Creating better spaces
Marshalls plc
Annual Report and Accounts 2015
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
C
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Marshalls is the UK’s leading
hard landscaping manufacturer
supplying superior natural stone and innovative concrete products
to the construction, home improvement and landscape markets
since the 1890s. As a market leader in its sector, the Group operates
manufacturing sites and quarries throughout the UK.
Strategic Report
Corporate Governance
Financial Statements
01
Financial highlights and
current priorities
02 At a Glance
04
06
Business Model
Innovation in Action
08 Chairman's Statement
10 Chief Executive’s Statement
12 Markets
Strategy
Key Performance Indicators
16
18
20
24
28
34
Board of Directors and Secretary
70 Consolidated Income Statement
36 Corporate Governance Statement
42 Nomination Committee Report
71
Consolidated Statement of Comprehensive
Income
Statement of Directors’ Responsibilities
72 Consolidated Balance Sheet
44
46
Remuneration Committee Report
49 At a Glance Summary
53 Annual Remuneration Report
61 Audit Committee Report
64
Directors’ Report – Other Regulatory
Information
73
74
76
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial
Statements
111
Parent Company Statement of Changes
in Equity
112
Company Balance Sheet
113
Notes to the Company Financial Statements
119
Financial History – Consolidated Group
Shareholder Information
121 Shareholder Information
Risk Management and Principal Risks
66
Independent Auditor’s Report
Sustainability
Financial Review
2
At a Glance page 2
4
Business Model page 4
Front cover – Trafalgar Square, National Portrait Gallery
Above – Canary Wharf
D
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Highlights
Financial highlights
— Revenue up 8% to £386.2 million
Revenue £'m
Operating profit £'m
(2014: £358.5 million)
— Strong profit before tax growth of 57%
to £35.3 million (2014: £22.4 million)
— Operating profit of £37.5 million (2014:
£25.3 million) driving improved operating
margins to 9.7% (2014: 7.1%)
— Return on capital employed improved 52%
(650 basis points) to 19.0% (2014: 12.5%)
— EPS up 41% to 14.32 pence (2014: 10.13 pence)
— Final dividend increased by 19% to 4.75 pence
(2014: 4.00 pence) per share
— Supplementary dividend of 2.00 pence per share
Current priorities
— To improve operational efficiency and
promote innovation
— To further strengthen the Marshalls brand by
developing systems-based solutions, service
excellence and new product development
— To grow our business both organically
and selectively through acquisitions
— To continue to develop and invest in our strategic
growth initiatives, particularly in Water Management,
Street Furniture, Rail and New Build Housing
£386.2m
+8%
£37.5m
+48%
.
4
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6
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3
2013
2014
2015
2013
2014
2015
Profit before tax £'m
£35.3m
+57%
Return on capital
employed %
19.0%
+52%
.
0
3
1
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4
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2
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3
5
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8
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2013
2014
2015
2013
2014
2015
EPS p
14.32p
+41%
Final dividend
recommended p
4.75p
+19%
0
0
2
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5
7
4
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16
Strategy page 16
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18
Key Performance Indicators page 18
2013
2014
2015
2013
2014
2015
(+ 2.00p supplementary)
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Marshalls
Annual Report and Accounts 2015 01
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Strategic Report
At a Glance
Our business
The strategic focus is firmly on growth and to deliver benefits
from operational gearing. We provide exceptional customer
service and manufacturing expertise driven by a commitment
to our core values.
Our markets
Public Sector
and Commercial
Domestic
INTERIORS, GARDENS, SEATING AND LANDSCAPES
INTERIORS, GARDENS AND DRIVEWAYS
Marshalls is the leading innovator of hard landscaping
solutions for the commercial construction sector, placing
a focus on developing new and innovative products.
In the Public Sector and Commercial end market
Marshalls focuses on developing products which
help architects, local authorities and contractors
to create better spaces, whether it is street furniture,
natural stone paving for the internal or external
environment, concrete block paving, water management
or protective street furniture products.
Marshalls’ Domestic customers range from DIY
enthusiasts to professional landscapers, driveway
installers and garden designers. Sales continue to be
driven through the Marshalls Register of Accredited
Landscapers and Driveway Installers.
For homeowners Marshalls offers the inspiration they
need for their garden and driveway projects.
12
Markets – Public Sector and Commercial page 12
14
Markets – Domestic page 14
02
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report
Corporate Governance
Financial Statements
Shareholder Information
Customers
Products
Marshalls is the market-leading supplier of hard
landscaping products to both the Domestic and
Public Sector and Commercial end markets.
Marshalls offers complete hard landscaping solutions for
the domestic and commercial hard landscaping markets,
as well as internal flooring, street furniture and lighting.
Public Sector and Commercial
Customers: Local authorities, commercial architects, specifiers,
contractors, housebuilders and builders merchants.
Domestic
Customers: National and independent builders merchants,
DIY groups, professional landscapers, garden designers and
patio and driveway installers.
Public Sector and Commercial
Products: Paving, block paving, kerb, water management,
natural stone cladding, street furniture, lighting, protective
street furniture, walling and mortars.
Domestic
Products: Paving, block paving, paths, edgings, walling and
decorative aggregates.
Innovation
Our innovation cycle
The structure of the Marshalls Innovation Cycle gives us a greater
ability to feed the Group Marketing Evolution Plan – a necessity
for a healthy, sustainable and industry leading new product
design (“NPD”) pipeline.
The new structure enables us to dynamically plug into a wider
intelligence of product ideas, market drivers, industry technology
and manufacturing system and process improvements for the next
generation of Marshalls NPD.
Product and process concepts will be engaged by stakeholders
and brought to life and managed within the Innovation Growth
Engine. Based on real commercial intelligence the best concepts
will be prioritised by business leaders and will move forward with
more speed and confidence before being managed through the
manufacturing or marketing process prior to manufacture.
6
Innovation in Action pages 6 – 7
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Future scapes Market intelligence
Technology drivers Materials R&D Sales feedback
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Innovation growth engine
Idea portfolio
Investment
Product management
Manufacture
Our benchmarks
Marshalls has been rated a Business Superbrand every year since 2010.
Superbrands is an annual initiative to identify and celebrate Britain’s strongest
consumer and business-to-business brands.
Annual Report and Accounts 2015 03
Marshalls plc
Marshalls plc
Business Model
How we do business
Marshalls΄ principal goal is to create value through
creating better spaces. We place a strong emphasis
on product innovation and service delivery initiatives.
How we operate
Sourcing
Manufacture
The Group’s main raw materials are cement, sand,
aggregates, pigments, fuel oil and utilities. We use
the best materials we can source. Supply chain
relationships include the ethical sourcing of
natural stone from India, China and Vietnam.
The Group also has extensive reserves of
UK natural stone.
The Group manufactures and supplies landscape,
driveway and garden products from a range of
materials, being principally concrete and natural
stone. Marshalls has a world-class Manufacturing,
Innovation and Development team.
Setting the standards
Distribution
Marshalls is a benchmark for excellence, and
continues to be widely regarded as a leader in its
field. Marshalls is proud of its status as market
leader, and is dedicated to retaining and
consolidating its position and being the
supplier of choice for hard landscaping
materials for Public Sector and Commercial
and Domestic customers.
Due to the scale of our operations, and our network
of regional centres, 97 per cent of our customers
are less than 2 hours away. This continues to be
a key competitive advantage.
Quality and service
Customers
We set industry leading standards of product
quality, availability and "on-time” delivery. We are
committed to producing new products that
better any existing market offering.
Our customers range from Domestic homeowners
to Public Sector and Commercial. We seek to
exceed the expectations of customers in all
our markets.
04
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report How we add value
y
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Leadership
Our resources
Our brand
Our values
Our people
Our customers
Homeowners
Commercial
Our strengths
Customer service
Product innovation
Technical expertise
— Industry leading standards
— New and innovative products
— World-class Manufacturing,
— Quality, availability and
"on-time" delivery
— Machinery design and installation
Innovation and Development team
— Skilled engineers and technicians
T
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Our value creation
Shareholders
People
Customers
Communities
The business
— Progressive
— Employee
— Centre of business
dividend policy
engagement
model
— Business in the
Community
— Targeting 2 times
— Promote
— Quality products and
— Responsible business
— Re-investment
(R&D, capital
expenditure)
dividend cover over
business cycle
development and
personal growth
exceptional service
practices
— Drive sustainable
growth
— Living wage
company
Excellence
Annual Report and Accounts 2015 05
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Highway drainage innovation
Mono Beany in situ
Because of its many benefits Mono Beany is already proving to be popular and
has been used on a number of projects including the recent upgrade of the
M1 motorway, for which Marshalls has supplied around 33,000 metres.
Innovation life cycle: Mono Beany
Mono Beany is a one-piece
combined kerb and drainage
system for removing surface
water from highways.
Intelligence
Based on strategic growth areas of the business a number
of factors are considered.
Because of climate change extreme weather events are
becoming more commonplace in the UK which in turn has
led to more flooding. The need for better management of
rainfall has led to water management becoming a strategic
growth area for Marshalls.
06 Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Innovation in Action Strategic Report
Corporate Governance
Financial Statements
Shareholder Information
Innovation
Delivery
Intelligence is fed to Marshalls' innovation team, whose role
it is to generate product ideas and design. In this case the
team developed Marshalls΄ one-piece kerb and drainage
product, Mono Beany.
Investment
Marshalls invests in the production of a prototype, the
testing and the equipment and machinery necessary for the
Mono Beany manufacturing process.
Idea portfolio
Mono Beany, along with a range of water management
products, sits within the idea portfolio waiting for
further development.
Product management
Marshalls΄ Water Management Marketing team undertakes
all the necessary work to bring Mono Beany to market.
Manufacture
Marshalls manufactures Mono Beany at one of its concrete
manufacturing facilities located in West Yorkshire.
Marshalls plc
Marshalls plc
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
07
Annual Report and Accounts 2015 07
Chairman’s Statement
Building for now and the future
Our objective is to deliver sustainable growth in
shareholder value based on our vision to establish
Marshalls as a world-class hard landscape business.
Summary
— Core values remain leadership, excellence,
trust and sustainability.
— Entered FTSE 250 with significant growth
in revenue and profitability.
— Well placed to make further progress
in the year ahead.
— Full-year dividend of 7.00 pence (up 17%)
and a discretionary supplementary dividend
of 2.00 pence.
Andrew Allner
Chairman
08
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Overview
I am pleased to report that 2015 has been another good year for Marshalls
and that we are well placed to make further progress in the year ahead.
All of our businesses have performed well, achieving significant growth
in revenue and profitability with benefits arising from favourable
market conditions and strong operational gearing. Since the half year,
the Group has entered the FTSE 250, which further demonstrates the
continuing progress in the business.
Our core values of leadership, excellence, trust and sustainability generate
a strong underpin for all we do and provide a foundation on which to
build for the future. Our primary objective is to improve profitability
and to deliver long-term sustainable value for our shareholders.
Results
Marshalls’ revenue is up 8 per cent to £386.2 million for the year
and profit before tax is up 57 per cent to £35.3 million. The Group’s
earnings per share at 14.32 pence is up 41 per cent. These results
reflect our focus on customer service, the strength of the Marshalls
brand, our range of innovative quality products and the improved
performance of our smaller businesses.
Dividends
The Board recognises the importance of dividends to our
shareholders. Marshalls has strong cash generation and a robust
balance sheet and this supports our progressive dividend policy.
As previously stated, the Group maintains the objective of achieving
up to 2 times dividend cover over the business cycle. The Board is
recommending a final dividend of 4.75 pence (2014: 4.00 pence) per
share which, together with the interim dividend of 2.25 pence (2014:
2.00 pence) per share, represents a total ordinary dividend of 7.00
pence (2014: 6.00 pence) per share.
In addition, in light of the Group's strong free cash flow, the Board has
reviewed its approach to dividends in order to ensure we maintain an
efficient and prudent capital structure which looks to provide increased
returns to shareholders whilst at the same time retaining flexibility for
capital and other investment opportunities. As a result, the Board is
declaring a supplementary dividend of 2.00 pence per share this year;
this supplementary dividend is discretionary and non-recurring.
Taken together, the ordinary and supplementary dividends comprise
an aggregate distribution for the year of 9.00 pence per share. The final
ordinary dividend of 4.75 pence per ordinary share will, subject to the
shareholders' approval at the Annual General Meeting on 18 May 2016,
be paid alongside the supplementary dividend of 2.00 pence per share
on 8 July 2016 to shareholders on the register on 3 June 2016.
Strategic Report Strategy
As your Chairman, it is my responsibility to lead and manage the Board in
relation to the formulation of strategy. Our objective is to deliver sustainable
growth in shareholder value based on our vision to establish Marshalls as a
world-class hard landscape business. We have returned to pre-recession
profitability which completes Phase 1 of our strategy. Phase 2 charts our
strategy to 2020 and is outlined in the Chief Executive's Statement.
Key relationships are particularly important and Marshalls’ success
is critically dependent on the positive interaction between the
Group’s employees, customers, suppliers and other stakeholders.
The Marshalls brand remains central to our strategy and the Group
has again received “Superbrand” status for 2016. Marshalls is a benchmark
for excellence and the 3 cornerstone themes of customer service,
quality and sustainability remain essential to the brand and put the
customer at the very heart of our business. Continual innovation
and new product development remain key priorities.
Governance
As a Board we are committed to promoting the highest standards
of corporate governance and ensuring effective communication
with shareholders. We continue to comply with all of the provisions
of the UK Corporate Governance Code as outlined in our Corporate
Governance Statement on pages 36 to 41.
This year’s Annual Report further develops the improvements that we
introduced last year and contains a number of additional features that
aim to improve clarity for shareholders. We believe this will continue
to ensure a fair, balanced and understandable assessment of the
Group’s position and prospects.
In my report last year I set out a number of specific Board actions
for 2015 including further consideration of strategic issues, increasing
focus on dynamic risk reporting, identifying particular business areas
for closer review and increasing opportunities for Non-Executive Directors
to meet senior management below Board level through a programme
of site visits. I am pleased to report that all of these commitments
have been addressed and significant progress has been made in
all areas. The Board continues to maintain an open and transparent
culture and no restrictions or pressures are placed on Board members
that could result in views or opinions not being expressed.
The Group aims to be transparent throughout its operations and I am
pleased that, during 2015, Marshalls has been awarded the Fair Tax
Mark for responsible tax behaviour and transparency in its tax affairs.
Board development is a constant priority and we continue to challenge
the effectiveness of the Board against detailed and continually developing
performance criteria. During the year, an internal evaluation of Board
performance was conducted by the Group Company Secretary. The
review sought to improve the effectiveness of the Board as a whole and
of individual Directors. I am pleased to report that no areas of material
concern were highlighted although a number of areas were identified
for improvement during 2016. These include further consideration of
longer-term strategy planning, risk management and business resilience.
Additional consideration will also be given to Board succession planning
along with greater focus on succession planning below Board level. I will
report on progress against these initiatives next year.
36
Corporate Governance page 36
Under our Remuneration Policy, the management receives a large
proportion of their remuneration in shares which must be retained
for up to 5 years. This ensures a strong alignment between the interests
of management and our shareholders. I am also delighted that we
have launched the Marshalls 2015 Sharesave scheme which encourages
wider ownership of Marshalls plc shares across the entire workforce.
The scheme gives employees the option in the future to buy shares
at a discounted price and has been extremely well received.
Board changes
Alan Coppin is retiring from the Board following the Annual General
Meeting in May 2016, having served as Non-Executive Director,
Senior Independent Director and Chairman of the Remuneration
Committee since May 2010. He has demonstrated strong
independence of thinking and has been a wise and supportive
counsel to me in his role as Senior Independent Director. I would like
to thank Alan for his significant contribution over the last 6 years.
In March 2015 I was delighted to welcome Janet Ashdown to the Board.
Janet is a Non-Executive Director of SIG plc and the Coventry Building
Society and has a wide range of skills and experience. She was also
recently appointed to the Board of the Nuclear Decommissioning
Authority. Following Alan Coppin’s retirement from the Board, Janet
will become the Senior Independent Director and Chairman of
the Remuneration Committee.
People
Marshalls has an outstanding group of employees and we continue
to place great importance on employee engagement. Our objective
is to provide successful careers for our employees and opportunities
for development and personal growth. On behalf of the Board I would
like to thank all our employees for their professionalism and their
ongoing support, commitment and dedication to Marshalls.
Outlook
The Group is well positioned to achieve further growth and looking
ahead I remain very optimistic. Market conditions are forecast to
be positive for the next few years. We have a clear strategy, a strong
management team, an excellent workforce and a significant opportunity.
I am therefore looking forward to further growth in the year ahead.
Andrew Allner
Chairman
Innovation
We combine clever engineering and technology
with imaginative ways to save time and costs
across all disciplines, from innovative paving
options, to sustainable urban drainage
systems and the very latest in creative street
furniture solutions.
Annual Report and Accounts 2015 09
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Chief Executive’s Statement
Driving growth
The Group’s strategy is to grow the business organically and
selectively through acquisitions, improving the Group’s return
on capital employed and operating profit margins. This will
be supported by the 2020 strategy.
Summary
— Profit before tax up 57% to £35.3 million with
significant benefits from operational gearing.
— Significant performance improvement
in our smaller UK businesses.
— Focused on innovation and new
product development to strengthen
the Marshalls brand.
— Committed to maintaining the highest
health and safety standards.
Martyn Coffey
Chief Executive
10
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Introduction
2015 has been a good year for Marshalls with significant revenue and profit
growth. Trading conditions remain positive and the Group continues to
experience strong order intake and sales growth.
Our core Public Sector and Commercial and Domestic businesses delivered
strong performances without any significant increases to the Group’s cost
base as we continue to deliver benefits from operational gearing. Our
network of manufacturing sites continues to have sufficient capacity to
absorb medium-term demand as well as the flexibility for further capacity
and capability investment. There has also been a significant performance
improvement in our smaller UK businesses during 2015 and they
collectively delivered year on year growth in revenue of £8.7 million and
operating profit of £2.4 million. These businesses include Street Furniture,
Mineral Products and Stone Cladding, all of which are now profitable.
Marshalls has a strong market position and continues to be a leading, trusted
brand with clear values and excellent environmental credentials. The core
values of leadership, excellence, trust and sustainability continue to be at
the heart of the Marshalls brand. Marshalls plc was the winner of the “Best
Construction and Materials PLC” category at the 2015 UK Stock Market Awards.
2015 trading summary
Marshalls’ revenue for the year ended 31 December 2015 increased
8 per cent at £386.2 million (2014: £358.5 million).
Sales to the Public Sector and Commercial end market were up 11 per cent
for the year, compared with 2014, and sales to the Domestic end market were
up 4 per cent. The survey of domestic installers at the end of February 2016
revealed order books of 10.5 weeks (February 2015: 9.0 weeks).
Adjusting for currency movements, International revenue has grown by
3 per cent during 2015 and represents approximately 5 per cent of Group
sales. Due to the adverse movement in exchange rates, however, this
translated to a fall of 5 per cent once converted into Sterling. Although
the market in Europe remains more challenging, the Group delivered
continued progress in developing its International business during the
year, and has opened a sales office in Dubai to facilitate further sales
growth in the Middle East.
Profit before tax increased by 57 per cent to £35.3 million
(2014: £22.4 million) and EBITDA increased by 35 per cent to £51.8 million
(2014: £38.5 million). Basic EPS from continuing operations was 14.32 pence
(2014: 10.13 pence), an increase of 41 per cent. Return on capital employed
(“ROCE”) was 19.0 per cent, which represents an increase of 52 per cent.
Significant cash generation has seen the Group’s net debt fall
to £11.5 million (2014: £30.5 million).
Strategic Report Delivering the 2020 strategy
To achieve our revenue growth the Group will target organic growth
in all core business lines. This will be driven by our focus on innovation
and new product development. We will also seek to extend our
product range to provide more integrated solutions and look to use
our digital strategy to better the customer experience. We will also
further strengthen our logistics and distribution capabilities through
investment. Prices will cover any cost increases during the period to
2020. Any acquisition activity will be on top of this organic growth.
Work has commenced on a number of capital investments. Good
opportunities are being developed which will provide a timely payback.
These investments will total £15 million and be made over the next
2 - 3 years. They will deliver cost savings of £5 million per annum and
are in addition to our normal annual capital expenditure programme.
Greater focus has been given to the smaller UK businesses and they
are all delivering increased profitability. These businesses have good
future potential. We believe we can grow our market share through
excellent customer service and targeted investment in these businesses.
There has been success in the last few years with our new product
development. The Group will continue to focus on innovation and
new product development to drive sales growth. Commercial
demand for Water Management, Street Furniture, Rail and New Build
Housing is increasing and all these businesses have developed
new products that have been recently introduced in their markets.
The Group’s new range of water management products and
sustainable drainage systems demonstrates innovative thinking and
could have an important part to play in reducing the risk of flooding.
The new Drexus linear drainage system is being launched for 2016
along with a new and innovative range of paving products that
incorporate new surface technology.
In the core Landscape Products business, revenue from new products
increased by 14 per cent during 2015. The current development
pipeline remains very strong and the Group has committed further
investment to research and development over the medium term
to drive innovation and new product development.
The Group continues to pursue acquisition opportunities in the
focus areas of Water Management, Street Furniture and Mineral
Products. A shortlist has been developed and there are ongoing
discussions. We have discounted certain targets due to unrealistic
price expectation and lack of fit. There remains a positive pipeline
of good opportunities.
Current priorities and operational strategy
Operational priorities are service, quality, design, innovation and
sustainability and the Group continues to deliver the benefits of
improved product mix and an integrated product offering. The objective
remains to continually strengthen the Marshalls brand by ensuring a
consistently high standard of quality and customer service. Marshalls
continues to have customer service as a key KPI and we maintain industry
leading standards of product quality, availability and “on-time” delivery.
The Group's combined customer service measure continued to be in
excess of 98 per cent throughout 2015.
The Group’s Domestic strategy is to drive sales through approved domestic
installers. The Marshalls Register has grown by 5 per cent in the last year
to 1,862 teams and consistently provides high standards of quality and
a market-leading level of service.
Marshalls’ wide-ranging digital strategy is a key priority and further
investment is being directed to enhancing capability and digital
support throughout the business, including product design and
customer service. The Group’s strategic initiatives are set out in detail
in the Strategic Report on pages 16 to 17.
In September 2015, Marshalls opened its new office “Design Space”
in Clerkenwell, London. This is an important initiative for the Group
and the facility was created specifically with architects and designers
in mind. The location is at the centre of the highest concentration
of architects in the UK and has a wide range of materials and finishes
on display to help inspire and assist them in making specification
decisions. The architects and designers are a key part of the route
to market for Marshalls.
Manufacturing efficiency
We continue to focus on improving manufacturing efficiency. In the
UK, the Group has a unique manufacturing network of 13 concrete
manufacturing sites as well as quarries producing paving, walling
and cladding products. This national network provides unrivalled
geographic coverage and this continues to provide the Group with
a distinct competitive advantage with all of the Group’s operations
supported by a centrally managed logistics and distribution capability.
Well invested capital equipment provides the flexibility to
manufacture products for both the Public Sector and Commercial
and the Domestic end markets and this operational flexibility
remains a key focus for the Group. Marshalls employs a world-class
Manufacturing, Innovation and Development team of engineers
and technicians which creates competitive advantage by combining
machinery design and installation with process improvement.
This capability enabled the Group to accelerate new product
development across the business.
The Group operates its own fleet of 44-tonne delivery vehicles
equipped with crane offloading capability and state-of-the-art
technology, including 360-degree CCTV systems and audible
manoeuvring alerts. The Group remains committed to improving
the quality and safety of the working environment by maintaining
the highest health and safety standards.
Martyn Coffey
Chief Executive
Growing our business
We are growing our business both organically
and selectively through acquisitions.
Annual Report and Accounts 2015 11
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Markets
Marshalls continues to focus on innovation
The outlook remains strong with the CPA’s current forecast for
construction output standing at 3.6 per cent growth in 2016
and growth of 4.1 per cent, 4.2 per cent and 4.0 per cent in the
following 3 years.
Economic market background
The key fundamentals for the sector remain positive with construction
growth becoming more balanced. Private housing work, especially in
London and the South East, provided the majority of growth between
2012 and 2015. Going forward, however, the 3 largest construction
sectors of private housing, commercial and infrastructure are all
expected to drive industry growth.
In January 2015, the CPA forecast solid UK GDP growth in 2016 and
2017, despite a slowdown in economic activity in the second half of
2015. The ONS’s preliminary estimate for GDP growth in quarter 4 was
0.5 per cent. The CPA’s GDP forecast for 2016 is growth of 2.2 per cent
and that construction output in 2016 will rise by 3.6 per cent.
For the Domestic end market, the key factors that drive activity are
property transactions and consumer spending on large ticket items.
Increasing housing equity and savings are enablers of activity in
the sector as they are used as sources of finance for housing repair
maintenance and improvement activity. The CPA has reported that in
2015, the Private Housing Repair, Maintenance and Improvement sector
was worth an estimated £17 billion. In terms of funding streams
for this work, the Office for Budget Responsibility (“OBR”) forecast
that house prices will rise 4.8 per cent and 4.7 per cent in 2016 and
2017 respectively.
Market
Public Sector and Commercial
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. The Group focuses on developing products
which help architects, local authorities, engineers and contractors to
“Create Better Spaces”, whether it is street furniture, natural stone,
concrete block paving, water management, lighting or protective
anti-terrorist products. The Group continues to invest in product
innovation, sales and technical resource for those parts of the market
where it anticipates most growth, in particular in Water Management,
New Build Housing and Rail Infrastructure.
The CPA’s overall view is that in the short term it is private housing
and infrastructure that will drive growth in construction output.
Private housing starts are forecast to rise 5.0 per cent in 2016 and
12
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Consumer confidence has remained strong throughout 2015 with the
indications showing improvement, especially in early 2015.
For 2015, GDP in the Eurozone is estimated to have risen by 1.5 per cent
and growth in 2016 is expected to be the same, primarily due to rising
domestic demand.
Consumer confidence indicators – 10 years
Research carried out by GFK NOP on behalf of the European Commission
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
Jan 2006
Jan 2007
Jan 2008
Jan 2009
Jan 2010
Jan 2011
Jan 2012
Jan 2013
Jan 2014
Jan 2015
Jan 2016
Index confidence
50K+ confidence
Major purchases
UK construction all work actual
and current forecast (CPA)
150,000
140,000
130,000
m
£
’
120,000
110,000
100,000
90,000
Jan 2006
Jan 2007
Jan 2008
Jan 2009
Jan 2010
Jan 2011
Jan 2012
Jan 2013
Jan 2014
Jan 2015
Jan 2016
Jan 2017
Actual
Forecast
Strategic Report a further 5.0 per cent in 2017, buoyed by a high latent demand
for home ownership, helped by rising mortgage lending and
Government policies such as the London “Help to Buy” scheme,
the Starter Homes programme and the Help to Buy ISA. These policies
are likely to fuel house price inflation further (especially in the
South East) whilst also incentivising major housebuilders to increase
building programmes over the next 12 - 18 months.
The CPA forecasts that activity in the infrastructure sector is set to rise
56.9 per cent by 2019 with significant growth in rail, energy, roads,
water and sewerage activity as major projects across the sector add
to rising general work levels. Rail Infrastructure will be primarily
driven by Network Rail general activity but also boosted by HS2.
Road construction is forecast to rise by 37.2 per cent by 2019.
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 project overview
and offer a complete solution comprising a full suite of products.
Strengthening relationships with clients, architects and contractors
and the developing of systems to identify projects are key priorities.
The visibility of projects through externally measured sources such as
Barbour ABI has historically 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 it provides 12-month advance information on likely future
demand.
Contract awarded 12 month rolling average
of hard landscape value
£350 million
£330 million
£310 million
£290 million
£270 million
£250 million
£230 million
£210 million
£190 million
£170 million
£150 million
Jan 2005
Jan 2006
Jan 2007
Jan 2008
Jan 2009
Jan 2010
Jan 2011
Jan 2012
Jan 2013
Jan 2014
Jan 2015
Jan 2016
Jan 2017
Fletcher Bank Sandstone
Public Sector and Commercial
In the Public Sector and Commercial end market, Marshalls
focuses on developing products which help architects, local
authorities, housebuilders and contractors to “Create Better
Spaces”, whether in street furniture, natural stone paving for
the internal or external environment, concrete block paving,
water management or anti-terrorist products.
The Group continues to invest in product innovation,
sales and technical resource for those parts of the market
where it anticipates most growth, in particular in Water
Management, New Build Housing and Rail Infrastructure.
The CPA’s overall view is that in the short term it is private
housing and infrastructure that will drive growth in
construction output.
Annual Report and Accounts 2015 13
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Markets continued
Market continued
Domestic
Marshalls’ Domestic customers range from professional landscapers,
driveway installers and garden designers to DIY enthusiasts. The Group
is committed to offering homeowners the inspiration, information
and ranges needed to choose the best possible products for their
patio or driveway makeovers.
The target customer groups for installed patios and driveways occupy
8.7 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 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 to meet the aspirations of these
customer groups. Pension release is having a positive impact on the
home improvement market; in the last 3 quarters of 2015 188,000
over 55s took a total of £3.5 billion in cash out of their pension pots,
with 32 per cent of this being spent on home improvements.
The Marshalls Register
remains the largest
installer scheme
in the UK.”
The Group’s Domestic strategy is to drive more sales through quality
installers and membership of the Marshalls Register grew in 2015.
Further increase is planned in 2016. The Marshalls Register remains
the largest installer scheme in the UK. Marshalls continues to focus
on product innovation with a developing product portfolio helping
installers to finish jobs more quickly.
Marshalls Pavesys
Domestic
Marshalls’ Domestic customers range from professional
landscapers, driveway installers and garden designers
to DIY enthusiasts.
The target customer groups for installed patios and
driveways occupy 8.7 million homes, a far bigger potential
market than New Build.
The Group is committed to offering homeowners the
inspiration, information and ranges needed to choose the
best possible products for their patio or driveway makeovers.
Pension release is having a positive impact on the home
improvement market; in the last 3 quarters of 2015 188,000 over
55s took a total of £3.5 billion in cash out of their pension pots,
with 32 per cent of this being spent on home improvements.
14
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report Installer order books & domestic sales volume (index)
120
115
110
105
100
95
x
e
d
n
I
l
l
-
T
A
M
e
m
u
o
V
s
e
a
S
s
t
c
u
d
o
r
P
c
i
t
s
e
m
o
D
l
l
A
90
Feb 2014
M ar 2014
Apr 2014
M ay 2014
Jun 2014
Jul 2014
Aug 2014
Sep 2014
Oct 2014
N ov 2014
Dec 2014
Jan 2015
Feb 2015
M ar 2015
Apr 2015
M ay 2015
Jun 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
N ov 2015
Dec 2015
Jan 2016
MLP domestic MAT - index Jan 2014
Installer order books (last value)
Order books linear trend
13.0
12.0
11.0
10.0
9.0
8.0
7.0
(
A
v
e
r
a
g
e
n
u
m
b
e
r
o
f
w
e
e
k
s
’
w
o
r
k
)
I
n
s
t
a
l
l
e
r
o
r
d
e
r
b
o
o
k
s
International
Internationally, Marshalls has placed a key geographic focus on
northern Europe, North America and the Middle East.
In mainland Europe, the Group’s strategy in the Domestic end
market is to be a niche, premium product supplier. The Group’s
manufacturing site in Belgium provides a physical stock location in
mainland Europe from which to supply the wider Group’s specialist
product portfolio. The aim is to supply products that are not readily
available in mainland Europe. There are over 40 million people living
within a 2-hour drive from the site, an area that covers Belgium,
Holland, northern France and parts of Germany.
Marshalls now has a sales presence in North America and is supplying
natural stone to commercial projects using distribution relationships
with US companies.
In 2015, Marshalls supplied a number of high profile projects in the
Middle East, in particular focusing on driving sales in the United Arab
Emirates, Kuwait and Qatar. A new sales office has been recently
established in Dubai to facilitate further growth in the region.
Internationally,
Marshalls has placed a
key geographic focus
on northern Europe,
North America and
the Middle East.”
Annual Report and Accounts 2015 15
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Strategy
Focused on growth
Shareholder value
Sustainable profitability
Relationship building
To deliver sustainable shareholder value by
improving the long-term operating
performance of the business.
To maintain a strong market position and
grow the business profitability in all the
Group’s end markets.
To develop relationships with key
stakeholders, customers and installers.
What we have achieved
What we have achieved
What we have achieved
— Substantial increase in share price
— 48% growth in operating profit
— Strengthened customer
during the year.
— Entry to FTSE 250.
— Growth in ROCE to 19.0%.
— Market share gains.
— Supplementary dividend.
driven by operational gearing.
relationships.
— Increase in operating profit
— 98% customer service KPI.
percentage to 9.7% (2014: 7.1%).
— 14% growth in sales of new
products in the core business.
