance on the date
of cessation.
Subsisting awards are pro-rated to
time and performance on the date of
the event.
Cessation of employment where the
Executive is not a good leaver.
Excludes a reorganisation or
reconstruction where ownership does
not materially change.
Cessation of employment for one of the
following reasons:
- death;
- injury or disability;
- retirement;
- redundancy; and
- at the discretion of the Committee (if
exercised a full explanation will be
provided to shareholders).
72
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Directors’ Remuneration Report (continued)
Recruitment Policy
The following table sets out the Company’s policy on recruitment of new Executive Directors for each
element of the remuneration package:
Remuneration Policy on Recruitment
element
Base Salary
The Remuneration Committee will offer salaries up to the median for comparative roles in
line with its policy for existing Executive Directors.
Benefits
The Remuneration Committee will offer the Company’s standard benefit package.
Pension
PIP
Maximum contribution will be set in line with the Company’s policy for existing Executive
Directors.
The maximum annual contribution will be set in line with the Company’s policy for existing
Executive Directors. The maximum for 2013 is set at 200 per cent of basic annual salary.
Performance
Shares
The normal maximum annual grant is up to 100 per cent of basic annual salary in line with
the Company’s policy for existing Executive Directors.
“Buy Outs”
The Remuneration Committee’s policy on the “buying out” of subsisting incentives granted
by the Executive’s previous employer will depend on the circumstances of recruitment and
will be negotiated on a case by case basis. There will not be a presumption in favour of buy-
out but it will be considered if necessary to attract the right candidate.
Remuneration Policy for
other Employees
The remuneration policy described in the table
applies to Executive Directors. Other tiers of
management and below also qualify for annual
and long term bonus arrangements. Senior
management participate in the PIP and the LTIP.
The criteria for performance related bonus under
the PIP and the retention periods are the same as
the Executive Directors, with varying
for
percentages of salary dependent on seniority and
the strategic impact of the role. Under the LTIP, the
criteria for awards are the same as those applicable
to awards made to Executive Directors, and the
performance period is the same.
There are other job related incentives that may be
awarded at the levels below senior management.
There will be no increase in the basic salaries of
senior management for 2013, except in the case of
the assumption of significant
promotions,
additional responsibilities or where necessary to
attract a new recruit for a particular position.
The general workforce has been asked to consider
a pay offer involving no increase in basic pay for
2013. There were increases in 2012 to take account
of inflation.
Consideration of conditions
elsewhere in the Group
In applying its policy, the Committee takes into
account the wider economic conditions and the
pay and reward packages elsewhere in the Sector
and the business.
With the exception of a single inflation-related pay
increase of 3 per cent awarded in January 2012,
Executive Directors’ salaries have not increased in
the last five years. This has been at their own
request, to recognise the need for restraint in the
context of pay in the wider workforce and the
prevailing economic conditions in the UK that
have affected the business. Further, with effect
from 1
January 2013, Graham Holden’s
remuneration will fall by 20 per cent through
deduction from anticipated PIP and LTIP earnings.
Marshalls plc Annual Report 2012
73
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Directors’ Remuneration Report (continued)
By comparison, the pay awards for Marshalls’
weekly-paid employees were 2 per cent in 2011,
and 3 per cent in 2012 under a two year
agreement, while pay awards for monthly paid
employees were 1.5 per cent in 2011 subject to a
minimum and maximum total value, and 3 per
cent in 2012.
The Committee has not specifically canvassed the
views of the Company’s employees on
its
remuneration policy, although the views of
employees on matters that include pay and
conditions generally are canvassed by means of
the Company’s periodic “Pulse” surveys, the results
of which are regularly and openly communicated
to the Board.
Five Year Total Shareholder Return
Consideration of Shareholder
Views
The Committee extensively consulted with
shareholders on its executive remuneration policy
in 2011 and obtained broad support for its
proposals which was demonstrated by the
positive vote on
the 2011 Remuneration
Committee Report.
The contents of this Report set out the operation
of this agreed policy for Executive Directors for
2012. The Remuneration Committee believes that
the Report and
its contents should have
shareholder support.
140
120
100
80
60
40
20
0
Marshalls plc
FTSE 250 Index
FTSE Small
Cap Index
Jan 08
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
This graph shows the Group’s total shareholder return (“TSR”) performance compared to both the FTSE 250
and FTSE Small Cap indices for the period from 1 January 2008 to 31 December 2012. TSR is defined as share
price growth plus reinvested dividends. The FTSE 250 and FTSE Small Cap indices are used for comparison,
since these are the equity indices of which Marshalls plc has been a constituent during the period illustrated.
Prior to 23 June 2008 Marshalls plc was a constituent of the FTSE 250 Index, and since that date the Company
has been a constituent of the FTSE Small Cap Index. This graph shows the value at 31 December 2012 of £100
invested in Marshalls plc on 31 December 2007 compared with the value of £100 invested in the FTSE 250
Index and the FTSE Small Cap Index. The other plotted points are the intervening financial year ends.
74
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
Implementation Report
Introduction
This Report covers the reporting period from 1
January 2012 to 31 December 2012 and provides
details of the actual implementation of the
Company’s Policy during the period. This Report
has been prepared by the Committee taking
account of the proposed regulations put forward
by the UK Government Department of Business,
Innovation and Skills (“BIS”). The regulations will
apply to all UK companies listed on a major stock
Performance Related Pay
PIP: Annual Performance Awards
exchange with financial years ending after 30
September 2013, and those elements that have
been included voluntarily for this 2012 Report are
intended to pave the way towards full compliance
in 2013.
Base Salary
There was a 3 per cent inflation-related increase in
the base salary of Executive Directors with effect
from 1 January 2012. There will be no increase in
2013.
The following table summarises the Plan Accounts for the Executive Directors under the PIP:
Plan Accounts
2012 Opening balance (note a)
2012 Contribution (note b)
Graham Holden
£556,257
£339,900
(% of salary)
Value at Measurement Date (note c)
82.5%
£971,451
Ian Burrell
£224,454
£195,442
82.5%
£450,279
David Sarti
£224,454
£195,442
82.5%
£450,279
2012 Cash Element released
£485,726
£225,139
£225,139
Closing balance
(deferred into shares)
Number of shares represented by
closing balance
£485,725
£225,140
£225,140
498,179
230,912
230,912
(a) Graham Holden elected to defer voluntarily a higher proportion of his 2011 award into shares / notional
shares resulting in a higher opening balance in his account for the 2012 Plan Year, and a higher value
available for release following the end of that financial year.
(b) See below for the 2012 performance conditions and their level of satisfaction.
(c) This value is calculated by multiplying the number of notional shares deferred in the bonus pool by the
closing share price of 97.5 pence on 31 December 2012 (2011: 90.5 pence), and includes the value of
dividends paid on the equivalent number of ordinary shares (5.25 pence per share) during 2012.
Marshalls plc Annual Report 2012
75
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Directors’ Remuneration Report (continued)
2012 PIP Performance Conditions and their level of satisfaction
Criteria
EPS
Cash
Percentage of
Maximum
Contribution
based on
Criteria
Threshold
Target
Maximum
Target
2012 Actual Percentage
of
Target
Achieved
Percentage
of
Salary
Earned
67%
4.05 pence
6.88 pence
5.87 pence
0%
0%
33% £73.1 million £63.1 million £63.5 million
100%
82.5%
Non-financial
targets
15% deduction
if not met
100%
No
deduction
EPS
The Group’s profit performance was below budget
and prior year. Sales fell by 7.3 per cent but market
share continued to grow. EBITDA from continuing
operations fell by 14.3 per cent and profit before
tax on continuing operations was £10.4 million
which was at the bottom of the profit target range
set at the beginning of the year. EPS on continuing
operations, before operational restructuring costs
and asset impairments, declined from 6.30 pence
in 2011 to 5.87 pence in 2012. Although this
remained within the target range of 4.05 pence
(nil) to 6.88 pence (maximum) set at the beginning
of the year, the Committee determined that, after
adjustment, no bonus was earned in respect of the
EPS targets set for the 2012 contribution.
the year,
Cash
During
the Executive Directors
implemented a series of restructuring initiatives to
cut costs and drive down stock and working
capital. The year end net debt of £63.5 million was
at the lower (better) end of the target range set at
the beginning of the year of between £63.1 million
(maximum) and £73.1 million (nil) and was also
significantly better than market expectations. The
Committee determined that, after adjustment to
neutralise the impact of exceptional items, the full
33 per cent of the maximum annual bonus
contribution relating to the cash flow target was
earned and should be contributed to individual
PIP accounts in respect of 2012 performance.
The Committee has discretion to adjust for the
impact of one-off disposals and unbudgeted
changes to corporation tax rates, exceptional
items and associated cash costs in assessing
whether targets are met. However, to the extent
that any such adjustments caused the published
EPS to differ from the adjusted EPS, the Committee
would require both to be below the forfeiture
threshold before any PIP balances would be
partially forfeited.
Additional Performance Conditions
The Group exceeded its minimum target of 95 per
cent customer service on average throughout the
year. The Group also saw a reduction of 24.6 per
cent year on year in days lost to accidents against
its target of 10 per cent. Therefore no negative
adjustment was made to the 2012 contribution
earned in the PIP.
Dividends
it was
The Committee determined
appropriate to credit dividends paid to ordinary
shareholders during 2012 to the deferred bonus
pool shares.
that
76
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Directors’ Remuneration Report (continued)
Vesting of 50 per cent of the award subject to OCF
Growth
Performance growth
OCF
Growth of RPI +9%
OCF
Growth of RPI +21%
% of Award Vesting*
12.5%
50%
*Straight line vesting between points.
Definitions and Calculations
EPS is measured using International Financial
Reporting Standards (“IFRSs”) based on the
audited results of the Company and subject to the
discretion of the Committee with regard to one off
items.
OCF growth is calculated by taking the aggregated
OCF for the three financial years preceding the
year of grant of the award and comparing it with
the aggregate OCF for the three financial years of
the performance period.
LTIP
The LTIP (the Marshalls plc 2005 Long Term Incentive
Plan) was approved by shareholders in 2007. Under
the Rules of the LTIP, awards of Matching and
Performance Shares may be made, although no
awards of Matching Shares have been made since
March 2011, as the Remuneration Committee
considers that the deferral mechanism of the PIP
introduced during 2011 achieves the objectives
previously met by Matching Share awards.
Performance Share Awards
During 2012, the Executive Directors were granted
Performance Share awards under the LTIP. The
performance criteria are EPS and OCF growth over
a three year period to 31 December 2014 as
summarised in the table below. The Committee
considers that these criteria remain relevant to and
aligned with business objectives, although it is
manifestly clear that they have been and continue
to be extremely stretching.
Vesting of 50 per cent of the award subject to EPS
growth
Performance conditions % of Award Vesting*
EPS Growth of
RPI +9%
12.5%
EPS Growth of
RPI +21%
50%
*Straight line vesting between points.
Details of Performance Share awards made in 2012 are as follows:
Executive
Director
Graham Holden
Ian Burrell
David Sarti
Performance Share awards under LTIP
Number of
Performance
Shares awarded
397,022
228,288
228,288
Face value of award
(note)
£
400,000
230,000
230,000
Percentage of Salary
100
100
100
Note: Calculated by reference to the average share price of 100.75 pence over the three dealing days before
the date of grant (20 March 2012).
Marshalls plc Annual Report 2012
77
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Directors’ Remuneration Report (continued)
The performance conditions for Matching Shares
awarded in March 2010 were based on EPS growth
only, using the same EPS measures as those which
apply to the EPS element of Performance Shares as
set out above. All Matching and Performance
awards made prior to March 2010 have lapsed
without vesting. The Matching and Performance
awards made in March 2010 which are measured
against performance over the three financial years
2010, 2011 and 2012 did not vest in 2012, as the
performance conditions were not met over the
measurement period, and will therefore lapse. No
participating Executive Director or senior manager
has realised any financial benefit from Matching or
Performance awards under the LTIP since it was
introduced.
Exit Payments made in Year
No Executives departed the business during the
year and therefore no exit payments were made to
Executives during the financial year.
Matching Share Awards
Under the LTIP, for financial periods before 2011
participants were invited to invest a proportion of
their annual bonus in Investment Shares in order
to gain a corresponding award of Matching Shares,
up to a maximum of 150 per cent of salary
(assuming 100 per cent of salary was awarded as
Performance Shares at the same time). The
performance criteria for vesting of Matching
Shares was based on EPS growth only, using the
same EPS measures as those which apply to the
EPS element of Performance Shares as set out
above measured over a holding period of three
years. If the criteria were not met at the end of the
holding period, the Matching Shares lapsed and
the Investment Shares were released to the
participant. As at the date of this report the only
outstanding Matching Share awards are those that
were made in March 2011. These will be measured
over the three financial years 2011, 2012 and 2013
and unless the performance criteria are met, are
expected to lapse in March 2014.
Lapse of 2010 Awards
The table below sets out the performance
conditions attached
the March 2010
Performance Share awards under the LTIP and
their relative weightings.
to
Performance Share Award Conditions
Three year EPS growth
RPI +9%
RPI +21%
Three year
OCF growth
RPI +9%
RPI +21%
Proportions of
total award vesting
12.5%
50%
Proportion of
total award vesting
12.5%
50%
78
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
Total Shareholdings of Directors
In order that their interests are aligned with those of
shareholders, Executive Directors are expected to build
and maintain a meaningful shareholding in the Company
of 200 per cent of base salary (Chief Executive) and 100
per cent of base salary (other Executive Directors). There
are no minimum holding requirements for Non-Executive
Directors, but they would usually be expected to hold
some shares in the Company.
The following table sets out the following information in
respect of each of the Directors:
•
•
the Director’s shareholding requirement;
the number of shares the Director holds
unconditionally;
the number of deferred and conditional
shares held under the PIP;
the number of shares represented by
Performance awards; and
the number of shares represented by
Matching awards.
•
•
•
Shareholding
requirement
Unconditional Shares
Deferred PIP
Shares/Notional Shares
(note a)
TOTAL
Unvested and Contingent LTIP Awards
Performance Shares (notes b and d) &
Matching Shares (note c and d)
Total interests in
Shares (including
contingent interests)
%
of
salary
Value of
Shares
required
Number
of Shares
held
Value of
Shares
held
(see note*)
Number of
Shares
held
Value of
Shares
held
(see note*)
Number of
Shares
held
Value of
Shares
held
(see note*)
Number of Number of
Performance Matching
Shares
held
Shares
held
£££
£
Number of
Shares
held
Value of
Shares
held
Total
Value of
Unvested
and
Contingent
Shares held
££
200
824,000
456,925
1,144,228
498,179
485,725
955,104
1,629,953
1,087,389
689,200
1,732,174
2,731,693
3,362,127
Executive
Director
Graham
Holden
Ian Burrell
100
237,000
159,413
352,432
230,912
225,140
390,325
577,572
625,249
396,289
995,999
1,411,863
1,573,571
David Sarti
100
237,000
175,468
360,636
230,912
225,140
406,380
585,776
625,249
396,289
995,999
1,427,918
1,581,775
Non-
Executive Director
Andrew
Allner
Alan Coppin
Mark
Edwards
Tim Pile
--
--
--
--
35,000
71,678
10,000
11,559
49,000
49,494
34,740
35,171
--
--
--
--
35,000
71,678
10,000
11,559
49,000
49,494
34,740
35,171
--
--
--
--
-
-
-
-
35,000
71,678
10,000
11,559
49,000
49,494
34,740
35,171
*Value of shares in relation to shares or share interests that are contingent on performance or holding conditions is based on the mid-market price on 31 December 2012 of 97.5 pence
per share. Value of shares in relation to shares that are unconditional is based on their acquisition price.
Note a:This interest will not vest until the performance and holding conditions have been met - see Policy section for explanation of the operation of the PIP.
Note b:These shares will not vest until the performance conditions have been met over the three year measurement period. See Policy section for explanation of the operation of the LTIP.
Note c: Investment Shares must be acquired and held in order to receive Matching Shares. If the LTIP performance conditions are not met, the Matching Shares lapse 3 years from the
grant date, and the corresponding Investment Shares may then be transferred to the participant. The value in this section assumes that Investment Shares are unconditionally
held and that all Matching Shares in the column will vest, (although see also note d).
Note d:This section includes the Performance and Matching Shares awarded in March 2010 which will lapse on the third anniversary of the date of grant, i.e. in March 2013, as shown
in the table on page 83.
Marshalls plc Annual Report 2012
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Directors’ Remuneration Report (continued)
The Committee and its Advisers
Role of the Remuneration Committee
The Committee’s responsibilities include:
•
Setting remuneration policy for Executive Directors;
• Determining specific remuneration packages for
Executive Directors and for the Chairman;
• Operating the Company’s employee share incentive
arrangements;
•
•
Providing guidance on remuneration for senior
employees who report to the CEO; and
Considering the broader remuneration policies for
Group employees below Board level.
The Committee’s agreed terms of reference are available
on the Company’s website (www.marshalls.co.uk) and on
request from the Company Secretary.
The Board determines the remuneration of the Non-
Executive Directors. No Director plays a part in any
decision about their own remuneration.
Committee Members
The Committee members comprise Alan Coppin
(Chairman), Andrew Allner, Mark Edwards and Tim Pile.
Alan Coppin, Mark Edwards and Tim Pile are all
independent Non-Executive Directors within
the
definition of the Code, and Andrew Allner satisfied the
independence condition on his appointment as Non-
Executive Chairman in 2010. None of them have any
personal financial interest (other than as shareholders) in
matters to be decided, nor do they have any conflicts of
interest from cross-directorships or any day-to-day
involvement in running the business.
remuneration advisers,
The Company's external
PricewaterhouseCoopers LLP ("PwC"), attend meetings of
the Committee by invitation as do members of the
executive management team where this is pertinent to
matters under consideration, although they may not
Statement of Shareholder Voting
participate in discussions about their own remuneration.
The Company Secretary acts as secretary to the Committee.
Further information on meetings and attendance by the
Committee members is disclosed in the Corporate
Governance Report on pages 51 to 58.
External Advice
The Committee received external advice in 2012 from
PwC in relation to executive remuneration. PwC were
appointed by the Committee following a competitive
tender in 2010 and their fees are agreed by the
Remuneration Committee according to the work
performed. Terms of engagement are available from the
Company Secretary.
The details of advice provided by PwC relating to
executive remuneration during 2012 were as follows:
Advice
•
levels and performance conditions for the incentive
arrangements;
•
•
•
•
•
•
corporate governance;
dilution and funding of share plans;
taxation of incentives granted;
assistance in the preparation of the Remuneration
Committee Report;
benchmarking of total remuneration in respect of the
Company and its comparator group; and
attendance at
meetings to provide advice when required.
the Remuneration Committee
In order to carry out the Remuneration Committee’s
policies PwC worked with the Company in implementing
the above.
PwC also provided advice to the Company during the year
in relation to tax and pensions matters.
The table below shows the voting outcome at the May 2012 AGM for the approval of the 2011 Remuneration Report.
Votes
For
138,951,048
For as a % of votes cast
98.24%
Against
2.488,811
Against as a % of votes cast Abstain
2,758,646
1.76%
The Committee believes the 98.24 per cent votes in favour of the Remuneration Report shows very strong Shareholder
support for the Group’s remuneration arrangements.
