Delivering
long-term
sustainable
growth
Marshalls plc Annual Report and Accounts 2017
Delivering
long-term
sustainable
growth
Our primary objective is to improve profitability and to
deliver long-term sustainable growth for our shareholders
whilst taking into account the interests of all stakeholders.
Strategic report
02 Highlights
04 At a Glance
06 Chairman’s Statement
08 Chief Executive’s Statement
10 Business Model
12 Growth Markets
14 Strategy
16 Growth Opportunities
18 Key Performance Indicators
20 Risk Management and Principal Risks
25 Financial Review
30 Sustainability Strategy
Corporate governance
34 Board of Directors and Secretary
36 Corporate Governance Statement
42 Nomination Committee Report
44 Statement of Directors’ Responsibilities
46
Audit Committee Report
50 Remuneration Committee Report
60 Annual Remuneration Report
64 Directors’ Report – Other Regulatory Information
66
Independent Auditor’s Report
Financial statements
72 Consolidated Income Statement
73 Consolidated Statement of Comprehensive Income
74 Consolidated Balance Sheet
75 Consolidated Cash Flow Statement
76 Consolidated Statement of Changes in Equity
78 Notes to the Consolidated Financial Statements
112 Parent Company Statement of Changes in Equity
113 Company Balance Sheet
114 Notes to the Company Financial Statements
120 Financial History – Consolidated Group
121 Shareholder Information
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Front Cover: Marshalls La Lina Paving at
De Montfort University
Case study
Marshalls Design Space
in Central London
• Communication facilities in Central London - close to
core customer base
• Continues to showcase the Group’s brand
leading capabilities
• Provides customers with new products, access
to samples and technical advice
• Updated regularly – focus on Landscape Architect,
Architect and Designer
• Focus on design, technical insights, technology,
innovation and sustainability
STRATEGIC REPORT Highlights
Continued progress
has been made in
the year to deliver
the 2020 Strategy
The self help programme to support organic
growth is progressing well and we continue
to outperform our peers and gain market share.
The progress made on both the 2020
Strategy and the acquisition of CPM has
allowed us to improve the level of our
sustainable operating margins.”
The 2020 Strategy objectives are firmly aligned with delivering sustainable
shareholder value and the Group’s longer term strategy set out on pages
14 and 15.
Alternative Performance Measures are used consistently throughout the Annual
Report and Accounts. These relate to like-for-like, EBITA, EBITDA and ROCE.
For further details of their purpose, definition and reconciliation to the
equivalent statutory measures see Note 1 to the Financial Statements.
Our strategy pages 14 and 15
Key performance indicators pages 18 and 19
The 2020 Strategy remains on track
• EBITDA growth continues alongside improved ROCE and
Financial highlights
• Revenue up 8% to £430.2 million (2016: £396.9 million)
a strengthened brand
• Self help programme well advanced
• Organic capital investment continues
• Research and development expenditure increased in the period
• Focus on innovation, new product development and service
to drive sales growth
• Focus on increasing profitability of the emerging UK
businesses continues
• Profit before tax up 13% to £52.1 million (2016: £46.0 million),
after charging approximately £1million of acquisition costs
• Return on capital employed (“ROCE”) up 8% to 24.8%
(2016: 23.0%) on a like-for-like basis
• EPS up 14% to 21.52 pence (2016: 18.95 pence)
• CPM has traded strongly since acquisition and its integration
is in line with expectations
• The Group’s strong cash generation has continued
• Wide-ranging digital strategy continues to drive real benefits
• Net debt of £24.3 million (2016: £5.4 million cash) reflects
across the business
cash outflow relating to the CPM acquisition of £41.4 million
• Continue to target selective bolt-on acquisition opportunities,
• Final ordinary dividend increased by 17% to 6.80 pence
after the acquisition of CPM
(2016: 5.80 pence) per share
•
Maintain a 2 times dividend cover policy, supported by
supplementary dividends
• Supplementary dividend of 4.00 pence per share
• Strong start to 2018 – sales up 18% including CPM
(up 4% underlying)
02
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORTSTRATEGIC REPORT Case study
Acquisition of CPM
• CPM is a specialist UK manufacturer of underground
concrete pipes, conveyance and water management
systems, targeting the Public Sector and Commercial
end market.
• CPM has a comprehensive range of technical and
innovative water management solutions.
• Manufacturing takes place at two sites – one at Mells
(Somerset) and one at Pollington (East Yorkshire). There
are ancillary offices in the Midlands and Scotland.
• The business has approximately 350 employees, with
the majority based at the Somerset head office site.
• CPM is a growing business with a strong track record
of quality and service.
• The business will trade initially as Marshalls CPM,
within the wider Marshalls Group.
Operating profit (£’m)
£53.4m
+12%
2017
2016
2015
2014
37.5
25.3
2013
16.1
53.4
47.6
EPS (p)
21.52p
+14%
2017
2016
2015
21.52
18.95
14.32
2014
10.13
2013
6.94
Return on capital employed (%)1
Final dividend recommended (p)
24.8%
+8%
2017
2016
2015
2014
2013 8.1
12.5
6.80p
+17%
24.8
23.0
2017
2016
6.8
4.0
5.8
3.0
19.0
2015
4.75
2.0
2014
4.0
2013 3.5
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
03
Revenue (£’m)
£430.2m
+8%
2017
2016
2015
2014
2013
430.2
396.9
386.2
358.5
307.4
Profit before tax (£’m)
£52.1m
+13%
52.1
46.0
35.3
2017
2016
2015
2014
22.4
2013
13.0
1 2017 ROCE has been calculated on a like-for-like the basis (excluding the impact of CPM).
STRATEGIC REPORT
At a Glance
The UK’s leading hard
landscaping manufacturer
Marshalls is a leading brand with a significant market position. Our cornerstone themes
of customer service, quality and sustainability put the customer at the very heart of our
business model and investment proposition.
Business model pages 10 and 11
What we do
Public Sector and Commercial
Landscapes, gardens and seating
Marshalls is the leading innovator of hard landscaping
solutions for the commercial construction sector, placing
a focus on developing new and innovative products.
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.
Customers
Local authorities, commercial architects, specifiers,
contractors, housebuilders and builders merchants.
Products
Paving, block paving, kerb, water management,
natural stone cladding, street furniture, lighting,
protective street furniture, walling and mortars.
Domestic
Gardens and driveways
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.
Customers
National and independent builders merchants,
DIY groups, professional landscapers, garden designer
and patio, driveway installers and homeowners.
Products
Paving, block paving, paths, edgings, walling,
drainage and decorative aggregates.
Our investment case
Growth agenda
Proven record of sustained
growth with 5 year CAGR
growth in PBT of 41 per cent.
Strong market
position
Unique national network of
manufacturing sites ensures
proximity to customers and an
efficient logistics footprint.
Wide-ranging mineral reserves
with the “Marshalls Stone
Standard“ quality mark.
Diversified group
Serving Public Sector,
Commercial and Domestic
markets. These have historically
proved to offer security due to
their counter cyclical profiles.
Strong asset base
and resources
Well invested manufacturing
plants with continuing emphasis
on high quality maintenance,
technology improvements and
re-investment. Capital investment
of £22.5 million in 2017.
04
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORTSTRATEGIC REPORT I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Case study
Innovation and NPD framework
There is a critical relationship between product, process
and materials for development of new products.
• The Group’s innovation cycle combines intelligence,
innovation and delivery, and is a driver of growth;
• Dedicated and focused resources;
• High level of technical competence in materials,
automation, engineering and product design;
• Delivering a high degree of product complexity; and
• Excellent trial and development facilities.
Acquisition of CPM
CPM is a pre-cast concrete
manufacturer specialising in
underground water management
solutions. The acquisition will
enable the Group to offer a
broader product choice that
complements our existing water
management offering and is a
significant step to providing a full
water management capability.
Innovation and
new products
The continued focus on
innovation and new product
development ensures the
development of the Group’s
project engineering and
manufacturing capabilities,
concrete and other materials
technology innovations and
extending the new
product pipeline.
Sustainability
The Group has a sustainable
business plan and has set KPIs
for the key areas of this plan.
Sustainability and corporate
responsibility are key elements
of the Marshalls culture.
Culture
The Group’s core values of
leadership, excellence, trust
and sustainability underpin
our culture along with our
key objective of doing
business responsibly.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
05
Chairman’s Statement
The Group’s 2020 Strategy is well established
with good momentum and considerable
further benefits to come
The Group’s core values of leadership,
excellence, trust and sustainability
underpin our culture along with our key
objective of doing business responsibly.”
Summary
• 2017 has been another year of good profit growth.
• Core values remain leadership, excellence,
trust and sustainability.
• 14% increase in earnings per share reflecting
continuing strength of the Marshalls brand.
• Strong balance sheet and prudent capital structure.
• Full-year dividend of 10.20 pence (up 17%)
and a discretionary supplementary
dividend of 4.00 pence.
Overview
This is my last report to you as your Chairman and I am pleased to
be leaving your Company in good shape, with 2017 having been
another year of profitable growth. Cash performance has been strong
and we are again able to propose an increased dividend and a further
supplementary dividend, whilst continuing to invest in the business
and maintain a prudent capital structure. The Group’s 2020 Strategy
is well established with good momentum and considerable further
benefits to come. The acquisition of CPM Group Limited (“CPM”) during
the year was an important step forward. Doing business the right way
has always been important to Marshalls as we seek to ensure we
balance the interests of all our stakeholders and make a full and proper
contribution to society.
Contribution to Society
Marshalls is purpose led. Our products transform the built environment
whether public spaces or private driveways and patios through strong
aesthetics and fit for purpose. We target very high levels of customer
service. New product development and digital are important elements
of our strategy and we continue to invest strongly in the business.
We employ over 2,600 people, many of whom have been with
Marshalls for very long periods. We are a “Living Wage“ company and
our pay is positioned at the top end for the industry. We established a
new improved defined contribution pension scheme for employees
during the year with a larger pension contribution made by the
Company. We encourage share ownership and sharing in success,
and we place a high priority on employee engagement, training and
development, building successful careers for our people, and health and
safety. Many of our businesses and our people play a strong role in their
local communities. In 2017 over £50,000 was raised by employees for
MIND which was the Group’s chosen national charity and the Company
has matched this contribution. As you will see from this report the Board
is committed to the highest standards of environmental, sustainability
and governance practice. The Group has maintained its “Fair Tax Mark“
status in 2017. Taking account not only of corporation tax but also of
PAYE and NI paid on our employee wages, aggregates levy, VAT, fuel
duty and business rates Marshalls has funded total taxation to the UK
economy of £96 million, some 22 per cent of Group turnover.
Results and dividends
Group revenue for the year was £430.2 million, an increase of 8 per cent
on 2016. Excluding the contribution from CPM, like-for-like revenue was
up 6 per cent. The Domestic end market performance was again strong
with revenue growth of 12 per cent during the year.
Profit before tax of £52.1 million (2016: £46.0 million) is stated after
charging £1.2 million of operational restructuring costs and £0.8 million
of acquisition costs. EBITDA has grown by 12 per cent to £67.9 million
and the Group’s earnings per share, at 21.52 pence, is up 14 per cent.
06
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT The Board’s priorities for 2017 included the continuing promotion
of the 2020 Strategy, the development of Marshalls’ corporate culture
and good practice, and succession planning, both at Board and senior
management level. These initiatives are explained in more detail in the
Corporate Governance Statement on pages 36 to 41.
During 2017, an internal evaluation of Board performance was
undertaken to follow the external evaluation in 2016. No areas
of material concern were highlighted during the 2017 evaluation.
Board changes
Mark Edwards retired from the Board following the Annual General
Meeting in May 2017 having served as Non-Executive Director and
Chairman of the Audit Committee since May 2010. Following Mark’s
retirement Graham Prothero was appointed Non-Executive Director
and Chairman of the Audit Committee. Graham has a strong financial
background with significant sector experience.
In October 2017, I announced my intention to step down as Chairman
and retire from the Board after nearly 8 years as your Chairman and 15
years as a Non-Executive Director. I will step down immediately after the
AGM when my successor will take over.
People
During my time at Marshalls I have visited our operations on numerous
occasions and have met and talked to large numbers of our people
across the organisation. It is clear to me that our people are the
enduring strength of the business. There is a real passion for what
we do and a high level of decency that pervades everything.
I would like to thank all our staff for their commitment, hard work
and continuing dedication to Marshalls and also for their considerable
support to me.
Outlook
The Group has again delivered strong profit growth year-on-year.
Good progress has been made in the year executing the 2020 Strategy,
notably the acquisition of CPM, and the ongoing self help programme
to drive organic growth is progressing well. The underlying drivers have
remained positive in our main end markets and our sales and order
intake have been strong in the first 2 months of 2018.
We remain well placed to deliver continued growth and operational
profit improvements.
Andrew Allner
Chairman
Marshalls continues to have strong cash generation with year-end
net debt of £24.3 million (2016: £5.4 million net cash), after funding
the acquisition of CPM of £41.2 million.
The Group’s policy is to pay a progressive dividend aimed at achieving
up to 2 times cover over the business cycle. The Board is recommending
a final dividend of 6.80 pence per share (2016: 5.80 pence per share)
which, together with the interim dividend of 3.40 pence per share
(2016: 2.90 pence per share), makes a combined dividend of 10.20
pence per share (2016: 8.70 pence per share), an increase of 17 per cent
for the year.
The Board is also recommending a supplementary dividend
of 4.00 pence per share for 2017 (2016: 3.00 pence per share).
This supplementary dividend is discretionary. The payment of a
supplementary dividend recognises the Board’s objective of maintaining
an efficient and prudent capital structure and providing increased
returns for shareholders whilst at the same time retaining flexibility
for capital and other investment opportunities.
Strategy
Our vision is to establish Marshalls as a world-class hard landscape
business and to grow our emerging businesses. The Group’s strategic
objective is to deliver sustainable growth in shareholder value whilst
taking into consideration the interests of all our stakeholders and the
wider contribution we make to society. The Group’s 2020 Strategy is
firmly aligned with this vision and our strategy is already focused on
sustaining the delivery of our core objectives beyond this time horizon.
The Marshalls brand remains central to our strategy and we have again
received “Superbrand“ status for 2018. Our emphasis on customer
service, the provision of new and innovative quality products and
integrated solutions, the development of our digital strategy, and focus
on those areas of the market with good growth potential all underpin
the continuing development of the Marshalls brand.
Culture
The Board fosters an open and transparent culture that is responsive
to the expectations of stakeholders and the external environment.
Corporate culture remains a priority and the Board is working with the
help of external consultants to define clearly its vision of good company
culture and to embed this successfully into its operations in 2018.
The Group’s core values of leadership, excellence, trust and sustainability
underpin our culture along with our key objective of doing business
responsibly. The aim is to promote sustainable operations, minimise
adverse environmental and social impacts and achieve high standards of
customer service and health and safety. This is embedded in management
and employee reward schemes, where achieving customer service and
health and safety targets remain key performance parameters. Marshalls
won the Corporate Social Responsibility Award at the prestigious
PLC Awards in March 2017.
Governance
We continue to comply with all the provisions of the UK Corporate
Governance Code as outlined in our Corporate Governance Statement
on pages 36 to 41. The Board remains committed to the highest
standards of corporate governance and to operating in accordance
with strong ethical and corporate social responsibility principles. A large
proportion of management’s remuneration is in shares which must be
retained for up to 5 years. This ensures a strong alignment between the
interests of management and our shareholders.
The Group continues to enhance its Annual Report disclosures to ensure
they give a fair, balanced and understandable assessment of the Group’s
position and prospects.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
07
STRATEGIC REPORT Chief Executive’s Statement
The Group has continued to deliver
strong profit growth in 2017
We are now planning beyond 2020
to progress the development of
our strategic objectives in the
longer term.”
• Profit before tax up 13% to £52.1 million after charging
approximately £1 million of acquisition costs.
• The planned integration of CPM is on track with
our expectations.
• The Group’s positive cash generation has continued.
• Commitment to self help capital investment
programme and new product development.
• Digital strategy development progressing well.
Introduction
The Group has continued to deliver strong profit growth in 2017.
Continued progress has been made in the year to deliver the 2020
Strategy and the self help programme to support organic growth is
progressing well. Sales and order intake have remained strong in the
first couple of months of 2018. Based on public indicators we believe
we continue to outperform our peers and gain market share. The Group’s
2020 Strategy is now in its third year and we have continued to deliver
on its core aspects. We are now planning beyond 2020 to progress the
development of our strategic objectives over the longer term.
As a result of our continued focus on strategic growth and operational
efficiency initiatives, the Group has delivered an operating profit in
2017 of £53.4 million (2016: £47.6 million), an increase of 12 per cent.
This result is after charging £1.2 million of operational restructuring
costs and £0.8 million of acquisition costs.
CPM Group Limited (“CPM”) was acquired on 19 October 2017. CPM
is a precast concrete manufacturer which specialises in underground
water management solutions and the acquisition is in line with our
stated 2020 Strategy to complement our organic plans with targeted
acquisitions. CPM has traded strongly since acquisition and the planned
integration of CPM is in line with our expectations.
Marshalls is a leading brand with a significant market position. Our strong
investment case is covered in more detail on pages 4 and 5. Marshalls
remains a benchmark for excellence and the 3 cornerstone themes of
customer service, quality and sustainability continue to put the customer
at the very heart of our business model and investment proposition.
Your Chairman, Andrew Allner is retiring both from the Board, and
as Chairman, after many years of service. On behalf of the Company,
I would like to place on record my thanks to Andrew for his excellent
stewardship and his significant contribution to the ongoing
development and growth of Marshalls.
2017 trading summary
Group revenue for the year ended 31 December 2017 was up 8 per cent
at £430.2 million (2016: £396.9 million). Group revenue includes £9.0 million
from CPM. On a like-for-like basis, excluding the impact of CPM, Group
revenue was up 6 per cent.
Sales in the Domestic end market, which represented approximately
32 per cent of Group sales, continue to outperform CPA forecasts, and
were up 12 per cent compared with the prior year period. The survey of
domestic installers at the end of February 2018 revealed order books of
10.8 weeks (2017: 11.0 weeks) which compared with 11.7 weeks at the
end of October 2017.
Excluding CPM, sales in the Public Sector and Commercial end market,
which represented approximately 61 per cent of Group sales, were up
2 per cent compared with 2016. The Group continues to target those
parts of the market where higher levels of growth are anticipated
including New Build Housing, Water Management and Rail.
The core Commercial and Domestic businesses continue to deliver
benefits from operational efficiency improvements and our network
08
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT of manufacturing sites remains a key competitive strength. Revenues in
our Emerging UK Businesses increased by 2 per cent, compared with the
prior year. The improved performance of our Street Furniture business
has been particularly encouraging in 2017, and the growth in sustainable
profitability of our Emerging UK Businesses remains a key part of the
2020 Strategy. The growth of protective security street furniture
continues and this is explained in more detail on page 16.
International revenue grew by 19 per cent during 2017 and represents
approximately 5 per cent of Group sales. Marshalls has made continued
progress in developing the International business and trading performance
has improved in line with the revenue growth. The Group continues to
develop opportunities by improving its global supply chains and routes
to market.
Profit before tax increased by 13 per cent to £52.1 million (2016: £46.0 million)
and EBITDA increased by 12 per cent to £67.9 million (2016: £60.8 million).
Basic EPS was 21.52 pence (2016: 18.95 pence), an increase of 14 per cent.
Profit before tax is stated after charging £1.2 million of operational
restructuring costs and £0.8 million of acquisition costs in relation
to the Group’s acquisition of CPM.
Capital discipline remains a key priority and the Group’s strong cash
generation has continued. Net debt at 31 December 2017 was £24.3 million
(2016: £5.4 million cash) and reflects the total cash outflow of £41.4 million
in connection with the acquisition of CPM. Operating Cash flow was
100 per cent of EBITDA.
Acquisition of CPM
Water Management is a key focus area for the Group and the acquisition
of CPM is a significant step towards the Group’s stated strategy of providing
a full water management capability within its product range. CPM will
enable us to offer customers a broader product choice that complements
our existing water management offering. Previously, Marshalls did not
trade in below ground UK drainage products, so the acquisition has
extended the Group’s product range below ground. CPM operates in
the collect, conveyance, clean, hold and release, and recycle areas of the
underground market and the product ranges include pipes, traditional
and sealed manholes, attenuation tanks and flow control and rainwater
harvesting systems.
Current priorities and operational strategy
The Group’s 2020 Strategy is now in its third year and we have again
delivered on its core aspects. The Group’s strategy remains to grow the
business, deliver increasing operating margins in all businesses and
improve the Group’s return on capital employed (“ROCE”). We are now
planning beyond 2020 so as to progress the development of our strategic
objectives over the longer term.
During 2017, further progress has been made with the self help capital
investment programme, the development of new products and the Group’s
digital strategy. These organic projects have been complemented
by the acquisition of CPM and its planned integration is on track with
our expectations. Both aspects have allowed us to improve the level of
our sustainable operating margins with the Group reporting an increase
from 12.0 per cent to 12.4 per cent during the year.
ROCE, defined as EBITA / shareholders’ funds plus net debt, was
24.8 per cent for the year ended 31 December 2017, which was up
8 per cent year-on-year. This ROCE calculation excludes the impact
of CPM and is therefore on a like-for-like basis.
Capital expenditure was £22.5 million in the year ended 31 December 2017,
which included £8.6 million of additional “self help” investment. Capital
expenditure of £28.0 million is planned for 2018. We continue to
generate a good pipeline of capital investment projects that will drive
future organic growth. In addition, increases in research and new
product development expenditure continue to be made.
Notwithstanding the acquisition of CPM, we continue to target bolt-on
acquisitions within our identified growth sectors of Water Management,
Street Furniture and Minerals. Our approach remains cautious and any
proposed acquisition target will be carefully assessed against strict
criteria and will be thoroughly considered during the detailed due
diligence phase.
Marshalls’ digital strategy remains a key priority and continued
investment is being directed to enhancing capability and to drive a
“digital first“ approach. The digital strategy is underpinned by continuous
improvement driven by data analysis and customer insight. Our web
and mobile applications enable customers to model their requirements
and allow digital access to the registered installer base.
The Group’s strategic initiatives are set out in detail in the Strategic Report
on pages 2 to 33.
Innovation and new product development
In the core Landscape Products business, the growth in revenue from
new products continued strongly, increasing by 4.2 per cent during 2017.
The objective is to deliver innovative market leading new products that
are aligned with customer needs across all business areas. The development
pipeline continues to be strong and the Group is committed to providing
high performance product solutions. All the Group’s premium driveway
products now feature advanced surface performance technology;
examples include “Drivesys“ which has been designed to look and feel
like natural stone and “Priora“ which has been specifically engineered
to manage heavy rainfall.
Further development includes project engineering to improve
manufacturing efficiency and our specialist engineers and technicians
deliver competitive advantage for Marshalls by combining machinery
design and installation with process improvement. This enables Group
to generate added value through innovation in materials, technology
and product development.
Improvements in operational efficiency
We are continuing to focus on improving operational and manufacturing
efficiency. The Group adopts a flexible operating framework that aims
to drive cost efficiency improvements across the controllable cost base
and to develop flexible strategies within the supply chain. Our objective
is to mitigate inflation on an ongoing basis to ensure sustainable business
continuity and cost control. The Group network of 13 concrete
manufacturing sites and quarries provides national geographic coverage
and, with the implementation of best practice across the entire network,
represents a key competitive advantage.