— Integrated “landscaping solutions”.
— Opening of Design Space office in
Central London.
— Over 1,800 registered installer teams.
Our future targets
Our future targets
Our future targets
— To make strategic investments for
— To deliver strategic growth initiatives.
— To promote integrated
organic growth and acquisitions.
— To have a progressive
dividend policy.
— To improve product mix
and promotion of new
value-added products.
product offer.
— To focus on installer training,
marketing and sales support.
— To deliver sustainable EPS and
— To improve operational
— To be an employer of choice.
operating cash flow growth.
— To grow EBITDA.
efficiency of manufacturing
and distribution network.
— To maintain ethical and
sustainable policies.
— To be a system provider.
18
Key Performance Indicators page 18
20
Risks page 20
Left – Loci Street Furniture
Middle – Brentford Marketplace, Essex
Right – Trustone Paviors, Fellstyle
16
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report Organic expansion
Brand development
To invest in selective synergistic acquisitions
and organic expansion in existing and related
markets and product categories to expand
the business.
To strengthen and extend the Marshalls
brand by focusing on innovation, service and
new product development.
Effective capital structure
and control framework
To maintain efficient and effective business
controls and to ensure that the capital
structure remains aligned with the Group’s
corporate growth objectives.
What we have achieved
What we have achieved
What we have achieved
— Revenue growth of 8% to
— “Superbrand” status.
— Net debt reduced to £11.5 million.
£386.2 million.
— Significant growth in key focus
areas and smaller UK businesses.
— Increased capacity whilst
maintaining operational flexibility.
— Opened sales office in Dubai.
— Full integration of Marshalls brand.
— Improved integration in
marketing collateral.
— Established the new Marshalls
“Stone Standard”. Marshalls
exceeds the standard.
— Efficient portfolio of bank facilities
with extended maturities and
realigned headroom.
— Continued focus on working
capital management and efficient
inventory control.
Our future targets
Our future targets
Our future targets
— To target growth areas such
as Water Management, Street
Furniture, Rail and New Build Housing.
— To increase capital expenditure.
— To maintain the Group’s
market-leading position.
— To focus on innovation, customer
service and product quality.
— To maintain a national network of
— To increase technical R&D.
manufacturing and distribution sites.
— To maintain the highest health
— To extend global reach into specific
and safety standards.
targeted areas such as the Middle
East and North America.
— To maintain a flexible capital
structure that recognises cyclical
risk, focusing on security, efficiency
and liquidity.
— To target a net debt to EBITDA ratio
of between 1 and 2 times over the
business cycle.
— To operate tight control over
business, operational and
financial procedures.
24
Sustainability page 24
46
Remuneration page 46
Left – Street Furniture Customer Showroom
Middle – Cordara, Iberian Oak
Right –York Minster
Annual Report and Accounts 2015 17
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Key Performance Indicators
The Group's KPIs monitor progress towards the achievement of its objectives.
All of the Group's strategic KPIs have improved significantly during 2015.
Revenue £'m
£386.2m+8%
325.1
300.9
307.4
358.5
386.2
Operating profit £'m
£37.5m+48%
15.0
12.9
16.1
37.5
25.3
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Performance and targets
Group revenue has increased by 7.7 per cent in 2015. Public Sector
and Commercial revenue has grown by 10.8 per cent in 2015 and
Domestic revenue has increased by 3.6 per cent.
Operating profit has increased by 48.0 per cent to £37.5 million in
2015. The Group's strong operational gearing has driven an increase
in reported operating margin from 7.1 per cent to 9.7 per cent, which
represents an increase of 36.6 per cent.
Risk management
The Group closely monitors trends and lead indicators and continues
to benefit from the diversity of its business and end markets.
The Group focuses on innovation and new product development
in order to improve product mix and increase value-added sales.
EPS p
14.32p+41%
5.66
5.52
6.94
14.32
10.13
ROCE %
19.0%+52%
19.0
12.5
8.1
5.3
5.2
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Performance and targets
Group EPS has increased by 41.4 per cent in 2015 to
14.32 pence. Significant EPS growth is a strategic target.
Risk management
Group ROCE is 19.0 per cent for the year ended 31 December 2015,
which represents an increase of 52.0 per cent during the year. The
strategic target is for ROCE to be at least 15 per cent. ROCE is defined
as EBITA / shareholders' funds plus net debt.
The Group continues to focus on strategic investment
for both organic and acquisitive growth.
The Group focuses on sales opportunities and strategic
growth opportunities.
18
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report Strategic objectives
Shareholder value
Relationship building
Brand development
Sustainable profitability
Organic expansion
Effective capital structure
and control framework
Net debt £'m
£11.5m
77.1
63.5
35.6
30.5
2011
2012
2013
2014
11.5
2015
Performance and targets
Dividend per share (recommended) p
7.00p+16.7%
(+ 2.00p supplementary)
5.25
5.25
5.25
6.00
2.00
7.00
2011
2012
2013
2014
2015
The Group's strategic target is for the ratio of net debt to EBITDA to be
between 1 and 2 times over the business cycle. At 31 December 2015
the ratio was 0.2 times.
A progressive dividend policy remains a key objective, with the
continuing strategy of maintaining up to 2 times cover over the
business cycle. On an IFRS basis, the dividends declared in the year
ended 31 December 2015 are 6.25 pence.
Risk management
The Group maintains a conservative financial profile that recognises
cyclical risk and a flexible capital structure that can respond to
market changes.
The final dividend recommended is 4.75 pence per share which,
including the interim dividend of 2.25 pence, gives a total for the year
of 7.00 pence. For the year ended 31 December 2015 a supplementary
dividend of 2.00 pence per share is being recommended.
Customer service Customer service index
Health and safety Reduction in working days lost
98%
95
98
Target
Achieved
Performance and targets
43%
43
10
Target
Achieved
Customer service lies at the heart of the Marshalls brand. The Group's
customer service index combines measures of product availability,
on-time delivery performance and administrative and delivery
accuracy. The Group's customer service index target is 95 per cent.
Marshalls remains committed to meeting the highest health and
safety standards for all its employees and continually strives
to improve the quality and safety of the working environment.
The headline target for 2015 was a 10 per cent reduction in days
lost resulting from workplace incidents against 2014.
Risk management
The Group focuses on quality, service, reliability and ethical
standards that differentiate Marshalls from its competitors.
The Group employs compliance procedures and policies which seek
to ensure that local, national and international health and safety
controls are fully complied with.
Annual Report and Accounts 2015 19
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Risk Management and Principal Risks
Managing risk to deliver strategic objectives
Framework
The Board:
— determines the Group’s approach to risk, its policies and the
procedures that are put in place to mitigate exposure to risk.
The Audit Committee:
— has delegated responsibility from the Board to oversee risk
management and internal controls;
— reviews the effectiveness of the Group’s risk management
and internal control procedures; and
— monitors the effectiveness of the internal audit function and
the independence of the external audit.
Executive Directors:
Internal audit:
— are responsible for the
— undertakes independent
effective maintenance of
the Group’s Risk Register;
reviews of effectiveness of
internal control procedures;
— oversee the management
of risk;
— monitor risk mitigation
and controls; and
— monitor the effective
implementation of
action plans.
— reports on effectiveness of
management actions; and
— provides assurance to the
Audit Committee.
Operational managers:
— are responsible for identification of operational and strategic risks;
— are responsible for ownership and control of specific risks; and
— are responsible for establishing and managing the
implementation of appropriate action plans.
Approach to risk management
Risk management is the responsibility of the Board and is a key factor in
the delivery of the Group’s strategic objectives. The Board establishes the
culture of effective risk management and is responsible for maintaining
appropriate systems and controls. The Board sets the risk appetite and
determines the policies and procedures that are put in place to mitigate
exposure to risks.
Process
There is a formal ongoing process to identify, assess and analyse
risks and those of a potentially significant nature are included in the
Group Risk Register. During 2015, the Risk Register process has been
independently reviewed by KPMG, in its capacity as the Group’s
internal auditor, and a number of design improvements have been
incorporated. The conclusion of this review has been that the process
continues to be a robust mechanism for monitoring and controlling
the Group’s principal risks.
The Group Risk Register is reviewed and updated at least every
6 months by management and twice a year by the Board, and the
overall process is the subject of regular review. 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 aligned
with the Group’s strategic objectives and each risk is 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 threats from cyber security, new technologies and
business models. Internal risks include investment in new products,
new business strategies and acquisitions. Environmental and
sustainability considerations are also taken into account.
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 Audit Committee.
20
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report Principal risks and uncertainties
The Directors have undertaken a robust, systematic assessment of the
Group’s principal risks. These have been considered within the timeframe
of 3 years, which aligns with our Viability Statement (page 23).
Nature of risk
Potential impact
Mitigating factors
Change
The lower activity levels could
reduce sales and production
volumes and, therefore, could have
an adverse effect on the Group's
financial results.
The Group closely monitors trends
and lead indicators, invests in
market research and is an active
member of the CPA.
The Group benefits from the
diversity of its business and
end markets.
The Group focuses on sales
opportunities and strategic growth
initiatives, together with quality,
service and its supply chain.
Economic risk has reduced as economic
and sector outlook and growth rates
have improved.
There continues to be growth potential
in certain focus areas, e.g. Rail, Water
Management and Street Furniture, and
forward indicators in the core business
remain positive.
The economic outlook for the Eurozone
continues to be difficult, although proactive
development of the product range
continues to be positive.
Macro-economic and political
The Group is dependent on
the level of activity in its end
markets. Accordingly, it is
susceptible to economic
downturn and the impact
of Government policy.
The availability of credit
to the Group's customers
is a key determinant of
economic activity.
Weather
The Group is exposed to the
impact of prolonged periods
of bad weather.
The lower activity levels could
reduce sales and production
volumes and, therefore, could have
an adverse effect on the Group's
financial results.
Customers
The UK business has a number
of key customers, in particular
the national merchants. This
is partly as a result of the
consolidated nature of
this market.
The loss of a significant customer
may give rise to a significant
adverse effect on the Group's
financial results.
Weather conditions are totally
beyond the Group’s control.
Although the underlying risk
continues, the effective
management of key relationships
and the ongoing diversification
of the business are serving to
mitigate the risk.
The Group has a continuing focus
on new product development,
including landscape water
management.
The Group is developing its internal
flooring offer and developing its
international strategy in order to
diversify its activities.
The Group focuses on brand and
new product development, quality
and customer service improvement.
The Group maintains a national
network of manufacturing and
distribution sites.
The Group undertakes ongoing
reviews of trading policies and
relationships and maintains
constant communication
with customers.
Strategic objectives
Shareholder value
Organic expansion
Sustainable profitability
Brand development
Relationship building
Effective capital structure
and control framework
Annual Report and Accounts 2015 21
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Risk Management and Principal Risks continued
Nature of risk
Potential impact
Mitigating factors
Change
Competitor activity
The Group has a number
of existing competitors
who compete on range, price,
quality and service.
The increased competition
could reduce volumes and
margins on manufactured
and traded products.
Potential new low cost
competitors may be attracted
into the market through
increased demand for imported
natural stone products.
The Group has unique selling points
that differentiate the Marshalls brand.
The Group focuses on quality,
service, reliability and ethical
standards that differentiate Marshalls
from competitor products.
The Group continues to have
the lowest cost to market.
The Group has a continuing focus
on new product development.
The improved market outlook
has increased demand (relative
to available supply) and this has
led to a reduction in such
competitive pressure.
There is continuing demand
for imported natural stone
products, although Marshalls’
brand development and
product differentiation
continue to mitigate the risk.
Threat from new technologies and new business models
Reduction in demand
for traditional products.
Risk of new competitors
and new substitute
products appearing.
Failure to react to
market developments.
The increased competition could
reduce volumes and margins on
traditional products.
Good market intelligence.
Flexible business strategy able to
embrace new technologies.
Significant focus on research and
development and new products.
Development of a digital strategy.
The ongoing diversification
of the business and the
continued development of the
Marshalls brand continue to
mitigate the risk.
Cost and availability of raw materials
The Group is susceptible to
significant increases in the
price of raw materials, utilities,
fuel oil, haulage costs and
vehicle availability.
As demand increases, the Group
is potentially more exposed to
the risk of temporary raw
material shortages.
The increased costs could reduce
margins and may be further
impacted in the event of imbalances
in the mix of regional activity.
The risk of market demand
exceeding raw material supply could
lead to inefficient production, which
could reduce margins.
IT infrastructure
Disruption to the IT environment
could affect the Group's ability to
conduct its ongoing operations.
Ineffective procedures could lead to
an adverse effect on the Group's
financial results.
Cyber security risks
Inadequate controls and
procedures over the protection
of intellectual property, sensitive
employee information and
market-influencing data.
Risk of data loss – financial and
reputational risk.
The Group benefits from the diversity
of its business and end markets.
The Group focuses on its supplier
relationships, flexible contracts and
the use of hedging instruments.
The Group utilises sales pricing and
purchasing policies designed to
mitigate the risks.
The Group uses specialist
delivery vehicles.
Cost inflation remains a
risk as demand for raw
materials increases.
The improved market outlook
has increased demand (relative
to available supply), but the risk
of temporary shortages has
stabilised due to proactive
supply chain management and
the use of alternative suppliers.
The continued investment in
and maintenance of IT systems
across the Group give rise to
good control of this risk.
All IT system development projects
are actively and carefully planned
with defined governance and
control procedures.
Regular independent risk and project
management audits are undertaken.
The Group ensures that industry
standards are adopted and disaster
recovery plans and procedures exist
and are regularly tested.
Use of IT security policies.
Restructured IT department
to co-ordinate the stewardship
of cyber security risks.
Sensitive data is currently restricted
to selected senior and experienced
employees who are used to handling
such data.
Where sensitive data is made available
to third parties it is done under
confidentiality agreements with
reputable suppliers.
Currently a high profile area and
considerable focus is being
given to promoting awareness
of IT security policies.
Appropriate tools and training
procedures are in place to
protect sensitive data when
stored and transmitted between
parties (e.g. encryption of hard
drives, restricted USB devices,
secure data transmission
mechanisms and third-party
security audits).
22
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report
Nature of risk
Potential impact
Mitigating factors
Change
Environmental
The impact of the “Environmental
Protocol” leads to the need for
increasingly expensive processes.
An environmental contamination
event may lead to a prosecution
and to reputational loss.
An incident could lead to disruption
to production and to financial
penalties as well as a potential
negative impact on the
Group's reputation.
The Group uses professional specialists
covering carbon reduction, water
management and biodiversity.
The Group focuses on the
implementation of ISO standards.
The Group has a formal Group
sustainability strategy focusing
on impact reduction.
The Group is unable to
predict future changes in
environmental laws or
policies or the ultimate cost
of compliance with such
laws or policies.
Corporate, legal and regulatory
The Group may be adversely
affected by an unexpected
reputational event, for example,
in its ethical supply chain or due
to a health and safety incident.
An incident could lead to a
disruption to the supply of products
for customers and to increased
costs as well as a potential negative
impact on the Group's reputation.
Significant increases in the penalty
regime have increased the potential
financial impact of health and
safety incidents.
The Group employs compliance
procedures, policies and independent
audit processes which seek to ensure
that local, national and international
regulatory and compliance procedures
are fully complied with.
The extension of the
Group’s activities into new
international markets
causes this risk to continue,
notwithstanding the
additional compliance
procedures within the
supply chain.
Health and safety and the
potential impact of the Bribery
Act continue to be high profile
risk areas.
Access to funding
The Group continues to require
debt funding in order to meet its
trading obligations and to grow
the business.
Insufficient access to funding could
limit the Group’s ability to achieve
the desired levels of growth.
The Group has significant committed
facilities in place, with a good spread
of medium-term maturities and
significant headroom.
The Group’s policy continues to be to
arrange funding ahead of requirements
and to maintain sufficient undrawn
committed bank facilities.
The improved economic
outlook and the Group’s
reduced gearing have
continued to reduce this risk.
There is also improved liquidity
and increased competition
within the banking sector.
Viability Statement
After considering the principal risks above, the Directors have
assessed the prospects of the Group over a longer period than
the 12 months required by the “going concern” basis of accounting.
The Directors’ separate statement on going concern is set out on
page 45. The Directors consider that the Group’s risk management
process satisfies the requirements of provision C.2.2 of the 2014
revision of the UK Corporate Governance Code.
The Board considers annually, and on a rolling basis, a 3-year
strategic plan, which is assessed with reference to the Group’s
current position and prospects, the strategic objectives, and the
operation of the procedures and policies to manage the principal
risks that might threaten the business model, future performance
and target capital structure. In this assessment security, flexibility
and efficiency are the guiding principles that underpin the Group’s
capital structure objectives.
The Board considers 3 years to be an appropriate period of
assessment as this aligns with the Group’s strategic plan and the
Directors also consider that they have reasonable visibility of the
market over this period. The Group’s strategic plan includes an
integrated model that incorporates the income statement, balance
sheet and cash flow projections. Key KPIs and financial ratios are
reviewed along with the ongoing appropriateness of all assumptions
used. Scenario planning is undertaken along with stress testing
against downside sensitivities. The stress testing reflects the principal
risks that could conceivably threaten the Group’s ability to continue
operating as a going concern and has critically assessed downside
scenarios that might give rise to sales volume reductions, deteriorating
operating margins and increases in interest rates. The principal risks
and uncertainties are set out above and, in the opinion of the Directors,
the risk of economic downturn, linked to macro-economic and
political factors, is the most significant driver in the stress test
scenarios. The stress testing has used the financial impact of the
last recession as the core sensitivity, with significantly reduced
sales volumes giving rise to a 25 per cent decrease in revenue over
a 2-year period and reflecting a 40 per cent fall in operating margin.
Based on this assessment, the Directors confirm that they have
a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due for the next
3 years.
Annual Report and Accounts 2015 23
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Sustainability
Corporate responsibility, an awareness and mitigation of adverse
impacts on the environment, and positive engagement with our
community and employees have long been core values of Marshalls.
Overview
Corporate responsibility, awareness and mitigation of adverse impacts
on the environment, and positive engagement with our community
and employees have long been core values of Marshalls. 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.
Our commitment to these values is led by the Board and Jack Clarke
is the Director with primary responsibility for reporting to the Board
on environmental, social and sustainability matters.
More information on our policies in relation to the environment and
our impact on it can be found on the Group’s Sustainability website.
Employees
Marshalls continues to focus closely on the established values of
leadership, excellence, trust and sustainability and to build these into all
of its activities, not least those involving employees. We are firmly focused
on encouraging all staff, no matter where they are based, to collaborate in
all aspects, whether on work issues or as part of the Group’s “Giving Back”
programme, which continues to be a growing activity. The Group has
raised a substantial amount for good causes during 2015. In 2016 our
focus will be to support Prostate Cancer UK.
For the second year Marshalls is proud to be a “Living Wage Employer”,
underscoring its commitment to employees. In September 2015 we
launched our employee Sharesave scheme, which enabled employees
to save a fixed amount for a period of 3 years in order to buy discounted
shares at a set price. The Sharesave offer was well received, with more
than 900 employees (representing 46 per cent of the eligible workforce)
applying to participate. This demonstrates a significant level of confidence
on the part of our employees in Marshalls’ future.
We welcome and give full and fair consideration to applications from
individuals with recognised disabilities to ensure they have equal
opportunity for employment and development in our business. Wherever
practicable we offer training and make adjustments to ensure disabled
employees are not disadvantaged in the workplace.
Marshalls’ sustainable business model
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 the development of management systems recognised by
an independent third party (BSI).
Environmental
Water use, CO2, and CO2e
Biodiversity
Waste to landfill
Social
Ethical sourcing
Community responsibility
Legal
Safety
Economic
Total shareholder return
Customer service index
FTSE4Good membership
2,300 employees
Our success depends on our people. Because of that,
we are committed to the highest health and safety measures
for all of our employees.
24 Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report We also remain committed to employing a diverse workforce and, in
particular, encouraging more women to enter what has traditionally
been a highly male-dominated workplace. Janet Ashdown joined
Marshalls plc during 2015 as a Non-Executive Director. At the end of
2015 our workforce comprised 2,292 employees with the following
gender balance:
Total workforce
Senior managers
Directors
Male
84%
87%
83%
Female
16%
13%
17%
Employee engagement
In 2015 we participated, for the fifth successive year, in the Best
Companies Workplace Engagement Survey, with over 85 per cent of
employees taking part (an increase from 75 per cent in 2014). The Group
also saw a positive increase in its Best Companies Index Engagement
Score and we maintained our “One to Watch” status. We are working on
detailed implementation plans that will address key focus areas that have
arisen from the survey. These include “Fair Deal,” “Giving Something Back,”
“Wellbeing,” “Communications” and “Personal Growth.” During 2016 we
have a scheduled plan of monthly activities, covering “Wellbeing” and
“Giving Something Back,” which will enable employees both to improve
their personal health and contribute to both our corporate charity
partner, Prostate Cancer UK, and local causes. Company-sponsored social
activities range from encouraging employees to take part in Sport Relief
to a national “Walk This Way” campaign. The survey results are cascaded
throughout all levels of the organisation, ensuring everybody
understands the feedback. Employees are actively encouraged to take
part during the planning stages, which will establish agreed actions to
improve our employee engagement during the year ahead.
Communication with our employees on matters of concern to them is
done in face-to-face briefings, via monthly newsletters, site notice boards
and our Group intranet. We operate a structured consultation process in
relation to pay and employment terms.
Employee development
We have identified a number of priorities across all aspects of the
employee life cycle, from attraction and recruitment to personal
growth and career progression. The introduction of a new centralised
HR information system during 2015 has improved the quality of the
Group’s employee data metrics, which will be used to improve
medium to long-term talent recognition and people development,
the wider adoption of shared best practice across our business and
the introduction of new cohesive initiatives.
Land at Moselden Quarry
Sustainability
We are committed to achieving the highest standards of
environmental performance. Whether it is reducing our
carbon footprint or promoting biodiversity at our works, we
continue to strive for real environmental results in everything
we do. We believe in demonstrating a high degree of social
responsibility, working with the communities in the UK and
overseas, and engaging with issues of social importance.
We aim to be the supplier of choice of innovatively designed
ranges of the highest quality landscape and walling products
to the architect, contractor and consumer. We believe
in conducting our business in a manner which achieves
sustainable growth and we believe in acting responsibly with
all stakeholders.
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
25
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Sustainability continued
Training and development
The development review process has been further extended during 2014
and provides all employees with the opportunity for one-to-one discussions
with their manager, covering work objectives, personal performance and
career development. This is supported by the use of enhanced online
resources and tools, together with site-based "tool-box talks".
A tailored team leader development programme commenced in
2014 to develop around 100 first-line managers within operations to
drive manufacturing excellence. The programme, which continued
through 2015, aims to improve management and leadership skills
through professional qualifications and a range of internal workshops.
Carbon emissions – disclosure
Marshalls’ Energy and Climate Change Policy confirms the Group’s
commitment to reducing the energy and carbon impact of its
business. Our target is to reduce Group absolute CO2e emissions
in line with the UK Government’s targets (34 per cent by 2020 and
80 per cent by 2050 from a 1990 baseline). The progress indicates
that reductions are in line with the 2020 and 2050 targets.
The Group complied with its legal obligation in the Government’s
Carbon Reduction Commitment Energy Efficiency Scheme (“CRC”)
by submitting its Annual Report and surrender of carbon allowances
for the period April 2014 to March 2015 within the time limit imposed
by the legislation. The Group successfully recertified to the Carbon
Trust Standard up to December 2016. The Group’s approach to the
Energy Savings Opportunity Scheme (“ESOS”) legislation was to
define its energy management in compliance with the international
standard for energy management ISO50001, gaining certification
in November 2015. The Group continues to report voluntarily to the
“Carbon Disclosure Project” receiving a 98B rating for its 2015 report.
This report 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.
Marshalls has a mandatory duty to report its annual greenhouse
gas emissions (“GHG”) under the Companies Act 2006 (Strategic and
Directors’ Reports) Regulations 2013 and the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008.
Marshalls uses the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition) and the latest “Defra” published CO2e
conversion factors to measure its GHG emissions.
The Group has conducted audits of its UK fugitive emissions and
found these to be less than 0.5 per cent of the Group’s total emissions;
accordingly, these are excluded from the report.
The chart below (left) illustrates the Group’s UK absolute CO2e emissions
in tonnes, including transport activities, between 2011 and 2015.
The chart below (right) illustrates the Group’s CO2e intensity emissions
as a proportion of production output, including transport activities,
between 2011 and 2015.
A number of factors have contributed to the Group’s energy performance
during the year, including significant increases in outputs from
continuing operations, product mix, weather (temperature impacting
on the use of heating / cooling fuel) and energy management activities.
During the year Marshalls increased its LGV fleet by 20 per cent;
this resulted in a transfer of scope 3 to scope 1 emissions, an impact
equivalent to 28 per cent of the scope 1 increase.
The Group reports that it is responsible for the GHG emissions of
Marshalls NV. The CO2 emission from Marshalls NV activities in 2015
was (absolute) 640 tonnes and (intensity) 8.49 kg per tonne production.
Scope 1 and 2 emissions
Scope 1
Scope 2
Relative CO2e per tonne production, scopes 1 and 2
kgs CO2e per tonne
e
2
O
C
s
e
n
n
o
T
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
18,703
16,212
45,329
43,518
14,015
16,769
16,436
40,012
36,166
38,756
2011
2012
2013
2014
2015
t
u
p
t
u
o
n
o
i
t
c
u
d
o
r
p
e
n
n
o
t
r
e
p
e
2
O
C
s
g
k
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
11.42
11.73
12.12
11.52
10.94
2011
2012
2013
2014
2015
Climate Change Policy
www.marshalls.co.uk/ccp
Carbon Disclosure Project
www.cdp.net
Environmental
www.marshalls.co.uk/EnvKPI2016
26
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report
Marshalls remains committed to meeting the highest safety
standards for all its employees, reinforcing and developing its safety
processes, and developing a competent workforce.
Sustainability website
www.marshalls.co.uk/sustainability
Environmental reporting
Marshalls publishes its environmental KPI performance for the
financial year in a separate document, the Marshalls Environmental
KPI 2016 Report. This covers our energy performance in more detail,
together with the reporting of our environmental governance,
policies, management and key environmental impact areas such as
waste, water and packaging. The Environmental KPI 2016 Report also
details our work with internationally recognised expert bodies such
as the Carbon Trust and the RSPB.
This section of the Annual Report has been audited by a qualified
verifier on behalf of BSI. On the basis of the work undertaken this
carbon statement is considered to be a fair reflection of the Group’s
performance during 2015 and contains no misleading information.
Health and safety
Marshalls remains committed to meeting the highest safety standards
for all its employees, reinforcing and developing its safety processes,
and developing a competent workforce with a view to achieving
long-term improvement gains, and this remains a key priority for
the business.
Achievement of annual health and safety improvement targets is
directly linked to the remuneration of the Executive Directors and
senior management, as explained in the Remuneration Report.
Our Safety, Health and Incident Prevention (“SHIP”) teams, consisting
of employee representatives and managers, are the cornerstone
of the safety management system at site level and meet regularly
to support and develop our safety programme and objectives.
The Group’s operating sites have been progressively implementing
integrated management registration systems accredited by
BSI, incorporating accreditation to OHSAS (Occupational Health
and Safety Accreditation Standard) 18001:2007. At the end of
2015 all UK operational sites within the Group held a BS OHSAS
(18001:2007) registration.
The headline target for 2015 was a 10 per cent reduction in days
lost resulting from workplace incidents against 2014. The actual
reductions achieved were:
— 43.2 per cent reduction in days lost resulting from workplace incidents;
— 17.4 per cent reduction in all incident frequency rate;
— 29.2 per cent reduction in lost time incident (“LTI”)
frequency rate; and
— 51.5 per cent reduction in rate of incidents reportable to the
HSE under the Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (“RIDDOR”).
The table below shows the KPIs used by the Group to monitor
performance, and progress against those KPIs over the last 5 years.
Accident frequency and
severity rates (per 1 million
hours worked)*
All accidents
All lost time
accidents
All RIDDORs
2011
83.2
15.5
8.1
2012
69.5
14.0
6.1
2013
65.6
12.2
3.6
2014
59.1
7.2
3.3
2015
48.8
5.1
1.6
All days lost
204.4
134.5
114.6
80.7
45.8
Average UK
headcount
2,456
2,252
2,055
2,132
2,237
* To align our accident statistics with those of the Mineral Products Association our base unit of
measurement has changed to 1 million hours worked. Previous years' results have been amended
to reflect this change.
During 2015, the Group has invested additional resources in health
and safety awareness training through its "Visible Felt Leadership"
initiative, which has now been delivered to all managers and
supervisory staff.
The industry leading fleet safety standards were recognised at the
2015 Chartered Institute of Logistics and Transport Awards for
Excellence with Marshalls winning the prestigious "Safety" category.
Marshalls was also the winner in both the "Engineering Initiatives"
and the "Behavioural Safety, Safety Culture and Leadership" categories
at the Mineral Products Association's 2015 Health and Safety Awards.
Annual Report and Accounts 2015 27
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Financial Review
Delivering growth on all key financial metrics
The Group has continued to strengthen its financial
performance and operating margins.
Summary
— Operating profit up 48% to £37.5 million
and EBITDA up 35% to £51.8 million.
— ROCE increased by 52% to 19% driven
by tight control and management
of working capital.
— Strong free cash flow with significant
headroom for investment.
— Strong balance sheet with a flexible
capital structure.
Trading summary
Revenue
Revenue for the year ended 31 December 2015 was £386.2 million
(2014: £358.5 million), which represented an increase of 7.7 per cent.
Revenue for the 6 months to 31 December 2015 was up 4.8 per cent
compared with strong comparatives in the second half of 2014.
Revenue variance analysis 2014/2015
m
£
’
400
350
300
250
20.0
8.7
386.2
358.5
-1.0
2014
revenue
Landscape
Products
Smaller UK
businesses
International
2015
revenue
An analysis of revenue by end market is summarised in the table below:
Analysis of sales by end market
UK Domestic
Public Sector and Commercial
International
2015
£’m
111.9
255.3
19.0
108.0
230.5
20.0
2014
£’m
Change
%
3.6
10.8
(5.0)
7.7
UK Domestic
Public Sector and Commercial
International
386.2
358.5
%
28.8
66.2
5.0
%
30.0
64.1
5.9
Jack Clarke
Finance Director
28
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
Strategic Report
Driving growth revenue analysis
Public Sector
and Commercial
UK Domestic
International
66%
29%
5%
Landscape
Products
Smaller UK
businesses
78%
17%
International
5%
Public Sector and Commercial
In the Public Sector and Commercial end market, revenue increased
by 10.8 per cent compared with 2014. Sales in the Public Sector and
Commercial end market now represent approximately 66 per cent
of Group sales.
Commercial order intake is strong and demand in Water Management,
New Build Housing and Rail continues to increase. The Group is
outperforming the market in these areas and Marshalls’ strategy
is to enhance its position as a market leading landscape products
specialist. The Group’s technical and sales teams focus on market
areas where future demand is greatest and promote the full range
of integrated products and sustainable solutions to customers,
architects and contractors.
International
Sales to International markets increased by 2.6 per cent in local currency.
However, the impact of exchange rate movements is that, once
translated into Sterling, sales reduced to £19.0 million (2014: £20.0 million).
Given trading conditions, which continue to be difficult in Europe, this
represents a good performance and, pleasingly, the Belgium business
has moved into profit. The International business is now approximately
5 per cent of Group sales.
The continuing focus is to develop the Group’s International operations
and ensure these are aligned with market opportunities. Sales through
the Group’s US subsidiary have increased by 50 per cent, in local
currency, and a new sales office has recently been opened in Dubai
to facilitate further sales growth in the Middle East.
The Group has established the new “Marshalls' Stone Standard”.
The Marshalls’ Stone Standard mark gives our customers full
assurance that all Marshalls natural stone not only meets but
exceeds the base technical levels outlined in B57533.
Domestic
In the Domestic end market, revenue increased by 3.6 per cent.
Sales to the UK Domestic end market now represent approximately
29 per cent of Group sales.
Installer order books at the end of February 2016 were 10.5 weeks
(February 2015: 9.0 weeks). The Group continues to receive good
feedback from its customers and installers for the consistency and
quality of service. The GfK’s Consumer Confidence Index has remained
at historically high levels during the last year.
The Group’s strategy continues to be to drive more sales through
quality installers. The Marshalls Register of approved domestic installers
is unique and has grown to over 1,800 teams. The objective is to
continually develop the Marshalls brand, to improve the product mix and
to ensure a consistently high standard of quality, excellent customer
service and marketing support and good geographical coverage.
Operating profit
Trading results
EBITDA
Depreciation / amortisation
Operating profit
2015
£’m
51.8
(14.3)
2014
£’m
Change
%
34.6
38.5
(13.2)
37.5
25.3
48.0
Operating profit was £37.5 million (2014: £25.3 million), which represents
an increase of 48.0 per cent. EBITDA increased by 34.6 per cent to
£51.8 million (2014: £38.5 million) and basic EPS was 14.32 pence
(2014: 10.13 pence), an increase of 41.4 per cent.