80
Marshalls plc Annual Report 2012
Directors’ Remuneration Report (continued)
Audited part of the Report
Directors’ Remuneration
Release of
50%
deferred
bonus
earned for
2011
£’000
Voluntarily
deferred
element of
bonus
2011
£’000
Benefits
2012
£’000
Salary/
fees
2012
£’000
Bonus
2012
£’000
Pension
defined
contribution
payments (or
substituted
salary
supplement)
Maximum
potential
LTIP shares
awarded
Total
remuneration
(excluding
pensions)
2012
£’000
2011
£’000
2012
£’000
2011
£’000
Number of
shares
Chairman
Andrew Allner
129
-
-
Executive Directors
Ian Burrell
Graham Holden
David Sarti
237
412
237
Non-Executive Directors
98
170
98
-
-
-
127
221
127
-
-
-
46
46
40
Alan Coppin
Mark Edwards
Tim Pile
TOTAL
Comparative
Total 2011
-
-
94
-
-
-
-
-
129
125
-
-
-
12
12
16
-
-
-
474
909
478
46
46
40
465
635
473
45
45
39
71
124
71
-
-
-
69
589,216
117 1,024,724
69
589,216
-
-
-
-
-
-
------------
1,147
-----------
------------
366
-----------
------------
475
-----------
------------
94
-----------
------------
40
-----------
------------
2,122
-----------
------------
1,827
-----------
------------
266
-----------
------------ -------------------
255 2,203,156
-----------------
-----------
1,114
Note (c)
672
Note (d)
-
Notes (d)
and (e)
-
41
Note (f)
1,827
Note (f)
-
255
- 2,966,067
Notes to Directors’ Remuneration Table
(a) The table above shows salaries, fees, performance related bonuses and benefits paid by reference to the year ended 31 December 2012.
(b) The highest paid Director in the year was Graham Holden.
(c) The salary column shows the base salary earned in the year. There was a 3 per cent increase on 1 January 2012. Amounts paid by way of salary
supplement instead of contractual employer pension contribution are shown separately in the pension contribution column rather than as
part of base salary.
(d) The bonus earned under the PIP by reference to performance in 2012 reduced by 56 per cent compared to 2011. The 2012 bonus stated is
the payment made in respect of 2012 in accordance with the rules of the PIP. It does not include the value of the deferred balance in respect
of 2012 which must be held for a further holding period (see Unaudited Part of the Report). The value of deferred balances carried over from
2011 that have become payable after the 2012 results on expiry of the applicable holding period are shown separately.
(e) As the PIP was introduced in 2011, there were no amounts carried over from earlier periods to report in 2011. The PIP replaced Matching
awards under the LTIP – see details on page 78.
(f )
In addition to the release of 50 per cent of the PIP balance earned by reference to 2011 that was compulsorily deferred, the additional amount
voluntarily deferred by Graham Holden in 2011 has been released. The increase in overall remuneration in 2012 for Graham Holden is due
principally to the release of these deferred PIP balances earned by reference to the 2011 results.
(g) During the year, each of Ian Burrell, Graham Holden and David Sarti elected to sacrifice a proportion of future salary, and/or salary supplement
and/or deferred performance bonus. Contributions equal to the amounts given up were paid into a pension plan for the benefit of their
dependants. The amounts shown in the salary, deferred performance bonus and pension contribution columns reflect the full amount
earned.
(h) Benefits are the provision of a fully expensed company car and medical insurance.
(i) The Chairman’s and Non-Executive Directors’ fees shown exclude the annual gross fixed expenses paid towards travel, accommodation and
subsistence.
Marshalls plc Annual Report 2012
81
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 82
Directors’ Remuneration Report (continued)
Table of Directors’ Interests, Share Options and Long Term Incentive Plan
Share Interests
The beneficial interests of the Directors and their immediate families in the shares of the Company are as follows:
Ordinary
Shares
35,000
42,762
10,000
49,000
259,677
34,740
58,817
Andrew Allner
Ian Burrell
Alan Coppin
Mark Edwards
Graham Holden
Tim Pile
David Sarti
31 December 2012
31 December 2011
Marshalls
Share
Purchase
LTIP
Plan Investment
Shares
Shares
--
7,609
--
--
7,609
--
7,609
Total
35,000
109,042 159,413
10,000
49,000
189,639 456,925
34,740
109,042 175,468
Marshalls
Share
Purchase
LTIP
Plan Investment
Shares
Ordinary
Shares
35,000
10,153
10,000
10,000
199,937
23,924
30,698
Shares
--
5,979
--
--
5,979
--
5,979
Total
35,000
157,783
10,000
10,000
455,295
23,924
173,838
141,651
249,379
137,161
Notes to Directors’ Interests in shares
(a) There were no changes between 1 January 2013 and 8 March 2013 save that each of the Executive Directors acquired 351 shares in
the Marshalls plc Share Purchase Plan (the “SPP”) between January and March 2013. The SPP is an HM Revenue & Customs approved
Employee Share Incentive Plan which was approved by shareholders in 2006. All employees with more than 6 months service are
eligible to participate in the SPP which entitles them to purchase shares in the Company with pre-tax salary.
(b) The Non-Executive Directors are not eligible to participate in the SPP, the PIP or the LTIP.
(c) None of the Directors held any options during the year other than approved options under the LTIP as listed in the table on page 83,
nor did they hold any interests in derivatives or other financial instruments relating to the Company’s shares.
82
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 83
Directors’ Remuneration Report (continued)
Long Term Incentive Plan
Name
Ian Burrell
Graham
Holden
David Sarti
LTIP
Share
Awards
Matching Shares
Performance Shares
Matching Shares
Performance Shares
Performance Shares
Matching Shares
Performance Shares
Matching Shares
Performance Shares
Performance Shares
Matching Shares
Performance Shares
Matching Shares
Performance Shares
Performance Shares
At 1
January
2012
239,045
193,277
157,244
203,684
-
415,731
336,134
273,469
354,233
-
239,045
193,277
157,244
203,684
-
Lapsed
(Note c)
239,045
193,277
-
-
415,731
336,134
-
-
239,045
193,277
-
-
At 31
December
2012
-
-
157,244
203,684
228,288
-
-
273,469
354,233
397,022
-
-
157,244
203,684
228,288
Market
Price on
Date of
Award
(p)
89.25
89.25
113
113
100.75
89.25
89.25
113
113
100.75
89.25
89.25
113
113
100.75
Date
from
which
Exerci-
sable
11.03.13
11.03.13
17.03.14
17.03.14
20.03.15
11.03.13
11.03.13
17.03.14
17.03.14
20.03.15
11.03.13
11.03.13
17.03.14
17.03.14
20.03.15
Date of
Award
11.03.10
11.03.10
17.03.11
17.03.11
20.03.12
11.03.10
11.03.10
17.03.11
17.03.11
20.03.12
11.03.10
11.03.10
17.03.11
17.03.11
20.03.12
Granted
Exercised
--
--
--
--
228,288
--
--
--
--
397,022
--
--
--
--
228,288
--
--
--
Notes to LTIP table
(a) The share price on 31 December 2012 was 97.5 pence (2011: 90.5 pence).
(b) The Matching Share awards are subject to an EPS performance target and the Performance Share awards are subject to EPS and OCF
performance targets as set out in the Policy section of this Report. Awards not exercised within 10 years of the date of grant will lapse.
(c) Part of the March 2010 Performance awards were held in the form of HM Revenue & Customs Approved options. If the performance criteria had
been met and there had been an increase in share price, the Approved options could have been exercised to deliver part of the total value of
the Performance award subject only to Capital Gains Tax and in this case, an equivalent proportion (in value) of the non-approved Performance
award shares would lapse. All the March 2010 awards have lapsed by reference to the financial period ending on 31 December 2012.
Marshalls plc Annual Report 2012
83
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 84
Directors’ Remuneration Report (continued)
The Scheme provides for a lump sum payment
and dependants’ pension benefits on death in
service. In the case of Executive Directors who
receive a salary supplement in place of the
Company’s contributions to the Scheme, these
other Scheme benefits remain unchanged, based
on a multiple of base salary. The Company does
not compensate individual directors for the loss of
tax allowances on pension contributions.
Graham Holden ceased to be an active Scheme
member in December 2009, and is entitled to
receive a salary supplement in lieu of employer
contributions. Graham Holden is also entitled to a
pension under the Defined Benefit Section of the
Scheme with effect from his early retirement at
age 50 in December 2009. By virtue of having
elected to take his Scheme benefits at 50, Graham
Holden ceased to be able to take a transfer of
accrued benefits and no further benefits will
accrue.
An ordinary resolution to receive and approve this
Report will be proposed at the Company’s Annual
General Meeting to be held on 15 May 2013.
The Remuneration Report was approved by the
Board and signed on its behalf by:
Alan Coppin
Chairman of the Remuneration Committee
8 March 2013
Pension Benefits
The Marshalls plc Pension Scheme (“the Scheme”)
has two Sections: the Defined Benefit Section
which was closed to new members in 2000 and
closed to future service accrual in 2006, and a
Defined Contribution Section.
David Sarti is an active member of the Defined
Contribution Section of the Scheme. Under his
service agreement
the Company makes
contributions to the Scheme of 30 per cent of
basic salary, with a minimum employee
contribution of 4 per cent of basic salary. To the
extent that he was affected by the £50,000 limit
on individual annual allowances in relation to
pension scheme contributions, he elected to stop
receiving employers’ pension contribution into
the Scheme upon reaching the annual allowance
limit and became entitled to receive a salary
supplement in lieu of employer contributions for
the remainder of the relevant period.
Ian Burrell was until April 2012 an active member
of the Defined Contribution Section of the
Scheme. Under his service agreement, he is
entitled to receive a pension contribution from
the Company of 30 per cent of basic salary, with a
minimum employee contribution of 5 per cent of
basic salary. To the extent that he was affected by
the £50,000 limit on individual annual allowances
in relation to pension scheme contributions made
before April 2012, he elected to stop receiving
employers’ pension contribution into the Scheme
upon reaching the annual allowance
limit.
Further, with effect from 6 April 2012, Ian Burrell
elected under pensions regulations to take Fixed
Protection in relation to his Lifetime Allowance,
which means that from April 2012 no further
contributions can be made into any pension
scheme on his behalf. Having stopped receiving
contributions into the Scheme, he is entitled to
receive a salary supplement in lieu of employer
pension contributions.
84
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 85
Nomination Committee Report
The Board has an established Nomination
Committee whose members are the Non-
Executive Directors. The Chairman of the Board
normally chairs this Committee except where it is
dealing with his own
re-appointment or
replacement.
During 2012 the Nomination Committee held one
formal meeting, at which it reviewed:
•
•
•
succession planning,
Board
including
consideration of prospective candidates for
appointment to the Board;
outcomes from the performance evaluation
of Directors in advance of the proposal to
elect or re-elect at the Annual General
Meeting; and
the Board conflicts policy and the conflicts
register, and any new notifications.
The Nomination Committee’s Terms of Reference
were last reviewed and updated by the Board in
December 2012, and the performance of the
Committee was evaluated as part of the Board
evaluation process
in 2012. The Terms of
Reference of the Committee are available on the
Company's website (www.marshalls.co.uk).
Having identified its objective of greater Board
diversity, a number of potential candidates were
considered in the early months of 2012. However,
in view of the cost reduction initiatives and
operational changes within the Business, the
Committee concluded that it was not the right
time to make an additional Board appointment,
and the Board made no new appointments in
2012. The Committee expects to return to its
stated diversity objective during 2013 and to work
with external search consultants in planning for
future appointments. Non-Executive Directors are
appointed for specific terms, subject to re-
appointment and the Company’s Articles of
Association and subject to the Companies Act
provisions relating to the removal of a Director.
The current terms of appointment of the Directors
are shown on page 70. All Directors will stand for
re-election at the Company’s Annual General
Meeting in May 2013.
Each Non-Executive Director has been provided
with a detailed description of his role and
responsibilities, and received a detailed business
induction. The other appointments held by the
Non-Executive Directors have been declared to
the Company in accordance with the rules on
conflicts adopted by the Board, and none is
regarded as likely to give rise to any conflict with
the Board.
The Nomination Committee evaluates the
performance of any Director who is retiring by
rotation and seeking re-election. In order for a re-
election proposal to proceed, the Committee
should be able to conclude that the Director
continues to be effective and demonstrates
commitment to the role, following which the
Nomination
its
Committee
recommendation to the Board. In the circular to
shareholders accompanying the resolution to re-
elect, there is an explanation from the Chairman
as to why the Director should be re-elected and
confirming that a formal performance evaluation
has taken place. The Committee also carries out a
performance evaluation in the event of a proposal
to re-appoint a Director on expiry of their current
appointment.
makes
It is the Company's policy that Executive Directors
can only hold one external company Non-
Executive Directorship. Graham Holden is a Non-
Executive Director of KCOM Group Plc and David
Sarti
is a Non-Executive Director of an
independent private company group. Voluntary
service on the Governing Board of a social, trade
or charitable organisation is also permitted.
This Nomination Committee Report has been
approved by the Board and signed on its behalf
by:
Andrew Allner
Chairman of the Nomination Committee
8 March 2013
Marshalls plc Annual Report 2012
85
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 86
Report of the Audit Committee
The Board has an established Audit Committee.
Each of its members is an independent Non-
Executive Director. The Board is satisfied that this
Committee includes members that have recent
and relevant financial experience required by the
Code. The Chairman of the Committee, Mark
Edwards, is a Chartered Accountant.
The main role and responsibilities of the Audit
Committee are set out in written Terms of
Reference which were reviewed during the year
and are available on the Company’s website at
www.marshalls.co.uk. The Audit Committee is the
body appointed by the Board with responsibility
for carrying out the functions required by the
Listing Rules DTR 7.1.3R.
Activities during 2012
During 2012 the Audit Committee met four times.
Its work included the following:
•
•
•
•
•
•
Planning and scoping the Annual audit and
Half-yearly audit review, receiving audit
reports and reviewing financial statements;
Reviewing internal controls, the internal audit
process and report findings;
Risk register review, including financial risk
assessments and updates to the register;
Review of auditor
the
appointment of auditors and audit and non-
audit fees;
independence,
Policy reviews and reporting, including the
Serious Concerns Policy; and
Performance review as part of Board
evaluation.
During 2013, the Committee expects to develop
its procedures and reporting practices to meet the
the UK Corporate
new
Governance Code published in September 2012.
requirements of
External Audit, Auditor
independence and objectivity
The Audit Committee has primary responsibility
for making a
the
appointment, re-appointment and removal of the
external auditor to the Board, as submitted to
recommendation on
86
Marshalls plc Annual Report 2012
reviewed
to maintain
shareholders for their approval at the Annual
General Meeting. It keeps under review the scope
and results of the audit, its cost-effectiveness and
the independence and objectivity of the auditor.
The Audit Committee has
the
independence and objectivity of the auditor
during 2012 and considers that the appointed
auditors, KPMG Audit Plc, are independent and
remain objective. In doing so, it has taken account
of the processes in place within KPMG Audit Plc
designed
independence. The
Company has procedures in place to safeguard
independence, including limits on the amount of
non-audit work awarded to the auditors. Any
work awarded to the external auditors with a
value in excess of £25,000, or in aggregate a value
exceeding £50,000 in any financial year, other
than audit and tax compliance, requires the
specific approval of the Audit Committee. Where
the Committee perceives that the independence
of the auditors could be compromised, the work
will not be awarded to the external auditors.
KPMG Audit Plc have provided audit services to
the Company since 1987. The audit partner and
audit team within KPMG Audit Plc who conduct
the Group audit are regularly rotated. The
Committee is mindful of the need to consider
periodically re-tendering audit services, and
reviews this every three years. Details of amounts
paid to the external auditors for audit and non-
audit services in 2012 are analysed in Note 3 on
page 107. The amount paid for non-audit work
represented approximately 18.3 per cent of total
fees paid to the external auditors in 2012. This was
for services associated with the corporate tax
compliance procedures and certain additional
regulatory procedures associated with Marshalls
NV which the Audit Committee considered the
external auditors to be in the best position to
provide, given their detailed knowledge of the
background of the Company's systems. The
aggregate amount paid to other firms of
accountants for non-audit services in the same
period was £155,000 (2011: £254,000).
This Committee reviews the Half-yearly and
Annual Financial Statements before submission to
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 87
Report of the Audit Committee (continued)
the Company to prevent bribery. The Company
adopted an Anti-Bribery Code and published
supporting guidance for its employees, agents
and contractors on hospitality and gifts in 2011.
During 2012 it introduced an internal compliance
training programme for employees to reinforce
the Anti-Bribery Code and procedures, and the
internal audit review programme also included a
review of the adequacy of the Company’s
procedures in relation to the prevention of
bribery.
The Audit Committee monitors and reviews the
effectiveness of internal control activities. It also
reviewed the need for an in-house internal audit
function during 2012, and concluded that the
current process, under which firms of external
accountants that are independent from the
Company’s auditors and have no other
connection with the Group carry out regular
internal audit assignments of a financial and
systems nature, was the most effective means of
managing the internal audit function. The Audit
the Company has
that
Committee notes
implemented and continued to operate a self
certification internal control process to support
the internal audit process throughout the year.
The Report of the Audit Committee has been
approved by the Board and signed on its behalf
by:
Mark Edwards
Chairman of the Audit Committee
8 March 2013
the Board and reviews the effectiveness of the
Group’s internal control system. The work of the
Committee is reported regularly to the Board.
There were no significant issues arising in relation
to the Financial Statements during the audit
review.
The Audit Committee reviews the planned
Internal Audit Programme. The results of all
assignments have been reported to the Audit
Committee during the year. These assignments
form part of a much wider programme of
independently audited aspects of the Group’s
operations. Any areas of weakness that are
identified through this process prompt a detailed
action plan and a follow up audit check to
establish that actions have been completed. No
significant failings or weaknesses were identified
during the year.
Whistleblowing
The Audit Committee has, during the year,
reviewed the arrangements by which employees,
and other people working for the Company may,
in confidence, raise concerns about possible
improprieties in matters of financial reporting or
other matters. The Company does have a Serious
Concerns Policy (Whistle-blowing Policy) which is
available to all employees. It is displayed on notice
boards and on the Company’s intranet. The policy
sets out the procedure for employees to raise
legitimate concerns about any wrong-doing
without fear of criticism, discrimination or reprisal.
One matter was raised under this policy during
2012 at one of the operating sites but on
investigation
it was found to be without
substance. The Serious Concerns Policy was
reviewed during the year and the Audit
Committee was satisfied that arrangements are in
place for the proportionate and independent
investigation of such matters and for appropriate
follow-up action.
Anti-Bribery Code procedures
The Audit Committee also takes responsibility for
reviewing the policies and procedures adopted by
Marshalls plc Annual Report 2012
87
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 88
Independent Auditor’s Report
to the Members of Marshalls plc
We have audited the Financial Statements of
Marshalls plc for the year ended 31 December
2012 set out on pages 90 to 142.
The financial reporting framework that has been
applied in the preparation of the Group Financial
Statements is applicable law and International
Financial Reporting Standards ("IFRSs") as adopted
by the EU. The financial reporting framework that
has been applied in the preparation of the Parent
Company Financial Statements is applicable law
and UK Accounting Standards (UK Generally
Accepted Accounting Practice).