The Group’s well invested sales and capital investment programmes
provide the flexibility to manufacture products for both the Public
Sector and Commercial and the Domestic end markets. This enhances
operational flexibility which also remains a key priority. All the Group’s
operations are supported by a centrally managed logistics and
distribution capability. Manufactured products from this network, together
with ethically sourced natural stone products imported from India,
China and Vietnam, are supplied to distributors’ depots or direct to site.
Health and safety
The Group is committed to safeguarding the health and safety of every
employee and all stakeholders who may be affected by our undertakings.
Maintaining the highest standards of health and safety remains a cornerstone
of the Group’s culture and we are committed to the continual improvement
in health and safety performance.
During 2017, there was a 35 per cent reduction in days lost from workplace
incidents, which is comfortably ahead of the Group’s headline target.
The Group has continued to invest in health and safety awareness
training for all managers and supervisory staff and we promote a culture
in which all managers visibly demonstrate health and safety leadership.
Martyn Coffey
Chief Executive
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
09
STRATEGIC REPORT Business Model
How we do business
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.
1
Resources and inputs
Responsible leadership
• Sustainable operations
High quality assets
• National coverage
• Values and culture
• Efficient plants
Intellectual capital
• Superbrand
• Innovation and
strong R&D / NPD
People and skills
• Company culture
• Technical expertise
• Specialist skills
• Strong relationships
• Diverse product range
• Mineral reserves
Relationships
• Customers
• Supply chain
• Community
Financial capital
• Robust balance sheet
• Prudent capital structure
2
How we operate
What we do
Marshalls is a complete external landscaping,
interior design, paving and flooring products
business – from planning and engineering, to
guidance and delivery.
Responding to the wider market
Marshalls seeks to understand the long-term
drivers of market and product growth. Through
detailed market analysis, we continue to drive
new product development, particularly in the
areas of New Build Housing, Water Management,
Street Furniture and Rail. Product development
focuses on meeting consumer needs and
on increasing the speed and efficiency of
product installation.
Our core values:
Leadership
Excellence
10
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
SourcingThe 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.RELATED RISKS•Macro-economic and political•Cost and availability of raw materials•Cyber security risks•Environmental•EthicalDistributionDue to the scale of our operations, and our national network of regional centres, 97 per cent of our customers are less than 2 hours away. This continues to be a key competitive advantage.RELATED RISKS•Macro-economic and political•IT infrastructure•Cost inflation•EnvironmentalManufacturingThe Group manufactures and supplies landscape, driveway and garden products from a range of materials, principally concrete and natural stone. Marshalls has a world-class Manufacturing, Innovation and Development team.RELATED RISKS•Competitor activity•Threat from new technologies and business models•IT infrastructure•Legal and regulatorySTRATEGIC REPORT 3
Delivering stakeholder value
Our engagement with key shareholders is a key part of
the Group Sustainability Strategy (Pages 30 to 33).
Stakeholder engagement is focused on personal
communication and ongoing collaboration.
Employees
• Employee engagement
Our markets pages 12 and 13
Our strategy pages 14 and 15
Key performance indicators pages 18 and 19
Risk Management and principal risks pages 20 to 24
Key strengths
Sustainability
• Commitment to producing
new quality products that
are better than any
existing market offering
• Development of a digital strategy
Customer service
• World-class Manufacturing,
Innovation and
Development team
• Skilled engineers
and technicians
• Broad range of products
Quality
• New and innovative products
• Patent protection
• Machinery design and installation
Capital structure
• Strong and flexible capital
structure
• Clear capital allocation policy
Priorities for capital
page 28
Innovation
• Benchmark for excellence,
widely regarded as a leader
in its field
• Marshalls is one of Britain’s
strongest Superbrands
• Sustainability credentials
through newsletter, intranet
and workplace meetings
• Focus on safety
• Promote development and
personal growth
• Living Wage Company
Customers
• Centre of business model
• Quality, availability and
“on-time” delivery
• Quality innovative products
and exceptional service
• Development of solutions
that can be efficiently and
effectively installed
Shareholders
• Face to face meetings, site
visits and investor roadshows
• Progressive dividend policy
• Targeting 2 times dividend
cover over business cycle
Communities
• Business in the Community
• Responsible business practices
• Total taxation to the
UK economy – £96 million
• Charitable initiatives
Environment
• Responsible use of
natural resources
• Reinvestment (research
and development,
capital expenditure)
• Drive growth and sustainability
Suppliers
• Global supply chain with
long-term partnerships
• Regular communication
and fair terms
• Regular supply chain audits
• Ethical trading initiative
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
NEW
APPRENTICESHIPS
CREATED IN 2017
50
CUSTOMER
SERVICE INDEX
98.0%
DIVIDEND PER
SHARE
14.20p
DIRECT INVESTMENT
IN THE COMMUNITY
£200,000
REDUCTION IN CO2e
EMISSIONS OVER
LAST 5 YEARS
13%
SUPPLIERS
RECEIVING ANTI-
BRIBERY AND
MODERN SLAVERY
TRAINING
70%
Trust
Sustainability
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure
and control framework
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
11
CustomersOur customers range from Domestic homeowners to Public Sector and Commercial. We seek to exceed the expectations of customers in all our markets.RELATED RISKS•Macro-economic and political•Weather•Cyber security risks•Legal and regulatorySTRATEGIC REPORT
Market Opportunities
Growth markets
Marshalls tracks a comprehensive set of market indicators and drivers to identify areas of sustainable
market growth to not only focus current sales and marketing effort but also future product development.
PUBLIC SECTOR & COMMERCIAL MARKETS
PUBLIC SECTOR & COMMERCIAL MARKETS
Construction Market Growth
The CPA forecast Construction Output to rise by 0.2 per cent in 2018
and 1.7 per cent in 2019 and highlighted Brexit uncertainty in a
wide scenario range. This top level view masks some significant
variations in regional and sector growth forecasts.
CPA – Total Construction Output
Winter 2017/18 Forecasts
Sector Growth
Infrastructure projects, particularly rail & roads, feature strongly
in new construction orders. HS2 work is expected to be seen on
the ground from the end of 2018. For private housing, the largest
sector by value, growth remains robust and is forecast to rise
3 per cent in 2018 and 2 per cent in 2019.
ONS Construction Orders 2017 Q3 MAT Growth %
£160,000
£155,000
£150,000
£145,000
£140,000
£135,000
£130,000
£125,000
£120,000
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total Output - Lower
Total Output - Mid
Total Output - Upper
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
40.4%
6.3%
10.3%
7.9%
-0.5%
All H ousing
Total Public N on-H ousing
Total Infrastructure
Private Industrial Total
Private Co m
-12.7%
m ercial Total
All Ne w W ork
OUR STRATEGIC RESPONSE
• Marshalls will target individual market sectors and focus on
OUR STRATEGIC RESPONSE
• Marshalls will focus on targeted growth areas including New
those areas with sustainable growth; and
Build Housing, Water Management and Rail; and
• The Group’s analysis goes further than the base forecasts and
seeks to understand the long-term drivers of market growth.
• We continue to drive innovation and the introduction of new
products and propositions.
INNOVATION AND SERVICE
• The digital strategy will drive service and development.
INNOVATION AND SERVICE
• Rail platform range.
Find out more online:
www.marshalls.co.uk/futurespaces
Find out more online:
www.marshalls.co.uk/rail
12
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT THE CONSUMER MARKETS
THE CONSUMER MARKETS
Consumer Demand
There are some significant subtleties in the underlying consumer
confidence data. 42 per cent of households, with income of more
than £50,000, said they were planning a drive or garden project
in the next 12 months, the second highest proportion in the last
10 years. Indeed older, wealthy, mortgage free, homeowners are
improving their living environment.
Project Funding
An older demographic, with housing and pension wealth, prefer to
improve rather than move. Pension release has become a significant
source of funding for home improvements with the value released
stabilising during 2017. These triple locked consumers are more
resistant to falls in real wages than new homeowners.
GFK Consumer DIY Intentions Drive and / or Garden (HL)
% of those questioned who are planning a Drive and / or Garden Project in the next 12 Months
Moving Annual Total Value (£bn)
of Flexible Payments from Pensions (HMRC)
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
£7.00
£6.00
£5.00
s
n
o
i
l
l
i
B
£4.00
£3.00
£2.00
£1.00
£0.00
2007 Q 1
2011 Q 1
2011 Q 3
2012 Q 1
2012 Q 3
2013 Q 1
2013 Q 3
2014 Q 1
2014 Q 3
2015 Q 1
2015 Q 3
2016 Q 1
2016 Q 3
2017 Q 1
2017 Q 3
2016 Q 1
2016 Q 2
2016 Q 3
2016 Q 4
2017 Q 1
2017 Q 2
2017 Q 3
2017 Q 4
Total
Income £50k+
OUR STRATEGIC RESPONSE
• Invest in new product development within the core landscaping
OUR STRATEGIC RESPONSE
• New product development for the Domestic homeowner tracks
product range of Domestic drives and patios; and
trends in lifestyles and aesthetics; and
• We focus on consumer needs including increasing the speed
• Marshalls operates the UK’s largest approved garden and
and efficiency of installation.
driveways installer team.
INNOVATION AND SERVICE
• Drivesys® Patented Driveway Systems.
INNOVATION AND SERVICE
• Focus on customer service, quality and sustainability.
Find out more online:
www.marshalls.co.uk/home
Find out more online:
www.marshalls.co.uk/homeowners
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
13
STRATEGIC REPORT Strategy
Focused on growth
Marshalls continues to place emphasis on customer service and our enduring objective of providing
quality products and integrated solutions. Delivering growth through technology, digitalisation and
product innovation is a key element of the Group’s strategy.
Shareholder value
To deliver sustainable shareholder
value by improving the long-term
operating performance of
the business.
Sustainable profitability
To maintain a strong market position
and grow the business profitability
in all of the Group’s end markets.
Relationship building
To develop relationships with
key stakeholders, customers
and installers.
ROCE of
24.8%
New products growth over last 3 years
Registered installer teams now
14%
approx. 1,900
WHAT WE HAVE ACHIEVED
• ROCE of 24.8 per cent (on a like-for-like
basis, excluding the impact of CPM).
• Market share gains.
• Supplementary dividend.
2020 STRATEGY
• To strengthen the Marshalls brand by
developing systems-based solutions.
• To make strategic investments for organic
growth and acquisitions.
• To have a progressive dividend policy
supported by supplementary dividends,
as appropriate.
OUR FUTURE TARGETS
• To grow EBITDA and ROCE.
WHAT WE HAVE ACHIEVED
• 12 per cent growth in operating
profit driven by sustainable
efficiency improvements.
• Increase in operating profit percentage
to 12.4 per cent (2016: 12.0 per cent).
• 4 per cent growth in sales of new
products in the core business.
2020 STRATEGY
• To deliver new and innovative
product solutions.
• To improve operational efficiency
of manufacturing
and distribution network.
• To drive through sustainable
cost reductions.
• To continue to invest in the
digital strategy.
OUR FUTURE TARGETS
• To deliver sustainable EPS and
operating cash flow growth.
WHAT WE HAVE ACHIEVED
• Strengthened customer relationships.
• 98 per cent customer service KPI.
• Integrated “landscaping solutions”.
• Design Space office in Central London.
• 1,900 registered installer teams.
2020 STRATEGY
• To promote integrated product solutions.
• To focus on installer training, marketing
and sales support.
• To develop the supply chain
and maintain ethical and
sustainable policies.
• To be a provider of integrated
solutions and systems.
OUR FUTURE TARGETS
• To increase market share in our emerging
UK businesses and to be an employer
of choice.
14
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT Key performance indicators pages 18-19
Risks pages 20-24
Sustainability pages 30-33
Remuneration pages 50-63
Organic expansion
To invest in organic expansion in
existing and related markets and
product categories to expand
the business.
Brand development
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.
Revenue
£430.2m
R&D investment of
£3.9m
Net debt: EBITDA
0.35 ratio
WHAT WE HAVE ACHIEVED
• Revenue growth of 8 per cent
to £430.2 million. On a like-for-like basis,
excluding the impact of CPM, Group
revenue was up 6 per cent.
• Significant growth in key focus areas
WHAT WE HAVE ACHIEVED
• “Superbrand“ status.
• Continued development
of Marshalls brand.
• Developed product range.
whilst maintaining operational flexibility.
• Provision of innovative, quality products.
2020 STRATEGY
• To focus on innovation, customer service
and product quality.
• To increase technical R&D.
• To maintain the highest health
and safety standards.
OUR FUTURE TARGETS
• To maintain the Group’s
market-leading position.
• 19 per cent growth in
International revenue.
2020 STRATEGY
• To focus on increasing the profitability
of the Emerging UK Businesses.
• To target growth areas such as New
Build Housing, Water Management
and Rail.
• To increase capital expenditure
investment for organic growth.
OUR FUTURE TARGETS
• To optimise our national network of
manufacturing and distribution sites.
• To develop our global supply chains
and infrastructure.
WHAT WE HAVE ACHIEVED
• Strong balance sheet.
• Low gearing of 10 per cent
at 31 December 2017.
• Efficient portfolio of bank facilities with
extended maturities and realigned headroom.
• Continued focus on working capital
management and efficient
inventory control.
2020 STRATEGY
• To maintain a flexible capital structure
that recognises cyclical risk, focusing
on security, efficiency and liquidity.
• To deliver a capital allocation strategy that
is fully aligned with this capital structure.
OUR FUTURE TARGETS
• To operate tight control over business,
operational and financial procedures.
• To target a net debt to EBITDA ratio
of between 0 and 1 times over the
business cycle.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
15
STRATEGIC REPORT Strategy continued
Growth opportunities
The Group is constantly tracking the global mega trends, the shorter term trends in lifestyles
and aesthetics and the developing requirements of our consumers and stakeholders.
Future Spaces
WHAT THIS MEANS?
Future Spaces is the result of intensive research with the aim
of understanding how the format, planning, specification
and materials used in the construction of public, private and
commercial spaces, both indoors and outdoors, might look
and function in 10 years time.
4 Global Mega-Trends
1 SUSTAINABILITY
(Resources and the changing environment)
2 CHANGING DEMOGRAPHIC
(Shifting social and cultural expectations)
3 MASS URBANISATION
(The decade of the city)
4 GET SMART
(Smart is the new ‘green’)
Things that will change our landscape
1. The blurring of public/private spaces
2. More people in smaller spaces
3. Demarcating multi-use spaces
4. The new wave of water management
5. Future concrete
6. The blossoming of biophilic design
7. Urban Greening
8. The rise of the super-landlord
9. The gender-neutralisation of society
10. Placemaking for the People
11. Building-in Resilience
12. The Circular Economy
LINK TO STRATEGY
We are using the 12 Future Spaces themes to give specific
direction to our strategic objectives. These themes are being
used to provide the strategic focus to:
• new product development;
• new services and propositions; and
• identify targeted acquisitions.
These themes are changing the nature of our built environment.
ACTION TAKEN TO DATE
We are constantly engaging with all our stakeholder groups to
ensure a fully collaborative approach to planning and
development. We are focusing development expenditure and
growth initiatives into the areas of New Build Housing, Water
Management, Minerals and Rail. The digital approach transcends
all our development projects.
FUTURE DIRECTION
Already we are seeing the emergence of the following themes
and these are being built into our strategic planning:
• the blurring of public and private spaces;
• place-making for the people;
• building in resilience; and
• the Circular Economy.
International Security
WHAT THIS MEANS?
In our lifetimes, the nature of terrorism has undergone significant
change. The concept of terrorism describes the use of intentionally
indiscriminate violence as a means to create terror and fear to
achieve political, religious or ideological aim. The market for
security barriers and bollards is developing as a response and
is truly international.
LINK TO STRATEGY
Only 15 per cent of people say that traditional concrete anti-terror
barriers make them feel safer. Our strategy has been to use new
technology to design solutions that Deter, Deflect and Defend,
a three-tier strategy designed to reduce the threat long before
vehicles are used to target assets.
ACTION TAKEN TO DATE
Marshalls Landscape Protection is based on increasingly resistant
new security products that use new technology. The increasing
market demand for hostile vehicle mitigation is a specific
growth opportunity.
FUTURE DIRECTION
We believe that successful security should take a holistic approach
and we are engaging with relevant stakeholder groups to drive
effective new product development.
Find out more online
www.marshalls.co.uk/futurespaces
Find out more online
www.marshalls.co.uk/landscapeprotection
16
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT Digitising the Customer Journey
WHAT THIS MEANS?
Over the last few years technology and software advancements
have rapidly driven disruption and change to many industries.
All businesses are now faced with the challenge of how best to
utilise digital to transform their business. Our digital principles
are designed to create an engaging customer experience.
LINK TO STRATEGY
In determining our strategic direction for digital development, we
have identified 6 core principles which are firmly aligned with our
strategic objectives:
• Design for the customer
• Promote agility
• Collaboration
• Data driven
• Open and transparent
• Robust governance
ACTION TAKEN TO DATE
The digital initiatives that have been taken to date all put the
interests of stakeholders and the requirements of customers as
the key priority. For example, web and mobile applications enable
customers to model their requirements and allow full digital access.
FUTURE DIRECTION
The Group’s future direction is to embrace a “digital first“
approach. The strategic direction is “digital by default“ which seeks
to apply the digital principles referred to above to People, Process
and Technology such that digital is part of the Group’s culture.
Climate Change
WHAT THIS MEANS?
The Government’s latest climate change risk assessment identifies
flood risk, and particularly flooding from heavy downpours, as
one of the key climate threats for the UK. This must be viewed
alongside stresses on water resources, threats to biodiversity and
natural habitats, and the repercussions for the UK from climate
change impacts abroad.
Damage and disruption costs
Low
Medium
High
Very high
Coastal Flooding
River Flooding
Surface water Flooding
Storms and Gales
Snow and Ice
Cold mortality
Heat mortality
Drought
LINK TO STRATEGY
Water Management is a specific growth area and to ensure
that our development initiatives are in line with our strategic
objectives, the Group has determined that all new products must:
• improve sustainability;
• improve aesthetics; and
• improve functionality;
• reduce whole life costs.
• improve installation;
ACTION TAKEN TO DATE
The strategic objective is to provide a full water management
capability and the acquisition of CPM is an important step in that
direction. CPM’s product range serves the “below ground“
drainage market, whereas Marshalls had previously only been
able to offer an “above ground“ linear drainage proposition.
FUTURE DIRECTION
The Group’s water management strategy is designed to deliver
long-term sustainable value. Future growth objectives will cover
above and below ground systems and will include “collect”,
“convey”, “clean“ and “hold / release”systems.
Find out more online
www.marshalls.co.uk
Find out more online
www.marshalls.co.uk
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
17
STRATEGIC REPORT Key Performance Indicators
Measuring our performance
The Group’s KPIs monitor progress towards the achievement of its objectives.
All of the Group’s strategic KPIs have moved forward strongly during 2017.
Revenue (£’m)
Operating profit (£’m)
EPS (p)
Return on capital employed (%)
£430.2m
+8%
£53.4m
+12%
21.52p
+14%
2017
2016
2015
2014
2013
430.2
396.9
386.2
358.5
2017
2016
2015
2014
37.5
25.3
307.4
2013
16.1
53.4
47.6
2017
2016
2015
21.52
18.95
14.32
2014
10.13
2013 6.94
24.8%
(on a like-for-like basis, excluding the impact
of CPM)
24.8
23.0
19.0
12.5
2017
2016
2015
2014
2013 8.1
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
Delivering growth is key to the
2020 Strategy.
The sustainable improvement in
profitability is a strategic priority.
2017 PERFORMANCE
Group revenue has increased
by 8 per cent in 2017. Growth
in Domestic revenue was
particularly strong at
12 per cent.
STRATEGIC TARGETS
The aim continues to be to
outperform the market and
maintain or grow market share.
REMUNERATION LINKAGE
Sustainable revenue growth
is the driver of EPS and
Operating Cash Flow
(“OCF”) growth.
RISK MANAGEMENT
The Group closely monitors
trends and lead indicators and
continues to benefit from the
diversity of its business and
end markets.
STAKEHOLDER LINKAGE
Customers
Suppliers
Employees
Communities
2017 PERFORMANCE
Operating profit has increased
by 12 per cent to £53.4 million
in 2017. The Group’s strong
operational gearing has driven
an increase in reported operating
margin from 12.0 per cent to
12.4 per cent.
STRATEGIC TARGETS
Sustainable improvement in
profitability.
REMUNERATION LINKAGE
EPS and OCF are
both remuneration
performance targets.
RISK MANAGEMENT
The Group focuses on
innovation and new product
development in order to
improve product mix and
increase value-added sales.
STAKEHOLDER LINKAGE
Shareholders
Employees
The delivery of long-term
sustainable profitability for
shareholders is a strategic priority.
ROCE remains an important
indicator of sustainable
shareholder value.
2017 PERFORMANCE
Group EPS has increased by 14
per cent in 2017 to 21.52 pence.
STRATEGIC TARGETS
Significant EPS growth is a
strategic target.
REMUNERATION LINKAGE
EPS growth is a remuneration
performance target.
RISK MANAGEMENT
The Group focuses on sales
opportunities and strategic
growth opportunities.
STAKEHOLDER LINKAGE
Shareholders
Employees
2017 PERFORMANCE
Group ROCE is 24.8 per cent for
the year ended 31 December
2017, on a like-for-like basis
(excluding the impact of CPM).
ROCE is defined as EBITA /
shareholders’ funds plus cash /
net debt.
STRATEGIC TARGETS
The strategic target is to
continue to grow ROCE.
REMUNERATION LINKAGE
ROCE provides the control and
balance between the profit and
cash flow performance targets.
RISK MANAGEMENT
The Group continues to focus
on strategic investment for both
organic and acquisitive growth.
STAKEHOLDER LINKAGE
Shareholders
Employees
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
18
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT Net debt (£’m)
£24.3m
(24.3)
2017
2016
5.4
(11.5) 2015
2014
2013
(30.5)
(35.6)
Dividend per share
(recommended, p)
10.20p
+17%
2017
2016
2015
2014
2013
7.00
6.00
5.25
Customer service index
98.0%
Health and safety (reduction
in working days lost, %)
46.0%
10.20
8.70
2017
2016
2015
2014
2013
98
98
98
97
98
2017
2016
20
2015
2014
2013 15
30
46
43
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
Marshalls continues to support
a prudent capital structure.
A progressive dividend policy
remains a key objective.
2017 PERFORMANCE
Significant cash generation has
continued and, notwithstanding
the acquisition of CPM, gearing
remains low at 10 per cent
at 31 December 2017.
Net debt was £24.3 million
at 31 December 2017.
STRATEGIC TARGETS
The Group’s strategic target
is for the ratio of net debt to
EBITDA to be between 0 and 1
times over the business cycle.
REMUNERATION LINKAGE
OCF is a remuneration
performance target.
RISK MANAGEMENT
The Group maintains a
conservative financial profile
that recognises cyclical risk and
a flexible capital structure that
can respond to market changes.