ROCE increased by 52.0 per cent to 19.0 per cent (2014: 12.5 per cent)
driven by tight control of capital management. Capital employed has
decreased by 3.9 per cent to £204.2 million (2014: £212.4 million),
despite the significant increase in profit.
Annual Report and Accounts 2015 29
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Financial Review continued
Trading summary continued
First half / second half phasing
The following table summarises the relative performance of the
second half of 2015 compared with that for the 6 months ended
30 June 2015. The table illustrates the continued improvement in
the second half of 2015, with revenue increasing by 4.8 per cent
and operating profit increasing by 59.3 per cent compared with
the comparable 6 month period in 2014.
First half /
second half
phasing
Revenue
HY1
HY2
Total
Operating profit
HY1
HY2
Total
2015
£’m
2014
£’m
Change
%
2015
%
2014
%
199.1
187.1
180.0
178.5
386.2
358.5
22.0
15.5
37.5
15.6
9.7
25.3
10.6
4.8
7.7
41.0
59.3
48.0
52
48
59
41
50
50
62
38
Profit margins
The Group continued to strengthen its market position and operating
margin increased by 37 per cent to 9.7 per cent (2014: 7.1 per cent on
a reported basis).
Margin analysis
2014 – reported
Restructuring costs – Belgium
2014 – underlying
Landscape Products
Smaller UK businesses
International
2015
Reported
operating
profit
£’m
Revenue
£’m
Margin
impact
%
358.5
—
358.5
20.0
8.7
(1.0)
25.3
2.0
27.3
5.5
2.4
2.3
7.1
0.5
7.6
1.0
0.4
0.7
386.2
37.5
9.7
The table illustrates the impact of operational gearing in the UK
businesses as a result of volume growth, which has been ahead
of CPA forecasts.
The Group’s Landscape Products business is a reportable segment
servicing both the UK Public Sector and Commercial and UK
Domestic end markets. Revenue increased by £20.0 million
and operating profit grew by £5.5 million in the Landscape
Products business.
30
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
There has been continued performance improvement in the smaller
UK businesses during 2015 and they have collectively delivered
revenue growth of £8.7 million and profit growth of £2.4 million,
as illustrated in the charts below. The smaller UK businesses include
Street Furniture, Mineral Products and Stone Cladding.
Smaller UK businesses
Revenue (£’m)
80
70
60
50
40
30
20
10
0
67.8
59.1
48.7
2013
2014
2015
Smaller UK businesses
Operating profit (£’m)
5
4
3
2
1
0
-1
-2
-3
3.8
1.4
(2.0)
2013
2014
2015
The smaller UK businesses are a positive driver for growth.
Increasing output
We are increasing output to meet
growing demand and to deliver
benefits from operational gearing.
Strategic Report
Operational developments
The Group has excellent relationships with its customers. This is
delivering additional sales and good progress is being made with the
many growth initiatives. An important development is the opening
of Marshalls’ new “Design Space” office in Central London. This new
facility will showcase the Group’s brand leading capabilities and will
provide customers with access to samples and technical advice.
The office’s location in Clerkenwell is ideal for the engagement of
architectural practices.
The Group’s industry leading standards remained high in 2015 giving
a combined customer service measure of 98 per cent (2014: 97 per cent).
Marshalls continues to receive good feedback from its customers and
installers for the consistency and quality of its products and service.
A priority during 2015 was to advance the creation of a wide-ranging
digital strategy, which encompasses digital trading, digital marketing
and digital business. The strategy includes the creation of web and
mobile applications which track and support the customer through
their purchasing journey. Examples include merchant web stores and
the Marshalls Register member mobile app. In digital marketing, web
and mobile applications have been developed to promote the sale
of products and data mining techniques have been introduced to
identify market trends.
Capital investment in property, plant and equipment in 2015 totalled
£15.5 million (2014: £12.0 million). This compares with depreciation
and amortisation of £14.4 million (2014: £13.2 million). The Group will
continue to invest selectively in innovation to deliver new products and
improvement projects that reinforce its market leading position.
Research and development expenditure in the year ended
31 December 2015 amounted to £3.1 million (2014: £2.7 million).
Investment in research and development covers a number of areas,
including the development of the Group’s project engineering and
manufacturing capabilities, concrete and other materials technology
innovations and extending the new product pipeline. Revenue from
new products increased by 14 per cent, in the core Landscape Products
business, during 2015, and represents 10 per cent of its sales.
Net financial expenses
Net finance costs were £2.2 million (2014: £2.9 million) and interest
was covered 17.2 times (2014: 8.8 times) reflecting the benefits from
the refinancing exercise undertaken during the year. External charges
totalled £1.8 million (2014: £2.8 million) and, including scheme
administration costs, there was an IAS 19 notional interest charge of
£0.4 million (2014: £0.1 million) in relation to the Group’s pension
scheme. The IAS 19 notional interest includes 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 was 20.9 per cent (2014: 18.7 per cent) with the
prior period benefiting from a credit arising on the finalisation of prior
year tax computations. The tax charge includes a deferred tax credit
of £0.9 million arising due to substantively enacted reductions in the
rate of corporation tax to 18 per cent by April 2020. The Group has
paid £7.0 million (2014: £4.0 million) of corporation tax during the
year. Deferred tax of £0.8 million (2014: £0.6 million credit) in relation
to the actuarial loss (2014: gain) arising on the Group's defined benefit
pension scheme in the year has been taken to the Consolidated
Statement of Comprehensive Income.
Marshalls was awarded the Fair Tax Mark in 2015. The Fair Tax Mark
recognises social responsibility and transparency in a company’s
tax affairs and we are the first business in our sector to receive this
accreditation. The Group’s tax arrangements have long been closely
aligned with the Fair Tax Mark’s objectives and this is now supported
by additional tax disclosures and a stated tax policy.
Dividends
The recommended supplementary dividend of 2.00 pence per
share is discretionary and non-recurring and recognises that the
business has sufficient capital both to finance increased investment
opportunities and to maintain a flexible capital structure. When
added to the normal full-year dividend of 7.00 pence, this gives a total
dividend for the year of 9.00 pence. The incremental cash outflow in
2016 in relation to the supplementary dividend will be approximately
£3.9 million.
Dividends (p)
10
9
8
7
6
5
4
3
2
1
0
Final
Interim
Supplementary
5.25
3.50
1.75
2013
6.00
4.00
2.00
2014
9.00
2.00
4.75
2.25
2015
Annual Report and Accounts 2015 31
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Financial Review continued
Trading summary continued
Balance sheet
Group Balance Sheet
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Net debt
Net debt: EBITDA
2015
£’m
192.8
137.0
(87.1)
(50.0)
192.7
(11.5)
0.2
2014
£’m
196.0
132.6
(81.0)
(65.7)
181.9
(30.5)
0.8
Net assets at 31 December 2015 were £192.7 million (2014: £181.9 million).
The Group has a strong balance sheet with a broad range of
medium-term bank facilities available to fund its investment initiatives
to generate further growth. During the year the Group undertook a
thorough review of its capital structure to ensure it provides a sound
basis for future investment decisions.
The Group's UK inventory reduction programme has contributed to
a reduction of over £2 million despite significantly increased levels
of activity. The Group continues to prioritise inventory management
and improving stock turnover. We believe debtor days remain industry
leading due to 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 balance sheet value of the Group’s defined benefit pension scheme
was a surplus of £3.4 million (2014: £3.4 million surplus). The amount
has been determined by the Scheme actuary using assumptions
that are considered to be prudent and in line with current market
levels. The fair value of the Scheme assets at 31 December 2015
was £302.2 million (2014: £312.5 million) and the present value of
the Scheme liabilities was £298.8 million (2014: £309.1 million).
These changes have resulted in an actuarial loss, net of deferred
taxation, of £3.9 million (2014: £3.2 million surplus) and this has been
recorded in the Consolidated Statement of Comprehensive Income. The
Company has agreed with the Trustee that no cash contributions are
now payable under the existing funding and recovery plan, resulting
in a future cash saving of £4.6 million per annum.
Analysis of net debt
Analysis of net debt
Cash and cash equivalents
Bank loans
Finance leases
2015
£’m
25.0
(36.1)
(0.4)
(11.5)
2014
£’m
20.3
(50.3)
(0.5)
(30.5)
32
Marshalls plc
Marshalls plc
Annual Report and Accounts 2015
At 31 December 2015 net debt was £11.5 million (2014: £30.5 million)
resulting in gearing of 6.0 per cent (2014: 16.8 per cent). This
reduction is due to the operating cash flow impact of strong
trading, together with a continuation of the close control of
inventory and the effective management of working capital
introduced in the year. As a result, working capital management
has successfully released cash in the year of £8.5 million.
Cash management continues to be a high priority.
Borrowing facilities
The Group continues its policy of having a range of committed bank
facilities in place with a positive spread of medium-term maturities
that now extends to 2020. In July 2015, following the continued
steady reduction in net debt, the Group undertook a full review of
its bank facilities in order to align them with current strategy and to
ensure headroom against available facilities remains at appropriate
levels. Committed facility lines were reduced by £30 million which has
reduced finance costs and, at the same time, the Group renewed its
short-term working capital facilities with RBS. The Group’s committed
facilities are all revolving credit facilities with interest charged at
variable rate based on LIBOR.
The total bank borrowing facilities at 31 December 2015 amounted
to £95.0 million (2014: £125.0 million), of which £58.9 million
(2014: £74.7 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 available facilities.
Interest cover and net debt to EBITDA covenants in the facilities were
comfortably 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.
Expiry date
Committed facilities
Q3 2020
Q3 2019
Q3 2018
Q3 2017
On-demand facilities
Available all year
Seasonal (February
to August inclusive)
Facility
£’m
Cumulative
facility
£’m
20
20
20
20
15
20
20
40
60
80
95
115
Strategic Report Bank facilities
200
150
m
£
’
100
50
0
Committed
On demand
Seasonal
Net debt
Dec 11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Cash generation
Group cash flow
Net cash from operating
activities
Net cash from investing activities
Net cash from financing activities
Movement in net debt in the period
Net debt at beginning of period
Net debt at end of period
2015
£’m
49.7
(13.8)
(16.9)
19.0
(30.5)
(11.5)
2014
£’m
29.1
(8.9)
(15.1)
5.1
(35.6)
(30.5)
Analysis of cash utilisation
Net cash from
operating activities
Capital expenditure
Proceeds from sale
of property assets
Payments to acquire own shares
Cash returned to shareholders
Movement in net debt
2015
£’m
49.7
(14.9)
1.1
(4.6)
(12.3)
19.0
2014
£’m
29.1
(12.0)
3.1
(4.3)
(10.8)
5.1
The Group is significantly cash generative. In the year ended
31 December 2015 net cash flow from operating activities
was £49.7 million (2014: £29.1 million).
Cash outflow on capital expenditure in the year was £14.9 million
(2014: £12.0 million). The majority of this expenditure was invested in
the replacement of existing assets, in business improvements and in
new process technology. Proceeds from the sale of targeted property
assets contributed £1.1 million (2014: £3.1 million). Dividend
payments in the year were £12.3 million (2014: £10.8 million).
The Strategic Report section on pages 1 to 33 of this
Annual Report has been reviewed and approved by the
Board of Directors on 11 March 2016.
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
Effective control framework
We maintain an efficient and flexible capital structure and
operate tight control over financial procedures.
Annual Report and Accounts 2015 33
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Board of Directors and Secretary
Andrew Allner
Chairman
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
Alan Coppin
Non-Executive Director and
Senior Independent Director
A
R
N
R
N
Term of office
Joined the Board in July 2003;
appointed as Chairman in May 2010.
Last re-elected in May 2015. Also chairs
the Nomination Committee.
Term of office
Joined the Company and appointed
to the Board in September 2013.
Last re-elected in May 2015.
Term of office
Joined the Company and appointed
to the Board on 1 October 2014.
Formally elected in May 2015.
Term of office
Appointed in May 2010. Last re-elected
in May 2015.
Length of service
12 years 6 months (4 years 6 months
as Chairman)
Length of service
2 years 3 months
Length of service
1 year 3 months
Length of service
5 years 7 months
Independent
Yes (on appointment as Chairman)
Independent
No
Independent
No
Independent
Yes
Skills and experience
Significant current listed company
Board experience, as Chairman and as
a Non-Executive Director; previously
Non-Executive Director of AZ Electronic
Materials SA (until 2014) and CSR plc
(until 2013). Previous Executive roles
include Group Finance Director of
RHM plc, taking a lead role in its
flotation in July 2005 on the London
Stock Exchange, and CEO of Enodis plc.
Also held senior Executive positions
with Dalgety plc, Amersham
International plc and Guinness plc.
Chartered Accountant, former partner
of Price Waterhouse. Graduate of the
University of Oxford.
Skills and experience
Wide Executive leadership experience:
previously Divisional Chief Executive
Officer of BDR Thermea Group BV, a
leading manufacturer and distributor
of domestic and industrial heating
and hot water systems operating
in 70 countries and with a turnover
of €1.8 billion, formed in 2009 from
the merger of Baxi and De Dietrich
Remeha. Prior to the merger, he
was Chief Executive of the private
equity-owned Baxi Group. Also held
the position of Managing Director of
Pirelli Cables where he spent 14 years
in the UK, Australia and North America.
Holds a BSc in Mathematics.
External appointments
Chairman of The Go-Ahead Group plc
and Fox Marble Holdings plc, and
Senior Independent Director and
Chairman of the Audit Committee
at Northgate plc.
External appointments
Officer of the Construction
Products Association.
Director of the Mineral
Products Association.
Non-Executive Director of Eurocell plc.
Skills and experience
Chartered Accountant. Joined Marshalls
from AMEC Foster Wheeler plc, where he
was Executive Vice President and Director
of Change Management. He has extensive
experience in managing international
operations, having previously served as
CFO of AMEC’s £850 million power and
process division and its US$1.5 billion
environment and infrastructure division.
He has extensive M&A experience.
Previous experience includes senior
finance and operational management
roles with Halliburton and Mobil Oil.
Holds an MSc (Civil Engineering) and
BA (Economics and Management).
External appointments
None.
Skills and experience
Significant cross-sector governance
and management experience, including
previous Non-Executive directorships at
Berkeley Homes plc, Capital and Regional
plc and Carillion plc. Previously Chairman
of the Prince’s Foundation for the Built
Environment. Alan is a Companion of
the Chartered Management Institute.
External appointments
Crown Representative in the Cabinet
Office (Efficiency and Reform Group),
Trustee and Chairman of the Campaign
Board for the RAF Museums, Patron of
the Windsor Leadership Trust, Chairman
of Sports Ground Safety Authority and
Independent Panel Member of Public
Appointments for the Department
of Media, Culture and Sport.
34 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Mark Edwards
Non-Executive Director
Tim Pile
Non-Executive Director
Janet Ashdown
Non-Executive Director
Cathy Baxandall
Group Company Secretary
A
R
N
A
R
N
A
R
N
Term of office
Appointed in May 2010. Last re-elected
in May 2015.
Term of office
Appointed in October 2010.
Last re-elected in May 2015.
Term of office
Appointed in March 2015. Formally
elected in May 2015.
Term of office
Appointed in July 2008.
Length of service
5 years 7 months
Length of service
5 years 3 months
Length of service
9 months
Independent
Yes
Independent
Yes
Independent
Yes
Skills and experience
Chartered Accountant with a strong
operating background gained in the
USA, Europe and Asia. CEO of AIM
Altitude, a leading supplier of cabin
interiors for Boeing and Airbus aircraft
on the world’s leading airlines.
Formerly CEO of the Baxi Group and
Vice President of the Construction
Products Association.
Skills and experience
Executive Chairman of Cogent Elliott,
the leading independent marketing
agency; extensive cross-sector
leadership and business experience,
particularly in marketing and financial
services and formerly Chief Executive
Officer of Sainsbury’s Bank. Previous
Non-Executive Director roles include
Cancer Research UK.
External appointments
Chief Executive of AIM Aviation
Holdings (which trades as AIM Altitude)
and its group of companies, and
Chairman of Atlas Fine Wines.
External appointments
Non-Executive Director of
The Royal Orthopaedic Hospital,
Immediate Past-President of the
Greater Birmingham Chambers
of Commerce and Director of
the Library of Birmingham.
Skills and experience
Non-Executive Director of SIG Plc and
a member of its Audit, Remuneration,
Nomination and Governance Committees.
Janet is also a Non-Executive Director
of Coventry Building Society and a
member of its Remuneration and Risk
Committees and was also recently
appointed to the Board of the Nuclear
Decommissioning Authority.
Janet’s Executive career included 30 years
with BP plc, most recently as Director,
BP Oil UK Limited, and Head of UK Retail
and Commercial Fuels. Between
2010 and 2012 she was CEO of Harvest
Energy and is currently Chair of Trustees
of the charity “Hope in Tottenham”.
External appointments
Non-Executive Director of SIG Plc,
Coventry Building Society and the
Nuclear Decommissioning Authority.
Skills and experience
In addition to her role as Company
Secretary, Cathy is General Counsel to
the Marshalls Group and has responsibility
for compliance and risk management.
She also sits on the Marshalls’ pension
scheme trustee board. She has previous
experience as Company Secretary and
Group Counsel with Silentnight Group,
Thistle Hotels plc and Jacuzzi (UK).
Qualified as a solicitor with Clifford
Chance before becoming a partner
in a national law firm, specialising
in banking and corporate law.
Graduate of the University of Oxford.
External appointments
Charity Trustee and Board member
of Ilkley Literature Festival, the Open
College of the Arts and the Bedales
Grants Trust Fund.
Key
A
Member of the Audit Committee
R
Member of the Remuneration Committee
N
Member of the Nomination Committee
C
Chairman of Committee
Marshalls plc
Annual Report and Accounts 2015
35
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Chairman’s introduction
Dear Shareholder,
This Corporate Governance Statement, together with the Reports
of the Audit, Nomination and Remuneration Committees on pages
36 to 65, explains how Marshalls’ governance framework works and
how we apply the principles of business integrity, high ethical values
and professionalism in all our activities. As a Board, we recognise that
we are accountable to shareholders for good corporate governance,
and we seek to promote consistently high standards of governance
throughout the Group which are recognised and understood by all.
Good governance involves good and effective leadership,
robust systems and processes that are regularly tested, and a good
understanding of risk and risk appetite. The Board seeks to add
value through constructive dialogue and challenge, engagement
with shareholders and other stakeholders, and with a strong focus
on the strategic agenda. This year, the Board has set aside additional
time for risk review and for consideration of our key strategic objectives,
which I have commented on in my Chairman’s Statement. Group
strategy is outlined on pages 16 and 17 of the Strategic Report.
The Board recognises the benefits of diversity in its composition, and,
having recruited Janet Ashdown in 2015, we have a clear succession
plan aimed at refreshing and extending the range of skills, experience
and diversity on the Board in future years. Our progress in this area is
highlighted in the Nomination Committee Report.
This Corporate Governance Statement, which is part of the Directors’
Report, has been prepared in accordance with the principles of
the UK Corporate Governance Code published in September 2014
(the “Code”), which the Board fully supports. We consider that the
Company has complied with the relevant provisions of the Code
throughout the year in all material respects. I can also confirm that
in the opinion of the Directors these Annual Financial Statements
present a fair, balanced and understandable assessment of the
Group’s position and prospects and provide the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy. The respective
responsibilities of the Directors and the Auditor in connection with
the Financial Statements are explained in the Statement of Directors’
Responsibilities and the Auditor’s Report on pages 44 to 45 and
66 to 69 respectively.
Andrew Allner
Chairman
Corporate Governance Statement
Andrew Allner
Chairman
44
Statement of Directors’ Responsibilities pages 44 – 45
46
Remuneration Committee Report pages 46 – 60
61
Audit Committee Report pages 61 – 63
36 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Role of the Board
The Board currently comprises an Independent Non-Executive
Chairman, 4 Non-Executive Directors and 2 Executive Directors who
are equally responsible for the proper stewardship and leadership
of the Company. Their biographical details are on pages 34 and 35.
Among the written Schedule of Matters Reserved for the Board,
which is reviewed annually, are:
— approving and monitoring progress of strategy, business plans
and budgets;
— approving any changes to capital, constitution or
corporate structure;
— approving the annual and half-yearly accounts, and the approval
and monitoring of the internal financial control system, risk
management, health and safety and anti-bribery policies
and procedures;
— Board appointments and succession planning, and setting terms
of reference for Board Committees;
— approving transactions of significant value or major strategic
importance; and
— remuneration matters, including major changes to pension
schemes, the introduction of share and incentive schemes,
and the general framework of remuneration.
The Board has delegated specific responsibilities to the Audit,
Remuneration and Nomination Committees. The Audit Committee
Report on pages 61 to 63 provides details of how the Board applies
the Code in relation to financial reporting, risk management and
internal controls. The Nomination Committee Report on pages 42 and
43 explains how Board and senior management succession planning
and Board development are being addressed. The Remuneration Report
on pages 46 to 60 gives details of Executive Directors’ remuneration
and policy. Other Board Committees are established periodically for
particular purposes. For example, during the year, Board Committees
were established to approve the grant of Sharesave options, dividend
payments and the preliminary and half-yearly results.
Day-to-day management and the implementation of strategies
agreed by the Board are delegated to the Executive Directors. 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. Management teams report to members of the Executive
Committee, which currently consists of 7 senior managers, including
the 2 Executive Directors. The Board receives regular updates from
this Committee in relation to business issues and developments.
These policies and procedures collectively enable the Board to make
informed decisions on a range of key issues including strategy and
risk management. The interaction between these bodies is illustrated
in the chart below.
Interaction between Board
and management bodies
Audit
Committee
Board
Nomination
Committee
Group / corporate support
Remuneration
Committee
Executive
Directors
Operational
and functional
management
Executive
Committee
Chairman and CEO Terms of Reference
www.marshalls.co.uk
Committee Terms of Reference
www.marshalls.co.uk
Marshalls plc
Annual Report and Accounts 2015
37
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Corporate Governance Statement continued
Roles of the Chairman, Chief Executive and
Non‑Executive Directors
There is a clear division of responsibilities between the Chairman
and Chief Executive, each of whom has annually reviewed written
Terms of Reference. The Chairman leads the Board and sets its
agenda, ensuring that adequate time is available for discussion of all
agenda items, in particular strategic issues, making sure all Directors,
particularly the Non-Executive Directors, are able to contribute, and
maintaining a constructive relationship between the Executive and
the Non-Executive Directors. The Chief Executive has responsibility
for all operational matters which include the implementation of
strategy and policies approved by the Board.
The Senior Independent Director, who also has written Terms of
Reference, is responsible for providing a sounding board for the
Chairman and is an intermediary for other Non-Executive Directors.
He is available to shareholders if they have concerns which are not
resolved through the normal channels of contact.
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 of the Code.
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 annually without the
Chairman being present to appraise the Chairman’s performance.
Directors are able to ensure that any concerns they raise about
the running of the Company or a proposed action are recorded
in the Board minutes. If a Non-Executive Director did have any such
concerns on resignation the Chairman would invite that Director
to provide a written statement for circulation to the Board.
Conflicts of interest
The Board 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. These
are recorded in a Conflicts Register, reviewed by the Nomination
Committee at least annually. The Nomination Committee has
delegated authority to make recommendations on any situation
notified to the Board in future. Currently, the only situations
authorised are the holding by Directors of directorships or similar
offices with companies or organisations not connected with the
Company where the Board has not identified any actual conflict
of interest. The Board has reviewed the procedures and is satisfied
that they are operating effectively.
Board composition, commitment and election
of Directors
The Nomination Committee leads the process for Board
appointments and makes recommendations to the Board.
We believe our Board is of sufficient size and has an appropriate
balance of skills and experience to meet the needs of the business.
Individual Director evaluations, succession planning and the work
of the Nomination Committee are commented on further in the
Nomination Committee Report.
On appointment, Board members, in particular the Chairman and
the Non-Executive Directors, disclose their other commitments and
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 and of the remaining members of the Board are shown on
pages 34 and 35. Any conflicts of interest are dealt with in accordance
with the Board conflicts procedures.
The Company’s Articles of Association contain powers of removal,
appointment, election and re-election of Directors and provide that
at least one third of the Board must retire at each Annual General
Meeting and each Director must retire by rotation every 3 years.
In practice, the Company requires all Non-Executive Directors and
Executive Directors to stand for re-election at each Annual General
Meeting so, with the exception of Alan Coppin who is retiring, all will
stand for re-election or election at the 2016 Annual General Meeting.
Jack Clarke, who joined the Board in October 2014, and Janet Ashdown,
who joined the Board in March 2015, were each elected at the Annual
General Meeting in May 2015. The terms of appointment of the current
Directors are reported on page 60 and the Directors’ biographical
details on pages 34 and 35 show their length of service on the Board.
Board induction, development and support
New Directors receive a full, formal and tailored induction on joining
the Board. There is an induction pack for new Directors incorporating
the Company’s constitutional and governance documents, Group
policies and other key information. Directors receive training on the
use of our electronic Board packs, and other tailored training may be
arranged to meet individual needs, for example to refresh knowledge
of the Listing Rules and regulatory compliance. Typically, a new
Director will meet the Chairman and other Non-Executive Directors
in one-on-one sessions; he or she will have meetings with key
management, briefings with external advisers and shareholders,
and a programme of site visits will be arranged at which the Director
meets site-based staff to gain a full understanding of the business.
38 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Training is also built in to the annual Board programme, which seeks
to incorporate a range of in-depth topics of particular relevance
to the business. Directors are expected to attend external courses
and seminars as appropriate to maintain and develop their Board
competencies. During 2015, there were Board briefings relating to
health and safety and changes to financial reporting and corporate
governance. The Board also received senior management presentations
in relation to innovation, manufacturing operations and the Group’s
marketing strategy, and there were individual meetings between
Non-Executive Directors and senior managers relating to areas of
particular interest. Training needs are identified through the Board
evaluation process and through individual reviews between the
Directors and the Chairman.
Indemnities and insurance
The Company maintains directors’ and officers’ liability insurance
cover to cover legal proceedings against its Directors and Officers
acting in that capacity. The Group has also granted indemnities to
its Directors to the extent permitted by law (which are qualifying
third-party indemnities within the meaning of Section 236 of the
Companies Act 2006), and these remained in force during the year
in relation to certain losses and liabilities that the Directors may incur
to third parties in the course of action as Directors or employees of
the Company, any subsidiary or associated company, or as a Director
of the pension scheme trustee board. Neither the liability insurance
nor the indemnities provide cover in the event of proven fraudulent
or dishonest activity.
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 matters 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.
Board evaluation
The Company carries out a full evaluation of Board performance
and that of its 3 principal Committees annually. The 2015 evaluation
was conducted in a similar way to previous years, using a detailed
questionnaire, and one-to-one confidential discussions between
each of the Directors and the Company Secretary. The questionnaire
referenced current guidance on Board effectiveness published by the
Financial Reporting Council and other external investor bodies, such
as the ABI, the Investment Association and NAPF, as well as the Code.
It was designed to stimulate thought and discussion rather than to
deliver scores, and included questions about the effectiveness of
Executive and Non-Executive Directors, and the performance of the
Chairman. The Senior Independent Director separately reviewed the
Chairman’s performance with other Non-Executive Directors. The
results of the evaluation were reviewed by the Chairman and the
Company Secretary and discussed by the Board.
All Directors receive training as part of the annual
Board programme, which seeks to incorporate a
range of in-depth topics of particular relevance to
the business. Directors are also expected to attend
external courses and seminars as appropriate to
maintain and develop their Board competencies.”
Marshalls plc
Annual Report and Accounts 2015
39
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Corporate Governance Statement continued
The key themes emerging from the 2015 evaluation have been applied
in developing specific Board objectives for 2016. They include:
Alan Coppin
(Non-Executive)
Board attendance
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Andrew Allner
(Non-Executive)
Janet Ashdown
Jack Clarke
Martyn Coffey
Mark Edwards
(Non-Executive)
Tim Pile
(Non-Executive)
7/7
5/5
7/7
7/7
7/7
7/7
7/7
–
3/3
–
–
4/4
4/4
4/4
4/4
2/2
–
–
4/4
4/4
4/4
1/1
–
–
–
1/1
1/1
1/1
Janet Ashdown joined the Board in March 2015 and has attended
all meetings held since the date of her appointment. In 2016 there
are 7 Board, 4 Audit Committee, 4 Remuneration Committee and
1 Nomination Committee meetings scheduled, with 2 additional
days set aside for strategy. Board members are expected to participate
in site visits, and are invited to other events such as the Group’s
annual management conference.
Performance reporting and Board information
The Group has in place a comprehensive financial review process,
including detailed annual budgets, business plans and regular
forecasting. There is a range of performance indicators which are
tracked by management on a daily, weekly and monthly basis, as
appropriate, and addressed through a programme of operational
meetings and action plans. All Directors receive regular and timely
information to enable them to perform their duties, including
information on the Group’s operational and financial performance,
customer service, health and safety performance and forward trends.
The Board reviews at each regular Board meeting the monthly
financial results, taking account of performance indicators and the
detailed annual business plan and budget. The Board also considers
forward trends and performance against other key indicators,
including areas where performance departs from forecasts, and
contingency plans. The Board reviews and discusses medium and
long-term strategy on a regular basis and meets at least annually
with the Executive Committee to review strategy and also holds
separate meetings with individual members of senior management
to update the Board on business and strategic issues. In this way, the
Board assesses the prospects of the Group using all the information
at its disposal, and considering historic performance, forecast
performance for the current year, and longer-term forecasts over the
3 – 5 year business planning cycle as appropriate. In approving these
accounts the Board has considered these matters in detail. The Board
has a reasonable expectation that the Group is able to continue in
operation and meet its liabilities as they fall due for at least the next
12 months.
Board evaluation continued
The Board also reviewed the priorities identified for 2015 from the
previous 2014 evaluation process. These included deeper debate on
strategic issues and the strategic objectives of the Group, increasing
focus on dynamic risk reporting, increasing opportunities for
Non-Executive Directors to meet senior management below Board
level, recruiting a female Non-Executive Director and developing
opportunities for contact between the Chairman and shareholders.
Good progress against all of these priorities was made during the year.
— extending the strategy debate with an externally facilitated
Board strategy day to focus on long-term vision;
— putting more structure around Board development and
succession planning, including personal development plans for
each Director and individual appraisal and development work at
Board and senior management level;
— developing risk reporting and best practice within the business
on the management of risk;
— improving visibility of risk assessment at the early stages
of project evaluation; and
— raising the profile of people related issues generally at Board
level, and adding HR related KPIs to the regular Board reports.
The Board believes that the current evaluation process works
extremely well. All Directors take the opportunity to respond fully
and frankly to the questionnaire, which is thorough and robust, with
a genuine desire to enhance overall Board performance, and the
process contains sufficient objectivity through the confidentiality of
individual responses to ensure that challenge is acknowledged and
acted upon. The Board considered whether an external evaluation
should be carried out in 2015, and concluded that in view of Board
changes and the positive impact of the established evaluation
process, an internally led review remained appropriate for 2015.
However, recognising the potential benefit of a periodic external
review, the Board plans to commission an external evaluation during
2016 using an external facilitator, who will be identified in next year’s
Annual Report.
Board meetings
There were 7 regular Board meetings scheduled during 2015,
4 meetings of the Audit and Remuneration Committees and
1 Nomination Committee meeting. Additional meetings were
held during the year for other specific purposes. Non-Executive
Directors also attended site visits.
The Chief Executive and the Finance Director are usually invited
to attend Audit Committee meetings, although the Audit Committee
also meets the auditor without any Executive Director being present.
The Chief Executive is invited to attend Remuneration Committee
meetings where appropriate. The Company Secretary is also Secretary
to the Board Committees and attends meetings for this purpose.
40 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Annual General Meeting
The Notice of Annual General Meeting is 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, and to put all resolutions to an electronic poll
at the Annual General Meeting. All Directors normally attend the
meeting, including the Chairs of the Audit, 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 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 recorded and counted.
Information on the 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 website.
Andrew Allner
Chairman
11 March 2016
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.
The Board has carried out a review of the effectiveness of the Group’s
risk management and internal controls systems, including financial,
operational and compliance controls. The Strategic Report comments
in detail (pages 20 to 23) on the nature of the principal risks facing
the Group, in particular those that would threaten our business
model, future performance, solvency or liquidity and the measures
in place to mitigate them. In conducting its review, the Board has
included a robust assessment of these risks. The Audit Committee
Report on pages 61 to 63 describes the internal control system and
how it is managed and monitored. The Board acknowledges that
such systems are 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
mis-statement or loss.