This report is made solely to the Company's
members, as a body, in accordance with Chapter 3
of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to
the Company's members those matters we are
required to state to them in an Auditor's 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 and the
Company's members, as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of
Directors and Auditor
As explained more fully
in the Directors'
Responsibilities Statement set out on pages 57 to
for the
58, the Directors are responsible
preparation of the Financial Statements and for
being satisfied that they give a true and fair view.
Our responsibility is to audit, and express an
in
opinion on,
accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing
Practices Board's (APB's) Ethical Standards for
Auditors.
the Financial Statements
Scope of the Audit of the
Financial Statements
A description of the scope of an audit of Financial
Statements is provided on the APB's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on Financial Statements
In our opinion:
•
the Financial Statements give a true and fair
view of the state of the Group's and of the
Parent Company's affairs as at 31 December
2012 and of the Group's loss for the year then
ended;
•
•
•
the Group Financial Statements have been
properly prepared in accordance with IFRSs
as adopted by the EU;
the Parent Company Financial Statements
have been properly prepared in accordance
with UK Generally Accepted Accounting
Practice; and
the Financial Statements have been prepared
in accordance with the requirements of the
Companies Act 2006; and, as regards the
Group Financial Statements, Article 4 of the
IAS Regulation.
Opinion on other matters
prescribed by the Companies
Act 2006
In our opinion:
•
the part of the Directors' Remuneration
Report to be audited has been properly
prepared in accordance with the Companies
Act 2006; and
•
the information given in the Directors' Report
for the financial year for which the Financial
Statements are prepared is consistent with
the Financial Statements.
Matters on which we are
required to report by exception
We have nothing to report in respect of the
following:
Under the Companies Act 2006 we are required to
report to you if, in our opinion:
•
adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or
88
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp001-089 (Q8)___ 26/03/2013 17:12 Page 89
Independent Auditor’s Report
to the Members of Marshalls plc (continued)
•
•
the Parent Company Financial Statements
and the part of the Directors' Remuneration
Report to be audited are not in agreement
with the accounting records and returns; or
certain disclosures of Directors' Remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required to review:
•
•
•
the Directors' Statement, set out in Note 1(b)
on pages 97 and 98, in relation to going
concern;
the part of the Corporate Governance
Statement on pages 51 to 58 relating to the
the nine
Company's compliance with
provisions of the UK Corporate Governance
Code specified for our review; and
certain elements of
to
shareholders by the Board on Directors'
Remuneration.
report
the
Chris Hearld (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc,
Statutory Auditor
Chartered Accountants
1 The Embankment
Neville Street
Leeds
LS1 4DW
8 March 2013
Marshalls plc Annual Report 2012
89
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 90
Consolidated Income Statement
for the year ended 31 December 2012
Notes
2
3
Before Operational
operational restructuring
costs and
asset
impairments
2012
£’000
-
(21,521)
-------------------
(21,521)
-
-
-------------------
(21,521)
4,367
-------------------
restructuring
costs and asset
impairments
2012
£’000
309,693
(295,764)
-------------------
13,929
(15,480)
11,902
-------------------
10,351
1,105
-------------------
(17,154)
-------------------
(17,154)
----------------
(17,154)
-
-------------------
(17,154)
----------------
11,456
--
-------------------
11,456
----------------
11,470
(14)
-------------------
11,456
----------------
5.87p
----------------
5.75p
----------------
5.87p
----------------
5.75p
----------------
Revenue
Net operating costs
Operating profit / (loss)
Financial expenses
Financial income
Profit / (loss) before tax
Income tax credit / (expense)
Profit / (loss) for the financial period before
post tax loss of discontinued operations
Post tax loss of discontinued operations
Profit / (loss) for the financial period
Profit / (loss) for the period
Attributable to:
Equity shareholders of the parent
Non-controlling interests
Earnings per share (total operations):
Basic
Diluted
Earnings per share (continuing operations):
Basic
Diluted
Dividend:
Pence per share
Dividends declared
2
6
6
2
7
8
9
9
9
9
10
10
The Notes on pages 96 to 135 form part of the Consolidated Financial Statements.
90
Marshalls plc Annual Report 2012
Total
2012
£’000
309,693
(317,285)
-------------------
(7,592)
(15,480)
11,902
-------------------
(11,170)
5,472
-------------------
(5,698)
-
-------------------
(5,698)
----------------
(5,684)
(14)
-------------------
(5,698)
----------------
(2.91)p
----------------
(2.91)p
----------------
(2.91)p
----------------
(2.91)p
----------------
5.25p
----------------
10,292
----------------
Total
2011
£’000
334,127
(317,430)
-------------------
16,697
(14,960)
11,953
-------------------
13,690
(1,522)
-------------------
12,168
(4,912)
-------------------
7,256
----------------
7,390
(134)
-------------------
7,256
----------------
3.78p
----------------
3.71p
----------------
6.30p
----------------
6.17p
----------------
5.25p
----------------
10,292
----------------
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 91
Consolidated Balance Sheet
Consolidated Statement of Comprehensive Income
at 31 December 2009
for the year ended 31 December 2012
Profit for the financial period before operational restructuring costs
and asset impairments
Operational restructuring costs and asset impairments
(Loss) / profit for the financial period
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges
Fair value of cash flow hedges transferred to the Income Statement
Deferred tax arising
Defined benefit plan actuarial (losses) / gains
Deferred tax arising
Impact of the change in rate of deferred taxation
Foreign currency translation differences - foreign operations
Foreign currency translation differences - non-controlling interests
Other comprehensive (expense) / income for period, net of income tax
Total comprehensive (expense) / income for the period
Attributable to:
Equity shareholders of the parent
Non-controlling interests
2012
£’000
2011
£’000
11,456
(17,154)
-------------------
(5,698)
-------------------
(2,050)
840
298
(9,063)
2,084
360
116
(106)
-------------------
(7,521)
-------------------
(13,219)
----------------
(13,099)
(120)
-------------------
(13,219)
----------------
7,256
-
-------------------
7,256
-------------------
(570)
402
43
9,982
(2,496)
(145)
(110)
(56)
-------------------
7,050
-------------------
14,306
----------------
14,496
(190)
-------------------
14,306
----------------
Marshalls plc Annual Report 2012
91
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 92
Consolidated Balance Sheet
at 31 December 2012
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in associates
Employee benefits
Deferred taxation assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Corporation tax
Interest bearing loans and borrowings
Non-current liabilities
Interest bearing loans and borrowings
Deferred taxation liabilities
Total liabilities
Net assets
Equity
Capital and reserves attributable to equity shareholders of the parent
Share capital
Share premium account
Own shares
Capital redemption reserve
Consolidation reserve
Hedging reserve
Retained earnings
Equity attributable to equity shareholders of the parent
Non-controlling interests
Total equity
Approved at a Directors’ meeting on 8 March 2013.
On behalf of the Board:
D.G. Holden
Chief Executive
I.D. Burrell
Finance Director
Notes
2012
£’000
2011
£’000
11
12
13
20
21
14
15
16
17
18
18
21
22
24
175,607
41,413
650
8,212
-
-------------------
225,882
-------------------
75,416
30,218
11,101
-------------------
116,735
-------------------
342,617
-------------------
61,513
2,828
99
-------------------
64,440
-------------------
74,545
20,058
-------------------
94,603
-------------------
159,043
-------------------
183,574
----------------
49,845
22,695
(9,571)
75,394
(213,067)
(1,216)
255,610
-------------------
179,690
3,884
-------------------
183,574
----------------
191,324
42,730
2,188
12,966
63
-------------------
249,271
-------------------
82,338
40,304
5,998
-------------------
128,640
-------------------
377,911
-------------------
57,539
5,923
25,088
-------------------
88,550
-------------------
58,011
25,286
-------------------
83,297
-------------------
171,847
-------------------
206,064
----------------
49,845
22,695
(9,514)
75,394
(213,067)
(304)
277,621
-------------------
202,670
3,394
-------------------
206,064
----------------
The Notes on pages 96 to 135 form part of these Consolidated Financial Statements.
92
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 93
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
for the year ended 31 December 2010
for the year ended 31 December 2012
Cash flows from operating activities
Profit before operational restructuring costs and asset impairments
Operational restructuring costs and asset impairments
(Loss) / profit for the financial period
Income tax (credit) / expense on continuing operations
Income tax (credit) on operational restructuring costs and asset impairments
Loss on disposal and closure of discontinued operations
Income tax credit on discontinued operations
(Loss) / profit before tax on total operations
Adjustments for:
Depreciation
Amortisation
Operational restructuring costs and asset impairments
Negative goodwill
Share of results of associates
Gain on sale of associates
Gain on sale of property, plant and equipment
Gain on exchange of property
Equity settled share-based expenses
Financial income and expenses (net)
Operating cash flow before changes in working capital and pension scheme
contributions
Decrease / (increase) in trade and other receivables
Decrease in inventories
(Decrease) / increase in trade and other payables
Operational restructuring costs and works closure costs paid
Pension scheme contributions
Cash generated from the operations
Financial expenses paid
Income tax (paid) / received
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Financial income received
Proceeds from disposal of discontinued operations
Proceeds from disposal of investment in associates
Acquisition of subsidiaries and investment in associates
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash flow from investing activities
Cash flows from financing activities
Payments to acquire own shares
Net decrease in other debt and finance leases
(Decrease) / increase in borrowings
Equity dividends paid
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effect of exchange rate fluctuations
Cash and cash equivalents at end of the period
2012
£'000
2011
£'000
11,456
(17,154)
-------------------
(5,698)
(1,105)
(4,367)
-
-
-------------------
(11,170)
14,783
1,247
21,521
-
(28)
-
(1,944)
(594)
468
3,578
-------------------
27,861
9,970
4,968
(2,742)
(7,431)
(3,600)
-------------------
29,026
(4,292)
(46)
-------------------
24,688
-------------------
8,595
4
150
-
-
(8,307)
(1,212)
-------------------
(770)
-------------------
(57)
154
(8,609)
(10,292)
-------------------
(18,804)
-------------------
5,114
5,998
(11)
-------------------
11,101
----------------
7,256
-
-------------------
7,256
1,522
-
4,949
(756)
-------------------
12,971
17,269
1,231
-
(1,772)
(65)
(23)
(1,359)
-
226
3,007
-------------------
31,485
(10,440)
437
1,366
(1,197)
(6,600)
-------------------
15,051
(3,496)
222
-------------------
11,777
-------------------
5,361
13
550
63
(4,181)
(11,754)
(1,857)
-------------------
(11,805)
-------------------
-
165
12,034
(10,292)
-------------------
1,907
-------------------
1,879
4,059
60
-------------------
5,998
----------------
Marshalls plc Annual Report 2012
93
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 94
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Share
capital
£’000
Share
premium
account
£’000
Attributable to equity holders of the Company
Capital
Own
shares
£’000
redemption Consolidation
reserve
£’000
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interests
£'000
Total
£'000
Total
equity
£'000
49,845
206,064
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(213,067)
202,670
277,621
(9,514)
75,394
22,695
3,394
(304)
Current year
At 1 January 2012
Total comprehensive
income/(expense) for
the period
Loss for the financial
period attributable to
equity shareholders of
the parent
Other comprehensive
income/(expense)
Foreign currency
translation differences
Effective portion of
changes in fair value of
cash flow hedges
Net change in fair value of
cash flow hedges transferred
to the Income Statement
Deferred tax arising
Defined benefit plan
actuarial losses
Deferred tax arising
Impact of the change in
rate of deferred taxation
--
--
--
--
--
--
--
---
---
---
---
---
---
---
-
-
(2,050)
840
298
-
-
(5,684)
(5,684)
(14)
(5,698)
116
116
(106)
10
-
-
-
(2,050)
840
298
(9,063)
2,084
(9,063)
2,084
-
-
-
-
-
(2,050)
840
298
(9,063)
2,084
--
360
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
360
360
---
-
-
Total other
comprehensive
income/(expense)
Total comprehensive
income/(expense) for
the period
--
(7,521)
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(6,503)
(7,415)
(106)
(912)
---
--
------------------
------------------
--
------------------
------------------
-
------------------
(912)
------------------
(12,187)
------------------
(13,099)
------------------
(120)
------------------
(13,219)
------------------
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based expenses
Dividends to equity
shareholders
Purchase of own shares
--
---
-
468
468
-
468
--
--
(10,292)
(57)
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(10,292)
(57)
---
(57)
(10,292)
-
--
-
-
--
Total contributions by
and distributions to
owners
--
(9,881)
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(9,824)
(9,881)
(57)
--
-
-
Changes in ownership
interests in subsidiaries
Issue of shares
--
610
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
610
---
--
-
Total transactions with
owners of the Company
At 31 December 2012
--
(22,490)
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
183,574
------------------
(213,067)
------------------
(1,216)
------------------
(9,571)
------------------
75,394
------------------
255,610
------------------
179,690
------------------
3,884
------------------
22,695
------------------
49,845
------------------
(22,011)
(22,980)
(912)
(57)
490
--
94
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 95
Consolidated Statement of Changes in Equity (continued)
Notes to the Consolidated Financial Statements
for the year ended 31 December 2012
Prior year
At 1 January 2011
Total comprehensive
income for the period
Profit for the financial
period attributable to
equity shareholders
of the parent
Other comprehensive
income/(expense)
Foreign currency
translation differences
Effective portion of
changes in fair value of
cash flow hedges
Net change in fair value
of cash flow hedges
transferred to the
Income Statement
Deferred tax arising
Defined benefit plan
actuarial gains
Deferred tax arising
Impact of the change in
rate of deferred taxation
Total other
comprehensive
income/(expense)
Total comprehensive
income/(expense) for
the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to owners
Share-based expenses
Dividends to equity
shareholders
Total contributions by
and distributions to
owners
Changes in ownership
interests in subsidiaries
Acquisition of non-
controlling interests
Total transactions with
owners of the Company
At 31 December 2011
Attributable to equity holders of the Company
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Own
shares
£’000
Consolid-
ation
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interests
£'000
Total
£'000
Total
equity
£'000
49,845
---------------
22,695
---------------
(9,514)
---------------
75,394
---------------
(213,067)
---------------
(179)
---------------
273,066
---------------
198,240
---------------
-
---------------
198,240
---------------
--
--
--
--
--
--
--
--
---------------
--
---------------
-
-
--
(570)
402
43
-
-
7,390
7,390
(134)
7,256
(110)
(110)
(56)
(166)
-
-
-
(570)
402
43
9,982
(2,496)
9,982
(2,496)
-
-
-
-
-
(570)
402
43
9,982
(2,496)
---
---
-
---
---
---
---
---
---------------
---------------
---------------
---------------
-
---------------
(145)
---------------
(145)
---------------
-
---------------
(145)
---------------
---------------
---------------
---------------
---------------
---
(125)
---------------
7,231
---------------
7,106
---------------
(56)
---------------
7,050
---------------
-
-----------------
-
-----------------
---
-----------------
-----------------
-----------------
(125)
-----------------
14,621
-----------------
14,496
-----------------
(190)
-----------------
14,306
-----------------
--
--
---------------
--
---------------
--
---------------
--
---------------
49,845
-----------------
---
---
---------------
---------------
---------------
---------------
-
226
226
-
226
-
---------------
(10,292)
---------------
(10,292)
---------------
-
---------------
(10,292)
---------------
---------------
---------------
---------------
---------------
---
-
---------------
(10,066)
---------------
(10,066)
---------------
-
---------------
(10,066)
---------------
---------------
---------------
---------------
---------------
---
--
---------------
---------------
-
---------------
3,584
---------------
3,584
---------------
---
---------------
22,695
-----------------
---------------
(9,514)
-----------------
---------------
75,394
-----------------
---------------
(213,067)
-----------------
(125)
---------------
(304)
-----------------
4,555
---------------
277,621
-----------------
4,430
---------------
202,670
-----------------
3,394
---------------
3,394
-----------------
7,824
---------------
206,064
-----------------
Marshalls plc Annual Report 2012
95
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Notes to the Consolidated Financial Statements
1 Accounting policies
Significant accounting policies
Marshalls plc (the “Company”) is a Company domiciled in the United Kingdom. The Consolidated Financial Statements
of the Company for the year ended 31 December 2012 comprise the Company and its subsidiaries (together referred
to as the “Group”).
The Consolidated Financial Statements were authorised for issue by the Directors on 8 March 2013.
The following paragraphs summarise the significant accounting policies of the Group, which have been applied
consistently in dealing with items which are considered material in relation to the Group’s Consolidated Financial
Statements.
The Consolidated Financial Statements have been prepared in accordance with IFRSs as adopted for use in the EU. The
Group has applied all accounting standards and interpretations issued by the IASB and International Financial
Reporting Committee relevant to its operations and which are effective in respect of these Financial Statements.
The following new accounting standards and amendments to standards are mandatory and have been adopted for the
first time in the year ended 31 December 2012:
•“ Disclosures - Transfers of Financial Assets (Amendments to IFRS 7)” - The amendments require additional disclosures
about transfers of financial assets. The amendments also require additional disclosures if a disproportionate
amount of transfer transactions are undertaken around the end of a reporting period.
•
•
“Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendments to IFRS 1)”.
“Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12)” - The amendments introduce an exception to
the current measurement principles of deferred tax assets and liabilities arising from investment property
measured using the fair value model in accordance with IAS 40 - “Investment Property.” The exception also applies to
investment properties acquired in a business combination accounted for in accordance with IFRS 3 - “Business
Combinations” provided the acquirer subsequently measure these assets applying the fair value model.
These standards and amendments have been adopted by the EU.
The application of these standards and amendments has not had a material impact on the Group’s reported financial
performance or position.
The following standards and amendments to standards are in issue but not yet effective and therefore have not been
applied in the Group’s Consolidated Financial Statements. They are due for adoption on the date stated.
•
•
•
•
IAS 19 (R) - “Employee Benefits” - (1 January 2013) - For defined benefit schemes, the amendments require the
recognition of all past service costs and the requirement to replace interest cost and expected return on plan assets
with a net interest amount that is calculated by applying the discount rate to the net defined benefit asset or
liability. The amended standard is required to be applied retrospectively. Had the standard been applied to the
2012 results there would have been no adjustments required to the Consolidated Income Statement or the
Consolidated Statement of Comprehensive Income.
IAS 1 - “Presentation of Items of Other Comprehensive Income” - (1 January 2013) - The amendments require an entity
to present the items of Other Comprehensive Income that may be recycled to profit or loss in the future if certain
conditions are met, separately from those that would never be recycled to profit or loss. Consequently, as the Group
presents items of Other Comprehensive Income before related income tax effects the aggregated income tax
amount would need to be allocated between those sections.
IFRS 7 - “Disclosures - Offsetting Financial Assets and Financial Liabilities” - (1 January 2013) - For certain financial
assets and financial liabilities a number of additional common disclosures are required.
IFRS 9 - “Financial Instruments” - (1 January 2013) - The first chapters of a new standard on accounting for financial
instruments which will replace IAS 39 “Financial Instruments: Recognition and Measurement.”
96
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1 Accounting policies (continued)
Significant accounting policies (continued)
•
•
•
•
IFRS 10 - “Consolidated Financial Statements” and IAS 27 - “Separate Financial Statements” - (1 January 2013) - and
IFRS 11 - “Joint Arrangements” and amendments to IAS 28 - “Investments in Associates and Joint Ventures” - (1 January
2013). These are part of a new suite of standards on consolidation and related standards, replacing the existing
accounting for subsidiaries and joint ventures (now joint arrangements), and making limited amendments in
relation to associates.