STAKEHOLDER LINKAGE
Shareholders
Employees
Customers
Suppliers
2017 PERFORMANCE
The ordinary dividend per share
increased by 17 per cent to
10.20 pence. On an IFRS basis,
the dividends declared in the
year ended 31 December 2017
are 12.20 pence, an increase
of 26 per cent.
STRATEGIC TARGETS
The continuing strategy is to
maintain up to 2 times cover
over the business cycle.
REMUNERATION LINKAGE
Remuneration targets are
aligned with shareholder value.
RISK MANAGEMENT
Risk management remains a
key factor in the delivery of the
Group’s strategic objectives and
risk appetite is aligned with the
delivery of long-term
sustainable value.
STAKEHOLDER LINKAGE
Shareholders
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.
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.
2017 PERFORMANCE
The combined customer
service measure continued to
be in excess of 98 per cent
throughout 2017.
STRATEGIC TARGETS
The Group’s customer service
index target is 95 per cent.
REMUNERATION LINKAGE
Customer service is a
remuneration performance
target.
RISK MANAGEMENT
The Group focuses on quality,
service, reliability and ethical
standards that differentiate
Marshalls from its competitors.
STAKEHOLDER LINKAGE
Customers
Communities
Environment
2017 PERFORMANCE
In 2017 there was a 46 per
cent reduction in days lost
from workplace incidents
compared with the target
benchmark.
STRATEGIC TARGETS
The headline target for 2017
was to achieve an accident rate
for the year no higher than the
2015 actual results.
REMUNERATION LINKAGE
Health and safety performance
is a remuneration performance
target.
RISK MANAGEMENT
The Group’s compliance
procedures and policies seek to
ensure that local, national and
international health and safety
controls are fully complied with.
STAKEHOLDER LINKAGE
Employees
Communities
Environment
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
19
STRATEGIC REPORT Risk Management and Principal Risks
Managing risk to deliver strategic objectives
Managing risk is key to the delivery of long-term sustainable improvement in shareholder value.
All risks are aligned with the Group’s strategic objectives.
Achievements in 2017
In addition to the delivery of ongoing process and system
enhancements that are designed to mitigate risk, the Group’s
risk function has placed particular emphasis on the following areas
during the year:
• Cyber risk has continued to be a major focus area for risk assessment.
A further internal audit project has been undertaken by KPMG and
continued improvements have been made to mitigate risk and
improve IT security, business continuity and disaster recovery.
• Health and safety continues to be a focus area as the Group
continually strives to reduce health and safety risk and improve
performance. Additional staff training was undertaken in 2017.
• Proactive supply chain management continues to be a focus area
for the Group and an internal audit project has been undertaken
by KPMG in 2017. This covered the adequacy of the Group’s policies,
procedures and systems and the operation of key controls.
• A detailed annual review of the Group’s capital structure has been
undertaken to ensure it remains aligned with corporate growth
objectives and the external market risk environment.
• The maintenance of a conservative capital structure with a strong
balance sheet and comfortable headroom against bank facilities
provides significant mitigation against potential funding risk.
Priorities for 2018
The priorities for the Group’s risk function in 2018 include the following
areas of focus:
• The rapid pace of change in the wider environment necessitates
cyber risk remaining a key priority for 2018. Further assignments
and penetration tests are planned to ensure that the Group remains
proactive in this area.
• The completion of a number of targeted projects will again
be a major focus for KPMG. In 2018, projects covering inventory
management, GDPR and human resource systems and procedures
are planned.
• Following the acquisition of CPM in October 2017, the successful
integration of the business into the Group is a major focus area. The
risk that the integration takes longer than anticipated and impacts
financial performance has been included as a key item on the Group’s
Risk Register. A post integration review is to be undertaken by KPMG.
• Health and safety remains a major focus area. Significant increases
in the financial penalty regime have increased the potential impact
of health and safety incidents.
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. The conclusion of the Group’s internal auditor, KPMG, is
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
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 pension funding. Internal risks include investment in new
products, new business strategies and acquisitions. In particular, during
2017, the potential impact of Brexit and wider economic uncertainty
has been considered in the assessment of risk 1 on page 22.
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.
In addition, the Group has established a formal framework for the
ongoing assessment of operational, financial and IT-based controls.
The overriding objective is to gain assurance that the control framework
is complete and that the individual controls are operating effectively.
Additional independent verification checking of key controls and
reconciliations are undertaken on a rolling basis. Such testing includes
key controls over access to, and change permissions on, base data
and metadata.
20
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT 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:
• are responsible for the
effective maintenance of
the Group’s Risk Register;
Internal audit:
•
independently reviews the
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 the identification of operational and strategic risks;
• are responsible for the ownership and control of specific risks; and
• are responsible for establishing and managing the implementation
of appropriate action plans.
Risk heatmap
4
5
3
6
1
8
2
9
7
H
G
H
I
T
C
A
P
M
I
I
M
U
D
E
M
W
O
L
LOW
MEDIUM
HIGH
LIKELIHOOD
5 Customers
6 Competitor activity
7
Threat from new
technologies and
business models
8
9
Cost and availability
of raw materials
Corporate, legal and
regulatory
1
Macro-economic
and political
2 Cyber security risks
3
Integration of CPM
(New risk)
4 Weather
Risk appetite
The Group is prepared to accept a certain level of risk to remain
competitive but continues to adopt a conservative approach to risk
management. The risk framework is robust and provides clarity in
determining the risks faced and the level of risk that we are prepared to
accept. Marshalls continues to put in place detailed plans to manage all
risks through strategies that are designed to either treat, transfer or
terminate the source of the identified risk.
Viability Statement
After considering the principal risks overleaf, the Directors have assessed
the prospects of the Group over a longer period than the period of at
least 12 months required by the “going concern“ basis of accounting.
The Directors consider that the Group’s risk management process
satisfies the requirements of provision C.2.2 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 continues to believe that 3 years is an appropriate period
of assessment and, aligned with the Group’s strategic plan, the Directors
also consider that they have reasonable visibility of the market over a
3-year period to 31 December 2020. A 3-year period is consequently
considered appropriate for the Viability Statement. The Group’s strategic
plan includes an integrated model that incorporates 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. None of the individual
sensitivities applied impact the Directors’ assessment of viability.
The stress testing applied in 2017 reflects a cautious economic outlook
and remains a key part of the Group’s detailed approach to capital
structure and forecasting. A significant stress test sensitivity has been
applied to reflect a dramatic economic downturn and the Group’s
updated Risk Register continues to identify external market factors as
being the key risk. The stress testing has aimed to replicate the financial
impact of the last recession as the core sensitivity, with significantly
reduced sales volumes giving rise to a 33 per cent decrease in revenue
over the next 3 years.
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.
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 above.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
21
STRATEGIC REPORT Risk Management and Principal Risks continued
1
Macro-economic
and political
2
Cyber security risks
3
Integration of CPM
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
NATURE OF RISK
The Group is dependent on the level of
activity in its end markets. Accordingly,
it is susceptible to economic downturn,
the impact of Government policy and
any political and economic uncertainty
in relation to Brexit.
POTENTIAL IMPACT
The potential impact of Brexit and wider
global macro-economic uncertainty could
lead to lower activity levels which could
reduce sales and production volumes. This
could have an adverse effect on the Group’s
financial results. The impact of exchange
rate fluctuations could also have an adverse
impact on material costs.
MITIGATING FACTORS
• 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.
• The Group focuses on its supplier
relationships, flexible contracts and
the use of hedging instruments.
CHANGE IN RISK IN THE YEAR
Given the perception of increased global
economic uncertainty, this risk has increased
and this is reflected in wider economic
forecasts. The CPA forecasts have softened
slightly in recent months.
There continues to be growth potential
in certain focus areas, e.g. New Build
Housing, Water Management and Rail.
Forward indicators in the core business
remain positive.
The proactive development of the product
range continues to offer protection.
NATURE OF RISK
Inadequate controls and procedures over
the protection of intellectual property,
sensitive employee information and market
influencing data.
The failure to improve controls against cyber
security risk quickly enough, given the rapid
pace of change and the continuing
introduction of new threats.
POTENTIAL IMPACT
Risk of data loss causing financial
and reputational risk.
MITIGATING FACTORS
• Use of IT security policies.
• The undertaking of regular cyber security
risk audits by specialists and the quick
introduction of mitigation controls and
other recommended procedure updates.
• 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.
• A rolling programme of awareness
training for staff.
CHANGE IN RISK IN THE YEAR
This remains 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).
NATURE OF RISK
The successful integration of CPM into the
Marshalls Group is a significant business
issue for 2018.
POTENTIAL IMPACT
There is a risk that the integration of CPM
could take longer than expected. This could
impact the expected financial performance
and reduce the positive impact of potential
synergy benefits.
MITIGATING FACTORS
• Certain ongoing legal and regulatory
matters were identified during due
diligence and the sale and purchase
agreement included risk mitigation by
requiring £12 million to be paid into an
escrow account pending the resolution
of these issues. The Group has a right of
reimbursement of amounts held in the
escrow account to the extent that any
liability crystallises in respect of these
ongoing legal and regulatory matters.
• The Group has a detailed integration plan
which covers all business areas and is
focused on risk reduction and maximising
opportunity.
• The integration plan has Executive level
focus and is being administered by
a dedicated Integration Manager.
• A post integration review is to be
undertaken by KPMG in Q3 2018.
CHANGE IN RISK IN THE YEAR
The acquisition of CPM in October 2017 has
created a new risk for the Group, although
the integration project is receiving
significant management focus.
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
22
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT 4
Weather
5
Customers
6
Competitor activity
LINK TO STRATEGY
LINK TO STRATEGY
LINK TO STRATEGY
NATURE OF RISK
The Group is exposed to the impact
of prolonged periods of bad weather.
POTENTIAL IMPACT
Adverse working conditions could give rise
to disruption and delays that might reduce
short-term activity levels. This could reduce
sales and production volumes and therefore
have an adverse effect on the Group’s
financial results.
MITIGATING FACTORS
• The Group has a continuing focus on
new product development, including
landscape water management.
• The Group is developing its internal
flooring offer and International strategy
in order to diversify its activities.
• The development of the Group’s
Water Management business is
a significant opportunity. The acquisition
of CPM has significantly moved the
Group forward in this area and the
acquisition has been a significant step
in the stated strategy of providing a full
water management capability.
CHANGE IN RISK IN THE YEAR
Weather conditions are beyond
the Group’s control.
NATURE OF RISK
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.
POTENTIAL IMPACT
The loss of a significant customer may give
rise to a significant adverse effect on the
Group’s financial results.
MITIGATING FACTORS
• 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.
CHANGE IN RISK IN THE YEAR
Although the underlying risk continues, the
effective management of key relationships
and the ongoing diversification of the
business are serving to mitigate the risk.
NATURE OF RISK
The Group has a number of existing
competitors who compete on range,
price, quality and service.
Potential new low cost competitors may
be attracted into the market through
increased demand for imported natural
stone products.
POTENTIAL IMPACT
The increased competition could reduce
volumes and margins on manufactured
and traded products.
MITIGATING FACTORS
• The Group has unique selling points that
differentiate the Marshalls branded offer.
• 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.
CHANGE IN RISK IN THE YEAR
The more uncertain market environment
has not led to any significant changes in
competitive pressure.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
23
STRATEGIC REPORT Risk Management and Principal Risks continued
7
Threat from new
technologies and new
business models
LINK TO STRATEGY
NATURE OF RISK
Reduction in demand for traditional
products. Risk of new competitors and
new substitute products appearing.
Failure to react to market developments.
POTENTIAL IMPACT
The increased competition could
reduce volumes and margins on
traditional products.
MITIGATING FACTORS
• 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.
CHANGE IN RISK IN THE YEAR
The ongoing diversification of the business,
the continued development of the
Marshalls brand and the focus on new
products and greater manufacturing
efficiency continue to mitigate the risk.
8
Cost and availability
of raw materials
9
Corporate, legal
and regulatory
LINK TO STRATEGY
LINK TO STRATEGY
NATURE OF RISK
The Group is susceptible to significant
increases in the price of raw materials,
utilities, fuel oil and haulage costs and
decreases in vehicle availability.
As demand increases, the Group is
potentially more exposed to the risk of
temporary raw material shortages.
POTENTIAL IMPACT
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.
MITIGATING FACTORS
• 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.
CHANGE IN RISK IN THE YEAR
Cost inflation remains a risk as demand for
raw materials increases against a backdrop
of increased economic uncertainty. All
importers are faced with the same issues.
The risk of temporary shortages is mitigated
by proactive supply chain management and
the use of alternative suppliers.
NATURE OF RISK
The Group may be adversely affected by an
unexpected reputational event, e.g. an issue
in its ethical supply chain or due to a health
and safety incident.
The impact of the “Environmental Protocol“ leads
to the need for increasingly expensive processes.
POTENTIAL IMPACT
An incident could lead to a disruption to
production and the supply of products for
customers. This could increase costs and
have a potential negative impact on the
Group’s reputation.
An environmental contamination event may
lead to a prosecution and to reputational loss.
Significant increases in the penalty regime
have increased the potential financial
impact of health and safety as well as
environmental incidents.
MITIGATING FACTORS
• 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 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.
CHANGE IN RISK IN THE YEAR
The Group continues to improve compliance
procedures within the supply chain.
Health and safety and the potential impact
of the Bribery Act continue to be high
profile risk areas. These areas are receiving
additional management focus, but the
impact of the underlying risk has increased.
The Group is unable to predict future
changes in environmental laws or policies
or the ultimate cost of compliance with
such laws or policies.
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
24
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT Financial Review
Continuing to deliver the
2020 Strategy objectives
Growth in all key financial metrics.”
• Operating profit up 12% to £53.4 million.
• EBITDA up 12% to £67.9 million.
• Acquisition of CPM in October 2017.
• Consistently strong return on capital employed
at 24.8% (excluding CPM).
• Strong operating cash flow at 100% of EBITDA.
• Significant headroom for investment.
•
Increase in final ordinary dividend of 17%.
• Additional supplementary dividend of
4.00 pence per share.
Analysis of revenue by end market is summarised in the table below:
Analysis of revenue by end market
UK Domestic
2017
£’m
135.4
Public Sector and Commercial (including CPM)
271.8
International
23.0
120.8
256.8
19.3
2016
£’m
Change
%
12.1
5.8
19.3
8.4
Trading summary
Revenue
Revenue for the year ended 31 December 2017 was £430.2 million
(2016: £396.9 million), which represented an increase of 8.4 per cent.
Group revenue includes £9.0 million from CPM for the period since its
acquisition on 19 October 2017. On a like-for-like basis, excluding the
impact of CPM, Group revenue was up 6.1 per cent.
Revenue variance analysis 2016/2017 (£’m)
28.4
1.2
3.7
430.2
396.9
UK Domestic
Public Sector and Commercial (including CPM)
International
430.2
396.9
%
31.5
63.2
5.3
%
30.5
64.6
4.9
450
400
m
£
’
350
300
250
2016
revenue
Landscape
Products
(including
CPM)
Emerging UK
Businesses
International
2017
revenue
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
25
STRATEGIC REPORT Financial Review continued
Revenue by end market
Revenue by area
Return on capital employed (%)
UK Domestic
Public Sector and Commercial
International
32%
63%
5%
Landscape Products
Emerging UK businesses
International
79%
16%
5%
32+
M 76+
24.8%(1)
(20.8% on a reported basis)
24.8
23.0
19.0
2017
2016
2015
2014
2013 8.1
12.5
1 On a like-for-like basis (excluding the impact of CPM)
Trading summary continued
Public Sector and Commercial
Excluding CPM, sales in the Public Sector and Commercial end market
were up 2.3 per cent compared with 2016. Including the post-acquisition
contribution of CPM, sales in the Public Sector and Commercial end
market were up 5.8 per cent and represented 63 per cent of Group sales.
Marshalls’ strategy is to offer sustainable integrated solutions to customers,
architects and contractors. The Group’s technical and sales teams remain
particularly focused on those market areas where future demand is
considered to be greatest including New Build Housing, Water Management
and Rail. The Group is outperforming the market in these areas. Our
“Design Space“ office in Central London continues to showcase the
Group’s brand leading capabilities and provides customers with information
about new products, access to samples and technical advice.
The Group’s unique national network of manufacturing sites remains
a core strength and, as far as our mineral reserves are concerned, the
“Marshalls Stone Standard“ quality mark gives customers full assurance
that all Marshalls’ natural stone not only meets, but exceeds the base
technical levels outlined in BS7533.
Domestic
Revenue in the Domestic end market grew strongly, increasing by
12.1 per cent. Sales to the UK Domestic end market now represent
approximately 32 per cent of Group sales.
Installer order books at the end of February 2018 were 10.8 weeks
(February 2017: 10.9 weeks), compared with 11.7 weeks at the end of
October 2017. The Group continues to receive good feedback from its
customers and installers for the consistency and quality of service and
we remain focused on enhancing the overall customer experience by
extending digitisation and commitment to innovation. The Group’s
industry leading standards remained high in 2017 with a combined
customer service measure of 98 per cent (2016: 98 per cent).
The Group’s strategy continues to be to drive more sales through quality
installers. The Marshalls Register of approved domestic installers is unique
and comprises approximately 1,900 teams. The objectives continue to
be to develop the Marshalls’ brand, improve the product mix, ensure a
consistently high standard of quality, excellent customer service and
marketing support and maintain good geographical coverage.
International
Sales to International markets increased by 19.3 per cent and represents
approximately 5 per cent of Group sales. The Group continues to develop
its global supply chains and infrastructure to ensure that international
operations are aligned with market opportunities. Revenue growth has
been strong in the US during 2017 and the new sales office in Dubai has
delivered further sales growth in the Middle East.
Acquisition of CPM
Water Management is a strategic focus for Marshalls and the acquisition
of CPM on 19 October 2017 is a significant step forward for the Group,
extending the product range into the new area of below ground
drainage. CPM has a comprehensive range of technical and innovative
water management solutions and has a strong track record of quality
and service.
The acquisition of CPM has contributed £9.0 million to Group revenue
and sales for the full 12 month period ended 31 December 2017 were
£55.3 million. Recent growth has been driven by an expansion in
production capabilities and the sites at Mells, in Somerset, and
Pollington, in East Yorkshire, are both able to produce around
170,000 tonnes per annum. The provision of bespoke “off-site“
solutions is a particular growth area.
The acquisition has been funded from existing facilities and an additional
£20 million debt facility was established to maintain headroom capacity.
Operating profit
Trading results
EBITDA
Depreciation / amortisation
Operating profit
2017
£’m
67.9
(14.5)
2016
£’m
Change
%
11.7
60.8
(13.2)
53.4
47.6
12.2
Operating profit was £53.4 million (2016: £47.6 million), which
represents an increase of 12.2 per cent. This is after charging £1.2 million
of operational restructuring costs and £0.8 million of acquisition costs.
EBITDA increased by 11.7 per cent to £67.9 million (2016: £60.8 million)
and EPS was 21.52 pence (2016: 18.95 pence), an increase of 13.6 per cent.
ROCE remained strong and, notwithstanding the acquisition of CPM
in October 2017, was 20.8 per cent (2016: 23 per cent), on a reported
basis, at 31 December 2017. Capital employed has increased by 23.8 per
cent to £261.8 million (2016: £211.7 million) following the acquisition of
CPM. On a like-for-like basis, excluding the impact of CPM, ROCE was up
8 per cent at 24.8 per cent. This reflects the Group’s tight control and
management of inventory and monetary working capital.
26
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT63
+
5
+
19
+
5
+
M
Profit margins
The Group has continued to strengthen its market position and
operating margin has increased to 12.4 per cent (2016: 12.0 per cent).
Margin analysis
2016
Landscape Products
Emerging UK Businesses
International
2017
Reported
operating
profit
£’m
Margin
impact
%
47.6
12.0
5.1
0.4
0.3
0.4
0.1
(0.1)
Revenue
£’m
396.9
28.4
1.2
3.7
430.2
53.4
12.4
The table illustrates the impact of operational gearing in the UK
businesses and shows that growth has continued to be 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 £28.4 million
and operating profit grew by £5.1 million in the Landscape
Products business.
There has been continued development of the Emerging UK Businesses
during 2017 and revenue increased by 2 per cent compared with the
prior year period. The emerging UK businesses include Street Furniture
and Mineral Products and they continue to be a key strategic focus and
a positive driver for growth.
Continued development of the 2020 Strategy
During 2017, capital investment in property, plant and equipment
(including software) totalled £22.5 million (2016: £13.9 million). This
compares with depreciation of £14.5 million (2016: £13.2 million). This
includes a significant increase in self help capital projects to deliver new,
innovative products and to drive through sustainable cost reductions
and improvements in operational efficiency. We continue to have a
strong pipeline of such projects and capital expenditure of £28 million
is planned for 2018.
Research and development expenditure in the year ended 31 December
2017 amounted to £3.9 million (2016: £3.4 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 4.2 per cent during 2017 in the core Landscape Products
business and over the last 3 years has increased by 14 per cent.
Further investment continues to be made to develop our wide-ranging
digital strategy, encompassing digital trading, digital marketing and
digital business. More details are provided on page 17.
Net financial expenses
Net finance costs were £1.4 million (2016: £1.6 million) and interest was
covered 38.5 times (2016: 29.9 times). Interest charges on bank loans
totalled £1.0 million (2016: £1.1 million) and, including scheme
administration costs, there was an IAS 19 notional interest charge of £0.4
million (2016: £0.5 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 19.1 per cent (2016: 18.5 per cent), the prior
year having benefited from a deferred tax credit arising principally in
relation to the settlement of share-based payments. The Group has paid
£10.5 million (2016: £7.1 million) of corporation tax during the year.
Deferred tax of £0.1 million in relation to the actuarial gain arising on the
defined benefit Pension Scheme in the year has been taken to the
Consolidated Statement of Comprehensive Income.
Marshalls has again been awarded the Fair Tax Mark, which recognises
social responsibility and transparency in a company’s tax affairs. The
Group’s tax approach has long been closely aligned with the Fair Tax
Mark’s objectives and this is supported by the Group’s tax strategy and
fully transparent tax disclosures.
Case study
Self help capital expenditure
• Self help capital expenditure is additional to ongoing spend;
• Must be “value added”, targeting volume growth areas and
cost reduction and efficiency opportunities;
• Objective is <3 years payback and a healthy IRR;
• Self help capital expenditure of £8.6 million in 2017,
with a similar level planned for 2018;
• New investment in a modern production facility in
Natural Stone Paving;
• £3 million investment in saws, automation and
optimisation of stone processing; and
• Significant improvement in yields and efficiency.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
27
STRATEGIC REPORT Financial Review continued
Trading summary continued
Dividends
The recommended “supplementary dividend“ of 4.00 pence (2016: 3.00
pence) per share is discretionary and non-recurring and recognises that
the business has sufficient capital both to finance increased investment
and to maintain a conservative and flexible capital structure. When
added to the normal full year dividend of 10.20 pence, this gives a total
dividend for the year of 14.20 pence, which represents an increase
against the prior year of 21 per cent. The incremental cash outflow in
2017 in relation to the supplementary dividend has been £5.9 million
and will be approximately £7.9 million in 2018.