Relations with shareholders
The Board places great emphasis on good communications with
shareholders. The Chief Executive and the Finance Director meet
regularly with major shareholders to discuss the Group’s
performance, strategic issues and shareholder investment objectives,
and also periodically arrange site visits for investors. Reports of these
meetings and any shareholder communications during the year are
provided to the Board. During 2015, 83 such meetings were held, at
which at least 46 institutional shareholders were represented.
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. The Senior Independent
Director is also available to meet shareholders separately if requested.
When appropriate, the Non-Executive Directors attend meetings or
site visits with major shareholders and would be available to meet
major shareholders if a meeting were requested.
There is a regular reporting and announcement schedule to ensure
that matters of importance affecting the Group are communicated to
investors, and the Annual and Half-yearly Reports, together with the
Marshalls website, are substantial means of communication with all
shareholders during the year.
Marshalls plc
Annual Report and Accounts 2015
41
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Nomination Committee members
— Andrew Allner – Chairman
— Mark Edwards
— Alan Coppin
— Tim Pile
— Janet Ashdown
Role and responsibilities
The role of the Nomination Committee includes:
— Board succession planning, including size, composition and
balance of skills and experience, giving due weight to the
achievement of diversity in its widest sense;
— recruitment and induction of candidates for appointment
to the Board;
— reviewing individual performance evaluation outcomes for
Directors standing for election or re-election in advance
of the Annual General Meeting; and
— monitoring conflicts, reviewing the Board conflicts policy,
maintaining the conflicts register, and considering any
new notifications.
The performance of the Committee was evaluated as part of the
Board evaluation process in 2015, and the Committee Terms of
Reference were also reviewed.
During the year the Nomination Committee held 1 scheduled
meeting, and additional meetings and discussions in connection
with succession planning and recruitment were held by telephone.
Attendance at meetings is shown on page 40.
Recruitment and succession planning
The Committee remains committed to achieving diversity
in its widest sense in the composition of the Board and senior
management. The Nomination Committee’s priorities during 2015
included the recruitment of a female Non-Executive Director,
an objective initially identified in 2012 but deferred during the
recruitment and appointment of Martyn Coffey in 2013 and Jack
Clarke in 2014 as Chief Executive and Finance Director respectively.
In late 2014, the Committee recommenced its search, working with
an external search consultant, Lygon. Lygon also provided services
in relation to the recruitment of the Executive Directors in 2013 and
2014, but it has no connection with the Company other than the
provision of the Board search services described in this report.
Nomination Committee Report
Andrew Allner
Chairman of the Nomination Committee
Chairman’s introduction
I am pleased to report to shareholders on the main activities of
the Committee and how it has performed its duties during 2015.
I chair Nomination Committee meetings, but would not do so
where the Committee was dealing with my own reappointment
or replacement as Chairman.
Andrew Allner
Chairman of the Nomination Committee
The Committee
will be working with
management on a high
level review of senior
management succession
planning below Board
level during 2016.”
42 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance It is the Company’s policy that Executive Directors can only hold 1
external company Non-Executive directorship. Voluntary service on
the governing board of a social, trade or charitable organisation is
also permitted. Details of the external appointments held by the
Executive Directors are included in the biographical notes on pages
34 and 35.
There have been no changes to my own other commitments during
the year, which are also listed on page 34.
Governance
The Committee has acted in accordance with the principles of the
Code in developing and applying its succession plans and policies.
The Committee’s effectiveness, including the effective application
of those principles, is assessed as part of the annual Board evaluation
process. The evaluation concluded that the Committee had been
successful in securing a good mix of skills and experience in the
composition of the current Board. The framework for the refreshment
of skills, experience and diversity to support the needs of the
business and its stakeholders in the future is transparent and
well understood.
Andrew Allner
Chairman
11 March 2016
Suitable candidates were sought with Lygon’s support, following
which a detailed series of meetings and interviews between those
candidates and members of the Committee took place, resulting in
the appointment of Janet Ashdown to the Board on 25 March 2015.
Janet’s extensive experience in industry and her knowledge of the
building materials sector are valuable additions to the Board, and she
has, since appointment, received full induction training and made
a number of site visits to familiarise herself with the business.
Non-Executive Directors are appointed for specific terms, subject
to reappointment and the Company’s Articles of Association and
subject to the Companies Act provisions relating to the removal
of a Director. During 2015, the Committee agreed a framework
for succession planning with the current Non-Executive Directors
designed to phase future recruitment so that the composition of the
Board can be refreshed whilst ensuring continuity. Under this plan,
Alan Coppin will retire from the Board following the 2016 Annual
General Meeting and Janet Ashdown will take over from Alan Coppin
as Senior Independent Director and Chair of the Remuneration
Committee on his retirement.
The Committee will be working with management on a high level
review of senior management succession planning below Board level
during 2016, focusing on the development of internal talent and
potential succession to the Board.
Reappointment of Directors
Each Non-Executive Director was, on joining, provided with a
detailed description of his or her role and responsibilities, and
received a detailed business induction. All Directors have an annual
one-to-one development review meeting with the Chairman to
appraise performance, set personal objectives and discuss any
development and training needs to enable them to continue to add
value to the Board. The Committee expects to develop this process
during 2016 to include a 360-degree assessment of individual and
collective performance with contributions from senior management
and other business stakeholders.
Before any Director is proposed for re-election, or has their
appointment renewed, the Committee considers the outcome
of the reviews to ensure that the Director continues to be effective
and demonstrates commitment to the role. The Chairman provides
an explanation to shareholders as to why the Director should be
re-elected and confirming that a formal performance evaluation
has taken place when the resolution to re-elect is circulated.
Marshalls plc
Annual Report and Accounts 2015
43
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information 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.
Company law requires the Directors to prepare Group and Parent
Company Financial Statements for each financial year. Under that
law they are required to prepare the Group Financial Statements
in accordance with IFRSs as adopted by the EU and Article 4 of the
IAS Regulation, and have elected to prepare the Parent Company
Financial Statements in accordance with UK Accounting Standards,
including FRS 101 “Reduced Disclosure Framework”.
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 accounting estimates that are reasonable
and prudent;
— for the Group Financial Statements, state whether they have
been prepared 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.
In preparing the Group Financial Statements, IAS 1 requires
that Directors:
— properly select and apply accounting policies;
— present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
— provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
— make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent Company’s
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 Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that comply with that law and those regulations.
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.
Responsibility statement of the Directors of the annual
financial report
The Directors who held office at the date of approval of this Directors’
Report and whose names and functions are listed on pages 34 and
35 confirm that, to the best of each of their knowledge:
— the Financial Statements prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation
taken as a whole; and
— the Strategic Report contained in this Annual Report includes a
fair review of the development and performance of the business
and the position of the Company and the Group taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
The Directors consider the Annual Report and Financial Statements,
taken as a whole, to be fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Group’s position and performance, business model and strategy.
Disclosure of information to the auditor
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 Auditor is 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 Auditor is aware of that information.
44 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Going concern
The Directors have adopted the going concern basis in preparing
these Financial Statements in accordance with “Going Concern
and Liquidity Risk: Guidance for Directors of UK Companies 2009”
published by the Financial Reporting Council in October 2009.
The Directors considered that it was appropriate to do so, having
reviewed any uncertainties that may affect the Company’s ability
to continue as a going concern for the next 12 months from the
date these Financial Statements were approved.
Cautionary statement and Directors’ liability
This Annual Report 2015 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
The Cedar Court Hotel, Ainley Top, Huddersfield HD3 3RH at 11.00 am
on Wednesday 18 May 2016, 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
11 March 2016
Marshalls plc
Annual Report and Accounts 2015
45
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Remuneration Committee Report
Alan Coppin
Chairman of the Remuneration Committee
Chairman’s introduction
Our Remuneration Policy was approved at the Company’s Annual
General Meeting on 14 May 2014 and is intended to apply for 3 years.
This report summarises the key features of the Policy applied in 2015.
The full Policy can be found in the Company’s 2013 Remuneration
Report, accessible via the Investor Relations section of our website
(www.marshalls.co.uk). This report has been approved by the Board
and signed on its behalf.
Alan Coppin
Chairman of the Remuneration Committee
46
Remuneration Committee Report pages 46 – 48
49
At a Glance Summary pages 49 – 52
53
Annual Remuneration Report pages 53 – 60
Remuneration Policy
www.marshalls.co.uk/remuneration
46 Marshalls plc
Annual Report and Accounts 2015
Remuneration Committee members
— Alan Coppin – Chairman
— Mark Edwards
— Andrew Allner
— Tim Pile
— Janet Ashdown
I am pleased to report to you on the Remuneration Committee’s
activities and objectives during 2015.
Executive pay continues to be high on the agendas of shareholders
and stakeholders alike. Understandably, shareholders want to ensure
that the Executive team running the business is being remunerated
on a basis consistent with their performance, the performance
of the business, and the value that is delivered to shareholders. The
Remuneration Committee recognises the importance of shareholder
and stakeholder accountability, and I have personally endeavoured
to ensure that this year’s Remuneration Report is transparent and
easy to read, and clearly shows how we have applied our policy
in a way that is consistent with best practice without divulging
sensitive information.
This report is divided into 3 sections: the Chairman’s Annual
Statement (this introduction); an "at a glance" summary of the key
features of our Remuneration Policy and its application; and our Annual
Remuneration Report, explaining how the Policy was implemented
during 2015.
The Remuneration Policy was approved by shareholders in May 2014
with a strong majority of over 87 per cent of all votes cast. The
Committee has applied the Policy consistently throughout the year
and considers that it remains appropriate. Consequently, we do not
propose to resubmit the Policy to a vote at our 2016 Annual General
Meeting, although the key features of the Policy are incorporated into
this report for ease of reference. The Annual Remuneration Report
and this Annual Statement will be subject to an advisory vote
of shareholders.
In particular, the Marshalls Management Incentive Plan (“MIP”) was
introduced in 2014 to replace both the previous annual deferred
bonus plan and the Group’s 2005 Long Term Incentive Plan (“2005
LTIP”) as the vehicle for delivery of performance related variable
incentives. The MIP was approved by a substantial majority of our
shareholders and incorporates current “best practice” remuneration
principles, including an additional 2-year holding period after vesting
for share awards which vest after 3 years, and appropriate clawback
and malus provisions both during and after the vesting period. More
than 70 per cent of the Directors’ maximum variable remuneration
now takes the form of shares or share equivalents.
Corporate Governance How we performed in 2015
Strategic objective
Maximise operational efficiencies and
increase output to meet demand
Retain market leading position
and grow profit
Strengthen the brand, develop trust
and excellence
Grow sustainably, investing in our
people and protecting their wellbeing
Measure
Expressed as
Outcome
Link to strategy
Profit / cash
EPS / net debt
Operating profit: £37.5m
(+48%); EPS: 14.32p (+41%);
gearing: 6.0%
Profit
EPS
EPS: 14.32p (+41%)
Customer service
Health and safety
Customer service
index
Health and safety
accident reduction
98%
43% reduction
year on year
EPS and net
debt key measure
EPS and net
debt key measure
Adjustment
mechanism
Adjustment
mechanism
Our strategic objectives in 2015 were focused on growing the
business organically, maximising our operational efficiencies to
meet growing demand, and accelerating the pace of innovation
in products and services to retain and develop our market leading
position. The financial targets set at the beginning of 2015 for
MIP awards required achievement of significant EPS growth and
reduction of net debt as the proxies for measuring progress against
these objectives. Our brand, market leadership and sustainability
objectives were incorporated through the addition of non-financial
criteria (customer service and health and safety improvement),
with a discount factor of 20 per cent if they were not met.
At the time of grant, the targets set for maximum performance
took account of the “best case” consensus expectations of our
shareholders and incorporated significant stretch against these
expectations and the Group’s 2015 budget. I am delighted that the
business made considerable progress during 2015, and performance
against these objectives in 2015 was very strong, with EPS up by
41 per cent from 10.13 pence to 14.32 pence and net debt reducing
from £30.5 million to £11.5 million. The health and safety and customer
service targets were also fully achieved. Share price rose by 39 per cent
from 234 pence to 325 pence during the year and the regular dividend
increased by 17 per cent in line with our dividend policy.
This very positive performance in 2015 is reflected in the level
of Element A and Element B awards earned under the MIP, at the
maximum end of the designated range; it is also expected to result in
the vesting of outstanding Performance Share awards granted in
2013 under the 2005 LTIP.
Details of Directors’ awards earned in 2015 and the performance
measures used are shown in the Annual Remuneration Report.
Salary increases for 2016
When recruiting new Directors, it is our policy to offer an initial package
that is lower than the median or target group with scope for increase once
the Director is established in the role. In line with Policy, the Committee set
the package for Jack Clarke at a level that was lower than the median and
that of the previous Finance Director when he became Finance
Director in 2014. Now that Jack Clarke has completed a full year with
the business as Finance Director, the Committee has conducted a
detailed review and benchmarking of his package against a comparator
group, the result of which indicated that an upward adjustment of
more than inflation / general pay within the Group would be appropriate
to bring it closer to overall target positioning for the role, as envisaged
under the Policy. An upward adjustment of 16.75 per cent in aggregate for
the Finance Director was approved with effect from 1 January 2016.
The salary of the Chief Executive and the fees of the Chairman and
other Non-Executive Directors were increased with effect from
1 January 2016 by the same inflation based percentage as applied
generally to salaries for the wider workforce.
Main activities of the Committee
During 2015 the Committee met 4 times, and there were additional
discussions and meetings with shareholders and with external
remuneration consultants PricewaterhouseCoopers LLP (“PwC”). The
Chief Executive and the Company Secretary attend Committee meetings
where appropriate. Attendance at meetings is shown on page 40.
Meetings
Matters discussed
February – March 2015
Review of continued appropriateness of Remuneration Policy. Measure achievement of incentive targets for 2014
and approve incentive scheme payments. Determination of 2015 MIP performance targets and individual awards
for 2015. Review 2014 Remuneration Committee Report. Approve proposed Sharesave Scheme and Bonus Share
Plan (providing bonus shares for those in annual bonus schemes other than the MIP) to be submitted to 2015 AGM.
July 2015
Review and amend Board expenses policy.
September – October 2015 Approval of option grants under Sharesave scheme. Consult external advisers on remuneration framework,
including benchmarking (Executive Directors and Non-Executive Directors); receive report on pay and benefit
conditions elsewhere in the business. Review changes to law and regulatory guidance on remuneration.
Review termination obligations arising under service contracts.
December 2015
Approval of proposed pay and benefits for Executive Directors and Chairman in 2016. Board review of
Non-Executive Directors’ fees (other than Chairman’s). Review and update Committee Terms of Reference.
Evaluate Committee performance.
Marshalls plc
Annual Report and Accounts 2015
47
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Remuneration Committee Report continued
Supporting wider share ownership
The Committee is supportive of the Company’s employee
engagement agenda, including encouraging wider share ownership
within the business. During 2015, the life of the Company’s existing
Share Purchase Plan (the “SIP”), under which all employees may
purchase shares out of pre-tax salary, was extended for a further
10 years with shareholder approval. Shareholder approval was also
granted at the 2015 AGM for the introduction of an all-employee
Sharesave (“SAYE”) scheme. The SAYE scheme was launched in
September 2015 with an allocation of 1 million shares offered
to participants at a 20 per cent discount to market value, and
was very well received, with approximately 46 per cent of our
employees across all sites taking up the invitation to save,
with an average aggregate monthly saving of £107,000.
Although eligible to participate, Executive Directors and those senior
managers who could receive shares through participation in other bonus
schemes chose not to join the SAYE scheme to allow the maximum
number of allocated shares to be available to the wider workforce.
Shareholders also approved a Bonus Share Plan, under which those
in operational bonus schemes other than the MIP (mainly sales force
and managerial staff) will receive an element of bonus in the form
of shares. Awards of shares under the Bonus Share Plan will be made
following announcement of the 2015 results based on performance
in 2015. Executive Directors and other MIP participants do not
participate in the Bonus Share Plan.
Statement of shareholder voting
The table below shows the May 2015 Annual General Meeting voting results on the resolutions relating to remuneration.
Resolution 12 (Remuneration Report)
Resolution 13 (Bonus Share Plan)
Resolution 14 (SAYE Plan)
Resolution 15 (extension of SIP)
For and discretion
138,048,276
144,287,439
144,650,936
144,839,289
Votes
Votes
Votes
Votes
For and
discretion as a
percentage of
votes cast
99.44
99.71
99.61
99.75
Against
773,621
415,793
558,207
364,668
Against as a
percentage of
votes cast
0.56
0.29
0.39
0.25
Withheld
6,428,326
537,375
41,080
46,266
The Committee believes the percentage of votes in favour of
the Remuneration Report and the wider share plan initiatives
shows that shareholders remain very supportive of the Group’s
remuneration arrangements.
Remuneration disclosure
Our Remuneration Report has been prepared in accordance with the
Companies Act 2008 and Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013. It also meets the requirements of the UK Corporate
Governance Code and the UK Listing Authority’s Listing Rules and
Disclosure and Transparency Rules.
Looking to the future
As a Committee, our focus is to create and develop a remuneration
structure that supports the business strategy of the Company as
well as the interests of our shareholders. This is my last Chairman’s
introduction, and I would like to thank our shareholders for their
continued support, as Janet Ashdown will take over as Chair of the
Remuneration Committee after the 2016 Annual General Meeting.
Janet and I have worked closely together to ensure an effective
handover, and both Janet and I will be available at the Company’s
Annual General Meeting on 18 May 2016 to answer any questions
on our Policy, its application and this Remuneration Report.
Alan Coppin
Chairman of the Remuneration Committee
11 March 2016
48 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance At a Glance Summary
In this section we set out our remuneration principles, the key
elements of our Remuneration Policy and how the Policy will be
implemented in 2016. We have also highlighted performance and
remuneration outcomes for 2015, reported in full in the Annual
Remuneration Report.
The Company’s Remuneration Policy has been designed with the
following aims:
— to ensure that incentives and targets support the delivery of,
and are fully aligned with, our key strategic objectives;
— to avoid complexity within the incentive structure while
retaining flexibility to address changing market conditions;
— to ensure that a significant proportion of variable pay is awarded
in shares or share equivalents; and
— to continue to meet regulatory and best practice guidelines
on remuneration.
Our Remuneration Policy aims to encourage behaviours that will
ensure the sustainability and long-term health of the business and
avoid inappropriate risk taking, while recognising and rewarding
the creation of shareholder value. Remuneration targets are
designed to support the delivery of our key strategic objectives.
Our remuneration packages also need to be appropriate to attract,
motivate and retain talent, both at Executive Director level and
throughout the business.
A summary of the relevant elements of the Policy table is set out below.
Remuneration policy summary
Element
Policy summary description
Opportunity / maximum
Fixed remuneration
Base salary
Benefits
An Executive Director’s basic salary is considered by the Committee
on appointment and reviewed annually or when an individual
changes position or takes on additional responsibility. In reviewing
base salary, the Committee considers remuneration practices within
the Group as a whole and, where relevant, objective research on
companies within the Company’s peer groups. Other factors taken
into account include:
— the individual performance and experience of the
Executive Director;
— the general performance of the Company; and
— the economic environment.
Salary is paid in 12 equal monthly instalments during the year.
Benefits for Executive Directors are a fully expensed company car,
annual medical and private medical insurance (including spouse and
dependent children up to age 24), and death-in-service insurance.
Executive Directors may be entitled to claim travel and
accommodation expenses subject to agreed limits on appointment.
The Company may carry permanent health insurance cover in
respect of up to 100 per cent of an Executive Director’s salary.
Although not a benefit to Executive Directors, this insurance offers
comfort to Executive Directors in the event of long-term ill health.
The Remuneration Committee policy in relation to salary is:
— up to the 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 will not exceed the higher
of inflation and / or pay rises generally for Group
employees; and
— individuals who are recruited or promoted to the Board may
have their salaries set below the targeted policy level until
they become established in their role. In such cases
subsequent increases in salary may be higher than the
average until the target positioning is achieved.
The maximum value available is the cost of the benefits.
Pension / salary
supplement in
lieu of pension
Executive Directors are entitled to membership of the defined
contribution section of the Marshalls plc Pension Scheme. The
Company contributes at an agreed percentage of basic salary.
20 per cent of base salary.
Executive Directors may take a pensions allowance in place of
the Company’s contribution to the Scheme.
Pension allowances are excluded for the purposes of calculating any
other element of remuneration based on a percentage of salary.
Marshalls plc
Annual Report and Accounts 2015
49
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information At a Glance Summary continued
Remuneration policy summary continued
Element
Policy summary description
Variable performance related remuneration
The Marshalls Incentive
Plan (“MIP”)
Element A
Annual target set by reference to strategic and operational
objectives set by Remuneration Committee. If conditions met,
50 per cent of earned award is paid as cash and 50 per cent deferred
as shares into individual plan account.
Opportunity / maximum
150 per cent of salary.
MIP Element B
50 per cent of accrued plan account balance paid out annually for
3 years, provided forfeiture threshold exceeded each year, with the
final balance paid at the end of the fourth year.
Awards subject to continued employment at end of the period.
The forfeiture thresholds, if not achieved, result in the loss of up to
50 per cent of unpaid awards.
Malus and clawback provisions also apply.
Annual target set by reference to strategic and operational
objectives set by Remuneration Committee. Awards are made
annually in the form of nil-cost options or conditional shares, and
are subject to continued employment and a financial underpin
for 3 years.
Awards become exercisable or unconditional after 3 years but,
once vested, may not be sold for a further 2 years.
Participants build up a shareholding over 5 years.
There is a financial underpin which, if not achieved over 3 years,
results in the loss of up to 50 per cent of unvested awards.
Malus and clawback provisions also apply.
100 per cent of salary.
Shareholding requirement Executive Directors are required to retain 50 per cent of the net
number of shares earned under the Company’s incentive
arrangements until the shareholding requirement is satisfied.
A new Executive Director may build up the minimum requirement
within the first 5 years from the year of joining. Failure to meet
the shareholding requirement within 5 years of appointment
will result in a reduction in the future levels of award under the
Company’s incentive plans.
The minimum shareholding requirement is 200 per cent of salary
for the CEO and 100 per cent for other Executive Directors.
Non‑Executive
Directors’ fees
The Chairman’s fee is set by the Committee. Fees are reviewed annually
and periodically benchmarked against equivalent roles in the same
comparator groups as are used for Executive Directors.
Non-Executive Directors do not receive any bonus, do not
participate in awards under the Company’s share plans, and are not
eligible to join the Company’s pension scheme.
Non-Executive Directors are reimbursed for travel and
accommodation costs in connection with the performance
of their duties.
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;
— increases during a term of office will not normally exceed the
lower of inflation or the general rise for employees; and
— fees may be adjusted to recognise significant change in
responsibility levels (for example, if the Company’s ranking
as a constituent of the FTSE All Share Index changes).
50 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Implementation of policy during 2016 and any changes to
Executive Director earnings for 2015
Decision
Rationale
Element (fixed)
Salary
2.5 per cent salary increase for Chief Executive. Chairman
and Non‑Executive Directors’ fees also rose by 2.5 per cent,
both with effect from January 2016. Finance Director
salary increased by 16.75 per cent.
2016 increase for Chief Executive and Non‑Executive
Directors reflects 2.5 per cent inflation award for the
workforce as a whole. Finance Director salary was below
median; the increase brings the overall package closer to
target positioning against median.
Benefits
No overall change in range of benefits.
The current range and level of benefits remains appropriate.
Martyn Coffey receives travel and accommodation
expenses within a fixed 3‑year allowance.
Jack Clarke also received travel and accommodation
expenses and relocation assistance.
Pension
Neither Director participates in the Company scheme:
both receive their pension contribution entitlement
in the form of a salary supplement.
Principle of employer pension contributions remains valid
– no change needed.
Element (variable)
2005 LTIP
MIP
Historic long‑term incentive scheme: awards outstanding
from 2013 and 2014. No further awards ‑ replaced by
Element B of the MIP.
Element B of MIP delivers awards in the form of shares based
on achievement of targets set annually but with deferral
and underpin condition over a period of up to 5 years.
Combines annual deferred bonus (Element A) and
long‑term shareholding (Element B). Details of 2015 awards
are set out in the Annual Remuneration Report. 2016
financial targets will be EPS (75 per cent) and the ratio
of operating cash flow (“OCF”) to EBITDA (25 per cent).
EPS remains a good measure of performance against strategic
objectives and for 2016 the ratio of OCF to EBITDA has been
introduced as the secondary measure most closely aligned
with strategic objectives. Customer service and health and
safety targets also remain.
Executive Director earnings for 2015
Chief Executive
Finance Director
Key
Salary, benefits and pension
MIP Element A
MIP Element B
Key
Salary, benefits and pension
MIP Element A
MIP Element B
33%
40%
27%
Outperformance
33%
40%
27%
Outperformance
42%
35%
23%
Target
42% 35% 23%
Target
100%
Below threshold
100% Below threshold
33%
40%
27%
2015 actual
33%
40%
27%
2015 actual
0
500
1,000
(£’000)
1,500
2,000
0
500
1,000
(£’000)
1,500
2,000
Notes
(a) The base salary, benefits and pension information is taken from the single total figure of remuneration table on page 53.
(b) Achievement of “target” financial conditions results in 70 per cent of the annual award under the MIP being earned.
(c) “ Below threshold” assumes a performance that fails to meet the threshold for both Element A and Element B so is the level below which no variable pay under
the MIP is earned.
(d) “Outperformance” represents the full 250 per cent of salary potential under the MIP.
(e) The 2015 actual excludes Martyn Coffey's 2013 LTIP award which may vest. This award has been included on page 52 in the Directors interests in shares table.
Marshalls plc
Annual Report and Accounts 2015
51
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information At a Glance Summary continued
Management Incentive Plan (“MIP”)
The MIP incorporates:
— Element A, an annual bonus award carrying a maximum of 150 per cent of salary, of which 50 per cent must be deferred into shares; and
— Element B, an award normally in the form of a nil‑cost option to acquire shares, carrying a maximum of 100 per cent of salary, conditional
on continued employment for 3 years from grant and 50 per cent of which is also subject to a financial condition over the 3‑year period.
Element B shares must be held for a further 2 years after vesting.
Both awards depend on achievement of the performance conditions set by the Committee at the date of award. The table below shows the
2015 performance conditions and the extent to which they have been satisfied.
Percentage
of maximum
contribution
based on
measurement
75%
25%
Minimum
target
12.12p
£27.5m
20% deduction
if not met
95% (customer service)
10% reduction
(health and safety)
Maximum
target
2015
Actual
14.14p
14.32p
£22.5m £11.5m
N/A
All met
Percentage
of target
achieved
Percentage
of salary
earned
(Element A)
Percentage
of salary
earned
(Element B)
100%
100%
100%
112.5
75.0
37.5
25.0
No
deduction
No
deduction
Measurement
EPS
Net debt
Non‑financial targets
Directors’ interests in shares
Chief Executive
Key
Requirement
Actual
(non‑contingent)
Contingent
(and deferred)
Finance Director
Key
Requirement
Actual
(non‑contingent)
Contingent
(and deferred)
200%
213%
100%
1%
500%
444%
0
100%
200%
300%
400%
500%
600%
0
100%
200%
300%
400%
500%
600%
Percentage of salary
Percentage of salary
Notes:
(a) The 2013 LTIP award for Martyn Coffey is assumed to have fully vested and is shown in Actual.
(b) The information in the above chart is taken from the table showing Directors’ shareholdings on page 59.
52 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Annual Remuneration Report
This report covers the reporting period from 1 January 2015 to 31 December 2015 and explains how the Remuneration Policy
has been implemented. Comparative figures for the 2014 financial year have also been provided.
Single total figure of remuneration in 2015 – Executive Directors (audited)
Fixed (£'000)
Performance related (£'000)
Salary
Other benefits
Salary supplement
in lieu of pension
Annual bonus
Long-term incentives
MIP Element A
MIP Element B
LTIP/MIP
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Martyn Coffey
Jack Clarke
Total
412
237
649
400
58
458
23
11
34
21
2
23
82
47
129
75
11
86
525
209
734
298
43
341
206
119
325
199
114
313
816
108
2,064
1,101
–
–
623
228
816
108
2,687
1,329
Note a
Note b
Note c
Note d
Notes e
and f
Notes:
(a) Jack Clarke joined the Group and was appointed to the Board on 1 October 2014. The 2014 column includes his remuneration for the period between 1 October
and 31 December 2014.
(b) Benefits are car / car allowance, fuel / fuel allowance, private medical insurance, life insurance and travel and accommodation expenses.
(c) All Directors received salary supplement allowance in lieu of contributions into the Group’s pension scheme throughout the year. No Director had any entitlement
under the defined benefit section of the pension scheme and no additional benefit was received as a result of early retirement.
(d) The Annual bonus column shows 50 per cent of the total bonus contribution earned under the MIP Element A in respect of 2015 performance, and 50 per cent of the
total value of Element B shares awarded which are deferred but are not subject to further performance conditions (other than continued employment). The remaining
50 per cent in respect of 2015 Element A is deferred into shares in the MIP account which are subject to performance and employment-based forfeiture for a further
holding period. The remaining 50 per cent of 2015 Element B shares is subject to performance and employment-based forfeiture for a 3-year deferred period. These
deferred elements will be disclosed in the LTIP column when the conditions are satisfied.
(e) The LTIP column shows the aggregate value of sums released from MIP or LTIP account balances from earlier years that are no longer subject to deferral and forfeiture risk
based on performance in 2015.
(f) The LTIP column includes the 2013 Performance Share Award under the 2005 LTIP made to Martyn Coffey on joining in 2013. Vesting of this LTIP award was, exceptionally,
dependent on achieving a minimum share price target over a predetermined period of 30 days following the announcement of the 2015 results and on continued
employment. As at the latest practicable date for approving this report, the performance condition was not yet capable of measurement. However, as permitted under
the Regulations, where the performance targets are substantially (but not fully) completed by the end of the relevant financial year, an expected value may be shown.
The average mid-market price of the Company’s shares for the 30-day period ending on 31 December 2015 was 324 pence. This is above the share price target of 250 pence
required for maximum vesting and, accordingly, the LTIP column for 2015 shows Martyn Coffey’s 2013 LTIP Performance Share Award as vesting in full. The award has been
valued in accordance with the Regulations as the number of shares assumed to be vesting multiplied by the average share price over the last quarter of 2015 (335 pence).
The outcome of the 30-day measurement period and any vesting will be the subject of a separate announcement, and if Martyn Coffey’s 2013 LTIP Performance Share
Award has not vested in full, an explanatory note will be included in the 2016 Annual Report on Remuneration and the single figure for 2015 will be restated.
Setting pay in context
The following graphs illustrate the relationship between total expenditure on remuneration and other disbursements from profit over the
past 3 years.
The 4 elements represent the most significant outgoings for the Company during the financial year. In addition to staff pay and shareholder
distributions, capital investment and taxation are shown for the following reasons:
— investment – the Company increased capital investment during 2015 as part of its stated plan to invest strategically to take advantage
of market demand and in order to ensure that the business grows in a sustainable manner with a corresponding long-term benefit for
all stakeholders; and
— tax – the Company is a UK taxpayer and feels that it is beneficial to demonstrate to all its stakeholders its total UK tax contribution.
The most significant elements of the Company’s UK tax contribution are VAT, employer’s NI, corporation tax, fuel duty and aggregates
levy. As profitability increases, corporation tax will also increase. In 2015 the Group was accredited with the Fair Tax Mark.
Marshalls plc
Annual Report and Accounts 2015
53
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Annual Remuneration Report continued
Relative importance of spend on pay
Percentage change
+18.8%
76.6
79.7
67.1
+19.4%
10.3
10.8
12.3
2013
2014
Staff pay (£’m)
2015
Total shareholder return
2013
2014
Distributions to
shareholders (£’m)
2015
+154.1%
15.5
12.0
6.1
2015
2013
2014
Capital investment (£’m)
+36.6%
69.0
60.4
50.5
2013
2014
Tax (£’m)
2015
Marshalls plc
FTSE Small Cap Index
FTSE 250
600
500
400
300
200
100
0
Jan 09
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
This chart shows the Group’s total shareholder return (“TSR”) performance compared to (i) the FTSE Small Cap Index and (ii) the FTSE 250.
TSR is defined as share price growth plus reinvested dividends. Marshalls plc was a constituent of the FTSE Small Cap Index for the period from
January 2009 to August 2015 and became a constituent of the FTSE 250 in August 2015. This chart shows the value at 31 December 2015
of £100 invested in Marshalls plc on 1 January 2009 compared with the value of £100 invested in (i) the FTSE Small Cap Index and
(ii) the FTSE 250. The other plotted points are the intervening financial year ends. Marshalls’ TSR performance was 32 per cent better than
the overall performance of the FTSE Small Cap Index and 30 per cent better than the FTSE 250 in 2015.
CEO pay in last 7 years
This table shows how pay for the CEO role has changed in the last 7 years.