IFRS 12 - “‘Disclosure of Interests in Other Entities” - 1 January 2013 - This contains the disclosure requirements for
entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates
and/or unconsolidated structured entities.
IFRS 13 - “Fair Value Measurement” - (1 January 2013) - This is a new standard to replace existing guidance on fair
value measurement in different IFRSs with a single definition of fair value, a framework for measuring fair values and
disclosures about fair value measurements.
IAS 32 - “Offsetting Financial Assets and Financial Liabilities” - (1 January 2013) - The amendments clarify the
offsetting criteria when an entity currently has a legal right of set off.
These standards are not expected to have a material impact on the Consolidated Financial Statements.
(a) Statement of compliance
The Group Consolidated Financial Statements have been prepared and approved by the Directors in accordance
with International Financial Reporting Standards as adopted by the European Union (“adopted IFRSs”). The Parent
Company has elected to prepare its Financial Statements in accordance with UK GAAP; these are presented on
pages 136 to142.
(b) Basis of preparation
The Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Business Review on pages 6 to 27. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are also set out in the Business Review. In addition, Note 19 includes the
Group’s policies and procedures for managing its capital; its financial risk management objectives; details of its
financial instruments; and its exposures to credit risk and liquidity risk.
Details of the Group’s funding position are set out in Note 19 and are subject to normal covenant arrangements.
The Group’s on-demand overdraft facility is renewed on an annual basis and the current arrangements were
renewed and signed on 15 August 2012. Management believe that there are sufficient unutilised facilities held
which mature after twelve months. As noted in the Business Review, the Group’s performance is dependent on
economic and market conditions, the outlook for which is uncertain and difficult to predict. The Group has taken
decisive action to align its operational capacity with expected market conditions and, based on current
expectations, the Group’s cash forecasts meet half-year and year end bank covenants and there is adequate
headroom which is not dependent on facility renewals. The Directors believe that the Group is well placed to
manage its business risks successfully despite the current uncertain economic outlook. Accordingly, they continue
to adopt the going concern basis in preparing the Group Consolidated Financial Statements.
The Consolidated 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 accounting policies have been applied consistently throughout the Group for the purposes of these
Consolidated Financial Statements and are also set out on the Company’s website (www.marshalls.co.uk).
The Consolidated Financial Statements are presented in sterling, rounded to the nearest thousand.
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
(b) Basis of preparation (continued)
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 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.
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.
Judgements made by management in the application of adopted IFRSs that have a significant effect on the
Consolidated Financial Statements and estimates with a significant risk of material adjustment in the next year are
discussed in Note 29.
(c) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In
assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The
Financial Statements of subsidiaries are included in the Consolidated Financial Statements from the date that
control commences until the date that control ceases.
(ii) Associates (equity accounted investees)
Associates are those entities in which the Group has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of
the voting power of another entity. Associates are accounted for using the equity method (equity accounted
investees) and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition,
net of any accumulated impairment losses. The Consolidated Financial Statements include the Group’s share of the
income and expenses and equity movements of equity accounted investees, after adjustment to align the
accounting policies with those of the Group, from the date that significant influence commences until the date that
significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee,
the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of
further losses is discontinued except to the extent that the Group has an obligation or has made payments on
behalf of the investee.
(iii) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group
transactions, are eliminated in preparing the Consolidated Financial Statements.
(d) Foreign currency transactions
Transactions in foreign currencies are translated to sterling at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
translated to sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the Consolidated Income Statement. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the
transaction.
For the purposes of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items
are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly
during that period in which case the exchange rates at the date of transactions are used.
98
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1 Accounting policies (continued)
(e) Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign exchange, fuel pricing and interest
rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the
Group does not hold or issue derivative financial instruments for speculative purposes. However, derivatives that do
not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised at fair value and transaction costs are recognised in the Income
Statement when incurred. The gain or loss on re-measurement to fair value is recognised immediately in the
Consolidated Income Statement. However, where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the item being hedged (see accounting policy f ).
(f) Hedging
(i) Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset
or liability, or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative
financial instrument is recognised directly in equity. When the forecasted transaction subsequently results in the
recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from
equity and included in the initial cost or other carrying amount of the non-financial asset. For cash flow hedges,
other than those covered by the preceding policy statement, the associated cumulative gain or loss is removed
from equity and recognised in the Consolidated Income Statement in the same period or periods during which the
hedged forecast transaction affects the income or expense. The ineffective part of any gain or loss is recognised
immediately in the Consolidated Income Statement.
When a hedging instrument expires or is sold, terminated or exercised or the entity revokes designation of the
hedge relationship but the hedged forecast transaction is still expected to occur, it no longer meets the criteria for
hedge accounting. The cumulative gain or loss at that point remains in equity and is recognised in accordance with
the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the
cumulative unrealised gain or loss recognised in equity is recognised immediately in the Consolidated Income
Statement and cash flow hedge accounting is discontinued prospectively.
(ii) Economic hedges
Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging
instrument is recognised in the Consolidated Income Statement.
(g) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and
impairment losses (see accounting policy l). The cost of self-constructed assets includes the cost of materials, direct
labour and an appropriate proportion of directly attributable production overheads.
Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 January 2004,
the date of transition to adopted IFRSs, are measured on the basis of deemed cost, being the revalued amount at
the date of that revaluation.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items of property, plant and equipment.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as
finance leases. Property, plant and equipment acquired by way of finance lease are stated at an amount equal to
the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less
accumulated depreciation (see below) and impairment losses (see accounting policy l).
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
(g) Property, plant and equipment (continued)
(iii) Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part
of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the
item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the
Consolidated Income Statement as an expense as incurred.
(iv) Depreciation
Depreciation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment. Depreciation on quarries is based on estimated rates
of extraction. This is based on a comparison between the volume of relevant material extracted in any given period
and the volume of relevant material available for extraction. Depreciation on leased assets is charged over the
shorter of the lease term and their useful economic life. Freehold land is not depreciated. The rates are as follows:
Freehold and long leasehold buildings
Short leasehold property
Fixed plant and equipment
Mobile plant and vehicles
Quarries
-
-
-
-
-
2.5% to 5% per annum
over the period of the lease
3.3% to 25% per annum
14% to 30% per annum
based on rates of extraction
The residual values, useful economic lives and depreciation methods are reassessed annually. Assets under
construction are not depreciated until they are ready for use.
Site preparation costs associated with the development of new stone reserves are capitalised. These costs would
include:
•
•
•
costs of clearing the site (including internal and outsourced labour in relation to site workers);
professional fees (including fees relating to obtaining planning consent);
purchase, installation and assembly of any necessary extraction equipment; and
costs of testing whether the extraction process is functioning properly (net of any sales of test product).
Depreciation commences when commercial extraction commences and is based on the rate of extraction.
In accordance with IAS 37, provision is made for quarry restoration where a legal or constructive obligation exists,
it is probable that an outflow of economic benefits will occur and the financial cost of restoration work can be
reliably measured. The lives of quarries are almost always long and it is difficult to estimate the length with any
precision. The majority of quarry restoration work is undertaken while extracting minerals from new areas
(backfilling) and therefore work can be completed without additional cost. As a result of the particular
characteristics of the Group’s quarries, the IAS 37 criteria have not been met to date based on the assets so far
acquired and therefore, no provisions have been recognised.
(h) Intangible assets
(i) Goodwill
All business combinations are accounted for using the acquisition method as at the acquisition date, which is the
date on which control is transferred to the Group.
For acquisitions on or after 1 January 2011, the Group measures goodwill at the acquisition date as:
•
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
100
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1 Accounting policies (continued)
(i) Goodwill (continued)
When the excess is negative, a bargain purchase gain is recognised immediately in the Consolidated Income
Statement.
Costs relating to the acquisition, other than those associated with the issue of debt or equity securities, are
expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent
consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise,
subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests either at its fair value
or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the
acquisition date.
In respect of business acquisitions that have occurred since 1 January 2004 but before 1 January 2011, goodwill
represents the difference between the cost of the acquisition and the fair value of the net identifiable assets and
contingent liabilities acquired. The classification and accounting treatment of business combinations that occurred
prior to 1 January 2011 were not adjusted in preparing the Group’s opening IFRS balance sheet at 1 January 2011.
In respect of acquisitions prior to 1 January 2004, goodwill is included on the basis of its deemed cost, which
represents the amount recorded under the Group’s previous accounting framework. The classification and
accounting treatment of business combinations that occurred prior to 1 January 2004 were not adjusted in
preparing the Group’s opening IFRS balance sheet at 1 January 2004.
Goodwill is subsequently stated at cost less any accumulated impairment losses. Goodwill is allocated to cash
generating units and is tested annually for impairment (see accounting policy l). In respect of equity accounted
investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee.
In respect of acquisitions where there is a contingent consideration element, an accrual is created for the estimated
amount payable if it is probable that an outflow of economic benefits will be required to settle the obligation and
this can be measured reliably.
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge
and understanding, is recognised in the Consolidated Income Statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the
production of new or substantially improved products and processes, is capitalised if the product or process meet
the recognition criteria for development expenditure as set out in IAS 38 - “Intangible Assets”. The expenditure
capitalised includes all directly attributable costs, from the date which the intangible asset meets the recognition
criteria, necessary to create, produce and prepare the asset to be capable of operating in the manner intended by
management. Other development expenditure is recognised in the Consolidated Income Statement as an expense
as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and
impairment losses (see accounting policy l).
(iii) Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below)
and impairment losses (see accounting policy l).
Expenditure on internally generated goodwill and brands is recognised in the Consolidated Income Statement as
an expense as incurred.
(iv) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
(h) Intangible assets (continued)
(v) Amortisation
Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful
lives of intangible assets unless such lives are indefinite. Goodwill is systematically tested for impairment at each
balance sheet date. Other intangible assets are amortised from the date they are available for use. The rates applied
are as follows:
Customer and supplier relationships
Patents, trademarks and know-how
Development costs
Software
-
-
-
-
5 to 20 years
2 to 20 years
10 to 20 years
5 to 10 years
(i) Trade and other receivables
Trade and other receivables are stated at their nominal amount (discounted if material) less impairment losses (see
accounting policy l).
(j) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price
in the ordinary course of business, less the estimated costs to completion and of selling expenses.
The cost of inventories is based on the first-in, first-out principle and includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and condition. In the case of manufactured inventories and
work in progress, cost includes an appropriate share of overheads based on normal operating capacity which were
incurred in bringing the inventories to their present location and condition.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand
and form an integral part of the Group’s cash management are included as a component of cash and cash
equivalents for the purpose of the Consolidated Cash Flow Statement.
(l) Impairment
(i) Impairment review
The carrying amounts of the Group’s assets, other than inventories (see accounting policy j) and deferred tax assets
(see accounting policy v), are reviewed at each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the
recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in the Consolidated Income Statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount
of any goodwill allocated to cash-generating units and then, to reduce the carrying amount of the other assets in
the unit on a pro rata basis. A cash-generating unit is the group of assets identified on acquisition that generate
cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The recoverable amount of assets or cash-generating units is the greater of their fair value less costs to sell and value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre
tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.
102
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1 Accounting policies (continued)
(l) Impairment (continued)
(ii) Reversals of impairments
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
(m)Share capital
(i) Share capital
Share capital is classified as equity if it is non-redeemable and any dividends are discretionary, or is redeemable but
only at the Company’s option. Dividends on share capital classified as equity are recognised as distributions within
equity. Non-equity share capital is classified as a liability if it is redeemable on a specific date or at the option of the
shareholders or if dividend payments are not discretionary. Dividends thereon are recognised in the Consolidated
Income Statement as a financial expense.
(ii) Dividends
Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity
dividends are recognised as a liability in the period in which they are declared (appropriately authorised and no
longer at the discretion of the Company).
(n) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on
an effective interest basis.
(o) Pension schemes
(i) Defined benefit schemes
The net obligation in respect of the Group’s defined benefit pension scheme is calculated by estimating the amount
of future benefit that employees have earned in return for their service in the current and prior periods; that benefit
is discounted to determine its present value, and the fair value of any scheme assets is deducted. The discount rate
is the yield at the balance sheet date on AA credit rated corporate bonds that have maturity dates approximating
to the terms of the Group’s obligations. The calculation is performed by a qualified Actuary using the projected unit
credit method.
If the calculation results in a surplus, the resulting asset is measured at the lower of the amount of any cumulative
unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in
the form of refunds from the plan, or reductions in future contributions to the plan. The present value of these
economic benefits is discounted by reference to market yields at the balance sheet date on high quality corporate
bonds.
Actuarial gains and losses that arise in calculating the Group’s obligation in respect of a plan are recognised
immediately within the Consolidated Statement of Comprehensive Income.
(ii) Defined contribution schemes
Obligations for contributions to defined contribution schemes are recognised as an expense in the Income
Statement as incurred.
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
1 Accounting policies (continued)
(p) Share-based payment transactions
The Group enters into equity-settled share-based payment transactions with its employees. In particular, annual
awards are made to Directors under a Long Term Incentive Plan.
The Long Term Incentive Plan allows Group employees to acquire shares in Marshalls plc. The fair value of options
granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the employees become unconditionally entitled to the
options. The fair value of the options granted is measured using the Black-Scholes option valuation model, taking
into account the terms and conditions upon which the options were granted. The amount recognised as an expense
is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognised as an expense is based on the number of
awards that do meet the related service and non-market performance conditions at the vesting date.
Current tax relief is available based on the intrinsic value of shares issued at exercise date. Consequently, a deferred
tax asset is recognised at grant date based on the number of shares expected to be issued proportioned in line with
the vesting period.
(q) Own shares held by Employee Benefit Trust
Transactions of the group-sponsored Employee Benefit Trust are included in the Group Financial Statements. In
particular, the Trust’s purchases of shares in the Company are debited directly to equity.
(r) Provisions
A provision is recognised in the Consolidated Balance Sheet when the Group has a present legal or constructive
obligation as a result of a past event, it can be measured reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan,
and the restructuring has either commenced or has been announced publicly. Future operating costs are not
provided for.
(s) Trade and other payables
Trade and other payables are stated at nominal amount (discounted if material).
(t) Revenue
Revenue from the sale of goods is recognised in the Consolidated Income Statement upon the despatch of goods,
when the significant risks and rewards of ownership of the goods have been transferred to the buyer. Revenue
represents the invoiced value of sales to customers less returns, allowances and value added tax.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or the
possible return of goods or continuing management involvement with the goods.
(u) Expenses
(i) Operating lease payments
Payments made under operating leases are recognised in the Consolidated Income Statement on a straight-line
basis over the term of the lease. Lease incentives received are recognised in the Consolidated Income Statement
over the life of the lease.
(ii) Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
104
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1 Accounting policies (continued)
(u) Expenses (continued)
(iii) Financial expenses
Net financial expenses comprise interest on obligations under the defined benefit pension scheme, the expected
return on scheme assets under the defined benefit pension scheme, interest payable on borrowings (including
finance leases) calculated using the effective interest rate method, dividends on non-equity shares, interest
receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on
hedging instruments that are recognised in the Consolidated Income Statement (see accounting policy f ).
(v) Income tax
Income tax on the profit or loss for the year comprises current and deferred taxation. Income tax is recognised in
the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred taxation is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill,
the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, other than in a
business combination, and differences relating to investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred taxation provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to
apply when the temporary difference reverses, based on rates that have been enacted or substantively enacted
at the balance sheet date.
A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred taxation assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the
liability to pay the related dividend.
(w) Segment reporting
The Group has determined that, in accordance with IFRS 8 “Operating Segments” and based on its internal
reporting framework and management structure, it has only one reportable segment. Such determination is
necessarily judgemental in its nature and has been determined by management in preparing the Consolidated
Financial Statements. The level of disclosure of segmental and other information is determined by such
assessment. Further details of the considerations made and the resulting disclosures are provided in Note 2
below.
2
Segmental analysis
Operating profit
(before operational
restructuring costs and
asset impairments)
Operating profit /
(loss)
Revenue
2012
£’000
2011
£’000
2012
£’000
2011
£’000
2012
£’000
2011
£’000
Continuing operations
Financial income and expenses (net)
Profit / (loss) before tax
309,693
------------------
334,127
------------------
13,929
16,697
(7,592)
16,697
(3,578)
------------------
10,351
------------------
(3,007)
------------------
13,690
------------------
(3,578)
------------------
(11,170)
------------------
(3,007)
------------------
13,690
------------------
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
2 Segmental analysis (continued)
Operating segments
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. The Directors have
concluded that, in terms of the Group’s operations, the detailed requirements of IFRS 8 support the reporting of the
Group’s operations as a single business segment. As far as Marshalls is concerned the CODM is regarded as being the
Executive Directors.
Detailed consideration has been given to the Group’s overall business strategy and this is explained in detail in the
Business Review on pages 6 to 27. The fundamental strategic objectives remain as follows:
•
•
•
•
to develop, improve, reduce cost and innovate in our unique manufacturing and distribution network;
to invest in marketing direct to the consumer to “pull through demand” and build brand awareness;
to continue to develop the integrated product offer; and
to invest in acquisitions and organic expansion.
These strategic objectives increasingly require the CODM to view the business on a national and a Group level. The
Group’s national manufacturing plan is structured around a series of production units throughout the United
Kingdom, in conjunction with a single logistics and distribution operation. A National planning process supports
sales to both of the Group’s key end markets, namely the Domestic and Public Sector and Commercial end markets
and the Group’s operating assets produce and deliver a range of broadly similar products that are sold into each of
these end markets. The focus is on the one integrated production, logistics and distribution network supporting
both end markets and operating and financial information is available for the one combined integrated logistics and
distribution network. Whilst KPI information is available to the CODM from the different functional areas of the
business, “performance assessment” and “resource allocation” continue to be addressed on a Group basis. The
Group’s structure and strategy mean that business performance is focused on production efficiency, logistics and
distribution efficiency, the performance of customers and operational planning. These are completely inter-
dependent and are undertaken on a fully integrated basis, not in isolation.
For these reasons, and on the basis of the strategy, structure and nature of its business, and having considered the
specific requirements of IFRS 8, the Directors have concluded that the Group has one operating segment. In order to
assist the reader of the Annual Report some revenue information has been presented in the Business Review relating
to the Group’s Domestic and Public Sector and Commercial end markets.
Geographical destination of revenue:
United Kingdom
Rest of the world
2012
£’000
2011
£’000
296,242
13,451
------------------
309,693
------------------
322,396
11,731
------------------
334,127
------------------
As disclosed in Note 23, in the period ended 31 December 2011 (the period of acquisition), Marshalls NV contributed
revenue of £8,877,000. All other revenue originates in the United Kingdom from continuing operations. The Group’s
International operations do not meet the definition of a reportable operating segment under IFRS 8.