Dividends (p)
Supplementary
Final
Interim
2017
2016
2015
3.40
2.90
6.80
4.00
5.80
3.00
2.25
4.75
2.00
2014
2.00
4.00
2013
1.75
3.50
Balance sheet
Group balance sheet
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Net (debt) / cash
2017
£’m
249.1
166.3
(106.9)
(70.9)
2016
£’m
193.4
139.7
(87.1)
(28.9)
237.6
217.1
(24.3)
5.4
Net assets at 31 December 2017 were £237.6 million (2016: £217.1 million).
The Group has a strong balance sheet with a good range of medium-term
bank facilities available to fund investment initiatives to generate growth.
Credit management
The Group continues to prioritise the close control of inventory and the
effective management of working capital. 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.
Pension
The balance sheet value of the Group’s defined benefit Pension Scheme
was a surplus of £4.1 million (2016: £4.3 million). The amount has been
determined by the Scheme actuary. The fair value of the Scheme assets at
31 December 2017 was £354.7 million (2016: £360.1 million) and the present
value of the Scheme liabilities is £350.6 million (2016: £355.8 million).
These changes have resulted in an actuarial gain, net of deferred
taxation, of £0.3 million (2016: £1.4 million actuarial gain) and this has
been recorded in the Consolidated Statement of Comprehensive Income.
The Company has previously agreed with the Trustee that no cash
contributions are now payable under the funding and recovery plan.
28
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
Case study
Capital allocation
The Group’s capital allocation strategy is to maintain a strong
balance sheet and flexible capital structure that recognises
cyclical risk, while focusing on security, efficiency and liquidity.
The capital allocation strategy prioritises organic capital
investment, supported by an increase in new product development
and research and development expenditure. The strategy also
targets selective bolt-on acquisition opportunities. In addition,
the objective is to maintain a dividend cover of 2 times earnings
over the medium term and to give consideration to
supplementary dividends.
Priorities for capital
1
2
3
4
5
Organic growth
Capital investment in growth projects. Plan £28 million
in 2018.
R&D and NPD
Increase research and development and
new product development.
Ordinary dividends
Maintain dividend cover of 2 times earnings over the
business cycle.
Selective acquisitions
Target selective bolt-on acquisition opportunities in
Water Management, Street Furniture and Minerals.
Supplementary dividends
Supplementary dividends when appropriate.
Discretionary and non-recurring.
Case study
Self help capital expenditure
Investment in
• New kerb and edging press facilities servicing the
South East – to eliminate logistics cost of transferring
product between regions;
• Investment in facemix and other technologies to
produce value-added products;
• Investment in automatic guided vehicles – along
with vision systems and monitoring cameras; and
• Investment in auto-wash systems and in DISAB vacuum
system soda blast cleaning equipment – to reduce
downtime and assist maintenance.
STRATEGIC REPORT
Banking facility headroom
n
o
i
l
l
i
m
£
’
180
160
140
120
100
80
60
40
20
0
-20
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Committed
On demand
Seasonal
Net debt
Analysis of net debt
Analysis of net (debt) / cash
Cash and cash equivalents
Bank loans
Finance leases
2017
£’m
19.8
(43.8)
(0.3)
2016
£’m
20.7
(14.9)
(0.4)
(24.3)
5.4
Net debt at 31 December 2017 was £24.3 million, which reflects the
payment of consideration totalling £38.2 million in relation to the
acquisition of CPM, together with the impact of CPM’s net borrowings
taken on of £3.0 million. This compares with a positive cash position
of £5.4 million at 31 December 2016. The ratio of net debt to EBITDA was
0.35 times at 31 December 2017 which is comfortably within our target
range, of between 0 to 1 times, and well below covenant levels.
Cash management continues to be a high priority with continuing
focus on the close control of inventory and the effective management
of working capital. The key working capital metrics are in line with plan.
Borrowing facilities
On 17 August 2017, the Group renewed its short-term working capital
facilities of £25.0 million. This includes a seasonal working capital facility
of £10.0 million which is available between 1 February and 31 August
each year. On 16 October 2017 the Group took out an additional
committed facility of £20.0 million. 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 2022. The
Group’s committed facilities are all revolving credit facilities with interest
charged at a variable rate based on LIBOR.
The total bank borrowing facilities at 31 December 2017 amounted to
£115.0 million (2016: £95.0 million) of which £71.1 million (2016: £80.0 million),
remained unutilised. 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.
Cash generation
The Group is significantly cash generative. In the year ended
31 December 2017 net cash flow from operating activities was
£57.3 million (2016: £49.4 million).
Group cash flow
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Movement in net debt in the year
Foreign exchange
Net cash / (debt) at beginning of year
Net (debt) / cash at end of year
Analysis of cash utilisation
Net cash from operating activities
Capital expenditure
Proceeds from sale of property assets
Payments to acquire own shares / other
Acquisition of subsidiary undertaking
Dividends
Movement in net debt
2017
£’m
57.3
(58.0)
(28.5)
(29.2)
(0.5)
5.4
(24.3)
2017
£’m
57.3
(20.7)
3.9
(1.1)
(44.5)
(24.1)
(29.2)
2016
£’m
49.4
(10.0)
(20.2)
19.2
(2.3)
(11.5)
5.4
2016
£’m
49.4
(13.9)
3.8
(1.1)
–
(19.0)
19.2
Cash outflow on capital expenditure in the year was £20.7 million
(2016: £13.9 million). This includes self help growth expenditure and the
replacement of existing assets, business improvements and new process
technology. Proceeds from the sale of targeted property assets contributed
£3.9 million (2016: £3.8 million). The increase in net debt arising on the
acquisition of CPM comprises the cash outflow in connection with the
acquisition and the fair value of borrowings acquired. Dividend
payments in the year were £24.1 million (2016: £19.0 million).
Expiry date
Committed facilities
Facility
£’m
Cumulative facility
£’m
Jack Clarke
Finance Director
Q3 2022
Q3 2021
Q3 2020
Q3 2019
Q3 2018
On-demand facilities
Available all year
Seasonal (February to August inclusive)
20
20
20
20
20
15
10
20
40
60
80
100
115
125
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
29
STRATEGIC REPORT Sustainability Strategy
At the heart of all we do
By being a responsible business we are leveraging sustainability to drive
competitive advantage for our business.
Human Rights
OBJECTIVES
Marshalls supports human rights consistent with the Universal
Declaration of Human Rights. In conducting business across the globe
we respect these rights and seek to uphold, preserve and promote
them. Our corporate responsibility to respect human rights means
acting with due diligence to avoid infringing upon the rights of others,
and addressing any issues that do occur. We recognise that our
responsibility applies across all business activities, including business
relationships with third parties and those within our supply chain.
2018 PRIORITIES
• Continue to focus on the issue of modern slavery and improve
compliance procedures within the supply chain; and
• Continue to collaborate with multiple stakeholders.
PROGRESS
Human rights regulation for business continues on an upward
trajectory and the issue of modern slavery rightly remains firmly in
the spotlight. We are working with multiple stakeholders across the
world to help make our business operations and supply chains as
toxic as possible to the organised criminals who seek to exploit
vulnerable individuals and corporations. We are collaborating with
governments, UN agencies, human rights observers, suppliers,
workers and communities. Our human rights due diligence and
monitoring and implementation is extremely dynamic reflecting
the nature of the human rights arena. Our active global supply
chain risk mapping processes together with our Ethical Risk Index
further guide our robust decision making processes.
Detailed ethical risk indices are in place for
44 natural stone product supply chains.
FUTURE GOALS
• Further develop the Group’s global supply chain risk
mapping processes; and
• Continue to develop our Ethical Risk Index methodology
and procedures.
Labour Rights
OBJECTIVES
From living wages in the UK to the elimination of child labour in
India, we are committed to ensuring that what is good for business
is good for society. Our approach to labour rights is driven by the
Ethical Trading Initiative (“ETI”) Base Code which we adopted in 2005.
To ensure that the Base Code is embedded within operations and
supply chains we have social auditors in India, China and Vietnam.
2018 PRIORITIES
• Continue to promote ETI membership, peer reviews and our
“Hope for Justice“ Strategic Partnership;
• Conduct ETI Base Code social and ethical audits in India,
China and Vietnam; and
• Develop the use of social auditors in India, to complement the
ETI ethical audits.
PROGRESS
We continue to be members of the ETI and our new ETI Strategic
Plan has been developed to support, strengthen and maximise
our continued drive to uphold and strengthen labour rights across
the globe. The Plan honours our commitment to ETI Base Code
implementation and will further embed and integrate ethical trade
into business activities and decision making; ultimately it will seek
to improve conditions for workers, their families and communities.
Marshalls have been accredited by the Living Wage
Foundation since 2015.
FUTURE GOALS
• Further embed and integrate ethical trade into business practice;
• Promote procurement principles that comply with the UN Global
Compact and ETI base code;
• Continue to improve conditions for workers, their families
and communities; and
• Maintain commitment to the abolition of slavery in all its forms.
Sustainability 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.
30
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT Find out more online:
www.marshalls.co.uk/sustainability
Climate Change Policy
www.marshalls.co.uk/ccp
Carbon Disclosure Project
www.cdp.net
Environmental
www.marshalls.co.uk/sustainability/
environment
The Environment
OBJECTIVES
Our environmental objectives and targets are driven by a strong
commitment to compliance coupled with mitigation plans to
address legislative and physical business risks, whilst maximising
opportunities against a corporate strategic commitment to be
a sustainable business. At the heart of Marshalls’ sustainable business
model is an approach which combines key business issues and key
performance indicators with third party verification, legislation and
industry standards including ISO14001 for environmental
management and ISO50001 for energy management.
2018 PRIORITIES
• Continue to focus on the Group’s Sustainability Strategy,
including key focus areas such as eSight energy monitoring
systems and increasing use of rainwater capture;
• Further develop detailed site energy usage and carbon intensity
analysis and action plans; and
• Maintain adherence to all legislative and ISO requirements for
environmental and energy management.
PROGRESS
We have clear environmental, energy and climate change policies
in place and are on track to meet our policy commitments. Key
environmental issues for us are climate change, water and biodiversity.
Marshalls’ successful management of environmental issues has been
recognised by third parties such as Business in the Community.
Over 2,500 individual product carbon footprints.
FUTURE GOALS
• Continue to develop environmental targets as key business drivers
to increase sustainability, cost efficiency and shareholder value;
• Ensure that environmental targets are aligned with operational
and strategic planning; and
• Invest in smart systems that allow real time monitoring of energy
consumption in relation to carbon reduction measures.
Responsible Business
OBJECTIVES
Marshalls is committed to conducting business with the utmost
integrity and in accordance with the principles set out in the
Bribery Act 2010. Greater transparency leads to increased trust.
This in turn provides the solid foundations required for sustainable
growth. By making our financial, social, environmental and ethical
data transparent we can inspire trust which will lead to customers
buying more of our products, investors purchasing more of our
stock, and engaged employees working harder and smarter.
2018 PRIORITIES
• Further develop the Group’s ongoing monitoring, training
and compliance procedures;
• Continue to ensure that appropriate training is undertaken
in relation to responsible business practice, including the
Group’s anti-bribery and corruption policies and
procurement procedures; and
• Continue to maintain our Fair Tax Mark accreditation and to
be open and transparent about the Group’s tax affairs. Our
commitment to responsible tax practice ensures that we seek to
pay the right amount of tax at the right time in the right place.
PROGRESS
We are clear that bribery is not a victimless crime and that it
discourages effective trading by diverting funds away from projects
designed to build communities and help the most disadvantaged
in our society. We have a clear Anti-Bribery & Corruption Policy and
have launched and effectively communicated Marshalls’ Supplier
Code of Conduct. This has been further embedded, with employees
and suppliers, through a new IT training platform.
Marshalls is making a significant contribution to the
implementation of the Sustainable Development Goals.
FUTURE GOALS
• Continue to promote the UN Global Compact’s commitment to
sustainable development and the implementation of the UN’s
17 Sustainable Development Goals;
• To make an increasing impact in the implementation of these
goals – especially those goals where Marshalls is particularly
well-placed to make a significant contribution.
Marshalls’ sustainable business model
Empowered by our brand values of leadership, excellence, trust and sustainability we work passionately and diligently to uphold
the United Nations Global Compact pillars of human rights, labour, environment and anti-corruption. 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.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
31
STRATEGIC REPORT Sustainability Strategy continued
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 (37 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 under the Government’s
Carbon Reduction Commitment Energy Efficiency Scheme (“CRC”) by
submitting its Annual Report and surrendering appropriate Carbon
allowances for the period April 2016 to March 2017 within the time limit
imposed by the legislation. The Group continues to be certified to the
Carbon Trust Standard. 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 accreditation in November 2015 and
maintaining this through 2017. The Group continues to voluntarily
disclose data to the “Carbon Disclosure Project“ receiving a B rating for
its 2017 submission. This disclosure includes the 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 Greenhouse Gas Protocol: A Corporate Accounting
and Reporting Standard (revised edition) and the August 2017
Department for Business, Energy and Industrial Strategy (BEIS) published
CO2e conversion factors to measure its GHG emissions.
The Group has conducted an audit of its UK fugitive emissions and
found these to be 0.6 per cent of the Group 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 2013 and 2017.
The chart below (right) illustrates the Group’s CO2e intensity emissions
as a proportion of production output, including transport activities
between 2013 and 2017.
A number of factors have contributed to the Group’s energy performance
during the year including reduction in carbonisation of the electricity grid
supply, product mix, weather (temperature impacting on the use of heating
/ cooling fuel) and energy management activities. Two increases in
emissions during the year have resulted from the acquisition of CPM Group,
which had added (absolute) 760 tonnes and (intensity) 11.44 kg per tonne
production, to the annual data and an increase in the LGV fleet by 11 per
cent full time equivalent vehicles to satisfy customer requirements.
The Group reports that it is responsible for the GHG emissions of
Marshalls NV. The CO2 emission from Marshalls NV activities (using the
latest International Energy Associations Emission Factor) in 2017 was
(absolute) 520 tonnes and (intensity) 10.60 kg per tonne production.
Marshalls aims to publish its environmental KPI performance for the financial
year in a separate document, the Marshalls’ Environmental KPI 2018 Report.
This will cover the energy performance in more detail, together with reporting
of the environmental governance, policies, management and key
environmental impact areas such as waste, water and packaging. The
Environmental KPI 2018 Report will also detail 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 2017 and contains no misleading information.
Health and safety
Marshalls is 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. This remains a key priority for the business.
The 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 on pages 50 to 63.
The headline target for 2017 was to maintain days lost resulting from
workplace incidents at a figure no higher than the 2015 actual result.
The actual results achieved were:
• 46 per cent reduction in days lost resulting from all accidents
frequency rate;
• 11 per cent reduction in all incident frequency rate;
Scope 1 and 2 emissions (Tonnes CO2e)
Scope 1 41,610 tonnes CO2e
Scope 2 12,106 tonnes CO2e
e
v
O
C
s
e
n
n
o
T
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
14,015
16,769
16,436
14,251
12,106
40,012
36,166
38,746
40,873
41,610
2013
2014
2015
2016
2017
Scope 1
Scope 2
Target
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
32
Relative CO2e emissions for Scope 1 and 2 from
UK operations (kg CO2e per tonne of production)
10.17kg CO2e/T
-3.7%
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
12.50
12.00
11.50
11.00
10.50
10.00
9.50
9.00
12.1
11.5
10.9
10.6
10.2
2013
2014
2015
2016
2017
STRATEGIC REPORT
• 20 per cent reduction in lost time incidents (“LTI’s”) frequency rate; and
• 12 per cent reduction in incidents reportable to the HSE under the
Reporting of Injuries, Diseases and Dangerous Occurrence
Regulations (“RIDDOR”).
younger people and females in what has been historically a highly male
dominated sector and workplace. The Company will be considering
pro-active ways to encourage the attraction and promotion of these
groups as part of our wider diversity and inclusion policy.
The primary target for 2018 will be to achieve an accident rate for the
year no higher than the 2015 actual result. 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
All days lost
2013
65.6
12.2
3.6
2014
59.1
7.2
3.3
2015
2016
2017
48.8
49.2
43.4
5.1
1.6
5.6
2.3
4.1
1.4
114.6
80.7
45.8
38.0
24.6
Average UK headcount
2,055
2,132
2,237
2,253
2,307
In 2017, the Executive Board agreed a formal 5-year Health and Safety strategy
with set objectives. This strategy clearly demonstrates the commitment of the
business to take the safety of its employees to the highest level.
The business also introduced a Safety, Health, Environmental and Quality
(“SHEQ”) concerns reporting process. The SHEQ concerns system not
only gives all employees the tools to report concerns, but also ensures
management identifies the root causation ensuring the right actions are
taken to prevent a re-occurrence.
In 2018 the main Health and Safety initiatives will include:
• The implementation of Marshalls’ mental health awareness
programme. This involves the introduction of a mental health policy
and support network, all management in the business receiving
mental health awareness training and the Company appointing and
training company mental health champions who will deliver mental
health training to all employees;
• A programme whereby all first line supervisors within the business
will complete a new, recently developed, Marshalls Health and Safety
stage 2 training programme;
• The integration of CPM into the Marshalls Health and Safety
Management system and culture; and
• The introduction of safety observations to all management teams
across the business.
These initiatives will enhance the already high standard the Company
demands in Health and Safety and take it to a completely new level.
Equality and diversity
The ability to recruit, retain and develop the right people is fundamental
to the future success of the business. The Company believes that attracting
a suitably diverse range of individuals with the appropriate skills and
experience will help us to achieve its goals.
As such, the Group has policies that promote equality and diversity and
is committed to providing equal opportunities to employees and potential
employees irrespective of gender, ethnicity, age, sexual orientation, disability
or religious beliefs. The Company opposes all forms of discrimination and
reinforces this through communication, awareness training and policy.
Employees
The Company continues to be a “Living Wage Employer”, underscoring
its commitment to fairness and integrity towards our employees. Our
recruitment policies are geared towards giving full and fair consideration
towards creating a more diverse workforce and it is clear that there
is much to be done in making the Company more attractive to both
We also welcome and give full and fair consideration to applications
from persons with recognised disabilities, providing equal opportunities
for promotion and development and making adjustments to ensure
that such individuals are not disadvantaged in the workplace.
Employee engagement and development
Improving employee engagement throughout the Group continues to be
an important priority in order for the business to deliver on its strategy and
objectives as well as providing a fulfilling and rewarding place of work for our
people. Initiatives to improve this included various charitable events across
the Group raising in total over £100,000 for our nominated charity, MIND.
The business also used the “Best Companies“ framework to conduct another
employee survey across all of the Group during 2017, achieving a response
rate of 70 per cent. This will have been the fifth survey of this type as we
continue to strive to improve our working environments and capture the
valuable feedback from our employees and devise improvement plans
as a result. The Company operates Sharesave and share purchase plans
to encourage employee participation in the Company’s success.
The engagement programme is supported by an annual Group-wide
communication “roadshow“ programme of senior management visits
travelling around the business with the objective of meeting as many of
our employees as possible face to face. This provides the Directors and
senior management team with an unparalleled opportunity to explain
to our employees how the business is performing, how our strategy is
working, and what the priorities and objectives are, as well as providing
information of concern to employees generally, taking soundings on
employee views and answering questions in an open forum.
As a business, we are committed to investing in our employees. The
ongoing training and development of our employees to develop our
future managers and leaders is of major importance to the business.
There is a range of online learning programmes accessible to all employees,
and, in addition, to the management training programme for our first
line managers, in which over 100 employees have now participated, we
have added an additional 3 management development programmes.
These programmes are geared towards emerging and middle management
and facilitated through the University of Salford, Ashridge Business
School and Cranfield School of Management.
We also continue to try and make our organisation an attractive place of
work for young people through our ongoing apprenticeship programmes.
We now have a good mix of apprenticeships spanning everything from
engineering through to 4 year apprenticeships in areas such as marketing
and Information Systems. We will continue to build on these schemes to
increase our intake in 2018 and widen the range of options for prospective
employees. We have strong community connections, particularly in
locations near our offices and factories, and we plan to develop closer
relations with local schools and colleges in order to encourage young
people into the industry as well as the business.
Good progress has been made in the year with the development of our
new HR system platform which will improve our operational efficiency
and reliability of data in personnel and payroll administration. This, in
conjunction with our project on job evaluation, will ensure that we are
in a position to facilitate better decision making and create a more
transparent system for the equal treatment of employees.
The system will also serve as the foundation to develop our future people
strategy and complement our wider Group objectives through improved
resource planning, performance management, recruitment and talent
development initiatives with a view to ensuring that we attract and retain
the best people in an open and fair way.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
33
STRATEGIC REPORT Board of Directors and Secretary
Janet Ashdown
Senior Independent
Non‑Executive Director
BOARD COMMITTEES
Audit; Remuneration (Chair);
Nomination.
TERM OF OFFICE
Appointed in March 2015.
Last re-elected in May 2017.
LENGTH OF SERVICE
2 years 9 months
INDEPENDENT
Yes
SKILLS AND EXPERIENCE
Non-Executive Director of
SIG Plc: other appointments
include Non-Executive member
of the Board of the Nuclear
Decommissioning Authority
(since 2015) and Non-Executive
Director of Victrex plc
(appointed February 2018).
Previous Executive experience
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.
EXTERNAL APPOINTMENTS
Non-Executive Director of
SIG Plc, Victrex plc (from
February 2018) and the Nuclear
Decommissioning Authority.
Andrew Allner
Chairman
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
BOARD COMMITTEES
None.
TERM OF OFFICE
Joined the Company and
appointed to the Board on
1 October 2014. Last re-elected
in May 2017.
LENGTH OF SERVICE
3 years 3 months
INDEPENDENT
No
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.
BOARD COMMITTEES
Remuneration; Nomination
(Chairman).
TERM OF OFFICE
Joined the Board in July 2003;
appointed as Chairman in
May 2010. Last re-elected in
May 2017, and will retire
in May 2018. Also chairs the
Nomination Committee.
LENGTH OF SERVICE
14 years 6 months
(7 years 6 months as Chairman)
INDEPENDENT
Yes (on appointment as
Chairman)
SKILLS AND EXPERIENCE
Significant current listed
company Board experience, as
Chairman and as a Non-Executive
Director. 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.
EXTERNAL APPOINTMENTS
Non-Executive Director
and Chairman of SIG plc;
Non-Executive Director and
Chairman of The Go-Ahead
Group plc and Fox Marble
Holdings plc, and
Non-Executive Director
at Northgate plc.
BOARD COMMITTEES
None.
TERM OF OFFICE
Joined the Company and
appointed to the Board in
September 2013. Last
re-elected in May 2017.
LENGTH OF SERVICE
4 years 4 months
INDEPENDENT
No
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
Officer of the Construction
Products Association. Director
of the Mineral Products
Association. Non-Executive
Director and Chair of
Remuneration Committee at
Eurocell plc.
34
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Graham Prothero
Non‑Executive Director
Tim Pile
Non‑Executive Director
Mark Edwards
Non‑Executive Director
(retired May 2017)
Cathy Baxandall
Group Company Secretary
BOARD COMMITTEES
Audit (Chair); Remuneration;
Nomination.
BOARD COMMITTEES
Audit; Remuneration;
Nomination.
TERM OF OFFICE
Appointed in May 2017.