Year
Single figure remuneration
% of maximum annual
bonus earned
% of maximum LTIP
awards vesting
2009
(Note a)
£’000
711
2010
£’000
671
2011
£’000
752
2012
£’000
938
2013
(Note b)
£’000
3,143
2014
£’000
1,101
2015
£’000
2,064
46.4%
38.6%
78.1%
33.0%
63.6%
99.3%
100%
0
0
0
0
63.0%
0
100%
Notes:
(a) The years up to 2013 show the previous CEO’s (Graham Holden’s) remuneration.
(b) The 2013 single figure is made up of the previous CEO’s base salary and benefits up to 10 October 2013 and Martyn Coffey’s proportionate entitlement to salary,
benefits and annual bonus for his period of service in 2013. It also includes the various incentive payments that crystallised as a result of Graham Holden being a “good
leaver” by reason of retirement in 2013 (see 2013 Remuneration Report for full details).
54 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance
Percentage change in CEO’s remuneration
The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2014 and 2015 compares with
the percentage change in the average of each of those components of pay for the UK-based employees of the Group as a whole.
Salary
£’000
2015
412
2014
400
79,279
73,412
2,236
35.5
2,131
34.4
Percentage
change
(Note a)
%
2.9
8.0
4.9
2.9
Taxable benefits
£’000
Percentage
change
Bonus (Notes b and c)
£’000
Percentage
increase
2015
23
290
346
0.8
2014
21
304
438
0.7
%
9.5
(4.6)
(21.0)
20.8
2015
731
2014
497
1,875
2,336
382
4.9
273
8.6
%
47.1
(19.7)
39.9
(42.6)
CEO pay
UK total pay
Number of employees
Average per employee
Notes:
(a) Martyn Coffey’s salary was increased on 1 January 2015 by 2.9 per cent, the same percentage increase as given to the workforce as a whole.
(b) The bonus is the non-deferred amount earned for the relevant year taken from the total remuneration table.
(c) The comparative bonus figure for 2014 includes the exceptional acceleration of incentives for "good leavers" at senior management and Executive Director level.
This explains the decrease in employee bonus in 2015.
Outcomes of incentive schemes in 2015 (audited)
This section explains how 2015 performance is reflected in rewards earned under the Company’s incentive schemes.
Management Incentive Plan (“MIP”)
The MIP incorporates:
— Element A, an annual bonus award carrying a maximum of 150 per cent of salary, of which 50 per cent must be deferred into shares; and
— Element B, an award normally in the form of a nil-cost option to acquire shares, carrying a maximum of 100 per cent of salary, conditional
on continued employment for 3 years from grant and 50 per cent of which is also subject to a financial condition over the 3-year period.
Element B shares must be held for a further 2 years after vesting.
Both awards depend on achievement of the performance conditions set by the Committee at the date of award. The table below shows the
2015 performance conditions and the extent to which they have been satisfied.
Percentage
of maximum
contribution based
on measurement
Percentage
of salary
earned
(Element A)
Percentage
of salary
earned
(Element B)
Percentage
of target
achieved
Maximum
target
Minimum
target
2015
Actual
Measurement
EPS
Net debt
75%
25%
12.12p
£27.5m
14.14p
14.32p
£22.5m
£11.5m
Non-financial targets
20% deduction
if not met
95% (customer service)
10% reduction (health and safety)
N/A
All met
100%
100%
100%
112.5
75.0
37.5
25.0
No
deduction
No
deduction
Performance conditions were set at the beginning of 2015 and the Committee took account of both internal budgets and external factors
such as the market consensus of investors for the full year 2015. During the year, cash flow from sales improved significantly and pre-tax profit
grew by 57 per cent. This performance meant that the stretching EPS and net debt targets set at the beginning of the year were achieved
in full, resulting in a 100 per cent achievement against target. The share price improved by 39 per cent during the year (31 December 2014:
234 pence; 31 December 2015: 325 pence), which means the underlying value of share awards increased.
EPS
EPS relates to our strategic objective to grow profits. The Group’s profit before tax increased by 57 per cent from £22.4 million to £35.3 million.
EPS improved by 41 per cent from 10.13 pence in 2014 to 14.32 pence in 2015. EPS is measured using International Financial Reporting
Standards (“IFRSs”) based on the audited results of the Group and subject to the discretion of the Committee with regard to one-off items.
Net debt
Net debt is relevant for measurement of cash flow and overall sustainability. The Group’s net debt at 31 December 2015 of £11.5 million was
better than the lower (better) end of the target range set by the Committee at the beginning of the year.
Additional performance conditions
Our customers are at the heart of our business model, and our measurement of customer service uses factors such as product availability,
on-time delivery performance and administrative and delivery accuracy to assess performance. The Group’s average customer service
performance, assessed monthly, exceeded its minimum target of 95 per cent throughout 2015. The Group also continued its excellent
performance against its stated objective of reducing days lost to accidents by 10 per cent year on year. The actual reduction in days lost to
accidents year on year was 43 per cent. Had these 2 targets not been met, the overall level of MIP award would have reduced by 20 per cent;
the achievement of these measures means that no reduction factor will apply.
Marshalls plc
Annual Report and Accounts 2015
55
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Annual Remuneration Report continued
MIP awards 2015
Element A
Plan accounts
Opening balance (number of shares) (Note a)
2015 contribution (% of salary earned)
Value
2015 element released (Note b)
Closing balance (deferred into shares)
Number of shares represented by closing balance (Note c)
Element B
Number of shares awarded
Percentage of salary
Value
EPS forfeiture threshold (Note d)
Martyn Coffey
Jack Clarke
431,715
150.0%
£617,400
£(524,557)
£524,558
161,900
62,058
150.0%
£355,005
£(208,532)
£208,531
64,361
Martyn Coffey
Jack Clarke
127,037
100.0%
£411,600
10.13p
73,046
100.0%
£236,670
10.13p
Notes:
(a) 50 per cent of the earned Element A award is released to the participant as annual bonus; the remaining 50 per cent is deferred into the participant’s MIP account and converted
into shares. The deferred proportion of the 2014 Element A award was converted into shares by reference to the mid-market average value for the 30-day period ending on
31 December 2014. Dividends paid during the year are also added to the carried-forward plan account. The chart above shows the resulting opening balance value calculated by
reference to the mid-market average value for the 30-day period ended 31 December 2015 and adding the value of dividends of 6.25 pence per share paid during 2015.
(b) 2015 is year 2 of the 5-year MIP. The earned Element A award for 2015 is added to the individual’s plan account, and 50 per cent of the resulting balance is released
to the participant as annual bonus; the remaining 50 per cent is deferred into the participant’s MIP account and converted into shares. The deferral is repeated
in each subsequent year up to the final year, in which, subject to any forfeiture provisions, 100 per cent of any balance in the MIP account is released.
(c) The carried-forward balance is converted back into shares by reference to the mid-market average value for the 30-day period ended 31 December 2015 (324 pence).
(d) If the actual EPS falls below the forfeiture threshold over the 3 years before vesting, 50 per cent of the balance of the award is forfeited. Once Element B shares have
vested, they must normally be held for a further 2 years. Element B shares lapse on cessation of employment except in “good leaver” circumstances, in which case they
vest on leaving and must be held for 2 years from the date of leaving.
2005 LTIP: 2013 Performance Share Awards
A proportion of Performance Share Awards granted in 2013 under the 2005 LTIP may vest following the announcement of the 2015 annual
results. Vesting of the LTIP award granted to Martyn Coffey on joining in 2013 was, exceptionally, dependent on achieving a minimum share
price target over a predetermined period of 30 days following the announcement of the 2015 results and on continued employment. As at
the latest practicable date for approving this report, the performance condition was not yet capable of measurement but, as noted above,
the expected outcome of this award has been included in the LTIP column of the single total remuneration table.
The expected outcome of the 2013 performance award against the targets is set out in the table below:
Share price target
% of award vesting
Actual*
Number of shares vesting
Below 200p
0%
324p
243,412 (100%)
Between 200p and 250p
Between 50% and 100% pro-rata on a straight line basis
* The share price used to estimate the expected outcome of the 2013 award has been taken as the average share price in the 30 days ending 31 December 2015 (324 pence).
Jack Clarke, having joined in 2014, does not hold a 2013 Performance Share Award under the 2005 LTIP.
2013 LTIP awards made to other senior managers below Board level and to past Directors were made on the basis of EPS and OCF growth performance
targets measured over the financial years ended 31 December 2013, 2014 and 2015. These targets were met in full, so these awards will vest in April 2016.
2005 LTIP awards: previous awards outstanding as at 31 December 2015
Executive Director
Martyn Coffey
Jack Clarke
Number of Performance
Shares awarded 2014
2014 target EPS (75%)
and OCF (25%) growth
Actual 2014 awards
Potential level of vesting
of 2014 award
222,124
115,676
EPS growth (75% to 125%)
EPS growth = 154.8%
EPS 100%
OCF growth (5% to 15%)
OCF growth = 65.5%
OCF 100%
Notes:
(a) All estimates are measured as at 31 December 2015.
56 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Single total figure of remuneration: Non‑Executive Directors (audited)
Non-Executive Directors do not participate in any of the Company’s incentive arrangements. Their fees are reviewed periodically and were last
reviewed in October 2015. The Chairman’s fees are set by the Committee and the Chief Executive; other Non-Executive Directors’ fees are set
by the Board as a whole. The Non-Executive Directors also received travel and accommodation expenses associated with attendance at Board
meetings, and where this is a taxable benefit it is shown below as a grossed-up taxable amount.
Committee fees
£'000
Expenses
£'000
2015
2014
2015
Andrew Allner
Chairman and Chairman
of Nomination Committee
Alan Coppin
Senior Independent Director,
Chairman of Remuneration
Committee and member of Audit
and Nomination Committees
Janet Ashdown
Member of Audit, Remuneration
and Nomination Committees
Mark Edwards
Chairman of Audit Committee
and member of Remuneration
and Nomination Committees
Tim Pile
Member of Audit, Remuneration
and Nomination Committees
Board fee
£'000
2015
137
2014
133
44
43
33
43
–
42
43
42
–
6
–
6
–
–
6
–
6
–
Total
£'000
2015
138
2014
143
2014
10
6
–
6
6
51
55
34
50
–
54
44
48
28
317
300
1
1
1
1
1
5
Total
300
260
12
12
The fees were increased by 2.5 per cent from 1 January 2016 in line with other Group employees.
In 2014 the Non-Executive Directors received a fixed allowance for travel and accommodation associated with attendance at Board Meetings.
The grossed-up taxable amount is included in the 2014 column. In 2015, the policy was changed so that Non-Executive Directors no longer
received this allowance but instead reclaimed travel and expenses incurred in the performance of their duties.
Payments to past Directors
Ian Burrell retired from the Board on 1 October 2014 and his employment ceased on his agreed retirement date of 30 June 2015. The total
amount paid to Ian Burrell in respect of the financial year 2015 is set out below.
Director
Ian Burrell
Salary
£'000
123
Taxable benefits
£'000
Pension allowance
£'000
MIP Element A
£’000
4
37
189
Total
£'000
353
Date of
leaving
30 June 2015
As a “good leaver” on retirement, the Committee made the following determinations in respect of Ian Burrell’s incentive awards:
2005 LTIP
Performance Share awards where the vesting period had not yet expired were pro-rated for the period from the date of grant to the actual
date of cessation of employment subject to the proportionate satisfaction of the performance conditions on the date of cessation. Ian Burrell
received 244,991 Performance Shares in respect of his 2013 and 2014 awards, representing his pro-rated entitlement at the date of leaving.
The remaining balance of 104,109 Performance Shares awarded in 2013 and 2014 lapsed.
2014 MIP
98,941 shares, being Ian Burrell’s accrued MIP balance on his leaving date of 30 June 2015, vested following the leaving date. 8,295 of these
shares are Element B shares awarded in respect of performance in 2014 and must be held for a further period of 2 years.
2015 MIP
Ian Burrell also received an award in respect of service during 2015 up to his leaving date under Element A of the MIP, shown above, which was
paid in cash.
Payments for loss of office
No payments for loss of office have been made or are due to be paid.
Marshalls plc
Annual Report and Accounts 2015
57
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Annual Remuneration Report continued
Statement of implementation of Remuneration Policy in the following financial year (2016)
Executive Directors
Salary
The Committee approved a 2.5 per cent salary increase for Executive Directors effective from 1 January 2016, in line with inflation and
increases for UK employees generally, and an exceptional increase of 16.75 per cent for Jack Clarke, in line with policy, to reflect that he
is now established in the role and his performance as Finance Director is for the full year 2015.
Director
Martyn Coffey
Jack Clarke
Benefits and pension
Benefits continue on the same basis as in 2015.
1 January 2016
£'000
1 January 2015
£'000
422
276
412
237
Change
%
2.5
16.75
Variable pay / incentives
Executive Directors will be granted performance awards under the MIP conditional upon achieving certain performance conditions in 2016.
The Committee has discretion under the Remuneration Policy to change the weightings of performance criteria to align with its priorities,
including measures relating to performance on ESG issues. Our strategic priorities for 2016 are focused on improving profit margins, growing
our business and developing our brand, while also remaining innovative and operating sustainably with the highest standards of health,
safety and social responsibility. The Committee believes that EPS and the ratio of OCF to EBITDA are the most appropriate criteria for
measuring achievement of our financial objectives and that the combination of financial and non-financial criteria avoids inadvertently
motivating irresponsible behaviour. The weighting for the operation of 2016 awards under the MIP will be:
EPS
OCF to EBITDA
75%
25%
Targets are set between a minimum (0 per cent) and maximum (100 per cent) range in each case, with on-target (budget) performance
expected to deliver 70 per cent of maximum.
Additional non-financial performance conditions to reflect our focus on brand, customers and employees will apply:
— customer service (must remain at or above 95 per cent); and
— health and safety incidence: the rate of accidents must not fall below the 2015 level achieved.
2015 was an exceptional year for health and safety performance, resulting in only 5.1 lost time accidents per 1 million hours worked, following
the Group’s success in achieving a year on year reduction of significantly more than 10 per cent for the previous 8 years. The target is therefore
to remain below this ratio during 2016.
There is a reduction of award value earned by 20 per cent if these additional conditions are not met.
Element A awards have a forfeiture threshold set annually at the time of confirmation of the award. If this is breached, 50 per cent of the
deferred balance in a participant’s Element A MIP account is forfeited.
Element B awards also have a long-term financial underpin based on a minimum EPS threshold that must be maintained over the 3 years from
the date of grant. If this is breached, 50 per cent of the Element B award is forfeited. Element B awards are granted after the end of the financial
period by reference to which they have been earned and the underpin is set at the time of grant.
The measurement period under the MIP by reference to which these targets must be met will be the full financial year ending 31 December 2016.
It is the view of the Committee that the targets for the MIP are commercially sensitive as they are primarily related to budgeted future profit and
debt levels in the Company and therefore their disclosure in advance is not in the interests of the Company or shareholders. The Committee will,
however, provide full retrospective disclosure to enable shareholders to judge the level of award provided against the targets set.
58 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance
Non‑Executive Directors
The Board approved an increase in the fee by 2.5 per cent from 1 January 2016, in line with Executive Directors and employees. Non-Executive
Directors reclaim business expenses incurred in the performance of their duties retrospectively against duly presented invoices.
Director
Andrew Allner (Chairman)
Janet Ashdown
Alan Coppin (SID)
Mark Edwards
Tim Pile
1 January 2016
£'000
1 January 2015
£'000
Percentage
increase
140.5
43.8
51.7
50.6
43.8
137.1
–
50.4
49.4
42.8
2.5
2.5
2.5
2.5
2.5
Shareholdings of Directors (audited)
In order that their interests are aligned with those of shareholders, Executive Directors are expected to build up and maintain a meaningful
shareholding in the Company. There are no minimum holding requirements for Non-Executive Directors, but they would usually be expected
to hold some shares in the Company.
The minimum shareholding requirements for Executive Directors are as follows:
Executive Director
Martyn Coffey
Jack Clarke
Directors’ shareholdings and share interests
The following table sets out, in respect of each of the Directors:
— the number of shares the Director holds unconditionally;
Percentage of salary
Timescale to achieve/achieved
200%
100%
Within 5 years of appointment
Within 5 years of appointment
— the number of deferred and conditional shares held under the incentive schemes that will vest following the 2015 results; and
— the number of shares subject to unvested incentive awards.
Shareholding requirement
Number
of shares
required
(Note a)
% of
salary
200
100
253,292
72,822
–
–
–
–
–
–
–
–
–
–
Director
Executive
Martyn Coffey
Jack Clarke
Non‑Executive
Andrew Allner
Janet Ashdown
Alan Coppin
Mark Edwards
Tim Pile
Beneficially
owned
Shares that may vest
following 2015 results
(Note b)
Deferred shares
(Note c)
Deferred and
contingent
share interests
(Note d)
Total interests
in shares (including
contingent interests)
Number of
shares
Number of
shares
Number of
shares
Number of
shares
Number of
shares
26,558
371
41,329
5,900
10,000
78,000
44,740
243,412
–
–
–
–
–
–
124,846
71,786
508,869
251,824
–
–
–
–
–
–
–
–
–
–
903,685
323,981
41,329
5,900
10,000
78,000
44,740
Notes:
(a) The closing price on 31 December 2015 of 325 pence per share has been used to measure the number of shares required.
(b) The 2005 LTIP Performance Shares awarded to the CEO in 2013 shown in this table represent 100 per cent of the award; however, the 2013 award remains subject to
outstanding performance conditions at the date of this report so the shares are contingent and may not vest or only a proportion may vest.
(c) This column includes the 50 per cent proportion of share interests awarded in 2014 and 2015 under Element B of the MIP in the form of nil-cost options or conditional
shares that may be exercised after the 3-year deferral period but where vesting is only dependent on continuing employment throughout the 3-year deferral period
with no other performance conditions.
(d) This column includes outstanding conditional interests under the 2005 LTIP in the form of Performance Shares awarded in 2014, and share interests awarded under the MIP
(Element A deferred shares and Element B deferred shares) that remain subject to a financial performance conditions as well as to continued employment over the relevant
deferral period. 50 per cent of Element A awards and 100 per cent of Element B awards shown in this column may be forfeited if the financial condition is not satisfied.
(e) Share interests under Element A and Element B of the MIP are calculated by reference to the mid-market average value for the 30-day period ended 31 December 2015 (324 pence).
(f) The table above includes the interests of “connected persons” as defined under the Financial Services and Markets Act 2000.
Marshalls plc
Annual Report and Accounts 2015
59
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Annual Remuneration Report continued
Service contracts and policy on termination payments
Each Executive Director has a service contract with the Company which is terminable by the Company on not more than 12 months’ notice
and by the Director on 6 months’ notice. Directors’ service contracts do not contain liquidated damages clauses. 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.
Non-Executive Directors, including the Chairman, are appointed under letters of appointment, usually for a term of 3 years. Either the
Company or the Non-Executive Director may terminate the appointment before the end of the current term on 6 months’ notice. If the
unexpired term is less than 6 months, notice does not need to be served. All Non-Executive Directors are subject to annual re-election.
No compensation is payable if a Non-Executive Director is required to stand down.
Copies of Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office on application
to the Company Secretary and will also be on display at the Company’s Annual General Meeting.
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 Board determines the remuneration of the Non-Executive Directors. No Director plays a part in any decision about his own remuneration.
Alan Coppin, Janet Ashdown, 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.
External advisers
The Company has appointed external remuneration advisers, PricewaterhouseCoopers LLP (“PwC”). PwC attends meetings of the Committee
by invitation. The Chief Executive attends as appropriate but may not participate in discussions about his own remuneration. The Company
Secretary acts as secretary to the Committee and attends Committee meetings.
PwC’s fees are agreed by the Remuneration Committee according to the work performed. The terms of its engagement are available on
request from the Company Secretary. PwC also provided advice to the Company during the year in relation to corporate tax and pension
matters. The Committee is satisfied that the advice from PwC is independent based on the separation of the team advising the Committee
from any other work undertaken by PwC and the fact that PwC is a signatory to the Remuneration Consultants’ Group’s Code of Conduct.
PwC’s work relating to Executive remuneration during 2015 included assistance in the preparation of the 2014 Remuneration Committee
Report, benchmarking of total remuneration in respect of the Company and its comparator group, and general advice on remuneration
trends, regulations and best practice. The amount paid to PwC in respect of remuneration advice received during 2015 was £15,000.
60 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Audit Committee Report
Mark Edwards
Chairman of the Audit Committee
Chairman’s introduction
Audit Committee members
— Mark Edwards
— Alan Coppin
— Janet Ashdown
— Tim Pile
Role and responsibilities
The key responsibilities of the Committee are:
— to keep under review the Group’s financial and other systems
and controls and financial reporting procedures;
— to plan and scope the annual audit and half-yearly audit review,
receive audit reports and review financial statements, taking
account of accounting policies adopted and applicable
reporting requirements;
— to review the Annual Report and Financial Statements and
advise the Board on whether they give a fair, balanced and
understandable explanation of the Company’s business and
performance over the relevant period;
— to conduct a detailed review of internal controls and the
internal audit process and report findings at least twice yearly
to the Board;
Dear Shareholder,
— to review and update the Company’s Risk Register;
I am pleased to report to you on the Audit Committee’s activities
and objectives during 2015. This report, which is part of the
Directors’ Report, explains how the Audit Committee has discharged
its responsibilities during 2015, and reflects the recent changes to
reporting under the Code. I hope you find it useful and informative.
The role of the Audit Committee is to oversee financial reporting and
to review the ongoing effectiveness of the Group’s internal controls.
The Committee provides assurance on the Group’s risk management
processes and assesses information received by the external and
internal audit functions.
KPMG LLP, who were appointed to carry out the internal audit
in 2015, following their replacement as statutory auditor during
the year, conducted 8 separate detailed reviews and reported
to the Committee with recommendations, all of which have been
implemented or will be implemented during 2016.
Key areas of focus during the year included the Group’s cyber
security policies and procedures and other processes and procedures
relating to cyber risk and data protection generally.
The Committee has reviewed the Group’s Financial Statements
contained in this Annual Report and, following its review, is satisfied
that the Committee has provided assurance to this effect to the
Board that they present a fair, balanced and understandable
assessment of the Group’s position and prospects.
— to review external auditor independence and audit and
non-audit fees and make recommendations regarding audit
tender and the appointment and remuneration of the auditor; and
— to review the Anti-Bribery Code and procedures, the Serious
Concerns Policy and other policies relevant to financial security,
compliance and business ethics.
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.
The Chairman of the Committee is a Chartered Accountant and the
Board is satisfied he has recent and relevant financial experience as
required by the Code. Other members also have relevant financial
experience. Their attendance at meetings is shown on page 40.
During the year, the Audit Committee held 4 formal meetings and
there were also meetings between the Audit Committee Chairman,
the Finance Director and the external auditor.
The Committee’s performance was evaluated during 2015 as part of
the Board evaluation process described in the Corporate Governance
section of this Annual Report (pages 36 to 41).
Committee Terms of Reference
www.marshalls.co.uk/documents
Mark Edwards
Audit Committee Chairman
Marshalls plc
Annual Report and Accounts 2015
61
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Audit Committee Report continued
Highlights of 2015
When reviewing the annual and half-yearly results, the Committee
exercises its judgement in relation to matters drawn to its attention
by the Finance Director from the internal audit function, the Risk
Committee and the Group’s external auditor. The Committee meets
the external auditor independently of management, giving the
opportunity to ensure that it has full visibility of matters that have
been the subject of particular discussions. The Committee also
reports to the Board in relation to the going concern statement and
the viability statement and whether the accounts are fair, balanced
and understandable.
The Audit Committee has carried out an assessment of the
effectiveness of the Group’s risk management and internal control
system, covering all material controls including its financial, operational
and compliance controls and risk management systems for the year
to 31 December 2015.
The areas for particular focus in 2015 are summarised below.
Inventory provisioning
The Committee critically reviewed the carrying value of the Group’s
finished goods inventory, particularly with regard to management’s
assessment of the appropriate level of provisioning against inventory
obsolescence.
The gross levels of finished goods inventory held and the provisions
recorded against obsolescence were reviewed by the Committee.
This review was undertaken in the context of current trading and
the forecast for the next financial year. In addition, the external
auditor presented its findings with regard to the key audit testing
over inventory valuation. The Committee also reviewed the
effectiveness of controls in relation to inventory counting procedures
and the satisfactory adjustment of any stock differences. KPMG
undertook a specific review of this area. The Committee concurred
with management’s assessment of the carrying value of Group
inventories, and noted that there was considerable management
focus on both the reduction in finished goods inventory and the
general review of accounting controls within the management of
inventory during 2015.
Revenue and rebate recognition
The Committee considered and critically reviewed the operating
effectiveness of controls surrounding revenue recognition and
management’s assessment of the appropriate level of provisions
to recognise for rebates due to customers.
In addition, the external auditor presented its findings with regard to
the key audit testing in this area. The Committee is satisfied with the
controls and procedures that support the recognition of rebates due
to customers.
Authorisation controls
During the year the Group undertook an internal review of
the delegation of powers to operational management and the
appropriateness of authorisation limits across all functional areas.
The Committee noted management’s focus in this area and considered
the conclusions of the review. The Committee is satisfied that robust
controls are in place that cover delegation of authority procedures
across the Group.
Other matters
Other matters considered by the Audit Committee included the risk
management framework and cyber security controls.
External audit, auditor independence and objectivity
The Audit Committee has primary responsibility for making a
recommendation to the Board on the appointment, reappointment
and removal of the external auditor. It keeps under review the scope
and results of the audit, its cost effectiveness and the independence
and objectivity of the auditor. The Group’s current auditor, Deloitte
LLP, has processes in place designed to maintain independence,
including regular rotation of the audit partner. Deloitte LLP was
appointed in May 2015 to replace KPMG LLP as statutory auditor
following a tender process and, consequently, the Company has
complied with the Competition and Markets Authority's final order
on mandatory tendering. The Company has no contractual
commitment obliging it to select any particular audit firm.
The Committee has adopted policies to safeguard the independence
of its external auditor. Any work awarded to the external auditor
with a value of more than £5,000 in aggregate in any financial year,
other than an audit, requires the specific approval of the Committee.
Where the Committee perceives that the independence of the
auditor could be compromised, the work will not be awarded
to it. Details of amounts paid to the external auditor for audit and
non-audit services in 2015 are analysed in Note 3 on page 86, with
no amounts paid for non-audit work. The aggregate amount paid
to other firms of accountants for non-audit services in the same
period was £156,000 (2014: £195,000).
An annual review of external audit effectiveness is undertaken
by the Committee.
Risk management
The Board is responsible for reviewing the effectiveness of the
system of risk management and control, and for ensuring that it
meets the necessary standards. They are also subject to a regular
rolling programme of review, the results of which are periodically
reported to the Board. The Group’s Risk Committee, comprising
the Executive Directors and members of senior management
with Executive accountability for particular risk areas, meets at least
twice yearly to identify, evaluate and consider steps to manage any
material risks which might threaten the Group’s business objectives.
62 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance The Group maintains a written Risk Register that identifies the
Group’s key risk areas, the probability of these risks occurring and
the impact they would have on the Group. Against each risk, the
effectiveness of the controls that exist to manage and, where
possible, minimise or eliminate those risks are also listed. The Risk
Register process identifies areas for action and independent audit
assessment in order to test the effectiveness of the Group’s risk
control systems. Information relating to the management of risks
and any changes to the assessment of key risks is regularly reported
to the Board, and the Risk Register is updated to reflect changes.
To the extent that any failings or weaknesses are identified during
the review process, appropriate measures are taken to remedy these.
During 2015, there was also a high level review of strategic risk by
Non-Executive Directors, which was subsequently integrated into
the overall Risk Register.
The Group has an established internal control 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 the
internal 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.
Internal controls and audit
The Committee monitors and reviews the effectiveness of internal
controls on an ongoing basis. The process of reviewing and reporting
on the internal control system is carried out by KPMG LLP in their
capacity as internal auditor for the Group. The annual internal audit
programme is now derived from a risk-based assessment that takes
into account the Risk Register and management input. This risk-based
assessment is reviewed and approved by the Audit Committee.
This process is overseen by the Finance Director. KPMG LLP
are independent from the Company’s external auditor and have no
other connection with the Group. Their work includes regular site
visits and internal audit assignments of a financial and systems nature,
including checks against previously completed self-assessment
questionnaires. The results are reported to the Audit Committee.
The Company operates a self-certification internal control
process to support the internal audit process throughout the
year. The internal audit programme includes both regular audit
checks and assignments to look at areas of critical importance.
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. Instances of fraud or attempted
fraud (if any) and preventative action plans are also reported to the
Committee and recorded in a fraud register.
The Committee is pleased to report that no significant failings or
weaknesses were identified during the year, and there were no losses
identified as a result of fraud.
The Committee has reviewed the current process and has concluded
that the utilisation of KPMG LLP as independent internal auditor is an
efficient and effective means of managing the internal audit function.
The Committee will be considering, with KPMG LLP, how this process
can be developed further during 2016.
Whistleblowing and bribery
The Audit Committee monitors any reported incidents under
the Serious Concerns Policy (our whistleblowing policy), which
is available to all employees. This policy is displayed on operating
site noticeboards and on the Company’s intranet, and sets out the
procedure for employees to raise legitimate concerns about any
wrongdoing without fear of criticism, discrimination or reprisal.
The Serious Concerns Policy was reviewed during the year and
the Committee was satisfied that arrangements are in place for
the proportionate and independent investigation of such matters
and for appropriate follow-up action. There was 1 matter raised
under this policy during 2015 relating to an allegation of bullying
at one of the Group’s operating sites, at which there were already
steps in place to improve behaviours and employee relations at the
time of the allegation. The allegation was investigated and action
taken to address the issues identified, with the assistance of ACAS
as an independent facilitator.
The Audit Committee also takes responsibility for reviewing
the policies and procedures adopted by the Company to prevent
bribery. The Company is committed to a zero-tolerance position with
regard to bribery, made explicit through its Anti-Bribery Code and
supporting guidance for its employees, agents and contractors on
hospitality and gifts. The policy and procedures are published on the
Company website and displayed on operating site noticeboards.
Online training is available to all employees via the Group’s internal
learning zone to reinforce the Anti-Bribery Code and procedures, and
classroom-based training sessions are also held throughout the year.
To date, 485 employees in decision-making roles with potential
exposure to bribery risk have completed the training. There is a
maintained register of employee interests and a gifts and hospitality
record. The internal audit review programme included a review of the
adequacy of the Company’s procedures in relation to the prevention
of bribery, and recommendations from the internal audit process
have been implemented in 2015, including the establishment of the
Fraud Register.
The Report of the Audit Committee has been approved by the Board
and signed on its behalf by:
Mark Edwards
Audit Committee Chairman
11 March 2016
Marshalls plc
Annual Report and Accounts 2015
63
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Directors’ Report – Other Regulatory Information
Share capital and authority to purchase shares
The Company’s share capital at 1 January 2016 was 199,378,755
Ordinary Shares of 25 pence. There has been no change between
31 December 2015 and 11 March 2016. Details of the share capital
are set out in Note 20 on page 108.
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 – see below).
The Marshalls plc Employee Benefit Trust (the “EBT”) holds shares
for the purposes of satisfying future awards that may vest under the
Company’s share-based incentive schemes. The EBT may purchase
shares in the Company from time to time to satisfy awards granted
to Directors and Senior Executives subject to the achievement of
performance targets under the Company's incentive schemes.
At 31 December 2015 the EBT held 2,715,747 Ordinary Shares in
the Company (2014: 3,181,327 shares) in respect of future incentive
awards under the Company’s employee share schemes. Details
of outstanding awards are set out in Note 18 on pages 103 to 106.
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 6 months’ service
may participate in the Marshalls plc Share Purchase Plan during any
offer period. Employees purchase Ordinary Shares in the Company
with their 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 2015 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 2015
and 11 March 2016 under this authority, which will expire at the
Annual General Meeting in May 2016. The Directors will seek to
renew the authority at that meeting.
The information required by the Listing Rules (DTR 4.1.8R) is
contained in the Strategic Report and the Directors’ Report.
Marshalls plc is registered with company number 5100353.
The Directors of the Company are listed on pages 34 and 35.
Political donations: The Group 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 (2014: £nil).
Risk management: The Group’s risk management objectives,
its approach to managing risk generally and its use of financial
instruments are described in the Strategic Report on pages 20 to 23.
Further details of the Group’s risk management in relation to financial
risks and its use of financial instruments to mitigate such risks are set
out in Note 17 on pages 94 to 99.
Greenhouse gas emissions: The Group’s CO2 (greenhouse gas)
emissions in 2015 are disclosed in the Strategic Report on pages 26
and 27.
Employees: The Company’s policies in relation to disabled
employees and employee involvement and communication are
explained in the Strategic Report on pages 24 to 26.
Corporate governance: Details of how the Group complies with
the UK Corporate Governance Code are set out on pages 36 to 41.