106
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3 Net operating costs
Raw materials and consumables
Changes in inventories of finished goods and work in progress
Personnel costs
Depreciation - owned
- leased
Amortisation of intangible assets
Own work capitalised
Other operating costs
Negative goodwill
Acquisition costs
International "start up" costs
Operating costs
Other operating income
Net gain on asset and property disposals
Gain on property exchange (Note 11)
Share of results of associates
Gain on sale of associates
Net operating costs before operational restructuring costs and asset impairments
Operational restructuring costs and asset impairments (Note 5)
Net operating costs
Net operating costs include:
Auditor’s remuneration (see below)
Leasing costs
Hire of plant and machinery
Research and development costs
2012
£’000
2011
£’000
102,522
6,716
83,288
14,704
79
1,247
(1,272)
92,809
-
-
499
----------------
300,592
(2,262)
(1,944)
(594)
(28)
-
-----------------
295,764
21,521
----------------
317,285
--------------
117,865
542
87,979
17,054
99
1,179
(1,984)
98,264
(1,772)
482
848
-----------------
320,556
(1,679)
(1,359)
-
(65)
(23)
-----------------
317,430
-
-----------------
317,430
--------------
2012
£’000
2011
£’000
169
7,482
5,417
2,425
--------------
164
7,295
4,673
3,166
--------------
The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations
2011 is mandatory for periods starting after 1 October 2011. The comparatives in respect of the disclosures of
Auditor Remuneration have been restated accordingly. In respect of the year under review, KPMG Audit Plc carried
out work in relation to:
Audit of Marshalls plc
Audit of financial statements of subsidiaries of the Company
Taxation compliance services
Other services
2012
£’000
20
133
6
10
-----------------
169
--------------
2011
£’000
20
127
6
11
-----------------
164
--------------
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
3 Net operating costs (continued)
As set out in Note 23 on 4 March 2011 the Group obtained control of a newly formed company in Belgium engaged
in the manufacture and supply of landscape products. The Group acquired 66.7 per cent of the ordinary share capital
and voting interests in Marshalls NV and the new business was established following the acquisition of certain
business assets and the injection of new working capital. The Group incurred acquisition-related costs of £482,000
relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in
net operating costs.
The initial acquisition of these assets, principally land, buildings, plant and machinery, has given rise to negative
goodwill. The first months of trading necessitated the commissioning of the plant and the manufacture and sourcing
of the Company’s operational inventory and working capital. A new management team has been established and
investment has been made in systems and procedures in the “start up” phase. To assist the user of these Consolidated
Financial Statements these “start up” costs have been separately disclosed.
4 Personnel costs
Personnel costs (including Directors):
2012
£’000
2011
£’000
Wages and salaries
Social security costs
Share based expenses (Note 20)
Contributions to defined contribution Pension Scheme
75,312
7,930
226
4,511
-----------------
87,979
409
1,368
-
-----------------
89,756
--------------
Details of Directors’ remuneration, share options, long term incentive plans and Directors’ pension entitlements are
disclosed in the Directors’ Remuneration Report on pages 59 to 84.
Included within net operating costs (Note 3)
Personnel costs included in International "start up" costs (Note 3)
Personnel costs related to net profit on asset and property disposals (Note 3)
Personnel costs included in operational restructuring costs (Note 5)
70,432
7,978
468
4,410
-----------------
83,288
263
1,378
6,321
-----------------
91,250
--------------
Total personnel costs
The average number of persons employed by the Group during the year was:
Continuing operations
5 Operational restructuring costs and asset impairments
Operational restructuring costs
Asset impairments
2012
Number
2,252
--------------
2012
£’000
10,226
11,295
-----------------
21,521
--------------
2011
Number
2,361
--------------
2011
£’000
-
-
-----------------
-
--------------
The Board has determined that certain charges to the Consolidated Income Statement should be separately
identified for better understanding of the Group’s results for the year ended 31 December 2012.
108
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5 Operational restructuring costs and asset impairments (continued)
Operational restructuring costs reflect the implementation of a wide range of contingency measures aimed at
reducing costs, reducing inventories and conserving cash. These initiatives include works closure costs which reflect
the need for capacity reductions and these have impacted those businesses that have been particularly affected by
the deterioration in current market conditions and for which the short term outlook remains challenging.
Operational restructuring costs include redundancy costs of £6,205,000.
Asset impairments include the write down of plant and machinery and other assets to their recoverable amounts
together with the impairment of certain intangible assets and other items of plant that are being temporarily
mothballed. The recoverable amounts are based on the fair value of the assets which are £nil.
Asset impairments are analysed as follows:
Property, plant and equipment (Note 11)
Intangible assets (Note 12)
Investment in associates (Note 13)
Inventories (Note 14)
6 Financial expenses and income
(a) Financial expenses
Interest expense on bank loans, overdrafts and loan notes
Interest on obligations under the defined benefit Pension Scheme
Finance lease interest expense
(b) Financial income
Expected return on Scheme assets under the defined benefit Pension Scheme
Interest receivable and similar income
2012
£’000
6,396
1,282
1,566
2,051
-----------------
11,295
--------------
2012
£’000
4,279
11,189
12
-----------------
15,480
--------------
11,898
4
-----------------
11,902
--------------
2011
£’000
-
-
-
-
-----------------
-
--------------
2011
£’000
3,483
11,464
13
-----------------
14,960
--------------
11,940
13
-----------------
11,953
--------------
Marshalls plc Annual Report 2012
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Notes to the Consolidated Financial Statements (continued)
7 Income tax expense
Before
operational Operational
restructuring restructuring
costs and
asset
impairments
2012
£’000
costs and
asset
impairments
2012
£’000
1,695
(2,148)
-----------------
(453)
(2,596)
-
-----------------
(2,596)
Total
2012
£’000
(901)
(2,148)
-----------------
(3,049)
Total
2011
£’000
2,471
(1,272)
-----------------
1,199
(736)
84
-----------------
(1,771)
-
-----------------
(2,507)
84
-----------------
626
(303)
-----------------
(1,105)
(4,367)
(5,472)
1,522
--
-
(194)
-
-----------------
(1,105)
-----------------
-
-----------------
(4,367)
-----------------
-
-----------------
(5,472)
-----------------
(562)
-----------------
766
-----------------
Current tax expense / (credit)
Current year
Adjustments for prior years
Deferred taxation (credit) / expense
Origination and reversal of temporary differences:
Current year
Adjustments for prior years
Income tax (credit) / expense in the
Consolidated Income Statement (continuing
operations)
Tax on discontinued operations (excluding loss on
sale)
Income tax credit on disposal and closure of
discontinued operations
Total tax (credit) / expense
Reconciliation of effective
tax rate
Profit / (loss) before tax
Tax using domestic
corporation tax rate
Disallowed amortisation
of intangible assets
Net income/expenditure
not taxable
Adjustments for prior years
Impact of the change in the
rate of corporation tax on
deferred taxation
Before operational
restructuring costs
and asset
impairments
2012
£’000
%
Total
2012
£’000
%
Total
2011
£’000
%
100.0
-----------------
10,351
-----------------
100.0
-----------------
(11,170)
-----------------
100.0
-----------------
13,690
-----------------
24.5
2,536
24.5
(2,737)
26.5
3,628
0.6
3.7
(20.0)
63
378
(2,064)
(0.6)
(11.5)
18.5
63
1,284
(2,064)
0.7
7.5
(11.5)
95
1,033
(1,575)
(19.5)
-----------------
(10.7)
-----------------
(2,018)
-----------------
(1,105)
-----------------
18.1
-----------------
49.0
-----------------
(2,018)
-----------------
(5,472)
-----------------
(12.1)
-----------------
11.1
-----------------
(1,659)
-----------------
1,522
-----------------
The net amount of deferred taxation credited to the Consolidated Statement of Comprehensive Income in the year
was £2,742,000 (2011: £2,598,000 debit).
110
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 111
8 Discontinued operations
On 14 June 2011 the Group announced the proposed closure of its non-core garage and greenhouse manufacturing
operations. Later in June 2011, agreement was reached to sell, separately, the Compton garage brand and the Alton
and Robinson greenhouse brands, and the Compton manufacturing site has been closed. The operation has been
treated as discontinued.
The results of the discontinued operations which have been included in the Consolidated Income Statement were as
follows:
Revenue
Net operating costs
Loss before tax
Income tax credit
Loss after tax
Loss on disposal and closure of discontinued operations
Income tax credit on disposal and closure of discontinued operations
Net loss attributable to discontinued operations
Basic loss per share (pence)
Diluted earnings per share (pence)
Effect of disposal and closure on the financial position of the Group
Property, plant and equipment
Intangible assets
Assets disposed of
Consideration received, satisfied in cash
Consideration receivable
Professional fees accrued
Net consideration received
Loss on disposal
Closure costs
Loss on disposal and closure of discontinued operations
(attributable to equity shareholders of the parent)
2012
£’000
-
-
-----------------
-
-
-----------------
-
-
-
-----------------
-
--------------
-
--------------
-
--------------
2012
£’000
-
-
-----------------
-
-----------------
-
-
-
-----------------
-
-----------------
-
--------------
-
--------------
-
--------------
2011
£’000
7,847
(8,566)
-----------------
(719)
194
-----------------
(525)
(4,949)
562
-----------------
(4,912)
--------------
(2.52)p
--------------
(2.52)p
--------------
2011
£’000
266
1,359
-----------------
1,625
-----------------
550
450
(93)
-----------------
907
-----------------
718
--------------
4,231
--------------
(4,949)
--------------
Marshalls plc Annual Report 2012
111
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 112
Notes to the Consolidated Financial Statements (continued)
8 Discontinued operations (continued)
During the year ended 31 December 2011 Compton contributed an outflow of £209,000 to the Group’s net operating
cash flows, received £550,000 in respect of investing activities and paid £nil in respect of financing activities. During
the year ended 31 December 2012 an additional £150,000 was received in respect of investing activities.
A pre tax loss of £718,000 arose on the disposal of the Compton garage and the Alton and Robinson greenhouse
brands, being the proceeds of disposal less the carrying amount of the relevant net assets. In addition the net cost
of the closure of the Compton site is £4,231,000. The total net loss on disposal and closure of discontinued operations
is £4,949,000.
Basic loss per share from discontinued operations of 2.52 pence per share is calculated by dividing the loss
attributable to ordinary shareholders from discontinued operations of £4,912,000 by the weighted average number
of shares in issue during the period of 195,374,526.
The ordinary shares are considered to be anti-dilutive to the loss per share from the discontinued operations
calculation.
9 Earnings per share
Basic loss per share from total operations of 2.91 pence (2011: 3.78 pence earnings) per share is calculated by dividing
the loss attributable to ordinary shareholders from total operations, and after adding back the loss on non-
controlling interests, of £5,684,000 (2011: £7,390,000 profit) by the weighted average number of shares in issue
during the period of 195,464,528 (2011: 195,374,526).
Basic loss per share from continuing operations of 2.91 pence (2011: 6.30 pence earnings) per share is calculated by
dividing the loss from continuing operations and after adding back the loss on non-controlling interests of
£5,684,000 (2011: £12,302,000) by the weighted average number of shares in issue during the year of 195,464,528
(2011: 195,374,526).
Basic earnings per share from continuing operations before operational restructuring costs and asset impairments of
5.87 pence (2011: 6.30 pence) per share is calculated by dividing the profit from continuing operations before
operational restructuring costs and asset impairments, and after adjusting for non-controlling interests, of
£11,470,000 (2011: £12,302,000) by the weighted average number of shares in issue during the period of 195,464,528
(2011: 195,374,526).
(Loss) / profit attributable to ordinary shareholders
Profit from continuing operations before operational restructuring costs and
asset impairments
Operational restructuring costs and asset impairments
(Loss) / profit from continuing operations
Loss from discontinued operations
(Loss) / profit for the financial period
Loss attributable to non-controlling interests
(Loss) / profit attributable to ordinary shareholders
2012
£’000
11,456
(17,154)
-----------------
(5,698)
-
-----------------
(5,698)
14
-----------------
(5,684)
--------------
2011
£’000
12,168
-
-----------------
12,168
(4,912)
-----------------
7,256
134
-----------------
7,390
--------------
112
Marshalls plc Annual Report 2012
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9 Earnings per share (continued)
Weighted average number of ordinary shares
Number of issued ordinary shares (at beginning of the period)
Effect of shares transferred into employee benefit trust
Effect of treasury shares acquired
Weighted average number of ordinary shares at end of the period
2012
Number
2011
Number
199,378,755
(1,489,227)
(2,425,000)
---------------------------
195,464,528
-----------------------
199,378,755
(1,579,229)
(2,425,000)
---------------------------
195,374,526
-----------------------
For the year ended 31 December 2012, the potential ordinary shares set out below are considered to be anti-dilutive
to the total earnings per share calculation.
Diluted earnings per share from continuing operations before operational restructuring costs and asset impairments
of 5.75 pence (2011: 6.17 pence) per share is calculated by dividing the profit from continuing operations before
operational restructuring costs and asset impairments, and after adjusting for non-controlling interests, of
£11,470,000 (2011: £12,302,000) by the weighted average number of shares in issue during the period of 195,464,528
(2011: 195,374,526) plus potentially dilutive shares of 3,914,227 (2011: 4,004,229) which totals 199,378,755 (2011:
199,378,755).
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares
Effect of shares transferred into employee benefit trust
Effect of treasury shares acquired
Weighted average number of ordinary shares (diluted)
2012
Number
2011
Number
195,464,528
1,489,227
2,425,000
---------------------------
199,378,755
-----------------------
195,374,526
1,579,229
2,425,000
---------------------------
199,378,755
-----------------------
10 Dividends
After the balance sheet date dividends of 3.50 pence per qualifying ordinary share (2011: 3.50 pence) were proposed
by the Directors. The dividends have not been provided for and there were no income tax consequences. The total
dividends proposed in respect of the year are as follows:
2012 final
2012 interim
2011 final
2011 interim
Pence per qualifying
share
3.50
1.75
----------------
5.25
--------------
3.50
1.75
----------------
5.25
--------------
2012
£’000
6,861
3,431
----------------
10,292
--------------
2011
£’000
6,861
3,431
----------------
10,292
--------------
Marshalls plc Annual Report 2012
113
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 114
Notes to the Consolidated Financial Statements (continued)
10 Dividends (continued)
The following dividends were approved by the shareholders and recognised in the period.
2012 interim
2011 final
2011 interim
2010 final
Pence per qualifying
share
1.75
3.50
----------------
5.25
--------------
1.75
3.50
----------------
5.25
--------------
2012
£’000
3,431
6,861
----------------
10,292
--------------
2011
£’000
3,431
6,861
----------------
10,292
--------------
The 2012 final dividend of 3.50 pence per qualifying ordinary share, total value £6,861,000 will be paid on 5 July 2013
to shareholders registered at the close of business on 7 June 2013.
11 Property, plant and equipment
Cost
At 1 January 2011
Acquisitions through business combinations
Exchange differences
Additions
Disposals
Reclassification
At 31 December 2011
At 1 January 2012
Exchange differences
Additions
Disposals
At 31 December 2012
Land and
buildings
£’000
83,985
6,794
(106)
2,042
(1,694)
(160)
-----------------
90,861
---------------
90,861
(209)
4,312
(6,203)
-----------------
88,761
---------------
Plant,
machinery
and vehicles
£’000
296,788
1,380
(17)
9,152
(4,802)
--
-----------------
302,501
---------------
302,501
(93)
6,575
(6,068)
-----------------
302,915
---------------
Quarries
£’000
31,541
-
-
560
-
160
-----------------
32,261
---------------
32,261
-
7
-
-----------------
32,268
---------------
Total
£’000
412,314
8,174
(123)
11,754
(6,496)
-----------------
425,623
---------------
425,623
(302)
10,894
(12,271)
-----------------
423,944
---------------
114
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 115
11 Property, plant and equipment (continued)
Depreciation and impairment losses
At 1 January 2011
Depreciation charge for the year
Exchange differences
Disposals
At 31 December 2011
At 1 January 2012
Depreciation charge for the year
Exchange differences
Disposals
Impairment losses (Note 5)
At 31 December 2012
Net Book Value
At 1 January 2011
At 1 January 2012
At 31 December 2012
Land and
buildings
£’000
29,596
2,341
(1)
(572)
-----------------
31,364
---------------
31,364
2,194
(1)
(1,945)
1,219
-----------------
32,831
---------------
54,389
---------------
59,497
---------------
55,930
---------------
Plant,
machinery
and vehicles
£’000
185,528
13,851
(23)
(4,085)
-----------------
195,271
---------------
195,271
12,006
(34)
(5,161)
5,177
-----------------
207,259
---------------
111,260
---------------
107,230
---------------
95,656
---------------
Quarries
£'000
6,563
1,101
-
-
-----------------
7,664
---------------
7,664
583
-
-
-
-----------------
8,247
---------------
24,978
---------------
24,597
---------------
24,021
---------------
Total
£’000
221,687
17,293
(24)
(4,657)
-----------------
234,299
---------------
234,299
14,783
(35)
(7,106)
6,396
-----------------
248,337
---------------
190,627
---------------
191,324
---------------
175,607
---------------
A property exchange undertaken during the year ended 31 December 2012 has given rise to a gain of £594,000 (Note
3) and has resulted in an increase in additions of £2,587,000.
Mineral reserves and associated land have been separately disclosed under the caption of “quarries”.
The carrying amount of tangible fixed assets includes £352,000 (2011: £165,000) in respect of assets held under
finance leases. Group cost of land and buildings and plant and machinery includes £937,000 (2011: £353,000) and
£1,311,000 (2011: £4,617,000) respectively for assets in the course of construction.
Capital commitments
Capital expenditure that has been contracted for but for which no
provision has been made in the Consolidated Financial Statements
2012
£’000
2011
£’000
224
---------------
1,998
---------------
Marshalls plc Annual Report 2012
115
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 116
Notes to the Consolidated Financial Statements (continued)
11 Property, plant and equipment (continued)
Depreciation charge
The depreciation charge is recognised in the following line items in the Consolidated Income Statement:
Net operating costs (Note 3): continuing operations
Discontinued operations
12 Intangible assets
Cost
At 1 January 2011
Additions
Disposals
At 31 December 2011
At 1 January 2012
Additions
At 31 December 2012
Customer
relation-
ships
£’000
Supplier
relation-
ships
£’000
Patents,
trademarks
and know- Development
costs
£’000
how
£’000
2,210
2,400
2,605
159
----
---------------
2,210
-------------
(1,200)
---------------
1,200
-------------
(945)
---------------
1,660
-------------
--
---------------
159
-------------
Goodwill
£’000
43,173
518
--
---------------
43,691
-------------
43,691
2,210
1,200
1,660
159
-----
---------------
43,691
-------------
---------------
2,210
-------------
---------------
1,200
-------------
---------------
1,660
-------------
---------------
159
-------------
Amortisation and impairment losses
At 1 January 2011
Amortisation for the year
Disposals
At 31 December 2011
At 1 January 2012
Amortisation for the year
Impairment losses (Note 5)
At 31 December 2012
Carrying amounts
At 1 January 2011
At 1 January 2012
At 31 December 2012
8,912
-
--
---------------
8,912
-------------
8,912
--
-
---------------
8,912
-------------
34,261
-------------
34,779
-------------
34,779
-------------
805
123
---------------
928
-------------
928
1,282
---------------
2,210
-------------
1,405
-------------
1,282
-------------
-
-------------
896
90
(528)
---------------
458
-------------
458
90
----
---------------
548
-------------
1,504
-------------
742
-------------
652
-------------
1,299
113
(258)
---------------
1,154
-------------
1,154
116
---------------
1,270
-------------
1,306
-------------
506
-------------
390
-------------
53
8
--
---------------
61
-------------
61
8
---------------
69
-------------
106
-------------
98
-------------
90
-------------
2012
£’000
14,783
-
-----------------
14,783
--------------
2011
£’000
17,153
116
-----------------
17,269
--------------
Software
£’000
6,361
1,857
---------------
8,218
-------------
8,218
1,212
---------------
9,430
-------------
1,998
897
---------------
2,895
-------------
2,895
1,033
---------------
3,928
-------------
4,363
-------------
5,323
-------------
5,502
-------------
Total
£’000
56,908
2,375
(2,145)
---------------
57,138
-------------
57,138
1,212
---------------
58,350
-------------
13,963
1,231
(786)
---------------
14,408
-------------
14,408
1,247
1,282
---------------
16,937
-------------
42,945
-------------
42,730
-------------
41,413
-------------
116
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 117
12 Intangible assets (continued)
All goodwill has arisen from business combinations. The carrying amount of goodwill is allocated across Cash
Generating Units (“CGUs”) and these CGUs are independent sources of income streams and represent the lowest level
within the Group at which the associated goodwill is monitored for management purposes. The Group tests goodwill
annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations and at both 31 December 2012
and 31 December 2011 the full amount of goodwill in the Group balance sheet related to the Landscape Products
CGU. These calculations use cash flow projections based on a combination of individual financial five year forecasts
and appropriate long term growth rates of 2 per cent. To prepare value in use calculations, the cash flow forecasts
are discounted back to present value using an appropriate market-based discount rate. The pre-tax discount rates
used to calculate the value in use range from 6.7 per cent to 7.2 per cent (2011: 8.0 per cent to 8.5 per cent), with the
pre-tax discount rate used for the Landscape Products CGU being 7.2 per cent (2011: 8.1 per cent). The Directors have
reviewed the recoverable amounts of the CGUs and do not consider that any reasonable change in the assumptions
would give rise to the need for further impairment.