LENGTH OF SERVICE
8 months
INDEPENDENT
Yes
SKILLS AND EXPERIENCE
Graham Prothero is a Chartered
Accountant and is an Executive
Director and Group Chief Financial
Officer of Galliford Try plc. He is
also on the Board of the Jigsaw
Trust, a charitable trust. Prior to
joining Galliford Try plc in 2013,
he was Group Finance Director
at leading property developer
Development Securities PLC
(now U+I), having previously
held senior finance positions at
Taylor Woodrow, the FTSE 100
listed housebuilder, and at Blue
Circle Industries plc. Graham
also spent 7 years as a partner
in the Real Estate, Hospitality
and Construction Group of
Ernst & Young LLP.
EXTERNAL APPOINTMENTS
Group Chief Financial Officer of
Galliford Try plc.
TERM OF OFFICE
Appointed in October 2010.
Last re-elected in May 2017.
LENGTH OF SERVICE
7 years 3 months
INDEPENDENT
Yes
SKILLS AND EXPERIENCE
Formerly Chairman of Cogent
Elliott, the leading independent
marketing agency and was
Chief Executive Officer of
Sainsbury’s Bank. Previous
Non-Executive Director roles
include Cancer Research UK.
EXTERNAL APPOINTMENTS
Deputy Chairman of the Royal
Orthopaedic Hospital and
Immediate Past-President of the
Greater Birmingham Chambers
of Commerce and Chair of
Greater Birmingham and Solihill
LEP. He is also a Non-Executive
Director of the City of
Birmingham Symphony
Orchestra.
BOARD COMMITTEES
Audit (Chair); Remuneration;
Nomination (retired May 2017).
TERM OF OFFICE
Appointed in October 2010,
and retired from the Board and
as a Non-Executive Director in
May 2017.
LENGTH OF SERVICE
7 years
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.
EXTERNAL APPOINTMENTS
Chief Executive of AIM Aviation
Holdings (which trades as
AIM Altitude) and its group
of companies, and Chairman
of Atlas Fine Wines.
TERM OF OFFICE
Appointed in July 2008.
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
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 (part of the University
for the Creative Arts); Chair of
the Bedales Grants Trust Fund.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
35
CORPORATE GOVERNANCE Corporate Governance Statement
Planning for the future
The Board is strongly focused on
promoting a positive and dynamic
corporate culture for the benefit of
all its stakeholders.”
BOARD OBJECTIVES 2017
• Maintain strategic vision while developing a strong and
resilient organisation;
• Focus on succession planning at Board and senior level to ensure
the right mix of skills, experience and diversity to support our vision
for 2020 and beyond; and
• Develop our corporate culture agenda, improving communication
of our shared vision and values supported by action on engagement.
WHAT WE ACHIEVED
• Robust capital structure and strong risk management processes have
been supported by a detailed internal audit programme throughout
the year; notable progress in particular areas such as cyber-risk and
security, and the application and testing of our anti-bribery policies
and procedures;
• Detailed evaluation of CPM Group acquisition in October 2017, and
subsequent integration;
• Further strengthened the Board through the appointment of Graham
Prothero to succeed Mark Edwards in accordance with agreed
succession plan: currently finalising the appointment of a new Chair
to succeed Andrew Allner on his retirement from the Board in 2018;
• Placed culture firmly on the Board and senior management agenda,
with a strategy day and the appointment of external consultants to
support our communication strategy, and help develop policies that
will reinforce and embed recognised good corporate culture;
• New HR system, is expected to facilitate harmonisation of recruitment,
training and personal development for our employees across the
Group; new all-employee retirement and savings pension plan also
launched during 2017; and
• Contributed to BEIS Green Paper consultation on corporate
governance designed to improve transparency, accountability and
responsible corporate behaviours; appointed Janet Ashdown as
Non-Executive Director with primary responsibility for engagement
programme with workforce on remuneration matters.
KEY THEMES FOR 2018
• Successful recruitment and induction of new Chair while maintaining
Board balance;
• Ensure diversity principles are fully incorporated into recruitment
process at Board and senior management level; development of
recruitment and promotion strategies to support greater diversity
(e.g. gender, ethnicity, age), as well as company culture and values;
• Extend 2020 vision, with additional KPIs to measure and monitor
progress in key growth areas; also develop effective measurement
of progress towards strategic objectives relating to values and culture;
• Review risk appetite and mitigation strategies in relation to significant
external risks (e.g. economic downturn, impact of Brexit);
• Consider the Board’s responsibilities to all stakeholders: review
Board performance and priorities with these in mind. Ensure that
the business contribution to wider society is fully understood
and communicated; and
• Develop an employee engagement programme (led by Janet
Ashdown) that reflects new corporate governance guidance and
requirements and supports the Group’s culture and values, helping
to embed good practice.
Nomination Committee Report pages 42 ‑ 43
Statement of Directors’ Responsibilities pages 44 ‑ 45
Audit Committee Report pages 46 ‑ 49
Remuneration Committee Report pages 50 ‑ 63
36
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Dear Shareholder
This Corporate Governance Statement, together with
the Reports of the Audit, Nomination and Remuneration
Committees on pages 42 to 63, 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 that are
recognised and understood by all.
Good governance
Good governance depends on good and effective leadership and a
healthy corporate culture, supported by robust systems and processes
and a good understanding of risk and risk appetite. Your Board has
continued throughout the year to engage with shareholders and
other stakeholders, to maintain constructive dialogue and challenge
and to focus on strategy and value. As a Board, we keep abreast
of developments in good governance and practice and participated
in the Hampton-Alexander report on gender balance in 2017 as well as
providing a detailed submission to the Government’s consultation on
its Green Paper on Corporate Governance published in November 2016.
The outcome of these and other initiatives are expected to lead to
greater transparency and responsible corporate behaviour, which we
fully support. The Board and the Executive Committee spent time on
evaluating Marshalls’ culture and values, recognising that a healthy
corporate culture will both protect and generate value. The Board has a
leading role in fostering and influencing the positive culture and values
of the Group by ensuring a consistency of approach and message from
the top. The work of our Board Committees, explained in this report,
demonstrates our commitment to openness and accountability,
acknowledging the value of diversity and good succession planning,
how we align reward with our values and strategy and how as an
organisation we seek to embed our values across the business,
while also recognising that there is further work to do.
Board evaluation
During 2017, the Board carried out an evaluation of its performance led by
the Company Secretary and the Chairman. This concluded that the Board
composition continued to be appropriate for the business, with a good
balance of skills and experience, ensuring a well balanced and effective
Board with a clear and inclusive strategy and a high degree of respect and
trust at individual and collective level. The summary of our 2017 objectives,
how we performed against them, and the objectives we have set for 2018
following the 2017 evaluation process, appears on the first page of this report.
These priorities are closely linked to the strategic objectives of the business.
Diversity
Marshalls’ policy is that no employee or job applicant will be treated less
favourably on the grounds of race, colour, nationality, ethnic or national origin,
gender (including gender reassignment), pregnancy, marital or civil partner
status, sexual orientation, religious belief, age or disability, or on any other
grounds which cannot be justified on job-related terms. We do not
discriminate on grounds of age, gender or background, and we are
committed to equality within our business and in our dealings with other
organisations. These policy principles are supported by our Code of Conduct.
The Board is committed to achieving diversity in the widest sense.
We ensure that briefs to external recruitment agencies and search
consultants are aimed at improving diversity ratios and balance both
at Board and senior management level and more widely within the
business, while also reflecting the changing strategic needs of the
Group. We will continue to support positively opportunities for talented
individuals regardless of gender, ethnicity, age or social background.
As a Board, we are fully engaged with the initiatives within the business
in this area, although we recognise that there is much work to do to
achieve true gender balance and greater diversity. The Remuneration
Report contains details of our gender ratios and gender pay gap data
(pages 58 and 59), and the Nomination Committee report (pages 42
and 43) explains in more detail how we implement our policy and
how we aim to achieve improvements.
The UK Corporate Governance Code
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 April 2016 (the “Code”), but also
recognises the recommendations in the FRC’s proposed new Corporate
Governance Code expected to come into force from January 2019.
The Company is supportive of the changes that will result from the
application of that new Code. The Board has carried out a review of how
the Code principles have been applied, together with the processes and
procedures adopted by the Company to support the Code. The Board
considers 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 71 respectively.
Andrew Allner
Chairman
Case study
Culture
• Constant theme of stakeholder engagement.
• Anti-bribery training
• The Group’s culture is underpinned by the core values of
• Employee training and development
leadership, excellence, trust and sustainability and undertaking
“responsible business”.
• Recent initiatives support the corporate culture:
• Ethical training
• Charitable giving
• Apprenticeships
• Community engagement
• Fair reward packages
• Fair Tax Mark
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
37
CORPORATE GOVERNANCE Corporate Governance Statement continued
Role of the Board
The Board currently comprises an Independent Non-Executive
Chairman, 3 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 46 to 49 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 reports on the work
done, particularly in relation to Board and senior management succession
planning, diversity and Board development. The Remuneration Report on
pages 50 to 63 gives details of how the Group’s Remuneration Policy has
been implemented, and of Directors’ remuneration for 2017. It also
includes details of gender pay and balance. Other Board Committees are
established periodically for particular purposes. For example, during the
year, Board Committees were established to approve the acquisition
of CPM Group Limited as well as 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; this currently
consists of 7 senior managers, including the 2 Executive Directors. The
Board receives regular updates from the Executive 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 charts below
show the frequency of how Board meetings, and the Board interacts
with the Executive and the business.
Board meetings and attendance
– Absent
Key =
– Present
Andrew Allner (Non-Executive)
Janet Ashdown (Non-Executive)
Jack Clarke
Martyn Coffey
Graham Prothero (Non-Executive)
Mark Edwards (Non-Executive)
Tim Pile (Non-Executive)
Board
Audit Committee
Remuneration Committee
Nomination Committee
–
–
–
–
–
–
–
The Board met 7 times in full session during 2017. In addition, the Audit
Committee met 4 times, the Remuneration Committee met 5 times and
the Nomination Committee met twice during the year. There were also
Board Committee meetings in connection with the issue of financial
results and the acquisition of CPM Group Limited.
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.
Mark Edwards retired from the Board in May 2017 and attended all meetings
up to the date of his retirement. Graham Prothero attended all meetings
after the date of his appointment. In 2018 there are 7 Board, 4 Audit
Committee and 4 Remuneration Committee meetings scheduled, with
an additional day set aside for strategy. There are two scheduled
Nomination Committee meetings and others will be arranged as necessary
in relation to new Board appointments. Outside this formal Board schedule,
Board members are expected to participate in site visits, and are invited to
other events such as the Group’s two-day annual management conference.
Chairman and CEO Terms of Reference
www.marshalls.co.uk
38
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
Interaction between Board and management bodies
Nomination
Committee
Audit
Committee
Remuneration
Committee
Board
Executive
Directors
Executive
Committee
Operational and functional management
Group / corporate support
Committee Terms of Reference
www.marshalls.co.uk
CORPORATE GOVERNANCE 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.
She 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. 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. All Directors
except Andrew Allner will stand for re-election or election at the 2018
Annual General Meeting. The terms of appointment of the current
Directors 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, and training is provided on the use
of our active “virtual boardroom“ board reporting tools. During 2017,
Non-Executive Directors were trained to carry out site safety inspections
as part of the Group’s health and safety programme. Other tailored
training may be arranged to meet individual needs, for example to
update knowledge of developments in 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.
Case study
Induction of Graham Prothero to the Board
Graham held one-to-one meetings with all Directors and the Company Secretary as part
of his recruitment and induction. On appointment he received a detailed information pack
containing relevant constitutional documents, key policies and procedures, essential
Company facts and a corporate history and contact details.
A comprehensive programme of site visits and meetings with key advisers was arranged for
Graham throughout 2017. By December, he had been to a number of key operating sites
and had held meetings with auditors, internal auditors and the Company’s City advisers.
Commenting on his induction, Graham said: “The process was very thorough and gave me
an excellent introduction to the Company. I was impressed by the support given by the
executive team and their staff and the warm welcome from my Board colleagues."
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
39
CORPORATE GOVERNANCE Corporate Governance Statement continued
Case study
Linking governance and operational
strategy: Acquisition of CPM
• The Board commissioned an external review of value-enhancing
acquisition targets in 2015, and management followed this up
with exploratory discussions designed to nurture good relations
with certain prospective target businesses. When management
considered the time was right, supported by a strong business case,
the proposal to pursue formal discussions with the shareholders
of CPM Group Limited was tabled for Board consideration
in early 2017.
• Board presentations were reviewed in both June and August 2017,
during which the Board challenged and scrutinised the rationale for
the proposed acquisition to ensure it was in line with the Group’s
strategy and would be value enhancing.
• The Board authorised a Board Committee to approve heads of
terms and commence detailed due diligence in July 2017 and
PwC and Herbert Smith Freehills were commissioned to provide
financial and legal advice in connection with the acquisition.
• The Board considered detailed due diligence reports covering all
aspects of CPM’s business (including financial, legal, property, health
and safety, IT, procurement, sales and operations) and held meetings
with the project teams. The Board review covered various issues,
including funding, risk analysis, expected returns and the
post-acquisition integration plan.
• Having concluded its investigation and negotiated the detailed
terms of the acquisition, the Board approved management’s
recommendation to acquire CPM on 18 October 2017, and the
acquisition was completed on 19 October 2017.
Board induction, development and support continued
Directors are expected to attend external courses and seminars as
appropriate to maintain and develop their Board competencies. Training
is also built into the annual Board programme, which is designed to cover
a range of topics of particular relevance to the business. During 2017,
there were Board briefings relating to health and safety and the Board
also received senior management presentations in relation to customer
initiatives, developments in HR, manufacturing operations and the Group’s
marketing strategy. Non-Executive Directors took the opportunity to meet
senior managers to discuss areas of particular interest. Training needs
are identified through the Board evaluation process and through the
individual one-to-one reviews between the Directors and the Chairman.
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.
Indemnities and insurance
The Company maintains directors’ and officers’ liability insurance 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.
Board evaluation
The Company carries out a full evaluation of Board performance and that
of its 3 principal Committees annually. The independent assessment
provided by Equity Communications in 2016 confirmed that the Board
was working very effectively and that the internally-led Board evaluation
process in previous years had been successful in improving Board
effectiveness. Accordingly, the Board decided to return to an internal
process for its 2017 evaluation, led by the Chairman and the Company
Secretary. The evaluation was carried out using a questionnaire, followed
by one-to-one interviews between each of the Directors and the
Company Secretary. The questionnaire 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 then reviewed by the Chairman and the
Company Secretary and discussed by the Board. The Board also reviewed
progress against the priorities identified for 2017 from the 2016 evaluation
process. The outcomes of the evaluation process and the themes that
have emerged for focus in 2018 are highlighted on page 36.
How we assess our performance, prospects and viability
The Group has in place a comprehensive financial review process,
including detailed annual budgets, business plans and regular
forecasting. There are 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. It also holds separate meetings with individual
members of senior management to ensure the Board receives regular
updates on current business and strategic issues.
40
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Case study
Investor communications strategy
Marshalls’ investor communications strategy combines personal
contact with integrated reporting through the IR website, regular
presentations and the Annual Report. During 2017, 80 meetings were
held with current or prospective shareholders, together with additional
analyst meetings, investor roadshows and site visits. Marshalls
continues to enhance and align all reporting channels focusing on
strategy, key business drivers, risks and the investment case.
• Our main purpose is to articulate a clear corporate strategy in a
way that is easy to understand;
• We seek to give a consistent message and style across all the
communication channels;
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-year business planning cycle as appropriate. In approving
these accounts the Board has considered these matters in detail in order
to be able to give the Viability Statement on page 21. The Board has
adopted the going concern basis in preparing these Financial Statements
and 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.
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 during 2017 carried out a review of the effectiveness of the
Group’s risk management and internal controls systems covering all
material controls, including financial, operational and compliance
controls. The Strategic Report comments in detail (pages 20 to 24)
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,
particularly operational risks that might affect the assessment of the
Group’s viability. The Board’s risk review also incorporates an element
of stress testing, by envisaging scenarios that might arise during the
financial year and / or the planning cycle, and considering, with financial
impact modelling where appropriate, the likely effect in the business
and its prospects. The Audit Committee Report on pages 46 to 49
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 2017, 80 such meetings were held, at which 75 per cent of the
Group’s institutional shareholders were represented. This approach
ensures the views of major shareholders are understood by all Directors.
• There is an emphasis on personal contact and individual dialogue
– with significant time commitment for shareholder and
investor meetings;
• We arrange regular analyst presentations and site visits;
• We have invested in Corporate Reporting in recent years –
with particular focus on the Strategic Report and Corporate
Governance Reporting;
• There are regular and consistent presentations to facilitate
understanding and clarity of message;
• Results Presentation by CEO and CFO is filmed and available
on the IR website;
• We have re-designed and upgraded the Investor Relations website; and
• PR consultants (MHP Communications) provide ongoing support
for the communications strategy.
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.
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
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
41
CORPORATE GOVERNANCE Nomination Committee Report
Succession plans for the appointment
of a new Board Chair in 2018 are well
advanced.”
Role of the Nomination Committee
The Board’s Nomination Committee fulfils a vital role in terms
of succession planning and Board performance. Its Terms of
Reference include:
• 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
HIGHLIGHTS OF 2017
• The Board succession plans were re-tested against the Group’s 2020
Strategy objectives.
• Successful recruitment of Graham Prothero to succeed Mark Edwards
as Chair of Audit Committee and Non-Executive Director.
• Plans put in place for the recruitment of a new Chair to succeed
Andrew Allner, who announced his intention to retire at the 2018
AGM, and the process is well advanced.
OUR FUTURE TARGETS
• Recruit and induct new Chair of the Board: maintain board balance
while ensuring smooth transition.
• Recruitment and succession planning will be designed to incorporate
fully the Group’s inclusivity and diversity objectives.
• monitoring conflicts, reviewing the Board conflicts policy,
• Recruitment and succession planning will be aligned with a healthy
and well understood corporate culture.
maintaining the conflicts register and considering any new
notifications.
The performance of the Committee was evaluated as part of the
externally led Board evaluation process in 2017, and the
Committee Terms of Reference were also reviewed.
During the year the Nomination Committee held two scheduled
meetings, and additional meetings and discussions in connection
with succession planning and recruitment were held by
telephone. Attendance at meetings is shown on page 38.
NOMINATION COMMITTEE MEMBERS
• Andrew Allner – Chair
• Janet Ashdown
• Graham Prothero
• Tim Pile
42
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Dear Shareholder
I am pleased to report to shareholders on the main activities
of the Committee and how it has performed its duties
during 2017, as well as commenting on the Committee’s
role in the appointment of my successor as Chair of the
Board. As current Chair, I also chair Nomination Committee
meetings, except where the Committee is dealing with
my own re-appointment or replacement as Chair.
Recruitment and succession planning
The philosophy of the Nomination Committee is that recruitment and
succession planning should reflect the changing strategic needs and
objectives of the Group, both now and in the future, as well as being
an important factor in the development of a strong corporate culture.
In this context, we are wholly committed to achieving diversity in its
widest sense in the composition of the Board and senior management,
and we welcome the increased focus on diversity from shareholders
and other commentators. The Group’s policies are designed to support
positively the widening of opportunity for talented individuals regardless
of gender, ethnicity or social background. The Remuneration Report
includes details of current gender ratios and some of the measures that
have been taken in 2017 and that are planned in future to help achieve
our objectives. These are disclosed on pages 58 and 59.
During 2017, the Committee reviewed its written succession plan
and individual performance and development at Board level. Having
concluded in 2016 that the composition and current Board size were
appropriate, and that the range of skills and experience was well
balanced, we were pleased to welcome Graham Prothero to the Board
and as Audit Chair to succeed Mark Edwards in May 2017. Graham’s
recruitment was carried out using the services of Lygon, who have no
other connection with the Group, following a detailed and objective
selection process. Graham is a valuable addition to the Board and the
induction and handover process worked well.
During 2017, the Committee also commenced the recruitment process
for a new Board Chair. A competitive tender resulted in the appointment
of The Inzito Partnership to support the process, who are not otherwise
connected with the Group. The brief was clear on the need to take into
account our commitments to inclusivity and diversity objectives both at
Board and senior management level, as well as keeping a good balance
and “fit" with the existing Board. The process has been led by Tim Pile
and is well advanced, with a very strong field of candidates. We expect
to conclude the selection and make an announcement very shortly. The
Committee has also engaged with ongoing initiatives in the business as
a whole to improve diversity ratios and gender balance, through
meetings and discussions with management, monitoring progress and
ensuring that these principles are followed in briefs to external
recruitment agencies and search consultants.
Non-Executive Directors, including the Chair, are appointed for specific
terms, subject to re-appointment and the Company’s Articles of
Association and subject to the Companies Act provisions relating to
the removal of a Director. The Committee’s framework for succession
planning is designed to phase future recruitment so that the composition
of the Board can be refreshed whilst ensuring continuity.
Re‑appointment 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 Chair to appraise performance, set personal
objectives and discuss any development and training needs to enable
them to continue to add value to the Board, with an 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 these reviews to
ensure that the Director continues to be effective and demonstrates
commitment to the role. The Chair 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.
It is the Company’s policy that Executive Directors can only hold 1
external listed 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.
I expect to step down as Chair in May 2018, immediately following the
AGM, at which time it is expected that my replacement will take office.
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 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
Chair of the Nomination Committee
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
43
CORPORATE GOVERNANCE 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 European Union 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 on 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;
• 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; and
• the Annual Report and Financial Statements, taken as a whole,
is 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 / she ought to have
taken as a Director to make himself / herself 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 2017
CORPORATE GOVERNANCE Going concern
The Directors have adopted the going concern basis in preparing these
Financial Statements in accordance with the Financial Reporting
Council’s “Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting”, issued in September 2014. 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 at least the next 12 months from the date these
Financial Statements were approved.
Cautionary statement and Directors’ liability
This Annual Report 2017 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 Holiday Inn, Clifton Village, Brighouse HD6 4HW at 11.00 am on
Wednesday 9 May 2018, 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
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
45
CORPORATE GOVERNANCE Audit Committee Report
Role of the Audit Committee
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 agree the plan and scope of 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;
• to review and update the Company’s Risk Register;
• to review external auditor independence and audit and
non-audit fees, to review and monitor the appropriateness of
the provision of non-audit services by the auditor, and make
recommendations regarding audit tender and the appointment
and remuneration of the auditor;
• to monitor and review the effectiveness of the internal audit
function and the internal audit programme; 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 Committee’s Terms of Reference
are reviewed annually and approved by the Board.
AUDIT COMMITTEE MEMBERS
• Graham Prothero – Chair
• Janet Ashdown
• Tim Pile
46
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
The Committee’s focus is to ensure
the Group has an effective system
of risk management and control
and for ensuring it continues to
meet the necessary standards.”
HIGHLIGHTS OF 2017
• The Committee reviewed the significant financial judgements
made during the year and in the preparation of the 2017 Financial
Statements. The significant areas considered by the Committee in
2017 were inventory provisioning, accounting for the acquisition
of CPM and the potential for management override of controls.
• The Committee provided assurance to the Board on whether the
2017 Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable.