Post balance sheet events of importance since 31 December
2015: There have been no important events affecting the Group
since the end of the financial year. Details of developments since the
financial year ended 31 December 2015 are included in the Strategic
Report on pages 1 to 33.
Research and development: Activity and likely future
developments for the business are described in the Strategic Report
on pages 1 to 33.
Dividends
The Board is recommending a final dividend of 4.75 pence
(2014: 4.00 pence) per share which, together with the interim
dividend of 2.25 pence (2014: 2.00 pence) per share, makes a
combined dividend of 7.00 pence (2014: 6.00 pence) per share.
The Board is also recommending payment of a supplementary
dividend of 2.00 pence per share, which is discretionary and
non-recurring. Payment of the final dividend and the supplementary
dividend, if approved at the Annual General Meeting, will be
made on 8 July 2016 to shareholders registered at the close
of business on 3 June 2016. The ex-dividend date will be
2 June 2016.
The dividend paid in the year to 31 December 2015 and disclosed
in the Consolidated Income Statement is 6.25 pence (2014: 5.50
pence) per share, being the previous year’s final dividend of 4.00
pence (2014: 3.50 pence) per share and the interim dividend of
2.25 pence (2014: 2.00 pence) per share in respect of the year
ended 31 December 2015 and these were paid on 3 July 2015
and 4 December 2015 respectively.
64 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance 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.
There are a number of agreements that take effect, alter or terminate
upon a change of control of the Group. None of these are considered
to be significant in terms of their likely impact on the business of the
Group as a whole.
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.
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 restrictions regarding the 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.
The Articles of Association may be amended by Special Resolution
of the shareholders.
Directors’ indemnities are referenced on page 39 of the Corporate
Governance section.
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 awards
are contained in the Remuneration Committee Report on pages 46
to 60. No change in the interests of the Directors has been notified
between 31 December 2015 and the date of this report.
Listing Rule requirements
The applicable requirements of Listing Rule 9.8.4R in respect of
long-term incentive schemes (pages 103 to 106) and contracts of
significance (page 65) are included in this Annual Report.
Substantial shareholdings
The Company has no controlling shareholder. As at 11 March 2016,
the Company had been notified, in accordance with DTR Rule 5,
of the following disclosable interests of 3 per cent or more in its
voting rights:
Majedie Asset Management
Standard Life Investments
BlackRock
JP Morgan Asset Management
Old Mutual Global Investors
Royal London Asset Management
Unicorn Asset Management
Henderson Global Investors
Montanaro Investment Managers
M&G Investment Management
As at
11 March
2016
%
As at
31 December
2015
%
8.91
8.07
6.70
4.95
4.91
4.76
3.79
3.68
3.67
3.46
8.98
6.79
5.11
4.28
4.64
4.73
3.82
3.68
3.67
3.46
The Directors’ Report, comprising the Strategic Report, the Corporate Governance Report and the reports of the Audit, Remuneration and
Nomination Committees, has been approved by the Board and signed on its behalf by:
Cathy Baxandall
Group Company Secretary
11 March 2016
Marshalls plc
Annual Report and Accounts 2015
65
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Independent Auditor’s Report
to the members of Marshalls plc only
Opinion on Financial Statements of Marshalls plc
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 2015 and of the Group’s profit for the year
then ended;
— the Group Financial Statements have been properly prepared in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union;
— the Parent Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting
Standard 101 “Reduced Disclosure Framework”; 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.
The Financial Statements comprise the Consolidated Income Statement,
the Consolidated and Parent Company Statements of Comprehensive
Income, the Consolidated and Parent Company Balance Sheets,
the Consolidated Cash Flow Statement, the Consolidated and Parent
Company Statements of Changes in Equity, and the related Notes 1
to 40. The financial reporting framework that has been applied in the
preparation of the Group Financial Statements is applicable law and
IFRSs as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the Parent
Company Financial Statements is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice), including Financial Reporting Standard 101
“Reduced Disclosure Framework”.
Going concern and the Directors’ assessment
of the principal risks that would threaten the solvency
or liquidity of the Group
As required by the Listing Rules we have reviewed the Directors’
Statement regarding the appropriateness of the going concern basis
of accounting contained within Note 1 to the Financial Statements
and the Directors’ Statement on the longer-term viability of the
Group contained within the Strategic Report on page 23.
We have nothing material to add or draw attention to in relation to:
— the Directors’ Confirmation on page 23 that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity;
— the disclosures on pages 20 to 23 that describe those risks and
explain how they are being managed or mitigated;
— the Directors’ Statement in Note 1 to the Financial Statements
about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability
to continue to do so over a period of at least 12 months from
the date of approval of the Financial Statements; and
— the Director’s Explanation on page 23 as to how they have
assessed the prospects of the Group, over what period
they have done so and why they consider that period to
be appropriate, and their statement as to whether they have
a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis
of accounting and we did not identify any such material uncertainties.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and we confirm that we are independent
of the Group and we have fulfilled our other ethical responsibilities
in accordance with those standards. We also confirm we have not
provided any of the prohibited non-audit services referred to in
those standards.
66 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
Risk
How the scope of our audit responded to the risk
Carrying value of inventories
The Group is primarily involved in the manufacture and sale of landscape
products and natural stone products, selling to both Public Sector and
Commercial and Domestic end users. It records inventory at the lower of
cost and net realisable value, carrying a large amount of inventories in order
to meet customer needs on demand. The Group offers a wide range of
non-perishable products that are manufactured and subsequently stored
in large quantities at various locations, and therefore carries a high level of
inventories at any given point.
A risk therefore exists that inventories, particularly those which are aged,
may need to be discounted before they can be sold. The risk of discounting,
combined with potential costs to move the inventories to a location where
demand exists, may result in the inventories being sold at below cost.
The Directors are responsible for making judgements surrounding:
We have:
— reviewed business processes surrounding the recording of
inventory quantities and management's review for the valuation
of the items;
— tested the design, implementation and operating effectiveness
of controls around the key accounting cycles relating to
purchasing, inventory quantities and inventory provisioning
across the Group’s sites;
— used analytical techniques to review sales of product lines by site
to focus on areas of risk in the provisions for net realisable value;
— selected a sample of inventory items and agreed key inputs in the
valuation such as materials costs and expected sales prices, rebates
and shipping costs to supporting documentation;
— the length of time required to sell inventories;
— challenged the key assumptions concerning overhead
— the level of discounts necessary to sell inventories
(ie. provisioning levels);
— whether inventories will need to be discounted below
their cost price; and
— the appropriateness of standard costs and the level
of provisioning applied.
The carrying value of the Group’s finished goods inventory as disclosed
in Note 12 is noted as a critical accounting estimate in Note 26 to the
Financial Statements.
Completeness of rebate expenses
The Group enters into a number of commercial agreements with its
customers which have varying terms and as such a risk exists that
rebate agreements with customers are not correctly accounted for,
potentially resulting in an overstatement of revenue and profit. This
becomes increasingly pertinent as the Group’s revenues increase,
rebate expenses become larger, and new agreements are initiated.
The Directors are responsible for making judgements surrounding
the level of provisions to apply for rebate agreements.
As described in Note 1 to the Financial Statements, revenue
recognised represents the invoiced value of sales to customers less
returns, allowances and value added tax. This is further noted as a
critical accounting estimate in Note 26 to the Financial Statements.
absorption by assessing the appropriateness of costs included
in the calculation;
— tested the standard cost assessment and year-end adjustment to
actual cost by performing walkthroughs of the costing exercise
and verifying the actual costs of production for a representative
sample of products; and
— assessed the accuracy of prior year provisions for indications that
current year provisions may be materially misstated.
We have:
— reviewed business processes and tested the design
and implementation of controls surrounding the rebate
expense cycles;
— reviewed a sample of rebate agreements for key customers to assess
whether provisions are calculated in line with contractual terms;
— performed procedures to assess the accuracy of the brought
forward rebate accrual including verification to subsequent
cash payments;
— assessed post year-end transactions to consider the
completeness of the closing accrual; and
— selected a sample of sales transactions to agree to customer
order and to receipt of cash to gain assurance over the completeness
and existence of revenue and rebate expenses.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed
on pages 61 to 63.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Marshalls plc
Annual Report and Accounts 2015
67
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Independent Auditor’s Report continued
to the members of Marshalls plc only
Our application of materiality
We define materiality as the magnitude of misstatement in the
Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the Group to be £1.75 million which
is below 5 per cent of pre-tax profit, and below 1 per cent of equity.
In 2014 the previous auditor set materiality at £1.3 million on the
basis of 5.8 per cent of pre-tax profit.
We agreed with the Audit Committee that we would report to the
Audit Committee all audit differences in excess of £35,000 (in 2014
the previous auditor reported on all amounts in excess of £65,000)
as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall
presentation of the Financial Statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level.
The Group and Parent Company audits are performed at the Group’s
head office in Elland, West Yorkshire. All subsidiaries of the Group
except Marshalls NV, based in Belgium, are based in the UK at Elland.
The Group audit team performed the audit of all UK components,
which accounted for 96 per cent of Group revenue, 98 per cent
of Group net assets and 98 per cent of Group profit before tax.
Marshalls NV accounted for the remaining revenue, net assets and
profit before tax and was audited by Deloitte Antwerp under the
supervision of the Group audit team to a component materiality
of £500,000.
In our first year as the Group’s statutory Auditor, the Group audit team
followed a programme of planned visits that has been designed so
that senior members of the audit team have visited all of the Group’s
key locations, including the Group’s Belgian site and a number of UK
manufacturing locations. In addition, the senior statutory Auditor
has visited a number of manufacturing sites in the UK and been
involved in the planning and reporting procedures for all of the Group’s
components. In future years we will continue to include the component
audit partner and team in our team briefing, discuss their risk assessment,
and review documentation of the findings from their work.
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 Strategic Report and 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
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
— we have not received all the information and explanations we
require for our audit; or
— 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
— the Parent Company Financial Statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if,
in our opinion, certain disclosures of Directors’ remuneration have
not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records and
returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the
Corporate Governance Statement relating to the Company’s
compliance with certain provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
68 Marshalls plc
Annual Report and Accounts 2015
Corporate Governance Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give reasonable
assurance that the Financial Statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the Parent Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the Directors; and the
overall presentation of the Financial Statements. In addition, we read
all the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited Financial
Statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit.
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Christopher Robertson (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester, UK
11 March 2016
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are
required to report to you if, in our opinion, information in the Annual
Report is:
— materially inconsistent with the information in the Audited
Financial Statements; or
— apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
— otherwise misleading.
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the
audit and the Directors’ statement that they consider the Annual
Report is fair, balanced and understandable and whether the Annual
Report appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have been
disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement,
the Directors are responsible for the 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 opinion on the Financial
Statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). We also comply with
International Standard on Quality Control 1 (UK and Ireland).
Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality
controls and systems include our dedicated professional standards
review team and independent partner reviews.
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.
Marshalls plc
Annual Report and Accounts 2015
69
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Consolidated Income Statement
for the year ended 31 December 2015
Revenue
Net operating costs
Operating profit
Financial expenses
Financial income
Profit before tax
Income tax expense
Profit for the financial year
Profit for the year
Attributable to:
Equity shareholders of the Parent
Non-controlling interests
Earnings per share
Basic
Diluted
Dividend
Pence per share
Dividends declared
All results relate to continuing operations.
Notes
2
3
2
5
5
2
6
7
7
8
8
2015
£'000
386,204
(348,752)
37,452
(2,181)
7
35,278
(7,387)
27,891
28,149
(258)
27,891
14.32p
14.10p
6.25p
12,291
2014
£'000
358,516
(333,211)
25,305
(2,889)
5
22,421
(4,198)
18,223
19,857
(1,634)
18,223
10.13p
9.89p
5.50p
10,791
70 Marshalls plc
Annual Report and Accounts 2015
Financial Statements Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
Profit for the financial year
Other comprehensive (expense) / income
Items that will not be reclassified to the Income Statement:
Remeasurements of the net defined benefit liability
Deferred tax arising
Total items that will not be reclassified to the Income Statement
Items that are or may in the future be reclassified to the Income Statement:
Effective portion of changes in fair value of cash flow hedges
Fair value of cash flow hedges transferred to the Income Statement
Deferred tax arising
Impact of the change in rate of deferred taxation
Exchange difference on retranslation of foreign currency net investment
Exchange movements associated with borrowings
Foreign currency translation differences – non-controlling interests
Total items that are or may be reclassified subsequently to the Income Statement
Other comprehensive (expense) / income for the year, net of income tax
Total comprehensive income for the year
Attributable to:
Equity shareholders of the Parent
Non-controlling interests
2015
£’000
27,891
(3,866)
773
(3,093)
(940)
1,984
(209)
(375)
(980)
847
(78)
249
(2,844)
25,047
25,383
(336)
25,047
2014
£’000
(Restated)
18,223
3,244
(649)
2,595
(3,984)
1,076
582
–
(944)
869
(186)
(2,587)
8
18,231
20,051
(1,820)
18,231
Marshalls plc
Annual Report and Accounts 2015
71
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Consolidated Balance Sheet
at 31 December 2015
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in associates
Trade and other receivables
Employee benefits
Deferred taxation assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
Liabilities
Current liabilities
Trade and other payables
Corporation tax
Interest bearing loans and borrowings
Derivative financial instruments
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
Called-up 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 11 March 2016.
On behalf of the Board:
Martyn Coffey
Chief Executive
The Notes on pages 76 to 110 form part of these Consolidated Financial Statements.
Jack Clarke
Finance Director
72 Marshalls plc
Annual Report and Accounts 2015
Notes
2015
£’000
2014
£’000
9
10
11
13
18
19
12
13
14
9
15
16
17
16
19
20
21
147,489
40,168
–
415
3,427
1,316
192,815
65,254
44,542
24,990
2,231
137,017
329,832
79,607
5,281
34
2,149
87,071
36,418
13,625
50,043
137,114
192,718
49,845
22,695
(5,529)
75,394
(213,067)
(1,653)
263,894
191,579
1,139
192,718
149,745
40,581
782
–
3,449
1,394
195,951
67,323
44,950
20,320
–
132,593
328,544
73,416
4,276
85
3,192
80,969
50,715
14,966
65,681
146,650
181,894
49,845
22,695
(6,689)
75,394
(213,067)
(2,488)
254,729
180,419
1,475
181,894
Financial Statements
Consolidated Cash Flow Statement
for the year ended 31 December 2015
Cash flows from operating activities
Profit for the financial year
Income tax expense
Profit before tax
Adjustments for:
Depreciation
Amortisation
Associates
Gain on sale of property, plant and equipment
Equity settled share-based payments
Financial income and expenses (net)
Operating cash flow before changes in working capital and pension scheme contributions
Increase in trade and other receivables
Decrease in inventories
Increase / (decrease) in trade and other payables
Operational restructuring costs paid
Pension scheme contributions
Cash generated from operations
Financial expenses paid
Income tax paid
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Financial income received
Net proceeds from disposal of 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) / increase in other debt and finance leases
Decrease 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 year
Effect of exchange rate fluctuations
Cash and cash equivalents at end of the year
2015
£’000
2014
£’000
27,891
7,387
35,278
13,054
1,322
582
(149)
2,202
2,174
54,463
(443)
1,706
7,262
(175)
(4,350)
58,463
(1,775)
(7,003)
49,685
933
7
200
(14,016)
(909)
(13,785)
(4,582)
(166)
(14,182)
(12,291)
(31,221)
4,679
20,320
(9)
24,990
18,223
4,198
22,421
11,982
1,231
(118)
(360)
2,496
2,884
40,536
(1,050)
3,102
(1,765)
(235)
(4,600)
35,988
(2,840)
(4,031)
29,117
3,077
5
–
(11,269)
(741)
(8,928)
(4,266)
269
(2,690)
(10,791)
(17,478)
2,711
17,652
(43)
20,320
Marshalls plc
Annual Report and Accounts 2015
73
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
Attributable to equity holders of the Company
Share
capital
£’000
Share
premium
account
£’000
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 22,695
(6,689)
75,394
(213,067)
(2,488) 254,729 180,419
1,475 181,894
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,582)
5,742
1,160
1,160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 28,149
28,149
(258) 27,891
–
(133)
(133)
(78)
(211)
(940)
1,984
(209)
–
–
–
–
–
–
(940)
1,984
(209)
(3,866)
(3,866)
(375)
773
(375)
773
–
–
–
–
–
–
(940)
1,984
(209)
(3,866)
(375)
773
835
(3,601)
(2,766)
(78)
(2,844)
835 24,548
25,383
(336) 25,047
–
–
–
–
2,202
2,202
(5)
(5)
445
445
8
8
–
–
–
–
2,202
(5)
445
8
– (12,291)
(12,291)
– (12,291)
–
–
–
(4,582)
(5,742)
–
–
–
(4,582)
–
– (15,383)
(14,223)
– (14,223)
835
9,165
11,160
(336) 10,824
Current year
At 1 January 2015
Total comprehensive
income / (expense) for the year
Profit / (loss) for the financial year
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
Impact of change in rate of
deferred tax
Deferred tax arising
Total other comprehensive
income / (expense)
Total comprehensive income /
(expense) for the year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based payments
Deferred tax on share-based
payments
Corporation tax on share-based
payments
Impact of the change in rate
of deferred tax on share-based
payments
Dividends to equity shareholders
Purchase of own shares
Disposal of own shares
Total contributions by and
distributions to owners
Total transactions with owners
of the Company
At 31 December 2015
49,845 22,695
(5,529)
75,394
(213,067)
(1,653) 263,894 191,579
1,139 192,718
74
Marshalls plc
Annual Report and Accounts 2015
Financial Statements Consolidated Statement of Changes in Equity continued
for the year ended 31 December 2015 (restated)
Attributable to equity holders of the Company
Share
capital
£’000
Share
premium
account
£’000
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
22,695
(9,512)
75,394
(213,067)
(162) 246,944
172,137
3,295
175,432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,266)
7,089
2,823
2,823
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,857
19,857
(1,634)
18,223
–
(75)
(75)
(186)
(261)
(3,984)
1,076
582
–
–
–
–
–
3,244
(3,984)
1,076
582
3,244
(649)
(649)
–
–
–
–
–
(3,984)
1,076
582
3,244
(649)
(2,326)
2,520
194
(186)
8
(2,326)
22,377
20,051
(1,820)
18,231
–
–
–
–
–
–
–
2,496
2,496
460
460
332
332
(10,791)
(10,791)
–
(4,266)
(7,089)
–
(14,592)
(11,769)
–
–
–
–
–
–
–
2,496
460
332
(10,791)
(4,266)
–
(11,769)
(2,326)
7,785
8,282
(1,820)
6,462
Prior year
At 1 January 2014
Total comprehensive
income / (expense) for the year
Profit / (loss) for the financial
year 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
Total other comprehensive
income / (expense)
Total comprehensive
income / (expense) for the year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based payments
Deferred tax on share-based
payments
Corporation tax on share-based
payments
Dividends to equity shareholders
Purchase of own shares
Disposal of own shares
Total contributions by and
distributions to owners
Total transactions with owners
of the Company
At 31 December 2014
49,845
22,695
(6,689)
75,394
(213,067)
(2,488) 254,729
180,419
1,475
181,894
Marshalls plc
Annual Report and Accounts 2015
75
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information 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 2015 comprise the Company and its subsidiaries (together referred to as the “Group”).
The Consolidated Financial Statements were authorised for issue by the Directors on 11 March 2016.
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 and therefore the Group
Financial Statements comply with Article 4 of the EU IAS regulations. 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.
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (“IASB”)
that are mandatorily effective for an accounting period that begins on or after 1 January 2015 (except as noted below). Their adoption has not
had any material impact on the disclosures or on the amounts reported in the Consolidated Financial Statements.
— Amendments to IAS 19 “Defined Benefit Plans: Employee Contributions”. The amendments are effective in the EU for accounting periods
beginning on or after 1 February 2015. However, earlier application is permitted so that companies applying IFRSs, as adopted in the EU,
are able to adopt the amendments in accordance with the IASB effective date of 1 July 2014. The amendments to IAS 19 clarify the
requirements that relate to how contributions from employees, or third parties, that are linked to service should be attributed to periods
of service. In addition, they permit a practical expedient if the amount of the contributions is independent of the number of years of
service. These amendments have been applied retrospectively. The application of these amendments has had no material impact on the
disclosures or on the amounts recognised in the Group’s Consolidated Financial Statements.
— Annual Improvements to IFRSs 2010 – 2012 Cycle. The amendments are effective in the EU for accounting periods beginning on or after
1 February 2015. However, earlier application is permitted so that companies applying IFRSs, as adopted in the EU, are able to adopt the
amendments in accordance with the IASB effective date of 1 July 2014. The majority of the amendments are in the nature of clarifications
rather than substantive changes to existing requirements. However, the amendments to IFRS 8 “Operating Segments” - (aggregation of
operating segments) and IAS 24 “Related Party Disclosures” - (key management personnel) represent changes to existing requirements.
The amendments to IFRS 8 require an entity to disclose the judgements made by management in applying the aggregation criteria to
operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining
whether the operating segments have similar economic characteristics. The amendments to IAS 24 clarify that a management entity
providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting
entity must disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the
provision of key management. The application of the amendments has had no material impact on the disclosures or on the amounts
recognised in the Group’s Consolidated Financial Statements.
The following standards and amendments to standards are in issue but not yet effective, and have not yet been adopted by the EU, and
therefore have not been applied in the Group’s Consolidated Financial Statements.
— IFRS 9 “Financial Instruments”;
— IFRS 15 “Revenue from Contracts with Customers”;
— IFRS 11 (amendments) “Accounting for Acquisitions of Interests in Joint Operations”;
— IAS 1 (amendments) “Disclosure Initiative”;
— IAS 16 and IAS 38 (amendments) “Clarification of Acceptable Methods of Depreciation and Amortisation”;
— IAS 16 and IAS 41 (amendments) “Agriculture: Bearer Plants”;
— IAS 27 (amendments) “Equity Method in Separate Financial Statements”;
— IFRS 10 and IAS 28 (amendments) “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”;
— IFRS 10, IFRS 12 and IAS 28 (amendments) “Investment Entities: Applying the Consolidation Exemption”;
— Annual Improvements to IFRSs: 2012 – 2014 Cycle – Amendments to: IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”,
IFRS 7 “Financial Instruments: Disclosures,” IAS 19 “Employee Benefits” and IAS 34 “Interim Financial Reporting”;
— IFRS 14 “Regulatory Deferral Accounts”;
76
Marshalls plc
Annual Report and Accounts 2015
Financial Statements 1 Accounting policies continued
Significant accounting policies continued
— IFRS 16 “Leases”;
— IAS 12 (amendments) “Income Taxes”; and
— IFRIC 21 “Levies”.
The Directors do not expect that the adoption of the standards listed above will have a material impact on the Financial Statements of the
Group in future periods, except that IFRS 9 and IFRS 16 will impact both the measurement and disclosures of financial instruments and leases
respectively and IFRS 15 may have an impact on revenue recognition and related disclosures. Beyond the information above, it is not
practicable to provide a reasonable estimate of the effect of IFRS 9, IFRS 15 and IFRS 16 until a detailed review has been completed.
(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 FRS 101 and these are presented on pages 111 to 118.
(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
Strategic Report on pages 1 to 33. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are also set out
in the Strategic Report. In addition, Note 17 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 17 and are subject to normal covenant arrangements. The Group’s on-demand
overdraft facility is reviewed on an annual basis and the current arrangements were renewed and signed on 10 July 2015. In the opinion of the
Directors there are sufficient unutilised facilities held which mature after 12 months. The Group’s performance is dependent on economic and
market conditions, the outlook for which is difficult to predict. Based on current expectations, the Group’s cash forecasts continue to meet
half-year and year-end bank covenants and there is adequate headroom which is not dependent on facility renewals. The Directors believe
that the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in
preparing the 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.
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. These are set out in
Note 26 on page 110. 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 26.
The Consolidated Statement of Comprehensive Income and Consolidated Statement of Changes in Equity have been restated in respect of
the year ended 31 December 2014 (£792,000 reduction to other comprehensive income). The restatement was in respect of deferred taxation
and corporation tax on share-based payments which were previously presented within other comprehensive income. The Statements have
also been restated to show the effects of the net investment hedging on a gross basis in both periods. There is no impact on retained profits or
net assets.
Marshalls plc
Annual Report and Accounts 2015
77
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(c) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control is achieved when the Company:
— has power over the investee;
— is exposed, or has rights, to variable returns from its involvement with the investee; and
— has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the
3 elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it considers that it has power
over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.
The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are
sufficient to give it power, including:
— the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
— potential voting rights held by the Company, other vote holders or other parties;
— rights arising from other contractual arrangements; and
— any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant
activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control
of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income
Statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.
(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.
(iv) Non-controlling interests
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling
shareholders that are present ownership interests entitling their holders to a proportionate share of net assets are initially measured at the
non-controlling interests’ proportionate share of the acquiree’s identifiable net assets. Subsequent to acquisition, the carrying amount of
non-controlling interests is the amount of those interests at the initial recognition plus the non-controlling interests' share of subsequent
changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
(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.
78 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 1 Accounting policies continued
Significant 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 remeasurement 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 (m)). 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 overleaf ) and impairment losses (see accounting policy (m)).
(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.
Marshalls plc
Annual Report and Accounts 2015
79
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(g) Property, plant and equipment continued
(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 per cent to 5 per cent per annum
over the period of the lease
3.3 per cent to 25 per cent per annum
14 per cent to 30 per cent 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 products).
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 2004, 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.
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 their fair value or at their 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, 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 2015 were not adjusted in preparing the Group’s opening IFRS balance sheet at 1 January 2015.
80 Marshalls plc
Annual Report and Accounts 2015
Financial Statements
1 Accounting policies continued
Significant accounting policies continued
(h) Intangible assets continued
(i) Goodwill continued
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 (m)). 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 meets 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 (m)).
(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 (m)).
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.
(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 (m)).
(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.
Marshalls plc
Annual Report and Accounts 2015
81
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(l) Assets classified as held for sale
Assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets are classified as held
for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as
met only when the sale is highly probable, expected to be completed within 1 year from the date of classification, and the asset is available for
immediate sale in its present condition.
(m) 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 w),
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.
(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.
(n) 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).
(o) 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.
(p) 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 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.
82 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 1 Accounting policies continued
Significant accounting policies continued
(p) Pension schemes continued
(i) Defined benefit schemes continued
When the benefits of the scheme are improved, the portion of the increased benefit relating to past service by employees is recognised as an
expense in the Income Statement in the period of the scheme amendment.
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.
(q) Share-based payment transactions
The Group enters into equity settled share-based payment transactions with its employees. In particular, annual awards are made to
employees under the Company’s Management Incentive Plan (“MIP”) and there are also outstanding awards from previous years under the
2005 Long Term Incentive Plan (“LTIP”).
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. Where appropriate, 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 as shares vest based on the value at the date of vesting. A deferred tax asset is recognised at grant date based on
the number of shares expected to be issued, at the value at which they are expected to be issued, proportioned in line with the vesting period.
(r) Own shares held by the 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.
(s) 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.
(t) Trade and other payables
Trade and other payables are stated at nominal amount (discounted if material).
(u) 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, rebates 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.
(v) 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.
Marshalls plc
Annual Report and Accounts 2015
83
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(v) 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 )).
(w) 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.
(x) Segment reporting
IFRS 8 “Operating Segments” requires operating segments to be identified on the basis of discrete financial information about components of the
Group that are regularly reviewed by the Group’s Chief Operating Decision Maker (“CODM”) to allocate resources to the segments and to assess
their performance. As far as Marshalls is concerned the CODM is regarded as being the Executive Directors. The Directors have concluded that the
Group’s Landscape Products business is a single reportable segment, which includes the UK operations of the Marshalls Landscape Products hard
landscaping business, servicing both the UK Domestic and the Public Sector and Commercial end markets. Financial information for Landscape
Products is now reported to the Group’s CODM for the assessment of segment performance and to facilitate resource allocation.
2 Segmental analysis
Segment revenues and results
2015
2014
Landscape
Products
£’000
280,508*
(194)
280,314*
36,066
Other
£’000
82,933*
(4,731)
78,202*
(4,549)**
Total revenue
Inter-segment revenue
Landscape
Products
£’000
299,650
(123)
Other
£’000
90,915
(4,238)
Total
£’000
390,565
(4,361)
External revenue
299,527
86,677
386,204
Segment operating profit
41,816
1,763
Unallocated administration costs
Associates
Operating profit
Finance charges (net)
Profit before tax
Taxation
Profit after tax
43,579
(5,545)
(582)
37,452
(2,174)
35,278
(7,387)
27,891
Total
£’000
363,441
(4,925)
358,516
31,517
(6,330)
118
25,305
(2,884)
22,421
(4,198)
18,223
* The comparative revenue figures have been restated to ensure consistent classification with the analysis reported for the year ended 31 December 2015.
** After charging £1,995,000 in respect of restructuring costs in the Belgian business.
84 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 2 Segmental analysis continued
Segment revenues and results continued
The Group has 2 customers who each contributed more than 10 per cent of total revenue in the current and prior year.
The Landscape Products reportable segment operates a national manufacturing plan that is structured around a series of production units
throughout the UK, in conjunction with a single logistics and distribution operation. A national planning process supports sales to both of
the key end markets, namely the UK Domestic and Public Sector and Commercial end markets and the operating assets produce and deliver
a range of broadly similar products that are sold into each of these end markets. Within the Landscape Products operating segment the focus
is on the one integrated production, logistics and distribution network supporting both end markets.
Included in “Other” are the Group’s Street Furniture, Mineral Products, Stone Cladding and International operations, which do not currently
meet the IFRS 8 reporting requirements.
The accounting policies of the Landscape Products operating segment are the same as the Group’s accounting policies. Segment profit
represents the profit earned without allocation of the share of profit of associates and certain central administration costs that are not capable
of allocation. Centrally administered overhead costs that relate directly to the reportable segment are included within the segment’s results.
Segment assets
Fixed assets and inventory:
Landscape Products
Other
Total segment fixed assets and inventory
Unallocated assets
Consolidated total assets
2015
£’000
2014
£’000
156,112
56,631
212,743
117,089
329,832
156,509
60,559
217,068
111,476
328,544
For the purpose of monitoring segment performance and allocating resources between segments, the Group’s CODM monitors the tangible
fixed assets and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments.
Other segment information
Landscape Products
Other
Geographical destination of revenue
United Kingdom
Rest of the World
Depreciation and amortisation
Fixed asset additions
2015
£’000
10,465
3,911
14,376
2014
£’000
9,919
3,294
13,213
2015
£’000
11,678
3,816
15,494
2015
£’000
367,248
18,956
386,204
2014
£’000
7,994
4,016
12,010
2014
£’000
338,483*
20,033*
358,516
* The comparative revenue figures have been restated to ensure consistent classification with the analysis reported for the year ended 31 December 2015.
The Group’s revenue is subject to seasonal fluctuations resulting from demand from customers. In particular, demand is higher in the summer
months. The Group manages the seasonal impact through the use of a seasonal working capital facility.
Marshalls plc
Annual Report and Accounts 2015
85
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
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
Restructuring costs in Marshalls NV
Operating costs
Other operating income
Net gain on asset and property disposals
Associates
Net operating costs
Net operating costs include:
Auditor’s remuneration (see below)
Leasing costs
Hire of plant and machinery
Research and development costs
In respect of the year under review, Deloitte LLP (2014: KPMG LLP) carried out work in relation to:
Audit of Marshalls plc
Audit of financial statements of subsidiaries of the Company
Half-yearly review of Marshalls plc
Taxation compliance services
4 Personnel costs
Personnel costs (including amounts charged in the year in relation to Directors):
Wages and salaries
Social security costs
Share-based payments
Contributions to defined contribution pension scheme
Included within net operating costs (Note 3)
Personnel costs included in operational restructuring costs
Total personnel costs
86 Marshalls plc
Annual Report and Accounts 2015
2015
£’000
2014
£’000
141,471
137,250
(1,801)
96,716
13,054
–
1,322
(1,810)
100,707
–
349,659
(1,340)
(149)
582
(3,484)
93,439
11,907
75
1,231
(1,473)
94,910
1,995
335,850
(2,161)
(360)
(118)
348,752
333,211
2015
£’000
160
9,203
4,881
3,134
2015
£’000
20
120
20
–
160
2015
£’000
79,691
9,260
2,490
5,275
96,716
–
96,716
2014
£’000
167
8,081
4,640
2,684
2014
£’000
20
103
40
4
167
2014
£’000
76,645
8,960
3,062
4,772
93,439
507
93,946
Financial Statements 4 Personnel costs continued
Remuneration of Directors:
Salary
Other benefits
MIP Element A bonus
MIP Element B bonus
Amounts receivable under the LTIP
Salary supplement in lieu of pension
Non-Executive Directors’ fees and fixed allowances
2015
£’000
649
34
734
325
816
129
344
3,031
2014
£’000
859
46
877
333
2,729
205
300
5,349
The aggregate of emoluments and amounts receivable under the MIP and the LTIP of the highest paid Director was £2,064,000 (2014: £1,924,000),
including a salary supplement in lieu of pension of £82,000 (2014: £54,000).