Included in software additions is £776,000 (2011: £838,000) of own work capitalised.
Amortisation charge
The amortisation charge is recognised in the following line items in the Consolidated Income Statement:
Net operating costs (Note 3): continuing operations
Discontinued operations
13 Investment in associates
Carrying value
At 1 January
Disposals
Impairment losses (Note 5)
Share of results of associates
At 31 December
Investment at cost
Cumulative losses on disposals
Impairment losses (Note 5)
Cumulative share of results of associates
Carrying value at 31 December
2012
£’000
1,247
-
-----------------
1,247
--------------
2012
£’000
2,188
-
(1,566)
28
-----------------
650
--------------
2012
£’000
2,182
68
(1,566)
(34)
-----------------
650
--------------
2011
£’000
1,179
52
-----------------
1,231
--------------
2011
£’000
2,163
(40)
-
65
-----------------
2,188
--------------
2011
£’000
2,182
68
-
(62)
-----------------
2,188
--------------
On 21 July 2011 the Group disposed of its 24 per cent stake in Delta Bloc UK Limited for proceeds of £63,000.
The Group’s share of results of associates in the year ended 31 December 2012 was £28,000 profit (2011: £65,000
profit) and, on the grounds of materiality, no additional disclosure has been made.
Marshalls plc Annual Report 2012
117
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Notes to the Consolidated Financial Statements (continued)
14 Inventories
Raw materials and consumables
Finished goods and goods for resale
2012
£’000
13,716
61,700
-----------------
75,416
--------------
2011
£’000
13,922
68,416
-----------------
82,338
--------------
Inventories stated at fair value less cost to sell at 31 December 2012 amounted to £3,785,000 (2011: £3,239,000). The
write down of inventories made during the year amounted to £2,697,000 (2011: £938,000) of which £2,051,000 is in
respect of operational restructuring costs (Note 5). There were no reversals of inventory write downs made in
previous years either in 2012 or 2011.
15 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Ageing of trade receivables
Less than 30 days
31 - 60 days
61 - 90 days
More than 90 days
2012
£’000
19,849
3,782
6,587
-----------------
30,218
--------------
2012
£’000
15,160
4,158
486
45
-----------------
19,849
--------------
2011
£’000
29,448
4,383
6,473
-----------------
40,304
--------------
2011
£’000
17,813
10,066
1,497
72
-----------------
29,448
--------------
No receivables were due after more than one year. All amounts disclosed above are considered recoverable and no
material amounts are regarded as overdue.
16 Cash and cash equivalents
Bank balances
Cash in hand
Cash and cash equivalents in the Consolidated Cash Flow Statement
2012
£’000
11,079
22
-----------------
11,101
--------------
2011
£’000
5,976
22
-----------------
5,998
--------------
118
Marshalls plc Annual Report 2012
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17 Trade and other payables
Current liabilities
Trade payables
Taxation and social security
Other payables
Accruals
Financial liabilities
All trade payables are due in six months or less.
18 Loans
Current liabilities
Bank loans
Finance lease liabilities
Non current liabilities
Bank loans
Finance lease liabilities
Bank loans
2012
£’000
29,964
9,172
6,014
14,739
1,624
-----------------
61,513
--------------
2012
£’000
-
99
-----------------
99
--------------
74,325
220
-----------------
74,545
--------------
2011
£’000
34,471
7,207
4,778
10,669
414
-----------------
57,539
--------------
2011
£’000
25,000
88
-----------------
25,088
--------------
57,934
77
-----------------
58,011
--------------
The bank loans are secured by inter-group guarantees with certain subsidiary undertakings.
Finance lease liabilities
Minimum
lease
payments
2012
£’000
110
87
144
---------------
341
-------------
Interest
2012
£’000
Principal
2012
£’000
11
6
5
---------------
22
-------------
99
81
139
---------------
319
-------------
Minimum
lease
payments
2011
£’000
97
53
30
---------------
180
-------------
Interest
2011
£’000
9
5
1
---------------
15
-------------
Principal
2011
£’000
88
48
29
---------------
165
-------------
Less than one year
One to two years
Two to five years
Marshalls plc Annual Report 2012
119
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Notes to the Consolidated Financial Statements (continued)
19 Financial instruments
The Group holds and uses financial instruments to finance its operations and to manage its interest rate, liquidity
and currency risks. The Group primarily finances its operations using share capital, retained profits and borrowings.
The Group’s bank loans are non-equity funding instruments and further details of which are set out in Note 18.
As directed by the Board the Group does not engage in speculative activities using derivative financial instruments.
Group cash reserves are held centrally to take advantage of the most rewarding short term investment
opportunities. Forward foreign currency contracts are used in the management of currency risk.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and exchange rate
risk. The Board reviews and agrees the policies for managing each of these risks and they have remained unchanged
since 2011.
Capital management
The Group defines the capital that it manages as its total equity and net debt balances. The Group manages its
capital structure in the light of current economic conditions and its strategic objectives to ensure that it is able to
continue as a going concern whilst maximising the return to stakeholders through the optimisation of debt and
equity balances.
The Group manages its medium term bank debt to ensure continuity of funding and the policy is to arrange funding
ahead of requirements and to maintain sufficient undrawn committed facilities. A key objective is to ensure
compliance with the covenants set out in the Group’s bank facility agreements.
From time to time the Group purchases its own shares on the market; the timing of these purchases depends on
market prices. Primarily the shares are intended to be used for issuing shares under the Group’s Long Term Incentive
Plan. Buy and sell decisions are made on a specific transaction basis by the Board.
There has been no change in the objectives, policies or processes with regard to capital management during the
years ended 31 December 2012 and 31 December 2011.
Financial risks
The Group has exposure to a number of financial risks through the conduct of its operations. Risk management is
governed by the Group’s operational policies, guidelines and authorisation procedures which are outlined in the
Business Review on pages 6 to 27. The key financial risks resulting from financial instruments are liquidity risk,
interest rate risk, credit risk, foreign currency risk and pricing risk.
(a) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Board is
responsible for ensuring that the Group has sufficient liquidity to meet its financial liabilities as they fall due and does
so by monitoring cash flow forecasts and budgets. Cash resources are largely and normally generated through
operations and short term flexibility is achieved by bank facilities. Bank debt is raised centrally and the Group aims
to maintain a balance between flexibility and continuity of funding by having a range of maturities on its
borrowings. Details of the Group borrowing facilities are provided below. The capital structure of the Group consists
of equity attributable to equity shareholders of the Company and reserves.
(b) Interest rate risk
The Group’s policy is to review regularly the terms of its available short term borrowing facilities and to assess
individually and manage each long term borrowing commitment accordingly. The Group borrows principally at
floating rates of interest and where appropriate uses interest rate swaps to generate the desired interest rate profile,
thereby managing the Group’s exposure to interest rate fluctuations.
120
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 121
19 Financial instruments (continued)
Financial risks (continued)
(b) Interest rate risk (continued)
Approximately 80 per cent of core debt is covered by interest rate swaps of varying maturities up until 2018, which
reflects the maturity date of the related loans and medium term requirements, in accordance with Group policy. The
Group classifies its interest rate swaps as cash flow hedges and states them at fair value. The fair value of interest rate
swaps is £576,000 liability (2011: £402,000 liability) and is adjusted against the hedging reserve on an ongoing basis.
The period that the swaps cover is intended to fix the impact on the Income Statement. During the year £468,000
(2011: £572,000) has been recognised in Other Comprehensive Income for the year with £314,000 (2011: £402,000)
being reclassified from equity to the Income Statement. The interest rate swaps have been fully effective in the period.
With the addition of the fuel hedges (Note 19(e)) and forward contracts this gives a total of £2,050,000 (2011: £572,000)
recognised in Other Comprehensive Income for the year with £840,000 (2011: £402,000) being reclassified from equity
to the Income Statement.
(c) Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit
evaluations are performed on all customers requiring credit over a certain amount and, where appropriate, credit
insurance cover is obtained. This provides excellent intelligence to minimise the number and value of bad debts and
ultimately provides compensation if bad debts are incurred.
Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or
better than the Group. Transactions involving derivative financial instruments are with counterparties with whom the
Group has a signed netting agreement as well as sound credit ratings. Given their high credit ratings, management
does not expect any counterparty to fail to meet its obligations.
At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk
is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance
sheet.
(d) Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than
sterling. The currencies giving rise to this risk are primarily Euros and US Dollars.
The Group’s policy is to cover all significant foreign currency commitments in respect of trade receivables and trade
payables by using forward foreign currency contracts. Most of the forward exchange contacts have maturities of less
than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at
maturity.
The Group classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states
them at fair value. The fair value of forward exchange contracts is £8,000 asset (2011: £12,000 liability) and is adjusted
against the hedging reserve on an ongoing basis. At 31 December 2012 all outstanding forward exchange contracts
have a maturity date within six months.
(e) Pricing risk
Where appropriate the Group uses hedging instruments to mitigate the risks of significant forward price rises of fuel in
relation to expected consumption. The current hedges held are in place until 31 December 2013. The Group classifies
its fuel hedges as cash flow hedges and states them at fair value. The fair value of the fuel hedges is £1,056,000 liability
(2011: £nil) and is adjusted against the hedging reserve on an ongoing basis. The period that the fuel hedges cover is
intended to fix the impact on the Income Statement. During the year £1,582,000 (2011: £nil) has been recognised in
Other Comprehensive Income with £526,000 (2011: £nil) being reclassified from equity to the Income Statement. The
fuel hedges have been fully effective in the period.
Marshalls plc Annual Report 2012
121
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 122
Notes to the Consolidated Financial Statements (continued)
19 Financial instruments (continued)
(f) Other risks
Further information about the Group’s strategic and financial risks is contained in the Business Review on pages 6 to
27.
Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the
Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would
have an impact on consolidated earnings. For instance, a weakening of pound sterling on the foreign currency
market would increase the cost of certain raw materials, whereas a strengthening would have the opposite effect.
Effective interest rates and maturity of liabilities
At 31 December 2012 there were £319,000 (2011: £165,000) Group borrowings on a fixed rate. Interest rate swaps
have been taken out with the intention to fix the interest on 80 per cent of the Group’s core debt. The interest rate
profile of the financial liabilities were:
31 December 2012
Fixed or
variable
rate
Cash and cash equivalents (Note 16) Variable
Variable
Bank loans
Fixed
Finance lease liabilities
31 December 2011
Fixed or
variable
rate
Cash and cash equivalents (Note 16) Variable
Variable
Bank loans
Fixed
Finance lease liabilities
Effective
interest
rate
%
2.65
2.65
9.01
Effective
interest
rate
%
2.40
2.40
10.81
Total
£’000
(11,101)
74,325
319
-----------------
63,543
---------------
6 months
6-12
or less months
£’000
£’000
1-2
years
£’000
(11,101)
--
53
-----------------
(11,048)
---------------
--
46
-----------------
46
---------------
-
81
-----------------
81
---------------
6 months
6-12
or less months
£’000
£’000
Total
£’000
1-2
years
£’000
(5,998)
82,934
165
-----------------
77,101
---------------
(5,998)
-
62
-----------------
(5,936)
---------------
--
25,000
26
-----------------
25,026
---------------
25,000
48
-----------------
25,048
---------------
2-5
years
£’000
-
74,325
139
-----------------
74,464
---------------
2-5
years
£’000
-
32,934
29
-----------------
32,963
---------------
122
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 123
19 Financial instruments (continued)
At 31 December the undiscounted outstanding contractual payments (including interest) of financial liabilities was
as follows:
31 December 2012
Bank loans
Trade payables
Finance lease liabilities
Financial liabilities
31 December 2011
Bank loans
Trade payables
Finance lease liabilities
Financial liabilities
Total
£’000
79,897
29,964
341
1,614
-----------------
111,816
---------------
Total
£’000
6 months
6-12
or less months
£’000
£’000
916
29,964
59
753
-----------------
31,692
---------------
6 months
911
--
51
710
-----------------
1,672
---------------
6-12
or less months
£’000
£’000
1-2
years
£’000
1,827
87
150
-----------------
2,064
---------------
1-2
years
£’000
2-5
years
£’000
76,243
-
144
1
-----------------
76,388
---------------
2-5
years
£’000
87,656
34,471
180
479
-----------------
122,786
-----------------
978
34,471
68
146
-----------------
35,663
-----------------
25,973
25,984
--
29
147
-----------------
26,160
34,721
-
30
1
-----------------
34,752
----------------- ----------------- -----------------
53
185
-----------------
26,211
The outstanding contractual payments (including interest) in relation to operating leases are disclosed in Note 26.
Borrowing facilities
The total bank borrowing facilities at 31 December 2012 amounted to £170.0 million (2011: £170.0 million) of which
£95.7 million (2011: £87.1 million) remained unutilised. There are additional seasonal bank working capital facilities
of £20.0 million available between 1 February and 31 August each year. The undrawn facilities available at 31
December 2012, in respect of which all conditions precedent had been met, were as follows:
Committed:
-
Expiring in more than two years but not more than five years
70,675
62,066
2012
£’000
2011
£’000
Uncommitted:
-
Expiring in one year or less
25,000
-----------------
95,675
--------------
25,000
-----------------
87,066
--------------
Marshalls plc Annual Report 2012
123
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 124
Notes to the Consolidated Financial Statements (continued)
19 Financial instruments (continued)
Borrowing facilities (continued)
In March 2012 existing bank debt facilities which were to mature in December 2012 and January 2013 and totalling
£75 million in aggregate were re-financed with extended maturity dates to 2015 and 2016. The maturity profile of
borrowing facilities is structured to provide balanced, committed and phased medium term debt and as at 8 March
2013 is set out as follows:
Committed facilities:
Q3 2016
Q3 2015
Q3 2014
On demand facilities:
Available all year
Seasonal (February to August inclusive)
Fair values of financial assets and financial liabilities
Facility
£’000
50,000
75,000
20,000
25,000
20,000
Cumulative
Facility
£’000
50,000
125,000
145,000
170,000
190,000
A comparison by category of the book values and fair values of the financial assets and liabilities of the Group at 31
December 2012 are shown below:
2012
2011
Book amount
£’000
Fair Value Book amount
£’000
£’000
Fair value
£’000
40,304
5,998
(83,547)
(165)
(57,125)
(414)
30,218
11,101
(74,325)
(319)
(59,889)
(1,624)
-----------------
(94,838)
278,412
-----------------
183,574
---------------
30,218
11,101
(74,271)
(319)
(59,889)
(1,624)
40,304
5,998
(82,934)
(165)
(57,125)
(414)
-----------------
(94,336)
300,400
-----------------
206,064
---------------
Trade and other receivables
Cash and cash equivalents
Bank loans
Finance lease liabilities
Trade and other payables
Interest rate swaps, forward
contracts and fuel hedges
Financial (liabilities) / assets - net
Other assets / (liabilities) - net
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.
(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 relevant rate.
124
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 125
19 Financial instruments (continued)
Estimation of fair values (continued)
(c) Finance 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 one year, the notional amount is deemed to reflect the fair
value. All other receivables / payables are discounted to determine the fair value.
(e) 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); and
Level 3 : inputs for the asset or liability that are not based on observable market data (unobservable inputs).
31 December 2012
Derivative financial liabilities
31 December 2011
Derivative financial liabilities
20 Employee benefits
Level 1
£’000
-
-----------------
-
---------------
Level 2
£’000
1,624
-----------------
414
---------------
Level 3
£’000
-
-----------------
-
---------------
Total
£’000
1,624
-----------------
414
---------------
The Group operates the Marshalls plc Pension Scheme (the “Scheme”) which has both a defined benefit and a defined
contribution section. The assets of the Scheme are held in separately managed funds which are independent of the
Group’s finances. The defined benefit section of the Scheme is closed to new members and future service accrual.
Pension contributions, for both the employer and the employee, are made into the defined contribution section of the
Scheme.
The current best estimate of employer contributions to be paid for the year commencing 1 January 2013 is £5,600,000
(2012: £3,600,000).
Present value of funded obligations
Fair value of Scheme assets
2012
£’000
(246,573)
254,785
-----------------
2011
£’000
(237,621)
250,587
-----------------
Surplus / (net liability) in the Scheme for
defined benefit obligations (see below)
Experience adjustments on Scheme
liabilities
Experience adjustments on Scheme
assets
8,212
---------------
12,966
---------------
(6,802)
---------------
(21,680)
---------------
(2,261)
---------------
31,662
---------------
2010
£’000
(212,394)
208,302
-----------------
(4,092)
---------------
14,332
---------------
13,658
---------------
2009
£’000
(221,895)
183,939
-----------------
(37,956)
---------------
(51,099)
---------------
(4,903)
---------------
2008
£’000
(167,312)
183,813
-----------------
16,501
---------------
31,184
---------------
(3,530)
---------------
Marshalls plc Annual Report 2012
125
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 126
Notes to the Consolidated Financial Statements (continued)
20 Employees benefits (continued)
Movements in the surplus / (net liability) for defined benefit obligations recognised in the balance sheet
Net surplus / (liability) for defined benefit obligations at 1 January
Contributions received
Income recognised in the Consolidated Income Statement
Actuarial (deficit) / gain recognised in the Consolidated Statement of
Comprehensive Income
Net surplus in the Scheme for the defined benefit obligations
at 31 December
2012
£’000
12,966
3,600
709
(9,063)
-----------------
8,212
--------------
2011
£’000
(4,092)
6,600
476
9,982
-----------------
12,966
--------------
IFRIC 14 - “The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”, stipulates that an
employer should only recognise a surplus as an asset to the extent that it is able to recover that surplus either through
reduced contributions in the future or through unconditional refunds from the Scheme. The Directors have reviewed
the terms of the Scheme Rules which allow the Group an unconditional right to a refund and consequently the full
Scheme surplus has been recognised in full.