• Reviews of cyber security controls and IT security were undertaken
by KPMG LLP as part of a wider Cyber Security Review. A number
of recommendations have been, or are in the process of being,
addressed. The ongoing focus of the Committee is to ensure that
IT controls remain appropriate and robust.
• During the year the Committee commissioned KPMG LLP to undertake
internal audit reviews in a number of areas. These included reviews
in relation to taxation, supply chain controls and process and GDPR
readiness. A review of the Group’s budget procedures was also
undertaken. A number of recommendations have been addressed.
• During the year a high level review of strategic risk was undertaken by the
Committee which was subsequently integrated into the overall Risk Register.
OUR FUTURE TARGETS
• Continue to oversee the significant financial judgements made
by management.
• Continue to assess the effectiveness of risk management systems
and internal control processes.
• Continue to review the delivery of the external and internal audit
and monitor progress.
• Continue to assess and improve cyber security controls and to
ensure that IT controls remain appropriate and robust. This will
involve further cyber security audits.
• Continue to review the findings from internal audit reviews
undertaken by KPMG LLP and monitor the implementation of
recommendations made in these reports and the status of progress
made against previously agreed actions. There are 8 individual
internal audit reviews planned for 2018 and these include:
• a review of the integration procedures, processes and controls
following the acquisition of CPM;
• ongoing cyclical reviews of key financial processes, including
inventory; supplier payments and expenses;
• update reviews of the Group’s General Data Protection Regulation
("GDPR") and anti-bribery controls and procedures; and
• Continue to monitor changes in external regulatory environment
and best practice.
CORPORATE GOVERNANCE Dear Shareholder
I am pleased to present my first report as Chairman
of the Audit Committee. In this report I set out the
Audit Committee’s objectives and responsibilities and also
explain the activities undertaken during 2017 and the
priorities for 2018. This report, which is part of the Directors’
Report, explains how the Audit Committee has discharged
its responsibilities during 2017.
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 from the external and
internal audit functions. This report explains the Group’s procedures in
relation to internal control, risk management and financial reporting.
KPMG LLP, who were appointed as internal auditors in 2015, conducted
8 separate detailed reviews during 2017 and reported to the Committee
with recommendations, all of which have been implemented or will
be implemented during the coming year. One of our key priorities
remains to monitor the risk management and control environment,
ensuring that it aligns with best practice and that any improvements
are implemented in a timely and efficient way. Cyber security continued
to be a key priority and other areas of focus for the Committee are
provided in this report.
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 the Board that they present a
fair, balanced and understandable assessment of the Group’s position
and prospects.
How the Audit Committee operates
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 meets both the external and internal 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.
Effectiveness of the Audit Committee
During the year an internal evaluation of the Committee’s performance
was undertaken as part of the Board evaluation process. The review
found the Committee to be effective and well run. No areas of concern
were highlighted during this review.
The Chairman of the Committee is a Chartered Accountant and the
Board is satisfied he is independent and has recent and relevant
financial experience as required by the Code. Other members also have
relevant sectoral and financial experience. Their biographical details are
on pages 34 and 35, and attendance at meetings is shown on page 38.
Financial reporting
The Committee has reviewed, with both management and the external
auditor, where the more significant judgements have been made and
the quality and appropriateness of the Group’s accounting policies.
The Committee has also reviewed the assumptions and provided
assurance to support the long-term viability statement.
Risk management and internal control
The Board is responsible for reviewing the effectiveness of the system
of risk management and control, and for ensuring that it continues
to meet the necessary standards. The systems and controls 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.
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.
Within the internal control framework, policies and procedures are
reviewed on an ongoing basis. During the year, a more formal process
has been adopted for the ongoing assessment of operational financial
and IT based controls. The overriding objective is to gain assurance that
the control framework is complete and that individual controls are
operating effectively. A rolling programme of independent internal
checking of key controls and reconciliations has been established
during the year. This programme includes key controls over access
and change permissions on base data and metadata.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
47
CORPORATE GOVERNANCE Audit Committee Report continued
Significant issues related to the Financial Statements
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
significant areas considered by the Committee for 2017 were:
• The risk of management override of controls –
management’s assessment of the control framework
including authorisation controls and segregation of duties.
The Committee considered those areas where management
applies judgement in determining the appropriate accounting
and discussed this with the external auditor. The external
auditor presented its findings with regard to the audit testing of
journals to the Committee. This testing included the use of data
analytics to profile the entire journal population.
• Inventory provisioning – 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 and in respect of items that might
be sold at lower than cost were reviewed by the Committee. The
review included meetings with operational management to discuss
the inventory provisioning strategy. The external auditor presented
its findings with regard to the audit testing over inventory
valuation and the Committee concurred with management’s
assessment of the carrying value of Group inventories.
• Acquisition accounting in relation to the purchase of CPM
– management’s assessment of the appropriate accounting
treatment and the exercise of judgement in the identification
and valuation of intangible assets within the acquired business.
The Committee considered those areas where management
applied judgement in delivering the appropriate accounting
treatment and discussed this with the external auditor.
The external auditor presented its findings with regards
to the audit work undertaken to assess this area.
Fair, balanced and understandable
The Committee has considered whether, in its opinion, the 2017
Annual Report and Financial Statements is, taken as a whole,
fair, balanced and understandable, and whether it provides the
information necessary for shareholders to assess the Group’s
position, performance, business model and strategy. In making this
assessment, the Committee has advised the Board in relation to
the statement required by the UK Corporate Governance Code.
The Committee has concluded that the disclosures, and the process
and controls underlying their production, were appropriate
to enable it to determine that the 2017 Annual Report and
Financial Statements are fair, balanced and understandable.
Risk management and internal control
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 2017.
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. The key risks affecting the Group, how they relate
to strategy and how they changed during the year, together with a
description of the controls and mitigation associated with such risks,
are highlighted in the Strategic Review on pages 20 to 24.
External audit, auditor independence and objectivity
The Audit Committee has primary responsibility for making a
recommendation to the Board on the appointment, re-appointment
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 as statutory auditor following a tender process, and
Christopher Robertson has acted as audit partner since the appointment
of Deloitte LLP as auditor in May 2015. The Company has complied with
the Competition and Markets Authority’s Order for the financial year
under review.
48
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE The Committee has adopted policies to safeguard the independence
of its external auditor. It is the policy of the Company that the external
auditor should not provide non-audit services other than those of a “de
minimis“ value of less than £5,000 in aggregate in any financial year. Any
other non-audit services, require 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 the external
auditor. Details of amounts paid to the external auditor for audit and
non-audit services in 2017 are analysed in Note 3 on page 89. Other
than the auditor’s Half-yearly review of Marshalls plc, no amounts were
paid for non-audit work. The aggregate amount paid to other firms
of accountants for non-audit services in the same period was £368,000
(2016: £245,000).
Internal audit
The Committee has responsibility for monitoring the effectiveness of
internal controls and reviews these on an ongoing basis. The internal
audit process of reviewing and reporting on the internal control system
is carried out by KPMG LLP, appointed by the Committee in 2015 to act
as internal auditor for the Group. The annual internal audit programme
is 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.
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.
During the year, in addition to the regular internal control process, KPMG
LLP conducted specific reviews on cyber security risk and the policies
and procedures in operation to manage the supply chain. Other reviews
included reviews in relation to taxation, budget procedures and GDPR.
The Committee is pleased to report that, although the wider risk of
cyber fraud continues to increase, no significant failings or weaknesses
were identified during the year. There were no incidences of fraud
that significantly affected the Group’s business during 2017. A rolling
programme of cyber security awareness training is undertaken and
external presentations were made to selected groups of employees
by specialists from the Group’s banking partners.
Effectiveness of the external audit
An annual review of external audit effectiveness was undertaken
by the Committee in 2017. The conclusion of the review was that
the external auditor had conducted a comprehensive, appropriate
and effective audit. Communication, at all levels, had been open
and constructive and areas where the external auditor could work
more effectively, in respect of each phase of the audit, were identified.
Effectiveness of the internal audit
An annual review of internal audit effectiveness and of the
performance of KPMG LLP as independent internal auditor was
undertaken by the Committee in 2017.
The conclusion was very positive and was that the current internal
audit process continues to be an efficient and effective means of
managing the internal audit function. The Committee has considered,
with KPMG LLP, how this process can be developed further and
further improvements have been reflected in the 2018 plan.
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.
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. All employees in decision-
making roles with potential exposure to bribery risk have completed
the training and must self-certify annually that they continue to comply.
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.
The Audit Committee Report has been approved by the Board and
signed on its behalf by:
Graham Prothero
Chair of the Audit Committee
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
49
CORPORATE GOVERNANCE Remuneration Committee Report
Engagement with our employees
and other stakeholders on
remuneration is an important
feature of our commitment to
fairness and transparency.”
Role of the Remuneration Committee
The Committee’s responsibilities include:
DECISIONS MADE DURING THE YEAR
• Review and approval of Remuneration Policy, tabled to 2017 AGM
for shareholder approval.
• setting remuneration policy for Executive Directors;
• Approval of Executive incentive awards following 2016
results announcement.
• Setting Executive Director remuneration packages for 2018, having
taken into account pay and benefits among the wider workforce
and in the comparator group: also noting and monitoring senior
management remuneration below Board level.
• Setting incentive scheme targets for 2018 using stretching financial
and non-financial measures designed to align with strategic
objectives and shareholder interests.
• Appointment of Non-Executive Director with responsibility for
employee engagement on remuneration matters (Janet Ashdown).
OUR FUTURE TARGETS
• Develop action plan for engagement with employees and other
stakeholders on remuneration, to be rolled out during 2018.
• Review pay and benefit structures for Executive Directors and senior
management against results of gender pay analysis, using new HR
systems and associated benchmarking to improve understanding
of the underlying factors and develop action plans to address
any imbalance.
• Review incentive schemes for Executive Directors and their direct
reports to ensure they are aligned with latest best practice. Current
management incentive plan (“MIP”) expires in 2020, commence
design of replacement scheme for approval in 2019.
APPLICATION OF THE POLICY FOR 2018
• Current MIP scheme is in line with good governance guidance from
the Investment Association and other voting institutions. Continue
to set stretching and relevant incentive targets that are closely aligned
with Group strategy and reward success in a measured and sustainable
way through a combination of shorter and longer-term incentives.
• Focus on fairness and transparency: take account of feedback
through our planned employee engagement programme and
reflect in future pay reviews and benchmarking.
• Ensure the application of remuneration policy and resulting packages
support the Group’s initiatives on strategy, diversity and the
strengthening of values and culture.
• 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 / her
own remuneration. Janet Ashdown, Tim Pile and Graham Prothero
are all Independent Non-Executive Directors within the definition
of the Code, and Andrew Allner satisfied the independence
condition on his appointment as Non-Executive Chairman in 2010.
None of them have any personal financial interest (other than as
shareholders) in matters to be decided, nor do they have any
conflicts of interest from cross-directorships or any day-to-day
involvement in running the business.
REMUNERATION COMMITTEE MEMBERS
• Janet Ashdown – Chair
• Andrew Allner
• Tim Pile
• Graham Prothero
HIGHLIGHTS OF 2017
• Remuneration Policy reviewed against best practice and
approved by 96 per cent of voting shareholders at 2017 AGM.
• Strong Group performance resulting in achievement of
Executive incentive targets that are well-aligned with
shareholder and stakeholder objectives, with significant
element of variable award in shares or share equivalents.
• Committee has responded to recommendations in the Green
Paper and changes proposed by the FRC to the UK Corporate
Governance Code; appointment of Janet Ashdown as
Non-Executive Director with responsibility for employee
engagement on remuneration matters.
• Committee monitoring of the Group’s 2017 gender pay gap
statistics, as part of commitment to ensuring recruitment and
reward structures support diversity objectives.
50
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Dear Shareholder
I am writing to you as the Chair of Marshalls’ Remuneration
Committee and am pleased to set out in this report how the
Committee has carried out its objectives and responsibilities
during 2017.
This report is divided into two; an introduction and “at a glance“ summary
of our activities and our Annual Remuneration Report, showing how our
Policy was applied during the year and outcomes for our executives.
Wider workforce considerations
Marshalls is committed to creating an inclusive working environment and to
rewarding our employees throughout the organisation in a fair manner. In
making decisions on executive pay, the Remuneration Committee considers
wider workforce remuneration and conditions. We believe that employees
throughout the Company should be able to share in the success of the
Company and, in 2015, we introduced a tax advantaged Save-As-You-Earn
plan for this purpose. We also believe that employees should have the
opportunity to save for their futures and to this end we introduced a
new defined contribution scheme during 2017. This provides a much
improved pension savings mechanism for all employees. We are proud to
be a Living Wage Employer and believe that fair working conditions should
extend throughout not just our own organisation but also along our supply
chain. Marshalls has worked closely with external organisations to evaluate
our business and supply chain against the principles now embodied in the
Modern Slavery Act 2015 to eliminate slavery in all its forms.
As part of our commitment to fairness, we have introduced a new section
to this report (see pages 58 and 59) which sets out more information on
our wider workforce pay conditions, our CEO to employee pay ratio, our
gender pay statistics and our diversity initiatives. Whilst we recognise there
is much work still to do, we believe that transparency is an important first
step towards making improvements in relation to these issues.
Board changes
The Committee was delighted to welcome its newest member, Graham
Prothero, following the 2017 AGM. Graham brings a wealth of insight
from his experience in professional services and, more recently, as Group
CFO of Galliford Try plc.
Shareholders
I would like to thank our shareholders for their continued support during
the year. I will be available at the Company’s Annual General Meeting on
9 May 2018 to answer any questions in relation to this Remuneration Report.
Janet Ashdown
Chair of the Remuneration Committee
14 March 2018
Voting outcomes 2017
I93+
90+
Remuneration Report
For
Against
Votes withheld
Remuneration Policy
For
Against
Votes withheld
At the 2017 AGM, 96 per cent of shareholders voted in favour of
the Remuneration Policy, and 95 per cent of shareholders voted
in favour of the Remuneration Report.
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 engagement are available on request
from the Company Secretary. PwC also provided advice to the Group
during the year in relation to the DC pension scheme reforms and the
acquisition of CPM Group Limited. 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
2017 included: assistance in the preparation of the Remuneration
Committee Report; the triennial review of Remuneration Policy;
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 2017 was £40,000 (2016: £25,000).
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.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
51
CORPORATE GOVERNANCE
7
+
3
+
5
+
2
+
I
Remuneration Committee Report continued
At a glance
2017 remuneration outcomes
The tables below set out how we performed against targets for the Management Incentive Plan ("MIP") in 2017. Pages 61 and 62 set out further information
regarding performance measures and targets, which are linked to the key strategic objectives highlighted on pages 18 and 19 of the Strategic Report.
MIP Element A: 100 per cent of maximum (2016: 96.9 per cent of maximum) was awarded to the Chief Executive Officer and Chief Financial Officer.
MIP Element B: 100 per cent of maximum (2016: 96.9 per cent of maximum) was awarded to the Chief Executive Officer and Chief Financial Officer.
EPS
Minimum
(0% payable)
18.86p
Maximum
(100% payable)
Actual
(2017)
Percentage of
target achieved
Percentage
of salary earned
(Element A)
Percentage
of salary earned
(Element B)
21.73p
22.41p
100%
112.5%
75.0%
Operating cash flow / EBITDA £52.2m
£68.4m
£68.7m
100%
37.5%
25.0%
Non-financial targets (Customer Service and Health and Safety)
100%
No deduction
No deduction
Long‑term performance
The following chart shows the single figure of remuneration for the CEO over the last 3 financial years compared to the Company’s EPS and
operating cash flow over the same period. The chart demonstrates a strong correlation between Company performance demonstrated by these
measures and the remuneration paid to the CEO.
240
220
200
180
160
140
120
100
2014
2015
2016
2017
— CEO single figure — EPS — Operating cashflow (£’m)
Link to strategy
The following table sets out the Company’s KPIs and how they are reflected in the operation of the MIP:
Strategic KPI
Revenue
Profit
ROCE
Net debt
Customer service
Health and safety
Measure
EPS / OCF
EPS / OCF
EPS / OCF
OCF
Index KPI
Target KPI
Remuneration
element
MIPA / MIPB
MIPA / MIPB
MIPA / MIPB
MIPA / MIPB
MIPA / MIPB
MIPA / MIPB
Full details of the Company’s strategy are set out in the Strategic Report on pages 2 to 33.
2016 / 17 single figure
The following charts summarise the single figure of remuneration for 2017 in comparison with 2016 and with the minimum, target and maximum
remuneration scenarios from the 2017 Remuneration Policy to show how the actual remuneration compares to the Policy remuneration. For those elements
of remuneration provided in shares in 2016 and 2017, we have separated out their original value on grant and the additional value generated due to share
price growth over the vesting period. It is the Committee’s view that one of the key objectives of equity based remuneration is to align executives’ interests
and those of shareholders. The increase in value of awards due to share price growth over the vesting periods is another demonstration of this alignment.
Explanatory notes on the single figure can be found in the Annual Report on Remuneration (page 60).
Martyn Coffey
(CEO)
Jack Clarke
(CFO)
2017
2016
2017
2016
456
448
86
323
215
84
547
205
840
400
463
2,383
229
1,913
295
56
212
141
464
257
1,425
290
55
297
134
230
97
1,103
)
0
0
0
£
(
’
n
o
i
t
a
r
e
n
u
m
e
R
0
500
1000
1500
2000
2500
Salary and other benefits
Salary supplement in lieu of pension
MIP Element A
MIP Element B
LTIP / MIP
Proportion due to share price growth
52
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE
Total remuneration opportunity under the Policy for each of the Executive Directors at 3 different levels of performance is shown below:
Chief Executive
Finance Director
33%
40%
27%
Outperformance
33%
40%
27%
Outperformance
42%
35%
23%
Target
42%
35% 23%
Target
100%
Below threshold
100% Below threshold
0
500
1,000
1,500
2,000
0
500
Salary, benefits and pension
£’000
MIP Element A
MIP Element B
Notes:
1,000
£’000
1,500
2,000
(a) Base salary, benefits and pension information is taken from the single figure remuneration table in the 2016 Annual Remuneration Report. The benefits value reflects a fully expensed company car, medical
insurance and any other taxable benefits and pension includes the level of pensions allowance paid instead of contractual employer pension contributions.
(b) Achievement of performance targets in line with expectations will result in 70 per cent of the annual award under the MIP.
(c) The minimum assumes a performance that fails to meet the threshold for Element A and Element B so is the level below which no variable pay under the MIP is earned.
(d) The maximum represents the full 250 per cent of salary potential under the MIP.
Comparison to peers
The following chart shows the relative position of base salary and total compensation for our Executive Directors compared to our peers.
s
0
0
0
£
)
’
O
E
C
(
y
e
ff
o
C
n
y
t
r
a
M
2,000
1,500
1,000
500
0
s
0
0
0
£
)
’
O
F
C
(
e
k
r
a
l
C
k
c
a
J
1,200
1,000
800
600
400
200
0
Base salary
Total compensation
Base salary
Total compensation
Lower Quartile to Median
Middle to Upper Quartile
Martyn Coffey (CEO) / Jack Clarke (CFO)
The chart demonstrates the Committee’s policy that salary and benefits should be set at or below the market level, with variable incentives
allowing an overall above-market positioning when the Company has performed well. The variable element assumes an “on-target" performance
under relevant incentive schemes.
Shareholding requirement
The minimum shareholding requirement for Executive Directors is set out below. It must be built up over a 5-year period and then subsequently
held at an equivalent of 200 per cent of base salary.
Martyn Coffey
(CEO)
Jack Clarke
(CFO)
200%
200%
287%
501%
0%
100%
200%
300%
400%
500%
600%
Actual shareholding
Shareholding requirement
Remuneration, equity and reward of the Executive Directors
It is the Committee’s view that it is important when considering the remuneration paid in the year under the single figure to take a holistic view of
the Director’s total reward linked to the performance of the Company. In the Committee’s opinion, the impact on the total reward of the Director is
more important than the single figure in any one year. This approach encourages Directors to take a long-term view of the sustainable performance
of the Company, which is critical in a cyclical business. The ability for the Directors to gain and lose, dependent on the share price performance of
the Company, at a level which is material to their total remuneration is a key facet of the Company’s Remuneration Policy.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
53
CORPORATE GOVERNANCE
Remuneration Committee Report continued
At a glance continued
The following table sets out the single figure for 2017, the number of shares held by the Executive Directors at the beginning and end of the
financial year and the impact on the value of these shares taking the opening price and closing price for the year.
Impact of share price appreciation on single figure remuneration
Impact of share price appreciation on value of shares held
Martyn Coffey
(CEO)
Jack Clarke
(CFO)
2,383
1,920
2,155
1,385
1,425
1,168
810
521
0
500
1,000
1,500
2,000
2,500
0
500
1,000
1,500
2,000
2,500
Full impact of share price appreciation
Assuming no share price appreciation
Implementation of policy in 2017 and 2018
Period over which earned
Element and link to strategy
2017
2018
2019
2020
2021
2022
2023
2024
How we implemented the policy in 2017
How we will implement the policy in 2018
Salary and benefits
Base salary recognises the market value of the Executive’s role, skills,
responsibilities, performance and experience.
Typically, the base salaries of Executive Directors in post at the start of the
Policy period and who remain in the same role throughout the Policy period
will be increased by a similar percentage to the average annual percentage
increase in salaries of all other employees in the Group. Benefits include
company car / allowance, private medical cover and health screening.
Pension
To enable Executive Directors to make appropriate provision for retirement.
MIP Element A
Enabling the successful implementation of Group strategy through setting
relevant annual targets to measure Executive Director performance. Aligns
the interests of Executive Directors with shareholders and contributes to the
retention of key individuals by ensuring that Executive Directors take part of
their annual bonus in shares or share-linked units rather than cash.
Upon assessment of performance by the Committee, a contribution will be
made by the Company into the participant’s plan account and 50 per cent
of the cumulative balance will be paid in cash. Any remaining balance will
be converted into shares or share-linked units.
100 per cent of the balance in the final year of the plan will normally be paid
in shares to the participant. During the plan period, 50 per cent of the
retained balance is at risk of forfeiture based on a minimum threshold level
of performance determined annually by the Committee.
MIP Element B
To promote long-term shareholding in the Company and strengthen
alignment between interests of Executive Directors and those of shareholders.
To link variable pay to achievement of annual financial and business objectives.
Awards are made annually in shares. Awards normally vest after three years,
subject to continued employment.
Once vested (net of tax), the shares may not be sold for a further 2 years.
There is a minimum threshold which, if not achieved at the end of the 3 year
vesting period, results in the forfeiture of up to 50 per cent of unvested awards.
54
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
Executive Director salaries for 2017 were
A salary increase of 3.5 per cent will be applied at the salary review date. From 1 January 2018,
Salary increases were 2 per cent in 2017, in
The general employee base salary increase was 3.5 per cent from 1 January 2018.
as follows:
CEO – £430,000
CFO – £282,000
Executive Director salaries will be:
CEO – £445,000
CFO – £292,000
line with inflation and increases for UK
employees generally.
The maximum Company contribution or
No change.
pension allowance is 20 per cent of salary.