There are no Directors to whom retirement benefits are accruing in respect of qualifying services. As set out in the Remuneration Report
on page 49, the Executive Directors receive a salary supplement in lieu of pension equal to their contractual entitlement of 20 per cent
of basic salary.
Further details of Directors’ remuneration, share options, long-term incentive plans and Directors’ pension entitlements are disclosed in the
Remuneration Report on pages 46 to 60.
The average number of persons employed by the Group during the year was:
Continuing operations
5 Financial expenses and income
(a) Financial expenses
Net interest expense on defined benefit pension scheme
Interest expense on bank loans, overdrafts and loan notes
Finance lease interest expense
(b) Financial income
Interest receivable and similar income
Net interest expense on defined benefit pension scheme is disclosed net of Company recharges.
6 Income tax expense
Current tax expense
Current year
Adjustments for prior years
Deferred taxation expense
Origination and reversal of temporary differences:
Current year
Adjustments for prior years
Total tax expense
2015
Number
2,237
2015
£’000
406
1,767
8
2,181
2014
Number
2,132
2014
£’000
48
2,835
6
2,889
7
5
2015
£’000
8,164
289
8,453
(684)
(382)
7,387
2014
£’000
5,670
(1,834)
3,836
(319)
681
4,198
Marshalls plc
Annual Report and Accounts 2015
87
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
6 Income tax expense continued
Reconciliation of effective tax rate
Profit before tax
Tax using domestic corporation tax rate
Impact of capital allowances in excess of depreciation
Short-term timing differences
Adjustment to tax charge in prior year
Expenses not deductible for tax purposes
Corporation tax charge for the year
Impact of capital allowances in excess of depreciation
Short-term timing differences
Pension scheme movements
Other items
Adjustment to tax charge in prior year
Impact of the change in the rate of corporation tax on deferred taxation
Total tax charge for the year
%
100.0
20.2
2.0
(0.2)
0.8
1.1
23.9
(1.0)
(0.2)
2.1
(0.3)
(1.1)
(2.5)
20.9
2015
£’000
35,278
7,144
710
(81)
289
391
8,453
(355)
(79)
746
(100)
(382)
(896)
7,387
%
100.0
21.5
3.8
(1.0)
(8.2)
1.0
17.1
(4.2)
(1.0)
4.1
(0.3)
3.0
–
18.7
2014
£’000
22,421
4,821
845
(221)
(1,834)
225
3,836
(953)
(227)
930
(69)
681
–
4,198
The net amount of deferred taxation credited / (debited) to the Consolidated Statement of Comprehensive Income in the year was £189,000
credit (2014: £67,000 debit).
The majority of the Group’s profits are earned in the UK with the standard rate of corporation tax being 20.25 per cent for the year to 31 December 2015.
Capital allowances are tax reliefs provided in law for the expenditure the Group makes on fixed assets. The rates are determined by Parliament
annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending, where the
expenditure on fixed assets is treated as an investment with the cost then being spread over the anticipated useful life of the asset, and / or
impaired if the value of such assets is considered to have reduced materially.
The different accounting treatment of fixed assets for tax and accounting purposes is one reason why the taxable income of the Group is not
the same as its accounting profit. During the year to 31 December 2015 the depreciation charge for the year exceeded the capital allowances
due to the Group.
Short-term timing differences arise on items such as depreciation in stock and share-based payments because the treatment of such items is
different for tax and accounting purposes. These differences usually reverse in the years following those in which they arise, as is reflected in
the deferred tax charge in the Financial Statements.
Adjustments to tax charges arising in earlier years arise because the tax charge to be included in a set of accounts has to be estimated before
those financial statements are finalised. Such charges therefore include some estimates that are checked and refined before the Group’s
corporation tax returns for the year are submitted to HM Revenue & Customs, which may reflect a different liability as a result.
Some expenses incurred may be entirely appropriate charges for inclusion in the Financial Statements but are not allowed as a deduction
against taxable income when calculating the Group’s tax liability for the same accounting period. Examples of such disallowable expenditure
include business entertainment costs and some legal expenses.
As can be seen from the tax reconciliation, the process of adjustment that can give rise to current year adjustments to tax charges arising in
previous periods can also give rise to revisions in prior year deferred tax estimates. This is why the current year adjustments to the current year
charge for capital allowances and short-term timing differences are not exactly replicated in the deferred taxation charge for the year.
The Group’s overseas operations comprise a manufacturing operation in Belgium and sales and administration offices in the USA, China and Dubai.
The sales of these units, in total, were less than 5 per cent of the Group’s turnover in the year to 31 December 2015. In total, the trading profits
were not material and no tax was due.
7 Earnings per share
Basic earnings per share of 14.32 pence (2014: 10.13 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders
for the financial year, after adjusting for non-controlling interests, of £28,149,000 (2014: £19,857,000) by the weighted average number of shares
in issue during the period of 196,574,435 (2014: 196,116,404).
88 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 7 Earnings per share continued
Profit attributable to Ordinary Shareholders
Profit for the financial year
Loss attributable to non-controlling interests
Profit attributable to Ordinary Shareholders
Weighted average number of Ordinary Shares
Number of issued Ordinary Shares (at beginning of the year)
Effect of shares transferred into employee benefit trust
Weighted average number of Ordinary Shares at end of the year
2015
£’000
27,891
258
28,149
2014
£’000
18,223
1,634
19,857
2015
Number
2014
Number
199,378,755
199,378,755
(2,804,320)
(3,262,351)
196,574,435
196,116,404
Diluted earnings per share of 14.10 pence (2014: 9.89 pence) per share is calculated by dividing the profit for the financial year, after adjusting
for non-controlling interests, of £28,149,000 (2014: £19,857,000) by the weighted average number of shares in issue during the period of
196,574,435 (2014: 196,116,404) plus potentially dilutive shares of 3,092,619 (2014: 4,646,375), which totals 199,667,054 (2014: 200,762,799).
Weighted average number of Ordinary Shares (diluted)
Weighted average number of Ordinary Shares
Potentially dilutive shares
Weighted average number of Ordinary Shares (diluted)
2015
Number
2014
Number
196,574,435
196,116,404
3,092,619
4,646,375
199,667,054
200,762,779
8 Dividends
After the balance sheet date a final dividend of 4.75 pence (2014: 4.00 pence) per qualifying Ordinary Share was proposed by the Directors.
In addition a supplementary dividend of 2.00 pence per qualifying Ordinary Share was proposed by the Directors. These dividends have not
been provided for and there are no income tax consequences. The total dividends proposed in respect of the year are as follows:
2015 supplementary
2015 final
2015 interim
2014 final
2014 interim
The following dividends were approved by the shareholders and recognised in the year:
2015 interim
2014 final
2014 interim
2013 final
2015
£’000
3,988
9,470
4,425
17,883
2015
£’000
4,425
7,866
12,291
Pence per
qualifying share
2.00
4.75
2.25
9.00
4.00
2.00
6.00
Pence per
qualifying share
2.25
4.00
6.25
2.00
3.50
5.50
2014
£’000
7,975
3,924
11,899
2014
£’000
3,924
6,867
10,791
Marshalls plc
Annual Report and Accounts 2015
89
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Notes to the Consolidated Financial Statements continued
8 Dividends continued
The Board recommends a 2015 final dividend of 4.75 pence per qualifying Ordinary Share (amounting to £9,470,000), alongside
a supplementary dividend of 2.00 pence per qualifying Ordinary Share (amounting to £3,988,000), to be paid on 8 July 2016 to shareholders
registered at the close of business on 3 June 2016.
9 Property, plant and equipment
Cost
At 1 January 2014
Exchange differences
Additions
Reclassification
Disposals
At 31 December 2014
At 1 January 2015
Exchange differences
Additions
Reclassified as held for sale
Disposals
At 31 December 2015
Depreciation and impairment losses
At 1 January 2014
Depreciation charge for the year
Exchange differences
Reclassification
Disposals
Impairments
At 31 December 2014
At 1 January 2015
Depreciation charge for the year
Exchange differences
Disposals
At 31 December 2015
Net book value
At 1 January 2014
At 31 December 2014
At 31 December 2015
Land and
buildings
£’000
89,343
(428)
894
(237)
(3,640)
85,932
85,932
(449)
1,343
(2,231)
(203)
84,392
Land and
buildings
£’000
35,009
1,567
1
(635)
(1,190)
–
34,752
34,752
1,825
(3)
(7)
Quarries
£’000
Plant, machinery
and vehicles
£’000
Total
£’000
20,101
–
1,072
237
–
21,410
21,410
–
1,541
–
–
297,084
406,528
(236)
9,303
–
(1,301)
(664)
11,269
–
(4,941)
304,850
412,192
304,850
412,192
(300)
11,701
–
(2,817)
(749)
14,585
(2,231)
(3,020)
22,951
313,434
420,777
Quarries
£’000
Plant, machinery
and vehicles
£’000
5,786
235
–
635
–
–
6,656
6,656
348
–
–
211,012
10,180
44
–
(930)
733
221,039
221,039
10,881
(158)
(2,045)
Total
£’000
251,807
11,982
45
–
(2,120)
733
262,447
262,447
13,054
(161)
(2,052)
36,567
7,004
229,717
273,288
54,334
51,180
47,825
14,315
14,754
86,072
83,811
154,721
149,745
15,947
83,717
147,489
Mineral reserves and associated land have been separately disclosed under the heading of “Quarries”.
During the year ended 31 December 2015, land and buildings with a book value of £2,231,000 have been reclassified as held for sale in
accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”.
90 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 9 Property, plant and equipment continued
The carrying amount of tangible fixed assets includes £402,000 (2014: £568,000) in respect of assets held under finance leases. Group cost
of land and buildings and plant and machinery includes £140,000 (2014: £168,000) and £8,011,000 (2014: £872,000) respectively for assets
in the course of construction.
The impairment charge of £nil (2014: £733,000) relates to the restructuring of the Marshalls NV business (page 86) and writes down its value to
its fair value less costs to sell.
Capital commitments
Capital expenditure that has been contracted for but for which no provision has been made
in the Consolidated Financial Statements
Depreciation charge
The depreciation charge is recognised in the following line items in the Consolidated Income Statement:
2015
£’000
550
2015
£’000
13,054
2014
£’000
246
2014
£’000
11,982
Net operating costs (Note 3)
10 Intangible assets
Cost
At 1 January 2014
Additions
At 31 December 2014
At 1 January 2015
Additions
Goodwill
£’000
Customer
relationships
£’000
Supplier
relationships and know-how
£’000
£’000
trademarks Development
costs
£’000
Software
£’000
Total
£’000
Patents,
43,691
–
43,691
2,210
–
2,210
1,200
1,660
–
–
1,200
1,660
159
–
159
10,026
58,946
741
741
10,767
59,687
43,691
2,210
1,200
1,660
159
10,767
59,687
–
–
–
–
–
909
909
At 31 December 2015
43,691
2,210
1,200
1,660
159
11,676
60,596
Amortisation and impairment losses
At 1 January 2014
Amortisation for the year
At 31 December 2014
At 1 January 2015
Amortisation for the year
At 31 December 2015
Carrying amounts
At 1 January 2014
At 1 January 2015
At 31 December 2015
8,912
–
8,912
2,210
–
2,210
8,912
2,210
–
–
8,912
2,210
34,779
34,779
34,779
–
–
–
608
60
668
668
60
728
592
532
472
1,302
32
1,334
1,334
32
1,366
358
326
294
77
8
85
85
8
93
82
74
66
4,766
1,131
5,897
5,897
1,222
17,875
1,231
19,106
19,106
1,322
7,119
20,428
5,260
4,870
41,071
40,581
4,557
40,168
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.
Marshalls plc
Annual Report and Accounts 2015
91
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
10 Intangible assets continued
The recoverable amounts of the CGUs are determined from value-in-use calculations and at both 31 December 2015 and 31 December 2014
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 5-year forecasts, containing assumptions for revenue growth and operational gearing, and
appropriate long-term growth rates of 2.6 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 rate used to calculate the value in use was 10.0 per cent
(2014: 9.2 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 £739,000 (2014: £718,000) 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)
11 Investment in associates
Carrying value
At 1 January
Share of results of associates
Impairment losses
Disposals
At 31 December
Investment at cost
Impairment losses
Cumulative share of results of associates
Disposals
Carrying value at 31 December
2015
£’000
1,322
2015
£’000
782
71
(653)
(200)
–
2015
£’000
2,250
(2,219)
169
(200)
–
2014
£’000
1,231
2014
£’000
664
118
–
–
782
2014
£’000
2,250
(1,566)
98
–
782
On 31 December 2015 the Group disposed of its 25 per cent stake in Creeton Quarry Limited and Oathill Quarry Limited for proceeds of £200,000.
The Group’s share of results of associates in the year ended 31 December 2015 was £71,000 profit (2014: £118,000 profit) and, on the grounds
of materiality, no additional disclosure has been made.
12 Inventories
Raw materials and consumables
Finished goods and goods for resale
2015
£’000
12,998
52,256
65,254
2014
£’000
13,266
54,057
67,323
Inventories stated at fair value less cost to sell at 31 December 2015 amounted to £6,745,000 (2014: £7,875,000). The write down of inventories
made during the year amounted to £3,797,000 (2014: £1,236,000). There were no reversals of inventory write-downs made in previous years in
either 2015 or 2014.
92 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 13 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Ageing of trade receivables
Neither impaired nor past due
Not impaired but overdue by less than 30 days
Not impaired but overdue by between 30 and 60 days
Not impaired but overdue by more than 60 days
Allowance for doubtful debts
2015
£’000
38,101
2,174
4,267
44,542
2015
£’000
20,133
13,304
2,400
3,097
(833)
38,101
2014
£’000
34,641
2,885
7,424
44,950
2014
£’000
18,821
10,353
3,301
2,554
(388)
34,641
Receivables totalling £415,000 (2014: £nil) were due after more than 1 year. All amounts disclosed above are considered recoverable.
The comparative amounts for trade receivables and other payables (Note 15) have been restated by £12,696,000 to reflect comparability with
regard to gross-settled transactions. Notes 2 and 17 have also been updated accordingly.
14 Cash and cash equivalents
Bank balances
Cash in hand
Cash and cash equivalents in the Consolidated Cash Flow Statement
15 Trade and other payables
Current liabilities
Trade payables
Taxation and social security
Other payables
Accruals
All trade payables are due in 6 months or less.
2015
£’000
24,964
26
24,990
2015
£’000
37,356
8,775
16,942
16,534
79,607
2014
£’000
20,289
31
20,320
2014
£’000
31,186
8,401
18,524
15,305
73,416
Marshalls plc
Annual Report and Accounts 2015
93
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
16 Loans
Current liabilities
Finance lease liabilities
Non-current liabilities
Bank loans
Finance lease liabilities
2015
£’000
34
36,125
293
36,418
2014
£’000
85
50,307
408
50,715
Bank loans
The bank loans are secured by intra-group guarantees with certain subsidiary undertakings.
Finance lease liabilities
Less than 1 year
1 to 2 years
2 to 5 years
In more than 5 years
Minimum
lease
payments
2015
£’000
40
40
120
160
360
Interest
2015
£’000
Principal
2015
£’000
6
6
13
8
33
34
34
107
152
327
Minimum
lease
payments
2014
£’000
95
96
148
200
539
Interest
2014
£’000
Principal
2014
£’000
10
9
16
11
46
85
87
132
189
493
17 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,
further details of which are set out on page 97.
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, foreign currency risk and pricing risk. The Board
reviews and agrees the policies for managing each of these risks and they have remained unchanged since 2014.
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 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 incentive schemes. 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 2015
and 31 December 2014.
94 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 17 Financial instruments continued
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 Strategic Report on pages 20 to 23. The key financial
risks resulting from financial instruments are liquidity risk, interest rate risk, credit risk, foreign currency risk and pricing risk.
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.
(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 on page 98.
(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.
Approximately 60 to 70 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 a £77,000 liability (2014: £76,000 liability) and is adjusted
against the hedging reserve on an ongoing basis.
The period that the swaps cover is matched against the debt maturity in order to fix the impact on the Income Statement. During the year
£144,000 (2014: £536,000) has been recognised in other comprehensive income for the year with £109,000 (2014: £320,000) 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 17(e)) and forward contracts this gives a total of £940,000 (2014: £3,984,000) recognised in other
comprehensive income for the year with £1,984,000 (2014: £1,076,000) being reclassified from equity to the Income Statement.
Sensitivity analysis
A change of 100 basis points in interest rates at the balance sheet date would have decreased equity and profit by the amounts shown below.
The sensitivity analysis has been undertaken before the effect of tax. The sensitivity analysis of the Group’s exposure to interest rate risk has
been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect of financial
instruments with variable interest rates, financial instruments at fair value through profit or loss or available for sale with fixed interest
rates and the fixed rate element of interest rate swaps. The analysis was performed on the same basis for 2014.
Increase of 100 basis points
Decrease of 100 basis points
2015
£’000
(349)
349
2014
£’000
(244)
244
Marshalls plc
Annual Report and Accounts 2015
95
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
17 Financial instruments continued
Financial risks continued
(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. An ageing
of trade receivables is shown in Note 13 on page 93.
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. All the forward exchange contracts have maturities of less than 1 year after the balance sheet date. Where
necessary, the forward exchange contracts are rolled over at maturity.
The Group classifies its forward exchange contracts as cash flow hedges and states them at fair value. The fair value of forward exchange
contracts is £19,000 liability (2014: £16,000 asset) and is adjusted against the hedging reserve on an ongoing basis. At 31 December 2015 all
outstanding forward exchange contracts had a maturity date within 6 months.
The foreign currency profile of monetary items was:
Cash and cash equivalents
Trade receivables
Secured bank loans
Trade payables
2015
Sterling
£’000
22,925
35,341
2015
Euro
£’000
2015
US Dollars
£’000
2015
Total
£’000
1,164
2,549
901
211
24,990
38,101
2014
Sterling
£’000
18,807
31,798
2014
Euro
£’000
1,254
2,693
(20,000)
(16,125)
–
(36,125)
(35,000)
(15,307)
2014
US Dollars
£’000
259
150
–
2014
Total
£’000
20,320
34,641
(50,307)
(35,083)
2,743
(5,016)
(37,356)
(22,729)
(7,901)
(556)
(31,186)
Forward exchange contracts
(2,110)
(23)
(16)
(2,149)
(3,175)
(17)
–
(3,192)
Balance sheet exposure
1,073
(9,692)
(3,920)
(12,539)
(10,299)
(19,278)
(147)
(29,724)
A 10 per cent strengthening and weakening of the following currencies against the Pound Sterling at 31 December 2015 would have
increased / (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the
balance sheet date and had been applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis was performed
on the same basis for 2014:
10 per cent strengthening of £ against €
10 per cent weakening of £ against €
10 per cent strengthening of £ against $
10 per cent weakening of £ against $
2015
£’000
1,045
(1,045)
462
(462)
2014
£’000
1,895
(1,895)
17
(17)
(e) Pricing risks
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 2016. The Group classifies its fuel hedges as cash flow hedges and states
them at fair value. The fair value of the fuel hedges is £2,053,000 liability (2014: £3,132,000 liability) and is adjusted against the hedging reserve
on an ongoing basis. The period that the fuel hedges cover is matched against future expected purchases in order to fix the impact on the
Income Statement. During the year £796,000 (2014: £3,448,000) has been recognised in other comprehensive income, with £1,875,000
(2014: £756,000) being reclassified from equity to the Income Statement. The fuel hedges have been fully effective in the period.
96 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 17 Financial instruments continued
Financial risks continued
(f) Other risks
Further information about the Group’s strategic and financial risks is contained in the Strategic Report on pages 20 to 23.
Effective interest rates and maturity of liabilities
At 31 December 2015 there were £327,000 (2014: £493,000) of Group borrowings on a fixed rate. Interest rate swaps have been taken out with
the intention to fix the interest on approximately 60 to 70 per cent of the Group’s core debt. The interest rate profile of the financial liabilities
was:
31 December 2015
Cash and cash equivalents (Note 14)
Bank loans
Finance lease liabilities
31 December 2014
Cash and cash equivalents (Note 14)
Bank loans
Finance lease liabilities
Fixed or
variable
rate
Effective
interest rate
%
Total
£’000
6 months
or less
£’000
6 – 12
months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than
5 years
£’000
Variable
Variable
Fixed
2.27
2.27
10.0
(24,990)
(24,990)
36,125
327
–
–
11,462
(24,990)
–
–
34
34
–
–
19,438
16,687
34
107
19,472
16,794
–
–
152
152
Fixed or
variable
rate
Effective
interest rate
%
Total
£’000
6 months
or less
£’000
6 – 12
months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than
5 years
£’000
Variable
Variable
Fixed
2.41
2.41
8.80
(20,320)
(20,320)
50,307
493
–
26
30,480
(20,294)
–
–
59
59
–
–
15,000
35,307
87
132
15,087
35,439
–
–
189
189
At 31 December the undiscounted outstanding contractual payments (including interest) of financial liabilities were as follows:
31 December 2015
Bank loans
Trade payables
Finance lease liabilities
Financial liabilities
31 December 2014
Bank loans
Trade payables
Finance lease liabilities
Financial liabilities
Fixed or
variable
rate
Carrying
value
£’000
Total
£’000
6 months
or less
£’000
6 – 12
months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than
5 years
£’000
Variable
Variable
Fixed
Fixed
36,125
37,356
327
2,149
37,020
37,356
360
2,177
204
37,356
3
1,294
203
19,746
16,867
–
37
841
–
40
42
–
120
–
75,957
76,913
38,857
1,081
19,828
16,987
–
–
160
–
160
Fixed or
variable
rate
Carrying
value
£’000
Total
£’000
6 months
or less
£’000
6 – 12
months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than
5 years
£’000
Variable
Variable
Fixed
Fixed
50,307
31,186
493
3,192
53,485
31,186
539
3,345
504
31,186
31
1,050
85,178
88,555
32,771
501
–
64
1,005
1,570
15,901
36,579
–
96
1,247
–
148
43
17,244
36,770
–
–
200
–
200
Marshalls plc
Annual Report and Accounts 2015
97
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
17 Financial instruments continued
Borrowing facilities
The total bank borrowing facilities at 31 December 2015 amounted to £95.0 million (2014: £125.0 million) of which £58.9 million (2014: £74.7 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 2015, in respect of which all conditions precedent had been met, were as follows:
Committed:
Expiring in more than 2 years but not more than 5 years
Expiring in 1 year or less
Uncommitted:
Expiring in 1 year or less
2015
£’000
43,875
–
15,000
58,875
2014
£’000
34,693
25,000
15,000
74,693
In July 2015, following the continued steady reduction in net debt, the Group undertook a full review of its bank facilities in order to align them
with current strategy and to ensure headroom against available facilities remains at appropriate levels. On 10 July 2015, the Group decreased its
committed facility levels by £30.0 million to £80.0 million, comprising new facilities with extended maturities. The committed facilities are all
revolving credit facilities with interest charged at variable rate based on LIBOR. On 10 July 2015, the Group also renewed its short-term working
capital facilities.
The maturity profile of borrowing facilities is structured to provide balanced, committed and phased medium-term debt. The current facilities
are set out as follows:
Committed facilities:
Q3: 2020
Q3: 2019
Q3: 2018
Q3: 2017
On demand facilities:
Available all year
Seasonal (February to August inclusive)
Facility
£’000
20,000
20,000
20,000
20,000
15,000
20,000
Cumulative
facility
£’000
20,000
40,000
60,000
80,000
95,000
115,000
Fair values of financial assets and financial liabilities
A comparison by category of the book values and fair values of the financial assets and liabilities of the Group at 31 December 2015 is shown below:
2015
Book amount
£’000
44,542
24,990
(36,125)
(327)
(79,607)
(2,149)
(48,676)
241,394
192,718
Fair value
£’000
44,542
24,990
(34,906)
(360)
(79,607)
(2,149)
2014
Book amount
£’000
44,950
20,320
(50,307)
(493)
(73,416)
(3,192)
(62,138)
244,032
181,894
Fair value
£’000
44,950
20,320
(49,451)
(539)
(73,416)
(3,192)
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 – net
Other assets – net
98 Marshalls plc
Annual Report and Accounts 2015
Financial Statements
17 Financial instruments continued
Borrowing facilities continued
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 market rate of interest at the balance
sheet date.
(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 1 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).
— Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
31 December 2015
Derivative financial liabilities
31 December 2014
Derivative financial liabilities
Level 1
£’000
–
–
Level 2
£’000
2,149
3,192
Level 3
£’000
–
–
Total
£’000
2,149
3,192
18 Employee benefits
The Company sponsors a pension scheme for employees in the UK which incorporates a funded defined benefit pension section and a
defined contribution section (the "Scheme"). The Scheme is administered within a trust which is legally separate from the Company. The Trustee
Board is appointed by both the Company and the Scheme’s membership and acts in the interest of the Scheme and all relevant stakeholders,
including the members and the Company. The Trustee is also responsible for the investment of the Scheme’s assets.
The defined benefit section of the Scheme, which closed to future service accrual on 30 June 2006, provides pension and lump sums to members
on retirement and to dependants on death. Members of the defined benefit section became entitled to a deferred pension on closure. Members
no longer pay contributions to the defined benefit section. Company contributions to the defined benefit section after this date are used to fund
any deficit in the Scheme and the expenses associated with administering the Scheme, as determined by regular actuarial valuations.
The defined benefit section of the Scheme poses a number of risks to the Company, for example longevity risk, investment risk, interest rate
risk, inflation risk and salary risk. The Trustee is aware of these risks and uses various techniques to control them. The Trustee has a number of
internal control policies including a risk register which are in place to manage and monitor the various risks it faces. The Trustee’s investment
strategy incorporates the use of liability driven investments (“LDIs”) to minimise sensitivity of the actuarial funding position to movements in
interest rates and inflation rates.
Marshalls plc
Annual Report and Accounts 2015
99
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
18 Employee benefits continued
The defined benefit section of the Scheme is subject to regular actuarial valuations, which are usually carried out every 3 years. The next
actuarial valuation is expected to be carried out with an effective date of 5 April 2018. These actuarial valuations are carried out in accordance
with the requirements of the Pensions Act 2004 and so include deliberate margins for prudence. This contrasts with these accounting
disclosures which are determined using best estimate assumptions.
A formal actuarial valuation was carried out as at 5 April 2015. The results of that valuation have been projected to 31 December 2015 by a
qualified independent actuary. The figures in the following disclosure were measured using the projected unit method.
During 2015 an exercise was carried out offering eligible defined benefit section members and current pensioners and dependants the option
to commute small pensions for a cash lump sum representing the value of their benefits. This represents a settlement of benefits for members
taking the option. The cash sump sums were determined by the Trustee on a best estimate basis after taking advice from the actuary.
The amounts recognised in the Consolidated Balance Sheet were as follows:
Present value of Scheme liabilities
Fair value of Scheme assets
Net amount recognised at year end (before any adjustments for deferred tax)
The amounts recognised in comprehensive income were:
2015
£’000
(298,812)
302,239
3,427
2014
£’000
(309,067)
312,516
3,449
2013
£’000
(262,900)
258,553
(4,347)
The current and past service costs, settlements and curtailments, together with the net interest expense for the year, are included in the
employee benefits expense in the Statement of Comprehensive Income. Remeasurements of the net defined benefit surplus / (liability)
are included in other comprehensive income.
Net interest expense recognised in the Consolidated Income Statement
Remeasurements of the net liability:
Return on scheme assets (excluding amount included in interest expense)
(Gain) / loss arising from changes in financial assumptions
Gain arising from changes in demographic assumptions
Experience loss / (gain)
Charge / (credit) recorded in other comprehensive income
Total defined benefit charge / (credit)
2015
£’000
506
14,164
(5,063)
(7,412)
2,177
3,866
4,372
2014
£’000
48
(46,766)
44,242
–
(720)
(3,244)
(3,196)
100 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 18 Employee benefits continued
The principal actuarial assumptions used were:
Liability discount rate
Inflation assumption – RPI
Inflation assumption – CPI
Rate of increase in salaries
Revaluation of deferred pensions
Increases for pensions in payment:
CPI pension increases (maximum 5% pa)
CPI pension increases (maximum 5% pa, minimum 3% pa)
CPI pension increases (maximum 3% pa)
Proportion of employees opting for early retirement
Proportion of employees commuting pension for cash
Mortality assumption – before retirement
Mortality assumption – after retirement (males)
Loading
Projection basis
Mortality assumption – after retirement (females)
Loading
Projection basis
Future expected lifetime of current pensioner at age 65:
Male aged 65 at year end
Female aged 65 at year end
Future expected lifetime of future pensioner at age 65:
Male aged 45 at year end
Female aged 45 at year end
2015
£’000
3.70%
3.10%
2.10%
n/a
2.10%
2.10%
3.10%
2.00%
0%
50.0%
Same as
post retirement
S2PMA tables
105%
Year of birth
CMI_2015 1.0%
S2PFA tables
105%
Year of birth
CMI_2015 1.0%
86.5
88.5
87.7
89.8
2014
£’000
3.60%
3.10%
2.10%
n/a
2.10%
2.10%
3.10%
2.00%
0%
50.0%
Same as
post retirement
S1PMA tables
105%
Year of birth
CMI_2012 1.0%
S1PFA tables
105%
Year of birth
CMI_2012 1.0%
86.9
89.2
88.3
90.7
Marshalls plc
Annual Report and Accounts 2015
101
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
18 Employee benefits continued
Changes in the present value of assets over the year
Fair value of assets at start of the year
Interest income
Return on assets (excluding amount included in net interest expense)
Assets distributed on settlement
Contributions from the employer
Benefits paid
Administration expenses
Fair value of assets at end of the year
Actual return on assets over the year
Changes in the present value of liabilities over the year
Liabilities at start of the year
Interest cost
Remeasurement (gains) / losses:
Actuarial (gains) / losses arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Other experience gains
Liabilities extinguished on settlements
Benefits paid
Liabilities at end of the year
The split of the Scheme’s liabilities by category of membership is as follows:
Deferred pensioners
Pensioners in payment
Average duration of the Scheme’s liabilities at the end of the year (in years)
2015
£’000
312,516
11,120
(14,164)
(1,508)
4,350
(9,332)
(743)
302,239
(3,044)
2015
£’000
309,067
10,930
(5,063)
(7,412)
2,177
(1,555)
(9,332)
2014
£’000
258,553
11,833
46,766
–
4,600
(9,236)
–
312,516
58,599
2014
£’000
262,900
11,881
44,242
–
(720)
–
(9,236)
298,812
309,067
2015
£’000
154,905
143,907
298,812
18
2014
£’000
161,195
147,872
309,067
18
102 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 18 Employee benefits continued
The major categories of Scheme assets are as follows:
Return-seeking assets
UK equities
Overseas equities
Other equity type investments
Total return-seeking assets
Other
Insured pensioners
Cash
Liability-driven investments
Total matching assets
Total market value of assets
2015
£’000
30,928
14,863
39,827
85,618
1,183
711
214,727
216,621
302,239
2014
£’000
35,997
14,534
39,729
90,260
1,396
2,443
218,417
222,256
312,516
The return-seeking assets and LDI assets have quoted prices in active markets. The valuation of the insured pensions has been taken as the
value of the corresponding liabilities assessed using the assumptions set out above.
The Scheme has no investments in the Company or in property occupied by the Company.
The Company expects to pay no contributions to the defined benefit section of the Scheme during the year ended 31 December 2016.
Sensitivity of the liability value to changes in the principal assumptions
If the discount rate were 0.1 per cent higher (lower), the defined benefit section Scheme liabilities would decrease by approximately £4.9 million
(increase by £5.1 million) if all the other assumptions remained unchanged.
If the inflation assumption were 0.1 per cent higher (lower), the Scheme liabilities would increase by £1.7 million (decrease by £1.7 million).
In this calculation all assumptions related to the inflation assumption have been appropriately adjusted, that is salary, the deferred pension
and pension in payment increases. The other assumptions remain unchanged.
If life expectancies were to increase (decrease) by 1 year, the Scheme liabilities would increase by £10.5 million (decrease by £10.6 million)
if all the other assumptions remained unchanged.
Share-based payments
Marshalls plc 2005 Long Term Incentive Plan (the “LTIP”)
The LTIP was replaced in 2014 by the Management Incentive Plan ("MIP") and accordingly no further share-based payment awards were made
during the year ended 31 December 2015 under the LTIP. The LTIP awards made in respect of the 2013 and 2014 scheme years provide for the
award of Performance Shares. Performance Shares may be awarded to participants without requiring a qualifying investment, and are subject
to the achievement of a 3-year performance target. The awards lapse if the performance target is not met over the 3-year vesting period.