Income / (expense) recognised in the Consolidated Income Statement
Interest on obligations (financial expenses)
Expected return on Scheme assets (financial income)
2012
£’000
(11,189)
11,898
-----------------
709
--------------
2011
£’000
(11,464)
11,940
-----------------
476
--------------
Actuarial gains and losses on the defined benefit scheme are recognised in the period in which they occur in the
Consolidated Statement of Comprehensive Income.
Cumulative amount at 1 January
Recognised in the year
Cumulative amount at 31 December
2012
£’000
1,554
(9,063)
-----------------
(7,509)
--------------
2011
£’000
(8,428)
9,982
-----------------
1,554
--------------
Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):
Discount rate (AA corporate bond rate)
Inflation (RPI)
Inflation (CPI)
Future pension increases
Expected return on Scheme assets
Future expected lifetime of pensioner at age 65 (years):
Male:
Female:
126
Marshalls plc Annual Report 2012
2012
4.7%
2.9%
1.9%
1.9%
4.7%
21.8
23.9
2011
4.8%
3.0%
2.0%
2.0%
4.8%
21.7
23.8
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 127
20 Employee benefits (continued)
Changes in the present value of the defined benefit obligation are as follows:
Benefit obligation at 1 January
Interest cost
Actuarial deficit
Benefits paid
Benefit obligation at 31 December
Changes in the fair value of Scheme assets are as follows:
Fair value of Scheme assets at 1 January
Expected return on Scheme assets
Actuarial (loss) / gain
Employer contribution
Benefits paid
Fair value of Scheme assets at 31 December
The fair value of Scheme assets at the balance sheet date is analysed as follows:
Equities
Bonds
Cash
Insured pensioners
Liability driven investments
2012
£’000
84,338
1,144
781
1,398
167,124
-----------------
254,785
--------------
%
33
1
-
1
65
-----------------
100
--------------
2012
£’000
237,621
11,189
6,802
(9,039)
-----------------
246,573
--------------
2012
£’000
250,587
11,898
(2,261)
3,600
(9,039)
-----------------
254,785
--------------
2011
£’000
79,800
3,230
1,851
1,460
164,246
-----------------
250,587
--------------
2011
£’000
212,394
11,464
21,680
(7,917)
-----------------
237,621
--------------
2011
£’000
208,302
11,940
31,662
6,600
(7,917)
-----------------
250,587
--------------
%
32
1
1
1
65
-----------------
100
--------------
The Scheme has no investments in the Company or in property occupied by the Company.
Sensitivity analysis
The Group continues to be subject to various financial risks in relation 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 sensitivity to the AA corporate bond rate is broadly that, all other things being equal, a 0.1 per cent
movement in the discount rate is equivalent to a movement of approximately £4.2 million in Scheme liabilities. This
sensitivity would be offset very substantially by a movement in Scheme assets where the change in AA corporate
bond yield is simply a movement in line with fixed interest securities in general. The sensitivity to inflation is broadly
that, all other things being equal, a 0.1 per cent movement is equivalent to a movement in the Scheme liabilities of
broadly £1.5 million, although this would also be offset almost entirely by a movement in Scheme assets. As far as
mortality is concerned an increase of one year in life expectancy would, all other things being equal, give rise to an
increase in Scheme liabilities of approximately £8.0 million. Risk management remains a core theme of the Group’s
Pension Scheme strategy and the transfer of a proportion of Scheme assets from equities to liability driven
investments was an example of an action that has reduced volatility and risk.
Marshalls plc Annual Report 2012
127
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 128
Notes to the Consolidated Financial Statements (continued)
20 Employee benefits (continued)
Share-based payments
Share based payment awards have been made during the year in accordance with the rules of the Marshalls plc 2005
Long Term Incentive Plan (the “LTIP”). The LTIP rules provide for the award of Matching Shares and Performance
Shares subject, in the case of Matching Shares, to participants investing a stated percentage of their annual bonus in
the LTIP. The minimum investment by Executive Directors is 50 per cent of annual bonus until they have reached the
share ownership targets set by the Board; thereafter they may choose to invest annual bonus on a voluntary basis.
The annual bonus investment is used to purchase Investment Shares to qualify for a Matching Share award, subject
to defined limits. In addition, Performance Shares may be awarded to participants without requiring a qualifying
investment.
Both Matching Shares and Performance Shares are subject to the achievement of a three year performance target.
The awards lapse if the performance target is not met over the three year vesting period. Matching Share awards are
dependent on an improvement in reported earnings per share, while Performance Share awards are dependent on
an improvement in reported earnings per share and operating cash flow, each measured using International
Financial Reporting Standards. The Remuneration Committee may exercise its discretion with regard to the effect of
one-off items. Full details of the performance criteria are set out in the Directors’ Remuneration Report on pages 59
to 84.
The Performance and Matching Shares take the form of options which are settled by physical delivery of shares. The
exercise price is nil in relation to any of these grants and there is no entitlement to dividends during the vesting
period. There are no market conditions associated with these instruments.
Equity settled awards granted to Directors of Marshalls plc
Equity settled awards granted to employees of
Marshalls Group Limited
Number of
instruments
Date of
grant
17 March 2011
17 March 2011
20 March 2012
17 March 2011
17 March 2011
20 March 2012
587,957
761,601
853,598
166,933
708,462
873,448
--------------------
3,951,999
-----------------
Vesting
period
3 years
3 years
3 years
3 years
3 years
3 years
Weighted average
share price at
date of grant
(pence per
share)
2012
Weighted average
share price at
date of grant
(pence per
share)
2011
Number of
options
2012
97
101
84
108
4,864,886
1,727,046
(2,639,933)
------------------------
3,951,999
---------------------
84
113
78
97
Number of
options
2011
5,654,680
2,269,795
(3,059,589)
------------------------
4,864,886
---------------------
Outstanding at 1 January
Granted
Lapsed
Outstanding at 31 December
There were no share options exercised or that expired during the period. None of the options were exercisable at 31
December 2012.
128
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 129
20 Employee benefits (continued)
The fair value of services received in return for Matching Shares granted are measured by reference to the fair value
of these awards at the date of grant. The estimate of the fair value of the services received is measured based on a
Black-Scholes valuation model.
Fair value at grant date (pence per share)
Share price on date of grant (pence per share)
Expected volatility used in the modelling under the Black-Scholes
valuation model
Dividend yield
Risk-free interest rate (based on national government bonds)
The Company’s share price at 31 December 2012 was 97.5p.
20 March
2012 grant
17 March
2011 grant
84
101
65.0%
6.0%
2.0%
94
113
65.0%
6.0%
2.0%
The expected volatility is wholly based on the historic volatility (since the Scheme of Arrangement in July 2004),
adjusted for any expected changes to future volatility due to publicly available information.
The total expenses recognised for the period arising from share based payments are as follows:
Awards granted and total expense recognised as employee costs (Note 4)
2012
£’000
2011
£’000
468
--------------
226
--------------
Further details in relation to the Directors are set out in the Directors’ Remuneration Report on pages 59 to 84.
Employee Profit Sharing Scheme
At 31 December 2012 the scheme held 42,414 (2011: 42,414) ordinary shares in the Company.
21 Deferred taxation
Recognised deferred taxation assets and liabilities
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share based expenses
Other items
Tax assets / (liabilities)
Assets
Liabilities
2012
£’000
-
-
-
-
-
-
-----------------
-
---------------
2011
£’000
-
-
-
-
63
-
-----------------
63
---------------
2012
£’000
(15,631)
(390)
(776)
(1,890)
-
(1,371)
-----------------
(20,058)
---------------
2011
£’000
(17,967)
(796)
(1,089)
(3,242)
-
(2,192)
-----------------
(25,286)
---------------
The 2012 Budget on 21 March 2012 announced that the UK Corporation Tax rate will reduce to 22 per cent by 2014.
Reductions in the rate from 26 per cent to 24 per cent (effective from 1 April 2012) and 23 per cent (effective from 1
April 2013) were substantially enacted on 26 March 2012 and 3 July 2012 respectively. This will reduce the Group’s
future current tax charge accordingly. The deferred taxation liability at 31 December 2012 has been calculated based
on the rate of 23 per cent substantively enacted at the balance sheet date.
It has not yet been possible to quantify the full anticipated effect of the announced further 1 per cent rate reduction,
although this will further reduce the Group’s future current tax charge and reduce the Group’s deferred taxation
liability accordingly.
Marshalls plc Annual Report 2012
129
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 130
Notes to the Consolidated Financial Statements (continued)
21 Deferred taxation (continued)
The deferred taxation liability of £1,890,000 (2011: £3,242,000) in relation to employee benefits is in respect of the net
surplus for the defined benefit obligations of £8,212,000 (2011: £12,966,000) (Note 20) calculated at 23 per cent (2011:
25 per cent).
Deferred tax assets on capital losses have not been recognised due to uncertainty around the future use of the losses.
Movement in temporary differences
Year ended 31 December 2012
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based expenses
Impact on other comprehensive income
of the change in rate of deferred tax
Other items
Year ended 31 December 2011
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based expenses
Impact on other comprehensive income
of the change in rate of deferred tax
Other items
22 Capital and reserves
Share capital
At 1 January and at 31 December
Number of 25 pence ordinary shares
130
Marshalls plc Annual Report 2012
1 January
2012
£’000
Recognised in
income
£’000
Recognised in
other
comprehensive
income
£’000
31 December
2012
£’000
(17,967)
(796)
(1,089)
(3,242)
63
(268)
(1,924)
-----------------
(25,223)
---------------
2,336
406
313
(732)
(63)
-
163
-----------------
2,423
---------------
-
-
-
2,084
-
360
298
-----------------
2,742
---------------
(15,631)
(390)
(776)
(1,890)
-
92
(1,463)
-----------------
(20,058)
---------------
1 January
2011
£’000
Recognised in
income
£’000
Recognised in
other
comprehensive
income
£’000
31 December
2011
£’000
(18,879)
(1,305)
(1,131)
1,104
67
(123)
(2,130)
-----------------
(22,397)
---------------
912
509
42
(1,850)
(4)
-
163
-----------------
(228)
---------------
-
-
-
(2,496)
-
(145)
43
-----------------
(2,598)
---------------
(17,967)
(796)
(1,089)
(3,242)
63
(268)
(1,924)
-----------------
(25,223)
---------------
Issued and paid up
2012
£’000
2011
£’000
49,845
---------------------
199,378,755
---------------------
49,845
---------------------
199,378,755
---------------------
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 131
22 Capital and reserves (continued)
Consolidation reserve
On 8 July 2004 Marshalls plc was introduced as the new holding company of the Group by way of a Court approved
Scheme of Arrangement under Section 425 of the Companies Act 1985. The restructuring was accounted for as a
capital reorganisation and accounting principles were applied as if the Company had always been the holding
company of the Group. The difference between the aggregate nominal value of the new shares issued by the
Company and the called up share capital, capital redemption reserve and share premium account of Marshalls Group
plc (the previous holding company) was transferred to a consolidation reserve.
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging, principally from the Group’s
interest rate swaps, energy price contracts and forward exchange contracts.
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.
3.50 pence (2011: 3.50 pence) per ordinary share
23 Acquisition of subsidiary with non-controlling interests
2012
£’000
6,861
--------------
2011
£’000
6,861
--------------
On 4 March 2011 the Group obtained control of a newly formed company located and registered in Belgium called
Marshalls NV which had been established to acquire the trade and certain assets of a number of existing businesses.
The Group acquired 66.7 per cent of the ordinary share capital and voting interests of Marshalls NV and the remaining
33.3 per cent non-controlling interest is owned by an unrelated party. Marshalls NV manufactures and supplies
landscape, driveway and garden products from a range of materials, but principally concrete and natural stone.
Acquisition costs are included in net operating costs and are disclosed in Note 3.
In the period to 31 December 2011 Marshalls NV contributed revenue of £8,877,000 and operating loss of £687,000 to
the Group’s results after charging “start up” costs.
The following summarises the major classes of consideration transferred and the recognised amounts of assets
acquired and liabilities assumed at the acquisition date:
Consideration transferred
Cash
Identified assets acquired and liabilities assumed, recorded at fair value
Property, plant and equipment
Inventories
Cash and cash equivalents
Trade and other payables
Total net identifiable assets
2011
£’000
5,393
--------------
2011
£’000
7,899
1,104
2,888
(1,142)
----------------
10,749
--------------
Marshalls plc Annual Report 2012
131
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 132
Notes to the Consolidated Financial Statements (continued)
23 Acquisition of subsidiary with non-controlling interests (continued)
Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
less: cash and cash equivalents acquired
Loan to non-controlling interest
Net cash outflow
Negative goodwill has been recognised as a result of the acquisition as follows:
Total consideration transferred
Non-controlling interests, based on their proportionate interest (33.3 per cent) of
the fair value of the assets and liabilities of the acquiree
Fair value of identifiable assets
Negative goodwill (Note 3)
2011
£’000
5,393
(2,888)
1,401
----------------
3,906
--------------
2011
£’000
5,393
3,584
(10,749)
----------------
(1,772)
--------------
The transaction meets the definition of a bargain purchase and, in accordance with IFRS3, the recognised gain has
been reported in the Consolidated Income Statement as negative goodwill. The situation has arisen due to the
majority of the assets being acquired through a Belgium Court process as a consequence of the major part of the
former trading business falling into severe financial difficulties. As a result it has not been practicable to estimate pre-
acquisition financial information.
On 1 July 2011 the Group acquired the entire ordinary share capital of Hornton Grounds Stone Sales Limited, a
company engaged in the cutting and processing of stone products. The cash consideration was £275,000 and the fair
value of the net liabilities acquired was £243,000. Goodwill arising of £518,000 has been recognised (Note 12).
Acquisition costs are included in net operating costs and are disclosed in Note 3. With effect from 1 July 2011 the
trade, assets and liabilities of Hornton Grounds Stone Sales Limited were transferred to Marshalls Mono Limited. In
the period ended 31 December 2012 the business contributed revenue of £340,000 and an operating loss of
£301,000 to the Group’s results.
Cash flow from investing activities
Marshalls NV
Hornton Grounds Stone Sales Limited
Acquisition of subsidiaries and investment in associates
2012
£’000
-
-
-----------------
-
---------------
2011
£’000
3,906
275
-----------------
4,181
---------------
132
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 133
24 Non-controlling interests
Non-controlling interests
At 1 January
On acquisition of subsidiary undertaking
Issue of shares
Share of result for the period
Foreign currency transaction differences
At 31 December
25 Analysis of net debt
Cash at bank and in hand
Debt due within one year
Debt due after one year
Finance leases
1 January
2012
£’000
5,998
(25,000)
(57,934)
(165)
-----------------
(77,101)
---------------
Cash flow
£’000
5,114
25,000
(16,595)
(158)
-----------------
13,361
---------------
Reconciliation of Net Cash Flow to Movement in Net Debt
Net increase in cash equivalents
Cash outflow / (inflow) from (decrease) / increase in debt and lease financing
Effect of exchange rate fluctuations
Movement in net debt in the period
Net debt at 1 January
Net debt at 31 December
2012
£’000
3,394
-
610
(14)
(106)
-----------------
3,884
---------------
Other
changes
£’000
(11)
-
204
4
-----------------
197
---------------
2012
£’000
5,114
8,247
197
-----------------
13,558
(77,101)
-----------------
(63,543)
---------------
2011
£’000
-
3,584
-
(134)
(56)
-----------------
3,394
---------------
31
December
2012
£’000
11,101
-
(74,325)
(319)
-----------------
(63,543)
---------------
2011
£’000
1,879
(12,199)
60
-----------------
(10,260)
(66,841)
-----------------
(77,101)
---------------
Marshalls plc Annual Report 2012
133
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 134
Notes to the Consolidated Financial Statements (continued)
26 Operating leases
The Group had non-cancellable minimum lease payments to be paid in respect of operating leases on property,
plant, machinery and vehicles as follows:
31 December 2012
Expiring:
within one year
between one and five years
in more than five years
31 December 2011
Expiring:
within one year
between one and five years
in more than five years
6-12
Total 6 months months
£’000
£’000
£’000
1-2
years
£’000
2-5
years
£’000
2,462
11,453
35,287
-----------------
49,202
---------------
1,657
2,356
1,053
-----------------
5,066
---------------
805
2,343
1,047
-----------------
4,195
---------------
--
3,507
2,100
-----------------
5,607
---------------
3,247
6,238
-----------------
9,485
---------------
6-12
Total 6 months months
£’000
£’000
£’000
1-2
years
£’000
2-5
years
£’000
690
15,875
16,290
-----------------
32,855
---------------
602
3,430
405
-----------------
4,437
---------------
88
3,411
403
-----------------
3,902
---------------
--
5,563
807
-----------------
6,370
---------------
3,471
2,423
-----------------
5,894
---------------
More
than 5
years
£’000
-
-
24,849
-----------------
24,849
---------------
More
than 5
years
£’000
-
-
12,252
-----------------
12,252
---------------
The minimum lease payments under non-cancellable operating leases (above) comprise property £31,417,000 (2011:
£17,289,000) and plant, machinery and vehicles £17,785,000 (2011: £15,566,000). During 2012 the Group sold an
office building for £6.1 million and agreed to lease this back under an operating lease over 25 years. Rent payments
are non contingent and there is no option to purchase the property back at the end of the lease.
Certain leased properties have been sublet by the Group. Sublease payments of £43,020 (2011: £43,358) are expected
to be received during the following financial year. An amount of £43,470 (2011: £39,887) was recognised as income
in the Consolidated Income Statement within net operating costs in respect of subleases.
27 Contingencies
Royal Bank of Scotland plc has issued on behalf of Marshalls plc, irrevocable letters of credit totalling £300,000 (2011:
£300,000) in respect of the Group’s employers liability insurance cover with XL Winterthur in relation to the periods
ending between 31 October 2001 and 31 October 2003 inclusive. In addition, Royal Bank of Scotland plc has issued
on behalf of Marshalls plc, irrevocable letters of credit totalling £1,610,000 (2011: £1,610,000) in respect of the
Group’s employers liability insurance cover with Mitsui Sumitomo Insurance (London Management) Limited. These
sums relate to the Group’s cap on self insurance in relation to the periods ending between 31 October 2004 and 31
October 2013 inclusive.
28 Related parties
Identity of related parties
The Group has a related party relationship with its Directors.
Transactions with key management personnel
Other than the Directors, there are no senior managers in the Group who are relevant for establishing that Marshalls
has the appropriate expertise and experience for the management of its business.
Directors of the Company and their immediate relatives, control 0.47 per cent (2011: 0.44 per cent) of the voting
shares of the Company.
In addition to their salaries, the Group also provides non-cash benefits to Directors, and contributes to a defined
contribution pension scheme on their behalf. Further details in relation to Directors are disclosed in the Directors’
Remuneration Report on pages 59 to 84.
134
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 135
29 Accounting estimates and judgements
Management discussed with the Audit Committee the development, selection and disclosure of the Group’s critical
accounting policies and estimates and the application of these policies and estimates. The accounting policies are set
out in Note 1 on pages 96 to 105.
Note 2 contains information about the assumptions and judgements made relating to the identification of operating
segments for the Group as defined in IFRS 8 “Operating Segments”.
In relation to the Group’s intangible fixed assets (Note 12) impairment tests have been undertaken using commercial
judgement and a number of assumptions and estimates in relation to relevant trading volumes and margins. These
estimates have been determined using the best available information derived from a combination of business specific
analysis (both current and historic) and the latest available external industry forecasts. Determining whether goodwill
is impaired requires an estimation of the value in use of the CGUs to which goodwill has been allocated. The value in
use calculation involves an estimation of the future cash flows of CGUs and also the selection of appropriate discount
rates in order to calculate present values.