Maximum opportunity in 2017 was
No change to opportunities under the MIP.
as follows:
CEO – 150 per cent of base salary
and developing our brand, while also remaining innovative and operating sustainably with the
CFO – 150 per cent of base salary
highest standards of health, safety and social responsibility. The Committee believes that EPS and
the ratio of OCF to EBITDA remain the most appropriate criteria for measuring achievement of our
The performance measures were:
financial objectives and that a combination of financial and non-financial criteria avoids
Our strategic priorities for 2018 are focused on improving profit margins, growing our business
inadvertently motivating irresponsible behaviour.
EPS (75 per cent);
operating cash flow (25 per cent); and
non-financial targets (which, if not met,
result in a 10 per cent deduction for each
missed target from amount earned under
financial measures).
The outcome level for 2017 was as follows:
CEO – 100 per cent award
CFO – 100 per cent award
The performance measures are the same for
Element A and Element B in 2017.
The weighting for 2018 awards under the MIP will be: EPS: 75 per cent; and OCF to EBITDA: 25 per
cent. 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. There
will also be non-financial performance conditions, to reflect our focus on brand, customers and
employees. Customer service must remain at or above 95 per cent and the rate of lost time due to
workplace accidents must not fall below an agreed threshold, benchmarked by reference to the
“base“ year (2015). If the non-financial criteria are not met, there is a reduction of award value
earned by 10 per cent in relation to each of these additional conditions.
Element A awards have a forfeiture threshold set annually at the time 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 2018. It is the view of the Committee that the targets
for 2018 MIP awards 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 against the targets set.
There are malus and clawback provisions in the MIP rules which apply to both 2017 and 2018 awards.
CORPORATE GOVERNANCE At a glance continued
The following table sets out the single figure for 2017, the number of shares held by the Executive Directors at the beginning and end of the
financial year and the impact on the value of these shares taking the opening price and closing price for the year.
Impact of share price appreciation on single figure remuneration
Impact of share price appreciation on value of shares held
Full impact of share price appreciation
Assuming no share price appreciation
Implementation of policy in 2017 and 2018
Period over which earned
2017
2018
2019
2020
2021
2022
2023
2024
How we implemented the policy in 2017
How we will implement the policy in 2018
Executive Director salaries for 2017 were
as follows:
A salary increase of 3.5 per cent will be applied at the salary review date. From 1 January 2018,
Executive Director salaries will be:
CEO – £430,000
CFO – £282,000
CEO – £445,000
CFO – £292,000
Salary increases were 2 per cent in 2017, in
line with inflation and increases for UK
employees generally.
The general employee base salary increase was 3.5 per cent from 1 January 2018.
The maximum Company contribution or
pension allowance is 20 per cent of salary.
No change.
Maximum opportunity in 2017 was
as follows:
CEO – 150 per cent of base salary
CFO – 150 per cent of base salary
The performance measures were:
EPS (75 per cent);
operating cash flow (25 per cent); and
non-financial targets (which, if not met,
result in a 10 per cent deduction for each
missed target from amount earned under
financial measures).
The outcome level for 2017 was as follows:
CEO – 100 per cent award
CFO – 100 per cent award
The performance measures are the same for
Element A and Element B in 2017.
No change to opportunities under the MIP.
Our strategic priorities for 2018 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 remain the most appropriate criteria for measuring achievement of our
financial objectives and that a combination of financial and non-financial criteria avoids
inadvertently motivating irresponsible behaviour.
The weighting for 2018 awards under the MIP will be: EPS: 75 per cent; and OCF to EBITDA: 25 per
cent. 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. There
will also be non-financial performance conditions, to reflect our focus on brand, customers and
employees. Customer service must remain at or above 95 per cent and the rate of lost time due to
workplace accidents must not fall below an agreed threshold, benchmarked by reference to the
“base“ year (2015). If the non-financial criteria are not met, there is a reduction of award value
earned by 10 per cent in relation to each of these additional conditions.
Element A awards have a forfeiture threshold set annually at the time 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 2018. It is the view of the Committee that the targets
for 2018 MIP awards 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 against the targets set.
There are malus and clawback provisions in the MIP rules which apply to both 2017 and 2018 awards.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
55
Element and link to strategy
Salary and benefits
Base salary recognises the market value of the Executive’s role, skills,
responsibilities, performance and experience.
Typically, the base salaries of Executive Directors in post at the start of the
Policy period and who remain in the same role throughout the Policy period
will be increased by a similar percentage to the average annual percentage
increase in salaries of all other employees in the Group. Benefits include
company car / allowance, private medical cover and health screening.
To enable Executive Directors to make appropriate provision for retirement.
Pension
MIP Element A
Enabling the successful implementation of Group strategy through setting
relevant annual targets to measure Executive Director performance. Aligns
the interests of Executive Directors with shareholders and contributes to the
retention of key individuals by ensuring that Executive Directors take part of
their annual bonus in shares or share-linked units rather than cash.
Upon assessment of performance by the Committee, a contribution will be
made by the Company into the participant’s plan account and 50 per cent
of the cumulative balance will be paid in cash. Any remaining balance will
be converted into shares or share-linked units.
100 per cent of the balance in the final year of the plan will normally be paid
in shares to the participant. During the plan period, 50 per cent of the
retained balance is at risk of forfeiture based on a minimum threshold level
of performance determined annually by the Committee.
MIP Element B
To promote long-term shareholding in the Company and strengthen
alignment between interests of Executive Directors and those of shareholders.
To link variable pay to achievement of annual financial and business objectives.
Awards are made annually in shares. Awards normally vest after three years,
subject to continued employment.
Once vested (net of tax), the shares may not be sold for a further 2 years.
There is a minimum threshold which, if not achieved at the end of the 3 year
vesting period, results in the forfeiture of up to 50 per cent of unvested awards.
CORPORATE GOVERNANCE Remuneration Committee Report continued
Implementation of policy in 2017 and 2018 continued
Non‑Executive Directors
The Board also approved an increase in the fees of 3.5 per cent from 1 January 2018, in line with Executive Directors and UK 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 (SID)
Graham Prothero
Tim Pile
1 January 2018
£’000
1 January 2017
£’000
Percentage
increase
148.3
54.5
51.6
46.3
143.3
52.7
–
44.7
3.5
3.5
3.5
3.5
Fairness, diversity and wider workforce considerations
Competitive pay and cascade of incentives
The Committee ensures that pay is fair throughout the Company and makes decisions in relation to the structure of executive pay in the context of the cascade
of pay structures throughout the business. The Committee’s remit includes setting remuneration for Executive Directors and overseeing remuneration levels
and structure of rewards for senior management. Targets under the MIP and the Bonus Share Plan ("BSP") scheme use the same measurements. In addition,
there are incentive opportunities for employees (other than Executive Directors and senior management) that are job related.
Level (number)
Executive Directors (2)
Executive Committee (5)
Senior Management (12)
Employees in BSP (49)
Employees in other job related bonus or commission
schemes (460)
Participation
in Element A
of the MIP
(percentage range)
Participation
in Element B
of the MIP
(percentage range)
Participation in
other bonus or
commission plans
150% of salary
100% of salary
85% to 120% of salary 55% to 70% of salary
45% to 55% of salary 30% to 35% of salary
X
X
X
15% to 45%
+5% bonus shares
Sales bonuses
Participation in
employee
share plans
(Sharesave / SPP)
Living wage employer
Marshalls is proud to be a “Living Wage Employer”, underscoring its commitment to its employees. Marshalls benchmarked its average salaries against
other similar companies (as part of the review of job evaluations carried out by external consultants in connection with the HR system implementation)
and this showed that its average pay rates for equivalent jobs were generally competitive or at the higher end of the comparable range.
Saving for the future
In 2017 the Group established a new defined contribution scheme within a Master Trust operated by Aviva, and increased its overall employer
pension contribution, benefiting the majority of employees. This will provide an improved pension savings mechanism for employees.
Bonus Share Plan
The Bonus Share Plan approved in 2015 provides the opportunity for those in the BSP to earn “free" bonus shares of up to 5 per cent of salary, which
vest after 3 years subject to continued employment.
Sharesave Scheme / Share Purchase Plan
The Marshalls 2015 Sharesave Scheme encourages wider ownership of Marshalls plc shares across the entire workforce, which ensures that the
employees are able to participate in the Group’s success in a way that aligns their interests with those of shareholders. The Share Purchase Plan allows
employees to purchase shares on a monthly basis out of gross salary, another way of incentivising investment by employees in the Company’s shares.
Fairness throughout our supply chain
From living wages in the UK to the elimination of child labour in India, we are committed to ensuring that what is good for business is good for
society. Our approach to labour rights is driven by the ETI Base Code which we adopted in 2005. To ensure that the Base Code principles are
embedded within operations and supply chains, we employ social auditors in India, China and Vietnam, who regularly carry out checks and audits
to ensure that the Base Code is being upheld and to report any concerns or violations so that we can take swift action should we need to. Marshalls
has also worked closely with external organisations to evaluate our business and supply chain against the principles now embodied in the Modern
Slavery Act 2015 to eliminate slavery in all its forms. Our Modern Slavery Statement can be found on the Company’s website (www.marshalls.co.uk).
Marshalls was the first company in its sector to belong to the ETI and is committed to the ETI Base Code.
Pay comparisons
CEO ratio
Our CEO to average employee pay ratio for 2017 is 64.1. This is measured as the ratio of CEO single figure pay realised in the year to average (mean)
employee pay. To give context to this ratio, we have included a chart tracking CEO pay and average employee pay since Martyn Coffey’s appointment
alongside Marshalls’ TSR performance over the same period. The Remuneration Committee has always been committed to ensure that CEO reward
is commensurate with performance. The chart shows a clear alignment between shareholder returns and CEO single figure pay. The CEO single
figure for 2013 was affected by the retiring CEO’s 2012 and 2013 LTIP awards vesting early on a pro-rata basis owing to his good leaver status.
56
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE The factors leading to the increase in the ratio over the last 3 years is the strong performance of the Company reflected in the total shareholder
return which has resulted in high levels of vesting of share-based incentives granted to the CEO. The value of these incentives has also materially
increased over the performance period due to share price growth, as shown in the charts on pages 53 and 54. Shareholders expect the CEO to have
a significant proportion of his pay based on performance and paid in shares. It is this element of his package which provides the volatility in CEO
remuneration and the variations in the ratio.
2010
2011
2012
2013
2014
2015
2016
2017
21.5x
23.6x
30.6x
98.1x
32.0x
60.0x
51.4x
64.1x
Ratio of single figure total
remuneration to average employee
CEO / average pay against TSR
600.0
500.0
400.0
300.0
200.0
100.0
0
2014
2016
— CEO single figure — Average pay — Total Shareholder Return
CEO pay in the last 8 years
This table shows how pay for the CEO role has changed in the last 8 years:
2015
2017
Year
Single figure remuneration
% of maximum annual bonus
earned
% of maximum LTIP awards
vesting
Notes:
2010
£’000
671
2011
£’000
752
2012
£’000
938
2013
(Note b)
£’000
3,143
2014
£’000
1,101
2015
£’000
2,064
2016
£’000
2017
£’000
1,913
2,383
38.6%
78.1%
33.0%
63.6%
99.3%
100%
96.9%
100%
0
0
0
63.0%
0
100%
100%
100%
(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).
Total shareholder return
900
800
700
600
500
400
300
200
100
0
Dec
2012
Dec
2013
Dec
2009
Dec
2011
Dec
2008
Dec
2010
— Marshalls plc — FTSE 250 Index — FTSE Small Cap Index
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 2017 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 232 per cent better than the overall performance of the FTSE Small
Cap Index and 239 per cent better than the FTSE 250 in 2017.
Dec
2014
Dec
2017
Dec
2015
Dec
2016
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
57
CORPORATE GOVERNANCE Remuneration Committee Report continued
Fairness, diversity and wider workforce considerations continued
Percentage change in CEO’s remuneration
The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2016 and 2017 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
2017
430
2016
422
81,571
78,450
2,306
35.4
2,252
34.8
Percentage
change
(Note a)
%
1.9
4.0
2.4
1.5
Taxable benefits
£’000
Percentage
change
Bonus (Note b)
£’000
Percentage
change
2017
26
2016
26
2,517
2,337
365
6.9
361
6.5
%
–
7.7
1.1
6.5
2017
538
2016
752
3,372
4,207
527
6.4
432
9.7
%
(28.5)
(19.8)
22.0
(34.3)
CEO pay
UK total pay
Number of employees
Average per employee
Notes:
(a) Martyn Coffey’s salary was increased on 1 January 2017 by 2 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 single figure remuneration table on page 60.
(c) A 2 per cent increase was awarded to the workforce on 1 January 2017. The table above shows, however, that the average salary increase per employee for 2017 was slightly lower. This was due to variations
in overtime in the current year and specific variations relating to the impact and timing of leavers and new starters.
(d) The table above shows that the average bonus per employee decreased by 34.3 per cent in 2017 compared with the prior year. This is due to the impact of the participation of senior management (other
than Executive Directors) in the 2017 MIP. In 2017, the MIP bonus comprised the first year of cycle 2 of the Scheme, with no elements carried forward from cycle 1 resulting in a fall against the previous year.
Amounts carried forward from earlier years for Executive Directors are disclosed in the long-term incentive column of the single figure remuneration table on page 60. In 2016, the final LTIP awards also vested.
Gender balance and pay
At the end of 2017 our total workforce comprised 2,603 employees with the following gender balance:
Total workforce
Senior managers
Directors
Male
83%
86%
83%
Female
17%
14% 1
17%
1
Senior managers comprise those in positions of management or control within the business as reflected in job bandings and measured consistently with previous years. The Company has also provided
data to the Hampton-Alexander reporting initiative in relation to the gender balance at the levels of Board, Executive and their direct reports. This showed a slightly higher female percentage at
Executive Committee level (19.4 per cent) based on the smaller Hampton-Alexander reporting sample.
The UK Government Equalities Office legislation requires employers with more than 250 employees to disclose information on their gender pay
gap annually. The first such disclosure is based on amounts paid in the April 2017 payroll. The bonus gap is based on incentives paid in the year to
31 March 2017. The Marshalls Group has two employing companies: Marshalls plc (which has less than 250 employees, mostly at Director/Senior
Manager level) and Marshalls Group Limited, which employs all remaining employees. The charts show the consolidated results for Marshalls plc
and Marshalls Group Limited, which provides a more accurate overview of pay balance; however, the separate information that is required by the
legislation in relation to Marshalls Group Limited is also included below. This information will also be posted on Marshalls’ website. CPM Group Limited
was acquired in October 2017, and will report separately for 2017 as it remains a separate employer.
Marshalls is committed to equal pay and opportunities for men and women throughout the Group. The gender pay gap analysis is based on a calculation
of the average hourly pay and bonus of all our employees, irrespective of what job they do. This shows that as at April 2017 there is a median gender pay
gap of 19.3 per cent (consolidated) (20.7 per cent: Marshalls Group Limited), and a mean gender pay gap of 15.7 per cent (consolidated) (17.8 per cent:
Marshalls Group Limited). Our recruitment policies, salary and bonus structures are designed to be gender-neutral, and for male and female employees
in similar roles, the rates of pay and bonus are the same. However, as the gender split analysis shows, more than 80 per cent of our workforce are male,
and there are more males than females in every pay band across the organisation. This is representative of the construction sector generally.
We are evaluating the 2017 results to develop our understanding of the detailed contributory factors. In broad terms, because the construction
sector has traditionally attracted more men than women, a majority of our longer-serving employees (for example in middle management or shift
leader positions) are male, and most of the senior roles, attracting the highest pay and bonus, are also currently held by men, we believe these are
the main reasons for the difference. With the assistance of PwC, we will be analysing the results in detail so that we are able to develop our
processes. A breakdown pay gap by quartile is shown opposite:
58
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Quartile C
Quartile A (Highest)
Quartile B
88+
91+
91+
F 94+
92+
F 93+
66+
F 69+
Consolidated
Male 91%
Consolidated
Male 88%
Consolidated
Male 66%
Consolidated
Male 92%
Female 34%
Female 12%
Female 8%
Female 9%
Quartile D (Lowest)
Marshalls Group Limited
Marshalls Group Limited
Marshalls Group Limited
Marshalls Group Limited
Male 91%
Female 9%
Male 94%
Female 6%
Male 93%
Female 7%
Male 69%
Female 31%
When analysing bonus outcomes, the same factors are relevant. We know our bonus awards are gender-neutral, and across our consolidated
workforce more women than men participate in a bonus scheme: however, the predominance of men in senior roles carrying higher base pay
means that we are also reporting a gender pay gap in mean and median bonus.
Percentage receiving bonus
Consolidated
Marshalls Group Limited
Mean bonus gap
Consolidated
Marshalls Group Limited
Median bonus gap
Consolidated
Marshalls Group Limited
Male
Female
14%
13%
36%
42%
82.8%
74.2%
78.3%
77.8%
The introduction during 2017 of our new HR system, together with a pay benchmarking exercise across all jobs within the organisation, will, for the
first time, allow us to develop consistent control monitoring of recruitment policies and pay. This in turn will lead to better alignment of pay with job
grades, which are scored in a gender-neutral way. We are also engaged in initiatives to make our employment opportunities more attractive to
female applicants to address gender imbalance, for example in outreach programmes in schools and colleges to support women in engineering,
in reviewing and improving flexible working policies for all our workforce and in ensuring that recruitment fosters applications from individuals of
diverse backgrounds to improve the gender mix.
Diversity initiatives
The Group has policies that promote equality and diversity in the workforce as well as prohibiting discrimination in any form. The Group launched
a Code of Conduct during 2017, initially focusing on its supply chain, which clearly states its commitment to these principles and requires a similar
commitment from its business partners.
Marshalls is supportive of the initiatives reflected in the Hampton-Alexander, Parker, and McGregor-Smith reviews to improve ratios in gender and ethnic
diversity at Board and senior management level as well as in the wider workforce. Aligning pay and recruitment policies with these principles forms
a key element of our planning for 2018 and beyond.
The Remuneration Committee Chair’s engagement programme is expected to include a focus on initiatives to eliminate unconscious bias, if it is
found, and to ensure our pay and performance policies are fair and transparent with measures to encourage applications from talented and motivated
individuals regardless of gender, ethnicity, degree of physical ability or background. Retention of such people by giving fair consideration to flexible
working policies where appropriate, and ensuring incentive schemes are fairly distributed will also be key elements of our diversity strategies. We aim
to make progress on these objectives in moving towards the 2020 target of at least 33 per cent of our Board and senior management being female.
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.
More information on our employees, gender diversity and our social and ethical policies can be found on page 33.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
59
CORPORATE GOVERNANCE12
+
I
9
+
I
8
+
I
34
+
I
9
+
6
+
7
+
31
+
F
Remuneration Committee Report continued
Annual Remuneration Report
This report covers the reporting period from 1 January 2017 to 31 December 2017 and explains how the Remuneration Policy has been
implemented. Comparative figures for the 2016 financial year have also been provided.
Fixed (£’000)
Performance related (£’000)
Salary
Other benefits
Salary supplement
in lieu of pension
MIP Element A
MIP Element B
LTIP / MIP
Total
Annual bonus
Long-term incentives
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
430
282
712
422
277
699
26
13
39
26
13
39
86
56
84
55
142
139
323
212
535
547
297
844
215
141
356
205
134
1,303
721
629
327
2,383
1,425
1,913
1,103
339
2,024
956
3,808
3,016
Note a
Note b
Note c
Notes d
and e
Martyn Coffey
Jack Clarke
Total
Notes:
(a) Benefits are car / car allowance, fuel / fuel allowance, private medical insurance, life insurance and travel and accommodation expenses.
(b) 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.
(c) The annual bonus column shows 50 per cent of the total bonus contribution earned under the MIP Element A in respect of 2017 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 2017 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 2017 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 long-term incentive column when the conditions are satisfied. The deferred shares in relation to both Element A
and Element B may change in value during the holding period depending on the Marshalls’ share price.
(d) The long-term incentive 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.
(e) For 2017, the LTIP column comprises the aggregate value of sums released from the MIP, at the end of the first cycle, in relation to Element A and Element B. Of these amounts, the Remuneration Committee
have determined that MIP Element A will be settled in cash and MIP Element B will be settled in shares. For 2016, the LTIP comprises the 2014 Performance Share Award under the 2005 LTIP that vested and
was settled during 2017.
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’s strategy is to increase capital investment 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 2017 the Group was re-accredited with the Fair Tax Mark.
Relative importance of spend on pay (percentage change)
Staff pay
(£’m)
+ 2.4%
79.7
80.1
82.0
Distributions to
shareholders (£’m)
+ 26.6%
24.1
19.0
12.3
Capital investment
(£’m)
+ 46.0%
Tax
(£’m)
+ 4.7%
18.9
71.1
71.0
74.4
14.0
12.9
2015
2016
2017
2015
2016
2017
2015
2016
2017
2015
2016
2017
60
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Outcomes of incentive schemes in 2017 (audited)
This section explains how 2017 performance is reflected in rewards earned by the Executive Directors under the Company’s incentive schemes.
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 or share-
linked units; 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 Remuneration Committee at the date of award. The table below
shows the 2017 performance conditions and the extent to which they have been satisfied.
Measurement
EPS
Operating cash flow (before
restructuring costs)
Non-financial targets
Percentage
of maximum
contribution based
on measurement
75%
25%
Minimum
target
Maximum
target
2017
actual
Percentage
of target
achieved
Percentage
of salary
earned
(Element A)
Percentage
of salary
earned
(Element B)
18.86p
21.73p
22.41p
100%
112.5%
75.0%
£52.2m £68.4m
£68.7m
100%
37.5%
25.0%
20% deduction
if not met
95% (customer service)
To match or improve on 2015
performance (health and safety)
Both
achieved
N/A
No
deduction
No
deduction
100%
Performance conditions were set at the beginning of 2017 and the Committee took account of both internal budgets and external factors such as the
market consensus of investors for the full year 2017. During the year, cash flow from sales improved significantly and pre-tax profit grew by 13 per cent.
This performance meant that the stretching EPS and OCF targets were both met in full, resulting in a combined 100 per cent achievement against
target. The share price rose by 56 per cent during the year (31 December 2016: 292.5 pence; 31 December 2017: 454.9 pence), which means the
underlying value of share and share-linked awards from previous years also increased.
EPS
EPS relates to our strategic objective to grow profits. The Group’s profit before tax increased by 13 per cent from £46.0 million to £52.1 million.
Reported EPS improved by 14 per cent from 18.95 pence in 2016 to 21.52 pence in 2017. EPS and operating cash flow are both 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. For the 2017 remuneration outcomes the Committee applied adjustments for one-off items relating to the acquisition
of CPM Group Limited and certain operational restructuring items. These adjustments gave rise to an EPS figure of 22.41 pence for the purpose
of remuneration outcomes.
Operating cash flow
Operating cash flow is relevant for measurement of cash flow and overall sustainability. The Group’s operating cash flow to EBITDA ratio for the year
ended 31 December 2017 was at the top 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 2017. The Group also continued its excellent performance against its stated
objective of keeping days lost to accidents to a minimum, by reference to the 2015 rate. Days lost to accidents year on year actually reduced by
a further 35 per cent. Had either of these targets not been met, the overall level of MIP award would have reduced by 10 per cent; the achievement
of these measures means that no reduction factor will apply.