Performance Share awards are dependent on an improvement in reported earnings per share and operating cash flow, each measured using
IFRSs. The Remuneration Committee may exercise its discretion with regard to the effect of one-off items. Details of the performance criteria
applicable to 2013 and 2014 LTIP awards are set out in the Remuneration Report on pages 46 to 60.
Marshalls plc
Annual Report and Accounts 2015
103
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
18 Employee benefits continued
Share-based payments continued
Marshalls plc 2005 Long Term Incentive Plan (the “LTIP”) continued
The Performance 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 other employees
Outstanding at 1 January
Granted
Lapsed
Exercised
Outstanding at 31 December
Number of
instruments
243,412
222,124
115,676
683,147
368,667
14,120
Date of
grant
10 September 2013
1 April 2014
2 October 2014
17 April 2013
1 April 2014
29 April 2014
Weighted average
share price at
date of grant
(pence per share)
2015
137
–
137
115
141
Number of
options
2015
3,770,513
–
(615,072)
(1,508,295)
1,647,146
Weighted average
share price at
date of grant
(pence per share)
2014
116
182
113
112
137
Vesting
period
3 years
3 years
3 years
3 years
3 years
3 years
Number of
options
2014
5,570,167
1,149,818
(1,249,946)
(1,699,526)
3,770,513
None of the options were exercisable at 31 December 2015.
The fair value of services received in return for shares granted is 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 2015 was 325 pence.
2 October
2014 grant
29 April
2014 grant
1 April 10 September
2013 grant
2014 grant
17 April
2013 grant
181
199
160
176
166
180
60
173
65.0%
65.0%
65.0%
65.0%
3.0%
2.0%
3.0%
2.0%
3.0%
2.0%
3.0%
2.0%
106
127
65.0%
4.0%
2.0%
The expected volatility is wholly based on the historic volatility, adjusted for any expected changes to future volatility due to publicly
available information.
The total expenses recognised for the year arising from share-based payments are as follows:
Awards granted and total expense recognised as employee costs
2015
£’000
710
2014
£’000
1,551
Performance Incentive Plan (“PIP”)
The PIP was a 3-year incentive scheme introduced in 2011 which terminated in 2014. Deferred balances in the form of shares carried over from
the final year of the PIP vested as share-based payment awards in March 2015 in accordance with the rules of the PIP. There are no outstanding
awards under the PIP at 31 December 2015.
104 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 18 Employee benefits continued
Share-based payments continued
Performance Incentive Plan (“PIP”) continued
Equity settled awards under the PIP are settled by physical delivery of shares.
Outstanding at 1 January
Granted
Change in value of notional shares
Element released
Outstanding at 31 December
Value
£’000
2,158
–
–
Number of
options
2015
922,281
–
–
(2,158)
(922,281)
–
–
The total expenses recognised for the year arising from share-based payments were as follows:
Awards granted and total expense recognised as employee costs
Value
£’000
1,588
–
570
–
2,158
2015
£’000
–
Number of
options
2014
901,101
–
21,180
–
922,281
2014
£’000
523
Management Incentive Plan (“MIP”)
Share-based payment awards have been made during the year in accordance with the rules of the MIP. Full details of the performance criteria
and the basis of operation of the MIP are set out in the Remuneration Report on pages 46 to 60.
Equity settled awards are settled by physical delivery of shares. The following equity settled awards have been granted:
Equity settled awards granted to Directors of Marshalls plc
Equity settled awards granted to former Directors of Marshalls plc
Equity settled awards granted to other employees
Equity settled awards granted to Directors of Marshalls plc
Equity settled awards granted to former Directors of Marshalls plc
Equity settled awards granted to other employees
Analysis of closing balance (deferred into shares):
Equity settled awards granted to Directors of Marshalls plc
Equity settled awards granted to former Directors of Marshalls plc
Equity settled awards granted to other employees
Outstanding at 1 January
Granted
Change in value of notional shares
Lapsed
Element released
Number of
instruments
344,517
–
475,423
349,068
58,224
466,407
£’000
Date of grant
Vesting period
1,120
11 April 2014
–
11 April 2014
1,545
1,134
11 April 2014
10 March 2015
189
10 March 2015
1,516
10 March 2015
1,693,639
5,504
Value
£’000
3,344
2,839
415
(296)
(798)
Number of
options
2015
1,429,056
873,699
(141,494)
(126,410)
(341,212)
£’000
2,254
189
3,061
5,504
Value
£’000
–
3,344
–
–
–
4 years
4 years
4 years
3 years
3 years
3 years
Shares
693,585
58,224
941,830
1,693,639
Number of
options
2014
–
1,429,056
–
–
–
Outstanding at 31 December
5,504
1,693,639
3,344
1,429,056
Marshalls plc
Annual Report and Accounts 2015
105
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Notes to the Consolidated Financial Statements continued
18 Employee benefits continued
Share-based payments continued
Management Incentive Plan (“MIP”) continued
The total expenses recognised for the period arising from share-based payments were as follows:
Awards granted and total expense recognised as employee costs
Further details in relation to the Directors are set out in the Remuneration Report on pages 46 to 60.
2015
£’000
2,858
2014
£’000
2,471
Employee Bonus Share Plan
A Bonus Share Plan was approved by shareholders in May 2015 under which a number of senior management employees were granted
performance related bonuses with an element of this bonus being in the form of shares. The bonus performance criteria are the same as those
applicable to the MIP awards and are in relation to the year ended 31 December 2015. The bonus shares take the form of nil-cost options to
acquire shares at the end of a 3-year vesting period from the date of grant, and vesting is conditional on continued employment at the end of
the vesting period. The first awards will be made to participants following publication of the Group's 2015 results. The total expenses
recognised for the year arising from share-based payments were £54,000 (2014: £nil).
All-employee Sharesave (“SAYE”) scheme
On 5 October 2015 options were granted over 1,000,000 shares to employees who had subscribed to the SAYE scheme. The option price
is 291 pence, a discount of 20 per cent to the market price on the date of grant. The option is exercisable by relevant employees after a period
of 3 years.
Employee profit sharing scheme
At 31 December 2015 the scheme held 42,370 (2014: 42,370) Ordinary Shares in the Company.
19 Deferred taxation
Recognised deferred taxation assets and liabilities
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Other items
Tax assets / (liabilities)
Assets
2015
£’000
–
–
–
–
1,316
–
1,316
2014
£’000
–
–
–
–
1,394
–
1,394
Liabilities
2015
£’000
2014
£’000
(11,334)
(12,934)
(283)
(427)
(617)
–
(964)
(315)
(450)
(690)
–
(577)
(13,625)
(14,966)
The 2015 Summer Budget on 8 July 2015 announced that the UK corporation tax rate will reduce to 18 per cent by 2020. Reductions in the rate
to 19 per cent (effective April 2017) and 18 per cent (effective April 2020) were substantially enacted, following the receipt of Royal Assent, in
November 2015. This will reduce the Group’s future current tax charge accordingly. The deferred taxation liability at 31 December 2015 has
been calculated based on the rate at which the deferred tax is expected to unwind in the future using rates enacted at the balance sheet date.
The deferred taxation liability of £617,000 (2014: £690,000) in relation to employee benefits is in respect of the net surplus for the defined
benefit obligations of £3,427,000 (2014: £3,449,000 net surplus) (Note 18) calculated at 18 per cent (2014: 20 per cent).
Deferred tax assets on capital losses and overseas trading losses have not been recognised due to uncertainty around the future use of the losses.
106 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 19 Deferred taxation continued
Movement in temporary differences
Year ended 31 December 2015
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Impact on other comprehensive income of the
change in rate of deferred tax
Other items
Year ended 31 December 2014
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Impact on other comprehensive income of the
change in rate of deferred tax
Other items
1 January
2015
£’000
(12,934)
(315)
(450)
(690)
1,394
367
(944)
(13,572)
1 January
2014
£’000
(13,206)
(335)
(500)
869
757
367
(1,556)
(13,604)
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
1,600
32
23
(700)
(73)
–
184
1,066
–
–
–
773
–
(375)
(209)
189
–
–
–
–
(5)
8
5
8
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
272
20
50
(910)
177
–
29
(362)
–
–
–
(649)
–
–
583
(66)
–
–
–
–
460
–
–
460
31 December
2015
£’000
(11,334)
(283)
(427)
(617)
1,316
–
(964)
(12,309)
31 December
2014
£’000
(12,934)
(315)
(450)
(690)
1,394
367
(944)
(13,572)
Deferred taxation liabilities represent sums that might become payable as tax in future years as a result of transactions that have occurred
in the current year. The explanation as to why such liabilities may arise is included in the notes to the tax reconciliation (Note 6).
The deferred tax balances on short-term timing differences are expected to reverse within 1 to 3 years.
Based on the current investment programme of the Group and assuming that current rates of capital allowances on fixed asset expenditure
continue into the future, there is little prospect of any significant part of the deferred taxation liability of the Company becoming payable over
the next 3 years. It is not realistic to make any projection after a 3-year period.
The deferred tax liabilities disclosed in the year ended 31 December 2015 include the deferred tax relating to the Group’s pension scheme
assets. Deferred tax assets on capital losses and overseas trading losses have not been recognised due to uncertainty around the future use of
the losses.
Marshalls plc
Annual Report and Accounts 2015
107
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
20 Capital and reserves
Called-up share capital
At 1 January and at 31 December
Number of 25 pence Ordinary Shares
Issued and paid up
2015
£’000
49,845
2014
£’000
49,845
199,378,755
199,378,755
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.
4.75 pence final dividend (2014: 4.00 pence) per Ordinary Share
2.00 pence supplementary dividend per Ordinary Share
21 Non-controlling interests
Non-controlling interests
At 1 January
Share of result for the year
Foreign currency transaction differences
At 31 December
22 Analysis of net debt
Cash at bank and in hand
Debt due after 1 year
Finance leases
2015
£’000
9,470
3,988
13,458
2015
£’000
1,475
(258)
(78)
1,139
2014
£’000
7,975
–
7,975
2014
£’000
3,295
(1,634)
(186)
1,475
1 January
2015
£’000
20,320
(50,307)
(493)
(30,480)
Cash flow
£’000
4,679
13,191
159
18,029
Other
changes
£’000
31 December
2015
£’000
(9)
991
7
989
24,990
(36,125)
(327)
(11,462)
108 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 22 Analysis of net debt continued
Reconciliation of net cash flow to movement in net debt
Net increase in cash equivalents
Cash outflow from decrease in debt and lease financing
Effect of exchange rate fluctuations
Movement in net debt in the year
Net debt at 1 January
Net debt at 31 December
2015
£’000
4,679
13,350
989
19,018
(30,480)
(11,462)
2014
£’000
2,711
1,552
826
5,089
(35,569)
(30,480)
23 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 2015
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
31 December 2014
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
Total
£’000
336
21,833
51,857
74,026
Total
£’000
749
20,252
48,806
69,807
6 months
or less
£’000
277
3,768
2,767
6,812
6 months
or less
£’000
564
3,147
2,221
5,932
6 – 12
months
£’000
59
3,748
2,751
6,558
6 – 12
months
£’000
185
3,129
2,209
5,523
1 – 2 years
£’000
2 – 5 years
£’000
–
6,855
5,526
12,381
–
7,462
16,740
24,202
1 – 2 years
£’000
2 – 5 years
£’000
–
5,647
4,429
10,076
–
8,329
12,887
21,216
More than
5 years
£’000
–
–
24,073
24,073
More than
5 years
£’000
–
–
27,060
27,060
The minimum lease payments under non-cancellable operating leases (above) comprise property of £28,482,000 (2014: £29,134,000) and
plant, machinery and vehicles of £45,544,000 (2014: £40,673,000).
Certain leased properties have been sublet by the Group. Sublease payments of £89,663 (2014: £89,913) are expected to be received during
the following financial year. An amount of £89,663 (2014: £121,014) was recognised as income in the Consolidated Income Statement within
net operating costs in respect of subleases.
Marshalls plc
Annual Report and Accounts 2015
109
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Consolidated Financial Statements continued
24 Contingencies
Royal Bank of Scotland plc has issued, on behalf of Marshalls plc, the following irrevocable letters of credit relating to the Group’s cap on self
insurance for employer’s liability and vehicle insurance:
Beneficiary
XL Winterthur
Mitsui Sumitomo Insurance (London Management) Limited
Aviva Insurance Limited
25 Related parties
Identity of related parties
The Group has a related party relationship with its Directors.
Amount
Period
Purpose
£300,000
£865,000
£350,000
19 Dec 2003 to 31 Oct 2016
Employer’s liability
23 Dec 2011 to 31 Oct 2016
Employer’s liability
19 Mar 2014 to 31 Oct 2016
Vehicle insurance
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 0.0135 per cent (2014: 0.0003 per cent) of the voting shares of the Company.
In addition to their salaries and pension allowances, the Group also provides non-cash benefits to Directors. Further details in relation to
Directors are disclosed in the Remuneration Report on pages 46 to 60.
26 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 76 to 84. As stated in the
accounting policies revenue is disclosed net of rebates. The estimation of appropriate accruals for rebates requires commercial assessment.
Note 12 contains details of the Group’s inventory. The carrying value of the Group’s finished goods inventory has been reviewed using
commercial judgement with regard to the assessment of the appropriate level of provisioning against inventory obsolescence.
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 10) 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 18 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 18 on page 103.
Note 19 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.
110 Marshalls plc
Annual Report and Accounts 2015
Financial Statements Parent Company Statement of Changes in Equity
for the year ended 31 December 2015
Current year
At 1 January 2015
Share
capital
£’000
Share
premium
account
£’000
Own
shares
£’000
Capital
redemption
reserve
£’000
Equity
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
49,845
22,695
(6,689)
75,394
2,765
166,436
310,446
Total comprehensive expense for the year
Loss for the financial year
Total comprehensive expense for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share-based payments
Deferred tax on share-based payments
Dividends to equity shareholders
Purchase of own shares
Disposal of own shares
Total contributions by and distributions to owners
Total transactions with owners of the Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,582)
5,742
1,160
1,160
–
–
–
–
–
–
–
–
–
–
–
(4,410)
(4,410)
(4,410)
(4,410)
1,359
(2)
–
–
–
843
–
2,202
(2)
(12,291)
(12,291)
–
(4,582)
(5,742)
–
1,357
(17,190)
(14,673)
1,357
(21,600)
(19,083)
At 31 December 2015
49,845
22,695
(5,529)
75,394
4,122
144,836
291,363
There were no items of other comprehensive income / (expense) in the year other than the loss for the financial year recorded above.
Share
capital
£’000
Share
premium
account
£’000
Own
shares
£’000
Capital
redemption
reserve
£’000
Equity
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Prior year
At 1 January 2014 (restated)
49,845
22,695
(9,512)
75,394
1,595
187,803
327,820
Total comprehensive expense for the year
Loss for the financial year
Total comprehensive expense for the year
Transactions with owners, recorded directly
in equity
Contributions by and distributions to owners
Share-based payments
Deferred tax on share-based payments
Dividends to equity shareholders
Purchase of own shares
Disposal of own shares
Total contributions by and distributions to owners
Total transactions with owners of the Company
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,266)
7,089
2,823
2,823
–
–
–
–
–
–
–
–
–
–
–
(4,908)
(4,908)
(4,908)
(4,908)
1,075
95
–
–
–
1,170
1,170
1,421
–
2,496
95
(10,791)
(10,791)
–
(4,266)
(7,089)
–
(16,459)
(12,466)
(21,367)
(17,374)
At 31 December 2014
49,845
22,695
(6,689)
75,394
2,765
166,436
310,446
There were no items of other comprehensive income / (expense) in the year other than the loss for the financial year recorded above.
Marshalls plc
Annual Report and Accounts 2015
111
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Company Balance Sheet
at 31 December 2015
Fixed assets
Investments
Deferred taxation assets
Current assets
Debtors
Current liabilities
Creditors
Net current liabilities
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
Approved at a Directors’ meeting on 11 March 2016.
On behalf of the Board:
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
The Notes on pages 113 to 118 form part of these Company Financial Statements.
Notes
2015
£’000
2014
£’000
30
31
32
33
34
342,312
698
343,010
340,953
806
341,759
1,182
1,343
(52,829)
(51,647)
(32,656)
(31,313)
291,363
310,446
49,845
22,695
(5,529)
75,394
4,122
144,836
291,363
49,845
22,695
(6,689)
75,394
2,765
166,436
310,446
112 Marshalls plc
Annual Report and Accounts 2015
Financial Statements
Notes to the Company Financial Statements
27 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) Authorisation of Financial Statements and Statement of Compliance with FRS 101
The Parent Company Financial Statements of Marshalls plc for the year ended 31 December 2015 were authorised for issue by the Board of
Directors on 11 March 2016. Marshalls plc is a public limited company that is incorporated, domiciled and has its registered office in England
and Wales. The Company’s Ordinary Shares are publicly traded on the London Stock Exchange and the Company is not under the control of
any single shareholder.
These Financial Statements were prepared in accordance with Financial Reporting Standard 101 “Reduced Disclosure Framework” (“FRS 101”).
No profit or loss is presented by the Company as permitted by Section 408 of the Companies Act 2006.
(b) Basis of preparation
The Company has adopted FRS 101 from the UK Generally Accepted Accounting Practice for all periods presented.
The accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 31 December 2015.
In these Financial Statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
— the requirements of paragraphs 45(b) and 46 – 52 of IFRS 2 “Share-based Payments”;
— the requirement of IFRS 7 “Financial Instruments: Disclosures”;
— the requirement of paragraphs 91 – 99 of IFRS 13 “Fair Value Measurement”;
— the requirement in paragraph 38 of IAS 1 “Presentation of Financial Statements” to present comparative information in respect of:
paragraph 79(a)(iv) of IAS 1;
— the requirements of paragraphs 10(d), 10(f ), 16, 39(c), 40A, 40B, 40C, 40D, 111 and 134 – 136 of IAS 1 “Presentation of Financial Statements”;
— the requirements of IAS 7 “Statement of Cash Flows”;
— the requirements of paragraphs 30 and 31 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”;
— the requirements of paragraph 17 of IAS 24 “Related Party Disclosures”;
— the requirements in IAS 24 “Related Party Disclosures” to disclose related party transactions entered into between 2 or more members
of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and
— the requirements of paragraphs 134(d) – 134(f ) and 135(c) – 135(e) of IAS 36 “Impairment of Assets”.
(c) Investments
Fixed asset investments in subsidiaries and associates are shown at cost less provision for impairment. The Directors consider annually whether
a provision against the value of investments on an individual basis is required.
(d) 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 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).
Marshalls plc
Annual Report and Accounts 2015
113
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Company Financial Statements continued
27 Accounting policies continued
(e) Pension schemes
(i) 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 defined benefit cost and contributions payable are borne by
Marshalls Group Limited and, therefore, the defined benefit surplus or deficit is recorded in Marshalls Group Limited. Full details are provided
in Note 18 on pages 99 to 103.
(ii) Defined contribution scheme
Obligations for contributions to defined contribution schemes are recognised as an expense as incurred.
(f) Share-based payment transactions
The Company enters into equity settled share-based payment transactions with its employees. In particular, annual awards are made
to employees under the Company’s Management Incentive Plan (“MIP”) and, in previous years, the Performance Incentive Plan (“PIP”)
and the 2005 Long Term Incentive Plan (“LTIP”).
These schemes allow 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. Where appropriate, 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 as shares vest based on the value at the date of vesting. A deferred tax asset is recognised at grant date based on
the number of shares expected to be issued, at the value at which they are expected to be issued, proportioned in line with the vesting period.
(g) Own shares held by the Employee Benefit Trust
Transactions of the Company-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.
(h) Trade and other payables
Trade and other payables are stated at nominal amount (discounted if material).
(i) Income tax
Income tax on the profit or loss for the year comprises current and deferred taxation. Income tax is recognised in the 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.
114 Marshalls plc
Annual Report and Accounts 2015
Financial Statements 28 Operating costs
The audit fee for the Company was £20,000 (2014: £20,000). This is in respect of the audit of the Financial Statements. Fees paid to the
Company’s auditor 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.
Details of Directors’ remuneration, share options, long-term incentive plans and Directors’ pension entitlements are disclosed on pages 46 to 60
of the Annual Remuneration Report.
29 Ordinary dividends: equity shares
2014 final: paid 3 July 2015
2015 interim: paid 4 December 2015
2015
2014
pence per share
£’000
pence per share
4.00p
2.25p
6.25p
7,866
4,425
12,291
3.50p
2.00p
5.50p
£’000
6,867
3,924
10,791
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.
2015 final: 4.75 pence (2014: 4.00 pence) per Ordinary Share
2015 supplementary: 2.00 pence per Ordinary Share
30 Investments
At 1 January 2015
Additions
At 31 December 2015
2015
£’000
9,470
3,988
13,458
2014
£’000
7,975
–
7,975
£’000
340,953
1,359
342,312
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 £1,359 represents adjustments to the number of shares expected to vest in respect of share-based payment awards
granted to employees of Marshalls Group Limited.
Pursuant to Sections 409 and 410(2) of the Companies Act 2006, the principal subsidiary undertakings of Marshalls plc at 31 December 2015
are set out below. With the exception of Marshalls NV, Xiamen Marshalls Import Export Company Limited, Marshalls Landscape Products (North
America) Inc. and Marshalls Landscape Products FZE, 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, Marshalls Landscape
Products (North America) Inc. is registered in the USA and Marshalls Landscape Products FZE is registered in Dubai.
Subsidiaries
Alton Glasshouses Limited
Bollards Direct Limited
Capability Brown Garden Centres Limited
Capability Brown Landscaping Limited
Classical Flagstones Limited
Dalestone Concrete Products Limited
Locharbriggs Sandstone Limited
Lloyds Quarries Limited
Marshalls Building Materials Limited
Marshalls Building Products Limited
Marshalls Concrete Products Limited
Principal activities
Class of share
% ownership
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
Marshalls plc
Annual Report and Accounts 2015
115
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Company Financial Statements continued
Principal activities
Class of share
% ownership
30 Investments continued
Subsidiaries
Marshalls Directors Limited
Marshalls Dormant No. 30 Limited
Marshalls Dormant No. 31 Limited
Marshalls EBT Limited*
Marshalls Estates Limited
Marshalls Group Limited*
Marshalls Landscape Products Limited
Marshalls Landscape Products FZE
Marshalls Landscape Products (North America) Inc.
Marshalls Mono Limited
Marshalls Natural Stone Limited
Marshalls NV
Marshalls Profit Sharing Scheme Limited
Marshalls Properties Limited
Marshalls Register Limited
Marshalls Stone Products Limited
Marshalls Street Furniture Limited
Ollerton Limited
Panablok (UK) Limited
Paver Systems (Carluke) Limited
Paver Systems Limited
Premier Mortars Limited
Quarryfill Limited
Rhino Protec Limited
Robinson Associates Stone Consultants Limited
Robinsons Greenhouses Limited
Rockrite Limited
S Marshall & Sons Limited
Scenic Blue Limited
Scenic Blue Landscape Franchise Limited
Scenic Blue (UK) Limited
Stancliffe Stone Company Limited
Stoke Hall Quarry Limited*
Stone Shippers Limited
Stonemarket (Concrete) Limited
Stonemarket Limited
The Great British Bollard Company Limited
The Stancliffe Group Limited
The Yorkshire Brick Co. Limited
Town & Country Paving Limited
Urban Engineering Limited
Woodhouse Group Limited
Woodhouse UK Limited
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Intermediate holding company
Non-trading
Landscape products supplier
Landscape products supplier
Landscape products manufacturer and supplier and
quarry owner supplying a wide variety of paving,
street furniture and natural stone products
Landscape products manufacturer and supplier
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Xiamen Marshalls Import Export Company Limited
Sourcing and distribution of natural stone products
* Held by Marshalls plc. All others held by subsidiary undertakings.
116 Marshalls plc
Annual Report and Accounts 2015
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
66.7
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Financial Statements 30 Investments continued
Marshalls NV is largely dependent on the continued support of Marshalls Mono Limited, which has indicated that it intends to continue
providing this support for the foreseeable future.
31 Deferred taxation
Recognised deferred taxation assets and liabilities
Equity settled share-based payments
Movement in temporary differences
Year ended 31 December 2015
Equity settled share-based payments
32 Debtors
Corporation tax
No debtors were due after more than 1 year.
33 Creditors
Amounts owed to subsidiary undertakings
Assets
2015
£’000
698
2014
£’000
806
Liabilities
2015
£’000
–
2014
£’000
–
1 January
2015
£’000
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
31 December
2015
£’000
806
(106)
(2)
698
2015
£’000
1,182
2015
£’000
52,829
2014
£’000
1,343
2014
£’000
32,656
34 Capital and reserves
Called-up share capital
As at 31 December 2015, the issued and fully paid up share capital was as follows:
Issued and paid up
2015
Number
2015 nominal
value
£’000
2014
Number
2014 nominal
value
£’000
At 31 December
199,378,755
49,845
199,378,755
49,845
Equity reserve
The equity reserve represents the number of shares expected to vest in respect of share-based payment awards granted to employees of the Company.
35 Capital and leasing commitments
The Company had no capital or leasing commitments at 31 December 2015 or 31 December 2014.
36 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.
Marshalls plc
Annual Report and Accounts 2015
117
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Notes to the Company Financial Statements continued
37 Contingent liabilities
Royal Bank of Scotland plc has issued, on behalf of Marshalls plc, the following irrevocable letters of credit relating to the Group’s cap on self
insurance for employer’s liability and vehicle insurance.
Beneficiary
XL Winterthur
Mitsui Sumitomo Insurance (London Management) Limited
Aviva Insurance Limited
Amount
Period
Purpose
£300,000
£865,000
£350,000
19 Dec 2003 to 31 Oct 2016
Employer’s liability
23 Dec 2011 to 31 Oct 2016
Employer’s liability
19 Mar 2014 to 31 Oct 2016
Vehicle insurance
38 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.
Full details of the Scheme are provided in Note 18. The Company is unable to identify its share of the Scheme assets and liabilities on a consistent
and reasonable basis.
The latest funding valuation of the defined benefit section of the Scheme was carried out as at 5 April 2015 and was updated for the purposes
of the 31 December 2015 Financial Statements by a qualified independent actuary. Active employees are members of the defined contribution
section of the Scheme, which invests funds in which the contributions for each individual member are separately identifiable and the benefits
calculated accordingly.
39 Accounting estimates and judgements
The preparation of the Financial Statements requires management to make judgements, estimates and assumptions. Although these
judgements and estimates are based on management’s best knowledge, actual results ultimately may differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying value of assets and
liabilities within the next financial year are disclosed below.
Note 18 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 18 on page 103.
Note 31 contains details of the Company’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.
40 Related parties
Related party relationships exist with other members of the Group. All operating costs are borne by Marshalls Group Limited and are recharged
to Marshalls plc in respect of specifically attributable costs. All related party transactions were made on terms equivalent to those that prevail
in arm’s length transactions.
118 Marshalls plc
Annual Report and Accounts 2015
Financial Statements Financial History – Consolidated Group
Consolidated Income Statement
Revenue
Net operating costs
Operating profit (before operational restructuring
and works closure costs, goodwill and intangible
asset impairments)
Operational restructuring and works closure costs,
goodwill and intangible asset impairments
Operating profit / (loss)
Financial income and expenses (net)
Profit before tax (before operational restructuring
and works closure costs, goodwill and intangible
asset impairments)
Profit / (loss) before tax
Income tax (expense) / credit
Profit / (loss) for the financial year before post-tax
profit / (loss) of discontinued operations
Post-tax (loss) / profit of discontinued operations
Profit / (loss) for the financial year
Profit / (loss) for the year attributable to:
Equity shareholders of the Parent
Non-controlling interests
EBITA
EBITDA
EBITA before operational restructuring and
works closure costs, goodwill and intangible
asset impairments
EBITDA before operational restructuring and
works closure costs, goodwill and intangible
asset impairments
Earnings per share (pence):
Basic (continuing operations)
Basic (total operations)
Basic continuing operations (before operational
restructuring and works closure costs, goodwill
and intangible asset impairments)
Dividends per share (pence) – IFRS
Dividend cover (times) – IFRS (continuing)
Dividends per share (pence) – traditional
Dividends per share (pence) – supplementary
Dividend cover (times) – traditional (continuing)
Year-end share price (pence)
Tax rate (%)
Year to
31 December 2011*
£’000
Year to
Year to
31 December 2012*,**
31 December 2013*
£’000
£’000
Year to
31 December 2014
£’000
Year to
31 December 2015
£’000
325,112
(310,117)
300,938
(288,087)
307,390
(291,300)
358,516
(333,211)
386,204
(348,752)
14,995
12,851
16,090
25,305
37,452
–
14,995
(3,007)
11,988
11,988
(1,071)
10,917
(3,661)
7,256
7,390
(134)
7,256
16,174
32,413
(21,521)
(8,670)
(3,578)
9,273
(12,248)
5,874
(6,374)
676
(5,698)
(5,684)
(14)
(5,698)
(7,423)
6,538
–
16,090
(3,064)
13,026
13,026
(67)
12,959
503
13,462
14,096
(634)
13,462
17,028
30,227
–
25,305
(2,884)
22,421
22,421
(4,198)
18,223
–
18,223
19,857
(1,634)
18,223
26,536
38,518
–
37,452
(2,174)
35,278
35,278
(7,387)
27,891
–
27,891
28,149
(258)
27,891
38,774
51,828
16,174
14,098**
17,028
26,536
38,774
32,413
28,059**
30,227
38,518
51,828
5.66
3.78
5.66
5.25
1.1
5.25
–
1.1
90.5
8.9
(3.26)
(2.91)
5.52**
5.25
1.1**
5.25
–
1.1**
97.5
(16.3)**
6.94
7.20
6.94
5.25
1.3
5.25
–
1.3
176.25
0.5
10.13
10.13
10.13
5.50
1.8
6.00
–
1.7
234.0
18.7
14.32
14.32
14.32
6.25
2.3
7.00
2.00
2.0
325.0
20.9
* The comparatives have been restated in respect of discontinued operations.
** Before operational restructuring and works closure costs, goodwill and intangible asset impairments.
Marshalls plc
Annual Report and Accounts 2015
119
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information Financial History – Consolidated Group continued
Consolidated Balance Sheet
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Net assets
Net borrowings
Gearing ratio
2011
£’000
2012
£’000
2013
£’000
2014
£’000
2015
£’000
249,271
128,640
377,911
(88,550)
(83,297)
206,064
(77,101)
37.4%
225,882
116,735
342,617
(64,440)
(94,603)
183,574
(63,543)
34.6%
198,082
120,832
318,914
(74,137)
(69,345)
175,432
(35,569)
20.3%
195,951
132,593
328,544
(80,969)
(65,681)
181,894
(30,480)
16.8%
192,815
137,017
329,832
(87,071)
(50,043)
192,718
(11,462)
6.0%
120 Marshalls plc
Annual Report and Accounts 2015
Financial Statements Shareholder Information
Shareholder analysis at 31 December 2015
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
1,900
553
717
510
332
190
161
69
34
71
%
41.88
12.19
15.80
11.24
7.32
4.19
3.55
1.52
0.75
1.56
Number of
Ordinary Shares
276,233
420,043
1,226,199
1,821,249
2,380,354
3,012,831
8,453,382
10,568,774
12,574,807
158,644,883
4,537
100.00
199,378,755
%
0.14
0.21
0.62
0.91
1.19
1.51
4.24
5.30
6.31
79.57
100.00
Financial calendar
Preliminary announcement of results for the year ended 31 December 2015
Annual General Meeting
Final dividend for the year ended 31 December 2015
Half-yearly results for the year ending 31 December 2016
Half-yearly dividend for the year ending 31 December 2016
Results for the year ending 31 December 2016
Announced
Payable
Announcement
Payable
Announcement
11 March 2016
18 May 2016
8 July 2016
26 August 2016
6 December 2016
Early March 2017
Advisers
Stockbrokers
Peel Hunt
Numis Securities Limited
Auditor
Deloitte LLP
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
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
Landscape House
Premier Way,
Lowfields Business Park, Elland,
Halifax HX5 9HT
West Yorkshire
Telephone: 01422 312000
Website: www.marshalls.co.uk
Registered in England and Wales: No. 5100353
Annual Report and Accounts 2015 121
Marshalls plc
Marshalls plc
Strategic ReportCorporate GovernanceFinancial StatementsShareholder Information
Marshalls plc, Landscape House,
Premier Way, Lowfields Business Park,
Elland HX5 9HT
The Group's commitment to environmental issues is reflected in this
Annual Report which has been printed on Symbol Freelife Satin which is
a mixed source FSC® certified and ECF (Elemental Chlorine Free) material.
This is a certified CarbonNeutral® publication. Printed in the UK by Park
Communications, using their environmental printing technology;
vegetable inks were used throughout. Both the manufacturing mill and the
printer are registered to the Environmental Management System ISO14001
and are Forest Stewardship Council® (FSC) chain-of-custody certified.