Note 19 contains information about the assumptions and their risk factors relating to interest rate and foreign currency
exposures. The principal risk relates to interest rates. Sensitivity analysis is disclosed in Note 19 on pages 120 to 125.
Note 20 contains information about the principal actuarial assumptions used in the determination of defined benefit
pension obligations. These key assumptions include discount rates, the expected return on net assets, inflation rates
and mortality rates and have been determined following advice received from an independent qualified actuary.
Sensitivity analysis is disclosed in Note 20 on pages 125 to 129.
Note 21 contains details of the Group’s deferred taxation. Liabilities recognised are determined by reference to the
likelihood of settlement and the likelihood that assets are received is based on assumptions of future actions.
Note 23 contains details of the identified assets acquired and liabilities assumed in relation to the acquisition of
subsidiary undertakings. These have been recorded at an assessment of fair value using best available information.
Marshalls plc Annual Report 2012
135
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 136
Company Balance Sheet
at 31 December 2012
Fixed assets
Investments
Current assets
Debtors
Current liabilities
Creditors
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium account
Own shares
Capital redemption reserve
Equity reserve
Profit and loss account
Equity shareholders’ funds
Notes
2012
£’000
2011
£’000
33
34
35
37
38
38
38
38
38
338,728
-------------------
338,641
-------------------
898
13,287
(346)
-------------------
552
-------------------
339,280
-----------------
-
-------------------
13,287
-------------------
351,928
-----------------
49,845
22,695
(9,571)
75,394
388
200,529
-------------------
339,280
-----------------
49,845
22,695
(9,514)
75,394
301
213,207
-------------------
351,928
-----------------
Approved at a Directors’ meeting on 8 March 2013.
On behalf of the Board:
D.G. Holden
Chief Executive
I.D. Burrell
Finance Director
The Notes on pages 138 to 142 form part of these Company Financial Statements.
136
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 137
Company Reconciliation of Movements in Shareholders’ Funds
for the year ended 31 December 2012
Loss for the financial year
Equity dividends
Deficit for the financial year
Purchase of own shares
Share based expenses
Share based payment adjustment
Net reduction in shareholders’ funds
Shareholders’ funds at beginning of year
Shareholders’ funds at end of year
The Notes on pages 138 to 142 form part of these Company Financial Statements.
2012
£’000
2011
£’000
(2,767)
(2,340)
(10,292)
-------------------
(13,059)
(10,292)
-------------------
(12,632)
(57)
718
(250)
-------------------
(12,648)
351,928
-------------------
339,280
----------------
-
476
(250)
-------------------
(12,406)
364,334
-------------------
351,928
----------------
Marshalls plc Annual Report 2012
137
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 138
Notes to the Company Financial Statements (continued)
30 Accounting policies
The following paragraphs summarise the main accounting policies of the Company, which have been applied
consistently in dealing with items which are considered material in relation to the Company’s Financial Statements. The
Company is exempt from the requirement to give its own disclosures as the entity forms part of the Consolidated
Financial Statements of Marshalls plc which has included disclosures under IFRS 7 - “Financial Instruments: Disclosures”.
(a) Basis of preparation
The Company Financial Statements are prepared under the historical cost convention and in accordance with UK
GAAP and applicable accounting standards. There is no material difference between historical cost profits and
those reported in the profit and loss account.
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own
profit and loss account.
Under FRS 1 the Company is exempt from the requirement to prepare a cash flow statement on the grounds that
the consolidated cash flows for all Group companies are included within the Consolidated Financial Statements.
As these Parent Company Financial Statements are presented together with the Consolidated Financial Statements,
the Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed
transactions or balances with wholly owned entities which form part of the Group (or investees of the Group
qualifying as related parties). The Consolidated Financial Statements of Marshalls plc within which this Company is
included are set out on page 90 to 135.
(b) Investments
Fixed asset investments are stated at cost less provision for impairment where appropriate. The Directors consider
annually whether a provision against the value of investments on an individual basis is required. Such provisions
are charged in the profit and loss account in the year.
(c) Pension costs
Defined benefit scheme
The Company participates in a Group wide Pension Scheme providing benefits based on final pensionable pay. The
defined benefit section of the Scheme was closed to future service accrual in July 2006. The assets of the Scheme
are held separately from those of the Company. The Company is unable to identify its share of the underlying assets
and liabilities of the Scheme on a consistent and reasonable basis and therefore, as required by FRS 17 - “Retirement
benefits”, accounts for the Scheme as if it were a defined contribution scheme.
Defined contribution scheme
Contributions to the Group’s defined contribution Pension Scheme are determined as a percentage of employees’
earnings and are charged to the profit and loss account as incurred.
(d) Share-based payment transactions
The Company enters into equity-settled share-based payment transactions with its employees and its subsidiaries’
employees. In particular, annual awards are made to Directors under a long term incentive plan.
The long term incentive plan allows Company employees to acquire shares of Marshalls plc. The fair value of
options granted to Company employees is recognised as an employee expense with a corresponding increase in
equity. The fair value is measured at grant date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation
model, taking into account the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest. Where the Company
grants options over its own shares to the employees of its subsidiaries it recognises an increase in the cost of
investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its
subsidiaries’ financial statements with the corresponding credit being recognised directly in equity.
138
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 139
30 Accounting policies (continued)
(e) Own shares held by employee benefit trust
Transactions of the Group-sponsored employee benefit trust are included in the Group Financial Statements. In
particular, the trust’s purchases of shares in the Company are debited directly to equity.
(f) Cash and liquid resources
Cash comprises cash in hand and deposits repayable on demand, less overdrafts repayable on demand.
Liquid resources are current asset investments which are disposable without curtailing or disrupting the business
and are either readily convertible into known amounts of cash, at or close to their carrying values, or traded in an
active market. Liquid resources comprise term deposits of less than one year.
(g) Leased assets
The rental cost of all operating leases is charged to the profit and loss account on a straight-line basis over the lives
of the leases.
(h) Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable, in respect of previous years.
(i) Deferred taxation
Full provision is made for deferred taxation resulting from timing differences, other than those specifically excluded
by FRS 19 - “Deferred Taxation”, between profits computed for taxation purposes and profits stated in the Financial
Statements to the extent that there is an obligation to pay more tax in the future as a result of those timing
differences. Deferred taxation assets are recognised to the extent that they are expected to be recoverable.
Deferred taxation assets and liabilities are not discounted.
(j) Financial guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies
within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In
this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes
probable that the Company will be required to make a payment under the guarantee.
(k) Dividends
Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity
dividends are recognised as a liability in the period in which they are declared (appropriately authorised and no
longer at the discretion of the Company).
31 Operating costs
The audit fee for the Company was £20,000 (2011: £20,000). This is in respect of the audit of the Financial Statements.
Fees paid to the Company’s auditors for services other than the statutory audit of the Company are not disclosed in the
Notes to the Company Financial Statements since the consolidated accounts of the Group are required to disclose non-
audit fees on a consolidated basis.
Marshalls plc Annual Report 2012
139
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 140
Notes to the Company Financial Statements (continued)
32 Ordinary dividends: equity shares
2011 Final: paid 6 July 2012
2012 Interim: paid 7 December 2012
2012
2011
per share
3.50p
1.75p
-----------------
5.25p
---------------
£’000
6,861
3,431
-----------------
10,292
---------------
per share
3.50p
1.75p
-----------------
5.25p
---------------
£’000
6,861
3,431
-----------------
10,292
---------------
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.
3.50 pence (2011: 3.50 pence) per ordinary share
33 Investments
At 1 January 2012
Additions
Share based payment adjustment
At 31 December 2012
2012
£’000
2011
£’000
6,861
---------------
6,861
---------------
£’000
338,641
216
(129)
-----------------
338,728
---------------
Investments comprise shares in the subsidiary undertaking, Marshalls Group Limited. The Directors have considered
the carrying value of the Company’s investments and are satisfied that no provision is required.
The increase in the year of £216,000 and the adjustment of £129,000 both represent adjustments to the number of
shares expected to vest in respect of LTIP awards granted to employees of Marshalls Group Limited.
The principal subsidiary undertakings of Marshalls plc at 31 December 2012 are set out below. With the exception of
Marshalls NV and Xiamen Marshalls Import Export Company Limited all the companies operate within the United
Kingdom and are registered in England and Wales. Marshalls NV is registered in Belgium. Xiamen Marshalls Import
Export Company Limited is registered in China.
Subsidiaries
Principal activities
Class of Share
% Ownership
Marshalls Group Limited
Intermediate holding company
Ordinary
100
Marshalls Mono Limited *
Landscape products
manufacturer and supplier and
quarry owner supplying a wide
variety of paving, street furniture
and natural stone products
Marshalls NV *
Landscape products
manufacturer and supplier
Xiamen Marshalls Import
Export Company Limited *
Sourcing and distribution of
natural stone products
* held by subsidiary undertaking
Ordinary
Ordinary
Ordinary
100
66.7
100
140
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 141
34 Debtors
Amounts owed by subsidiary undertakings
Corporation tax
Other debtors
No debtors were due after more than one year.
35 Creditors
Amounts owed to subsidiary undertakings
36 Deferred taxation
There is no deferred taxation in the Company.
37 Share capital
2012
£’000
-
898
-
-----------------
898
---------------
2011
£’000
12,115
1,170
2
-----------------
13,287
---------------
2012
£’000
2011
£’000
346
---------------
-
---------------
As at 31 December 2012, the issued and fully paid up share capital was as follows:
2012
Number
Issued and paid up
2011
Number
2012
Nominal
Value
£’000
2011
Nominal
Value
£’000
At 31 December
199,378,755
-----------------------
49,845
-----------------------
199,378,755
-----------------------
49,845
-----------------------
Disclosures regarding share based payments are given in Note 20 on pages 125 to 129.
38 Share capital and reserves
At 1 January 2012
Share-based expenses
Share-based payment
adjustment
Purchase of own shares
Loss for the financial year
Equity dividends
At 31 December 2012
Ordinary
share
capital
£’000
49,845
--
--
--
--
--
-----------------
49,845
-----------------
Share
premium
account
£’000
22,695
Capital
Own redemption
reserve
£’000
shares
£’000
(9,514)
--
75,394
--
(57)
---
---
--
-----------------
22,695
-----------------
-----------------
(9,571)
-----------------
-----------------
75,394
-----------------
----------------
388
----------------
Equity
Profit and
reserve loss account
£’000
£’000
301
216
(129)
213,207
502
(121)
-
(2,767)
(10,292)
----------------
200,529
----------------
Marshalls plc Annual Report 2012
141
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Notes to the Company Financial Statements (continued)
39 Capital and leasing commitments
The Company had no capital or leasing commitments at 31 December 2012 or 31 December 2011.
40 Bank facilities
The Group’s banking arrangements are in respect of Marshalls plc, Marshalls Group Limited and Marshalls Mono
Limited with each company being nominated borrowers. The operational banking activities of the Group are
undertaken by Marshalls Group Limited and the Group’s bank debt is largely included in Marshalls Group Limited’s
balance sheet.
41 Contingent liabilities
Royal Bank of Scotland plc has issued on behalf of Marshalls plc, irrevocable letters of credit totalling £300,000 (2011:
£300,000) in respect of the Group’s employers liability insurance cover with XL Winterthur in relation to the periods
ending between 31 October 2001 and 31 October 2003 inclusive. In addition, Royal Bank of Scotland plc has issued on
behalf of Marshalls plc, irrevocable letters of credit totalling £1,610,000 (2011: £1,610,000) in respect of the Group’s
employers liability insurance cover with Mitsui Sumitomo Insurance (London Management) Limited. These sums relate
to the Group’s cap on self insurance in relation to the periods ending between 31 October 2004 and 31 October 2013
inclusive.
42 Pension scheme
The Company is the sponsoring employer of the Marshalls plc Pension Scheme (the “Scheme”) which has both a
defined benefit and a defined contribution section. The assets of the Scheme are held in separately managed funds
which are independent of the Group’s finances. As set out in Note 20 the Group introduced a new defined contribution
section to the Scheme to replace the existing defined benefit section which closed to future service accrual on 1 July
2006.
Full details of the Scheme are provided in Note 20. The Company is unable to identify its share of the Scheme assets
and liabilities on a consistent and reasonable basis. Accordingly, as permitted by FRS 17 - “Retirement benefits”, the
Scheme has been accounted for in these Company Financial Statements as if the Scheme was a defined contribution
scheme.
The latest funding valuation of the Scheme was carried out as at 6 April 2011 and was updated for FRS 17 purposes to
31 December 2011 by a qualified independent Actuary. Certain employees are members of the Company defined
contribution Scheme which invests funds in which the contributions for each individual member are separately
identifiable and the benefits calculated accordingly.
The Group surplus on an FRS 17 basis at 31 December 2012 was £nil (2011: £nil). FRS 17 stipulates that an employer
should only recognise a Pension Scheme surplus as an asset to the extent that it is able to recover that surplus either
through reduced contributions in the future or through refunds from the Scheme. Refunds from the Scheme had not
been agreed at the measurement date.
142
Marshalls plc Annual Report 2012
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 143
Shareholder Information
Shareholder analysis at 31 December 2012
Size of
Shareholding
1 to 500
501 to 1,000
1,001 to 2,500
2,501 to 5,000
5,001 to 10,000
10,001 to 25,000
25,001 to 100,000
100,001 to 250,000
250,001 to 500,000
500,001 and above
Number of
Shareholders
2,008
626
884
606
380
212
164
61
37
59
----------------
5,037
-------------
%
39.9
12.4
17.6
12.0
7.6
4.2
3.3
1.2
0.7
1.1
----------------
100.0
-------------
Number of
Ordinary Shares
304,287
471,422
1,502,542
2,181,083
2,668,185
3,266,752
7,864,179
9,332,608
13,810,950
157,976,747
--------------------------
199,378,755
----------------------
Financial calendar
Preliminary Announcement of results for the year ended
31 December 2012
Annual General Meeting
Announced
Final dividend for the year ended 31 December 2012
Payable
%
0.2
0.2
0.8
1.1
1.3
1.6
3.9
4.7
6.9
79.3
----------------
100.0
-------------
8 March 2013
15 May 2013
5 July 2013
Half - yearly results for the year ending 31 December 2013
Announcement
30 August 2013
Half - yearly dividend for the year ending 31 December 2013
Payable
6 December 2013
Results for the year ending 31 December 2013
Announcement
Early March 2014
Registrars and general
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 702 0000, fax: 0870 703 6116,
and clearly state the registered shareholder’s name and address.
Amalgamation of shareholdings
If you are receiving more than one copy of our Annual Report, this may be because you have several accounts on our
Share Register. If you would like these accounts amalgamated, this can be done without charge if you write to the
Registrar enclosing your Share Certificates.
Dividend mandate
Any shareholder wishing dividends to be paid directly into a bank or building society should contact the Registrar for a
dividend mandate form. Dividends paid in this way will be paid through the Bankers Automated Clearing System
(“BACS”).
Website
The Group has an internet website which gives information on the Group, its products and provides details of significant
Group announcements. The address is www.marshalls.co.uk.
Marshalls plc Annual Report 2012
143
77622 Marshalls 2012 pp090-144 (Q8)___ 26/03/2013 17:19 Page 144
Financial History - Consolidated Group
Consolidated Income Statement
Revenue
Net operating costs
Operating profit (before operational
restructuring and works closure costs,
goodwill and asset impairments)**
Operational restructuring and works closure
costs, goodwill and asset impairments
Operating profit / (loss)
Financial income and expenses (net)
Redemption of debenture
Profit before tax (before operational
restructuring and works closure costs,
goodwill and asset impairments
and redemption of debenture)**
Profit / (loss) before tax
Income tax (expense) / credit
Profit / (loss) for the financial period before
post tax loss of discontinued operations
Post tax loss of discontinued operations
Profit for the financial period
Profit for the period attributable to:
Equity shareholders of the parent
Non-controlling interests
Financial Information
EBITA
EBITDA
EBITA before operational restructuring and works
closure costs, goodwill and asset impairments
EBITDA before operational restructuring and
works closure costs, goodwill and
asset impairments
Earnings per share (pence) ***
Basic: (continuing operations)
Basic: (total operations)
Basic: (before operational restructuring and
works closure costs, goodwill and asset
impairments and redemption of debenture)
Dividends per share (pence) - IFRS ***
Dividend cover (times) - IFRS (continuing)
Dividends per share (pence) - Traditional ***
Dividend cover (times) - Traditional (continuing)
Year end share price (pence)
Tax rate (%)
Year to
December
2008*
£’000
363,905
(331,586)
Year to
December
2009*
£’000
297,797
(280,226)
Year to
December
2010*
£’000
308,843
(295,862)
Year to
December
2011*
£’000
334,127
(317,430)
Year to
December
2012
£’000
309,693
(295,764)
32,319
17,571
12,981
16,697
13,929
(26,989)
5,330
(8,154)
-
24,165
(2,824)
(2,171)
(4,995)
(1,226)
(6,221)
(6,221)
---
(6,221)
6,050
27,275
(7,217)
10,354
(4,303)
(7,259)
13,268
(1,208)
1,293
85
(837)
(752)
(752)
(752)
11,110
29,632
33,039**
18,327**
--
12,981
(2,558)
--
10,423
10,423
(2,202)
8,221
(871)
7,350
7,350
7,350
14,414
31,937
14,414
16,697
(3,007)
13,690
13,690
(1,522)
12,168
(4,912)
7,256
7,390
(134)
7,256
17,876
35,029
(21,521)
(7,592)
(3,578)
-
10,351
(11,170)
5,472
(5,698)
-
(5,698)
(5,684)
(14)
(5,698)
(6,345)
8,438
17,876
15,176**
54,264**
36,849**
31,937
35,029
29,959**
(3.20)
(3.98)
0.05
(0.42)
11.16**
12.38
0.90**
5.37
2.08**
90.0
27.8**
5.85**
3.05
1.92**
5.25
1.11**
86.0
20.8**
2008
£’000
277,615
122,577
400,192
(89,064)
(117,891)
193,237
(111,330)
57.6%
2009
£’000
256,943
122,737
379,680
(77,132)
(121,449)
181,099
(69,156)
38.2%
4.21
3.76
4.21
5.25
0.80
5.25
0.80
104.8
21.1
2010
£’000
236,906
113,610
350,516
(94,616)
(57,660)
198,240
(66,841)
33.7%
6.30
3.78
6.30
5.25
1.20
5.25
1.20
90.5
11.1
(2.91)
(2.91)
5.87**
5.25
1.12**
5.25
1.12**
97.5
(10.7)**
2011
£’000
249,271
128,640
377,911
(88,550)
(83,297)
206,064
(77,101)
37.4%
2012
£’000
225,882
116,735
342,617
(64,440)
(94,603)
183,574
(63,546)
34.6%
* the comparatives have been restated in respect of discontinued operations
** before operational restructuring and works closure costs, goodwill and asset impairments and redemption of debenture
*** earnings and dividends per share have been adjusted by the "bonus factor" inherent in the Rights Issue
Consolidated Balance Sheet
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Net assets
Net borrowings
Gearing ratio
144
Marshalls plc Annual Report 2012
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