MIP awards 2017
Element A
Plan accounts
Opening balance (number of shares) (Note a)
2017 contribution (percentage of salary earned)
Value
2017 element released (Note b)
Closing balance (deferred into shares)
Number of shares represented by closing balance (Note c)
Martyn Coffey
Jack Clarke
190,344
150%
£645,492
103,238
150%
£423,428
£(1,183,598)
£(678,622)
£322,746
73,341
£211,714
48,110
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
61
CORPORATE GOVERNANCE Remuneration Committee Report continued
Annual Remuneration Report continued
MIP awards 2017 continued
Element B
Number of shares awarded
Percentage of salary
Value
EPS forfeiture threshold (Note d)
Notes:
Martyn Coffey
Jack Clarke
97,788
100%
£430,328
14.32p
64,146
100%
£282,285
14.32p
(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 previously
deferred proportion of the 2016 Element A award was converted into shares by reference to the mid-market average value for the 30-day period ending on 31 December 2016. Dividends paid during the
year are also added to the carried-forward plan account. The chart above shows the opening balance in shares at the start of the year and the closing balance after release of the 2017 entitlement, calculated
by reference to the mid-market average value for the 30-day period ended 31 December 2017 and adding the value of dividends of 12.20 pence per share paid during 2017.
(b) The earned Element A award for 2017 is added to the individual’s plan account, and 50 per cent of the resulting balance is released to the participant as an 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 the final year, subject to any forfeiture provisions, 100 per cent of any balance
in the MIP account is released. As 2017 was the final year of the first 4-year cycle, the full balances for years 1-4 plan accounts were released. At the same time, Year 1 awards for performance in 2017 were made.
(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 2017 (440.06 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 normally be held for 2 years from the date of leaving.
(e) As 2017 was the final year of the first 4-year cycle, the full balances for years 1- 4 plan accounts was released. At the same time, year 1 awards for performance in 2017 were made.
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 November 2017. The Chairman’s fees are set by the Committee and the CEO; 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.
Andrew Allner
Chairman and Chairman of Nomination
Committee
Janet Ashdown
Senior Independent Director, Chairman of
Remuneration Committee and member of
Audit and Nomination Committees
Graham Prothero
Chairman of Audit Committee and member
of Remuneration and Nomination
Committees
Tim Pile
Member of Audit, Remuneration and
Nomination Committees
Mark Edwards (retired 10 May 2017)
Alan Coppin (retired 18 May 2016)
Total
Board fee
£’000
2017
143
2016
141
45
45
29
–
45
44
17
–
279
45
17
292
Committee fees
£’000
Expenses
£’000
2017
2016
2017
2016
–
8
4
–
2
–
–
4
–
–
6
3
14
13
2
1
1
2
–
–
6
1
1
–
1
1
1
5
Total
£’000
2017
145
2016
142
54
50
34
–
47
45
19
–
299
52
21
310
The fees were increased by 3.5 per cent from 1 January 2018 in line with other Group employees. Graham Prothero became Chair of the
Audit Committee in May 2017 on the retirement of Mark Edwards.
The Non-Executive Directors reclaim travel and expenses incurred in the performance of their duties.
62
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Statement of implementation of Remuneration Policy in the following financial year (2018)
See page 55.
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;
• the number of deferred and conditional shares held under the incentive schemes that will vest following the 2017 results; and
• the number of shares subject to unvested incentive awards.
Shareholding requirement
Beneficially
owned
Shares that will vest
following 2017 results
(Note b)
Deferred shares
(Note c)
Deferred and
contingent
share interests
(Note d)
Total interests
in shares (including
contingent interests)
Director
Executive
Martyn Coffey
Jack Clarke
Non‑Executive
Andrew Allner
Janet Ashdown
Graham Prothero
Tim Pile
Notes:
Number
of shares
required
(Note a)
189,198
124,109
–
–
–
–
% of
salary
200
200
–
–
–
–
Number of
shares
Number of
shares
Number of
shares
Number of
shares
Number of
shares
288,202
71,508
57,246
11,210
–
44,740
185,427
106,620
183,531
115,248
256,872
163,358
–
–
–
–
–
–
–
–
–
–
–
–
914,032
456,734
57,246
11,210
–
44,740
(a) The closing price on 31 December 2017 of 454.9 pence per share has been used to measure the number of shares required.
(b) This comprises Element B awards granted in March 2015 (based on 2014 performance) that will vest 3 years from grant (i.e March 2018) (before deduction of any tax and NIC). These must be held for a
minimum of 2 further years.
(c) This column includes the 50 per cent of share interests awarded in 2015, 2016 and 2017 under Element B of the MIP in the form of nil-cost options or conditional shares that may be exercised after the 3-year
vesting period but where vesting is only dependent on continuing employment throughout the 3-year period with no other performance conditions.
(d) This column comprises share interests awarded under the MIP (Element A deferred shares and Element B deferred shares) that remain subject to a financial performance condition 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 2017 (440.06 pence).
(f ) The table above includes the interests of “persons closely associated“ as defined under the Financial Services and Markets Act (Market Abuse) Regulations 2016.
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. 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. No compensation is payable if a Non-Executive Director is required to stand down.
All Directors are subject to annual re-election.
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 AGM.
Element
Term
Date of contract
/ appointment
Notice period in months
Company
Director
Executive Directors
Non–Executive Directors
Martyn Coffey
Jack Clarke
Andrew Allner
Janet Ashdown
Tim Pile Graham Prothero
September 2013
October 2014
July 2003
(renewed in
July 2013 and
May 2016)
March 2015
October 2010
(renewed in
July 2013 and
May 2016)
May 2017
12
6
12
6
6
6
6
6
6
6
6
6
There were no payments made to past directors and no payments to any directors were made for loss of office during 2017.
Janet Ashdown
Chair of the Remuneration Committee
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
63
CORPORATE GOVERNANCE Directors’ Report – Other Regulatory Information
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 (2016: £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 24. 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 16 on pages 97 to 102.
Greenhouse gas emissions: The Group’s CO2 (greenhouse gas) emissions in 2017 are disclosed in the Strategic Report on page 32.
Employees: The Company’s policies in relation to disabled employees and employee involvement and communication are explained in the
Strategic Report on page 33.
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 2017: There have been no important events affecting the Group since the end
of the financial year.
Research and development: Activity and likely future developments for the business are described in the Strategic Report on pages 2 to 33.
Dividends
The Board is recommending a final dividend of 6.80 pence (2016: 5.80 pence) per share which, together with the interim dividend of 3.40 pence
(2016: 2.90 pence) per share, makes a combined dividend of 10.20 pence (2016: 8.70 pence) per share. The Board is also recommending payment of
a supplementary dividend of 4.00 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 29 June 2018 to shareholders registered at the close of business on 8 June 2018.
The ex-dividend date will be 7 June 2018.
The dividend paid in the year to 31 December 2017 and disclosed in the Consolidated Income Statement is 12.20 pence (2016: 9.65 pence)
per share, being the previous year’s final dividend of 5.80 pence (2016: 4.75 pence) per share, the interim dividend of 3.40 pence (2016: 2.90 pence)
per share in respect of the year ended 31 December 2017 and the prior year supplementary dividend of 3.00 pence per share. The 2016 final and
supplementary dividends were paid on 30 June 2017 and the 2017 interim dividend was paid on 6 December 2017.
Share capital and authority to purchase shares
The Company’s share capital at 1 January 2018 was 199,378,755 Ordinary Shares of 25 pence. There has been no change between 31 December 2017
and 14 March 2018. 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 (“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 2017 the EBT
held 1,770,354 Ordinary Shares in the Company (2016: 2,127,022 shares) in respect of future incentive awards under the Company’s employee
share schemes. Details of outstanding awards are set out in Note 17 on pages 105 and 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 2017 shareholders gave authority to the Directors to purchase up to 29,886,875 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 2017 and 14 March 2018 under this authority, which will expire at the Annual General Meeting in May 2018. The Directors will seek to
renew the authority at that meeting.
Contracts of significance and related parties
There were no contracts of significance between any member of the Group and (a) any undertaking in which a Director has a material interest, or
(b) a controlling shareholder (other than between members of the Group). There have been no related party transactions between any member of
the Group and a related party since the publication of the last Annual Report.
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.
64
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE 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 40 of the Corporate Governance section of the Directors’ Report. The Group has not indemnified
any Director under the indemnities currently in place.
Directors’ interests
Details of Directors’ remuneration, their interests in the share capital of the Company and the share-based payment awards are contained in the
Remuneration Committee Report on pages 50 to 63. No change in the interests of the Directors has been notified between 31 December 2017 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 105 and 106) and contracts of significance
(page 64) are included in this Annual Report.
Substantial shareholdings
The Company has no controlling shareholder. As at 14 March 2018, 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:
Aberdeen Standard Investments
Majedie Asset Management
BlackRock
JP Morgan Asset Management
Montanaro Investment Managers
Royal London Asset Management
Old Mutual Global Investors
RWC Partners
M&G Investment Management
As at
14 March
2018
%
10.81
As at
31 December
2017
%
10.84
8.64
5.83
4.69
4.47
4.34
3.93
2.86
2.82
8.82
5.99
4.08
4.47
4.20
3.70
2.78
3.06
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
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
65
CORPORATE GOVERNANCE Independent Auditor’s Report
to the members of Marshalls plc
Opinion
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 2017 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.
We have audited the Financial Statements of Marshalls plc (the "Parent Company’" and its subsidiaries (the "Group") which comprise:
• the Consolidated Income Statement;
• the Consolidated statement of Comprehensive Income;
• the Consolidated and Parent Company balance sheets;
• the Consolidated and Parent Company statements of changes in equity;
• the Consolidated Cash Flow Statement; and
• the related notes 1 to 42.
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, including FRS 101 "Reduced Disclosure Framework" (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the
Financial Statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• the carrying value of inventory; and
Materiality
Scoping
Significant changes in
our approach
• acquisition accounting, in particular the identification and valuation of intangible assets within the CPM Group Limited
acquisition and the determination of other fair value adjustments to the net assets within the acquired business..
Within this report, any new key audit matters are identified with
.
the prior year identified with
and any key audit matters which are the same as
The materiality that we used for the Group Financial Statements was £2.5 million which was determined on the
basis of 5 per cent of profit before tax.
The Group audit team performed the audit of all UK components of the Group which accounted for 95 per cent of
Group revenues, 99 per cent of Group net assets and 100 per cent of profit before tax.
Marshalls NV, the subsidiary based in Belgium, was audited by Deloitte Antwerp under the supervision of the Group
audit team.
The Group acquired CPM Group Limited during the year and our audit scope has been extended to include the
audit of this company and we have identified an additional significant audit risk for the current year relating to the
acquisition accounting for this transaction, in particular the identification and valuation of intangible assets within
the acquired business. There have been no other significant changes in our audit approach since the prior year.
Taking account of our past experience from our audit work relating to the completeness of customer rebate
expense, including the historical accuracy of management estimates of year-end rebate accruals and the relatively
factual process of calculating these accruals, we concluded that this area was no longer a key audit matter for our
2017 audit. There have been no other significant changes in our audit approach since the prior year.
66
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed 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 and Company’s ability to continue to do so over a period of at least twelve
months from the date of approval of the Financial Statements.
We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
We confirm that we have
nothing material to
report, add or draw
attention to in respect of
these matters.
Principal risks and viability statement
Based solely on reading the Directors’ Statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the
Directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are required
to state whether we have anything material to add or draw attention to in relation to:
• the disclosures on pages 20 to 24 that describe the principal risks and explain how they are being managed
We confirm that we have
nothing material to
report, add or draw
attention to in respect
of these matters.
or mitigated;
• the Directors’ confirmation on page 21 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; or
• the Directors’ explanation on page 21 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 are also required to report whether the Directors’ statement relating to the prospects of the Group required by
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of the
current period and include the most significant assessed risks of material mis-statement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts
of the engagement team.
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.
Carrying value of inventory
Key audit matter
description
The Group is primarily involved in the manufacture and sale of landscape and natural stone products, selling to
Public Sector, 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 exists that the sales prices of inventories, particularly those which are aged or in excess of specific customer
requirements, 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:
• the length of time required to sell inventories;
• the level of discounts necessary to sell inventories;
• 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 is £77.9 million, as disclosed in Note 11, and is noted
as an area considered by the Audit Committee in their report on page 48.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
67
CORPORATE GOVERNANCE Independent Auditor’s Report continued
to the members of Marshalls plc
Carrying value of inventory continued
How the scope of our
audit responded to the
key audit matter
We have:
• reviewed business processes surrounding the recording of inventory quantities and management’s review of the
valuation and provisioning of inventory items;
• tested the design, implementation and operating effectiveness of certain key controls relating to purchasing,
recording of inventory quantities and inventory provisioning across the Group;
• attended inventory counts at key locations to observe the count procedure being undertaken and inspect the
condition of inventories;
• selected a sample of inventory items and agreed key inputs in the valuation such as materials costs, rebates,
shipping costs, the overheads absorbed and expected sales prices to supporting documentation;
• tested the calculation of overheads absorption into inventory compared to actual overhead costs incurred; and
• used data analytic techniques to compare sales by product line to inventory cost to identify any inventory sold
for less than its cost.
Key observations
The results of our testing were satisfactory. We concur with the basis of valuation of inventory and are satisfied that
the level of inventory provisions is appropriate.
Acquisition accounting
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The Group completed the acquisition of the entire share capital of CPM Group Limited during the year. The acquisition
is accounted for in accordance with the requirements of IFRS 3 “Business Combinations“ and this requires judgement
to be applied in the process of identification and valuation of intangible assets and the determination of other fair
value adjustments to the net assets within the acquired business. This process is inherently complex and a risk exists
that intangible assets may be incorrectly identified and valued.
As described in Note 22 to the Financial Statements, the provisional fair value of the net assets acquired has been
estimated at £1.1 million and intangible assets have been identified and valued at £7.2 million.
We have:
• evaluated the design and implementation of key controls relating to management’s process for identification
and valuation of intangible assets and for determining other fair value adjustments;
• reviewed the accounting entries recorded by agreeing to management’s acquisition accounting paper and
workings and the sale and purchase agreement (“SPA”);
• agreed cash paid in respect of consideration to bank statements and confirmed the total amount of
consideration by reference to the SPA;
• reviewed the SPA for any unusual clauses that may have accounting consequences and assessed the
completeness of acquisition adjustments;
• tested the significant fair value adjustments recorded in respect of the business acquired by reference to
supporting third party evidence;
• used our valuation specialists to review and challenge the process applied by management for determining the
separable intangible assets and to assess the appropriateness of the valuation methodologies adopted and the
discount rate applied in the valuation calculations; and
• assessed the basis upon which management determine the useful economic life of each intangible asset,
considering any contradictory evidence and benchmarking against external evidence.
Key observations
Based on our procedures we concur that the judgements made by management in identifying and valuing
intangible assets within the acquired business, and for determining fair value adjustments, are reasonable.
68
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Our application of materiality
We define materiality as the magnitude of mis-statement 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.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Materiality
£2.5 million (2016: £2.3 million).
£1.0 million (2016: £1.0 million).
Group Financial Statements
Parent Company Financial Statements
Basis for determining
materiality
Rationale for the
benchmark applied
5 per cent (2016: 5 per cent) of pre-tax profit.
In our professional judgement, profit before tax is a
principal benchmark within the Financial Statements
that is relevant to users of the Financial Statements.
0.5 per cent of net assets which is capped at 40 per cent
(2016: 40 per cent) of Group materiality.
As a holding company, net assets are considered to be a
primary benchmark.
Group materiality £2.5m
Component materiality range
£0.75m to £2.1m
PBT £52m
96+4+I
PBT
Group materiality
Audit Committee reporting
threshold £0.1m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £100,000 (2016: £100,000) for the Group,
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.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
69
CORPORATE GOVERNANCE Independent Auditor’s Report continued
to the members of Marshalls plc
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 mis-statement both at the Group and component level. In the current year, the scope of our work has been extended to take into
account the acquisition of CPM Group Limited. 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, and CPM Group Limited, based in Somerset are accounted for and
audited in the UK at the Group’s head office. The Group audit team performed the audit of all UK components including CPM Group Limited, which
accounted for 95 per cent (2016: 96 per cent) of Group revenue, 99 per cent (2016: 98 per cent) of Group net assets and 100 per cent (2016: 98 per
cent) of Group profit before tax.
Marshalls NV accounted for the remaining revenue, net assets and profit before tax of the Group and was audited by Deloitte Antwerp under the
supervision of the Group audit team to a component materiality of £0.75 million.
The senior statutory auditor has been involved in the planning, risk assessment and reporting procedures for all of the Group’s components
including the Group’s Belgium subsidiary and members of the Group audit team have participated in the detailed group planning and close
meetings for the Belgium subsidiary.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report, other than the Financial Statements and our Auditor’s Report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the Financial Statements or our
knowledge obtained in the audit or otherwise appears to be materially mis-stated.
If we identify such material inconsistencies or apparent material mis-statements, we are required to determine
whether there is a material mis-statement in the Financial Statements or a material mis-statement of the other
information. If, based on the work we have performed, we conclude that there is a material mis-statement of this
other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of
the other information include where we conclude that:
Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report
and Financial Statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
Audit committee reporting – the section describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee; or
Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’
Statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the Auditor in accordance with Listing Rule 9.8.10R
(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
Responsibilities of Directors
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, and for such internal control as the Directors determine is necessary to enable the preparation
of Financial Statements that are free from material mis-statement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material mis-statement,
whether due to fraud or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material mis-statement when it exists. Mis-statements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
70
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
CORPORATE GOVERNANCE Use of our report
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.
Report on other legal and regulatory requirements
Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• 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; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit,
we have not identified any material mis-statements in the Strategic Report or the Directors’ Report.
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
in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board on 20 May 2015 to audit the Financial Statements for the
year ending 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
re-appointments of the firm is 3 years, covering the years ending 31 December 2015 to 31 December 2017.
Consistency of the Auditor’s Report with the additional report to the Audit Committee.
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
Christopher Robertson (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Manchester, UK
14 March 2018
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
71
CORPORATE GOVERNANCE Consolidated Income Statement
for the year ended 31 December 2017
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
2017
£’000
430,194
(376,755)
53,439
(1,388)
–
52,051
(9,925)
42,126
42,503
(377)
42,126
21.52p
21.37p
12.20p
24,105
2016
£’000
396,922
(349,283)
47,639
(1,594)
1
46,046
(8,539)
37,507
37,350
157
37,507
18.95p
18.61p
9.65p
19,034
72
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Profit for the financial year
Other comprehensive income / (expense)
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
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
2017
£’000
42,126
2016
£’000
37,507
328
(56)
272
146
(385)
35
179
(638)
371
(292)
(20)
1,394
(237)
1,157
1,123
1,681
(561)
2,729
(2,641)
169
2,500
3,657
42,106
41,164
42,112
(6)
42,106
40,838
326
41,164
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
73
FINANCIAL STATEMENTS Consolidated Balance Sheet
at 31 December 2017
Assets
Non-current assets
Property, plant and equipment
Intangible assets
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
Derivative financial instruments
Total assets
Liabilities
Current liabilities
Trade and other payables
Corporation tax
Interest-bearing loans and borrowings
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
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 14 March 2018.
On behalf of the Board:
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
The Notes on pages 78 to 111 form part of these Consolidated Financial Statements.
74
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
Notes
2017
£’000
2016
£’000
9
10
12
17
19
11
12
13
16
14
15
15
18
19
20
21
169,093
73,079
–
4,127
2,775
146,995
40,093
208
4,276
1,821
249,074
193,393
77,859
68,221
19,845
–
447
166,372
415,446
97,552
9,299
35
106,886
44,107
11,840
14,986
70,933
177,819
237,627
49,845
22,695
(2,359)
75,394
68,713
49,010
20,681
624
657
139,685
333,078
79,646
7,388
34
87,068
15,234
–
13,655
28,889
115,957
217,121
49,845
22,695
(3,622)
75,394
(213,067)
(213,067)
386
303,274
236,168
1,459
237,627
590
283,821
215,656
1,465
217,121
FINANCIAL STATEMENTS Consolidated Cash Flow Statement
for the year ended 31 December 2017
Cash flows from operating activities
Profit for the financial year
Income tax expense
Profit before tax
Adjustments for:
Depreciation
Amortisation
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
Decrease / (increase) in trade and other receivables
Increase in inventories
(Decrease) / increase in trade and other payables
Operational restructuring costs paid
Acquisition costs paid
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
Acquisition of subsidiary undertaking
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash flow from investing activities
Cash flows from financing activities
Payments to acquire own shares
Net decrease in other debt and finance leases
Increase / (decrease) in borrowings
Equity dividends paid
Net cash flow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of the year
Notes
2017
£’000
2016
£’000
6
9
10
3
3
22
42,126
9,925
52,051
13,314
1,142
(948)
2,382
1,388
69,329
5,334
(4,252)
(320)
(1,217)
(193)
68,681
(911)
(10,465)
57,305
3,891
–
(41,227)
(18,895)
(1,750)
(57,981)
(1,068)
(3,407)
28,226
(24,105)
(354)
(1,030)
20,681
194
19,845
37,507
8,539
46,046
12,146
1,009
(609)
2,884
1,593
63,069
(4,602)
(2,419)
1,868
(476)
–
57,440
(940)
(7,107)
49,393
3,839
1
–
(12,939)
(934)
(10,033)
(1,175)
(40)
(23,791)
(19,034)
(44,040)
(4,680)
24,990
371
20,681
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
75
FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
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
(3,622)
75,394
(213,067)
590 283,821 215,656
1,465 217,121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,068)
2,331
1,263
1,263
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 42,503
42,503
(377) 42,126
–
(459)
(459)
371
(88)
146
(385)
35
–
–
–
–
–
328
(56)
146
(385)
35
328
(56)
–
–
–
–
–
(204)
(187)
(391)
371
146
(385)
35
328
(56)
(20)
(204) 42,316
42,112
(6) 42,106
–
–
–
2,382
2,382
885
885
306
306
–
–
–
2,382
885
306
– (24,105)
(24,105)
– (24,105)
–
–
–
(1,068)
(2,331)
–
–
–
(1,068)
–
– (22,863)
(21,600)
– (21,600)
(204) 19,433
20,512
(6) 20,506
Current year
At 1 January 2017
Total comprehensive income
for the year
Profit 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 gain
Deferred tax arising
Total other comprehensive income
Total comprehensive income
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 2017
49,845 22,695
(2,359)
75,394
(213,067)
386 303,274 236,168
1,459 237,627
76
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 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
(5,529)
75,394
(213,067)
(1,653) 263,894
191,579
1,139
192,718
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,175)
3,082
1,907
1,907
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,350
37,350
157
37,507
–
88
88
169
257
1,123
1,681
(561)
–
–
–
–
–
1,394
(237)
1,123
1,681
(561)
1,394
(237)
–
–
–
–
–
1,123
1,681
(561)
1,394
(237)
2,243
1,245
3,488
169
3,657
2,243
38,595
40,838
326
41,164
–
–
–
–
–
–
–
2,884
2,884
122
442
122
442
(19,034)
(19,034)
–
(1,175)
(3,082)
–
(18,668)
(16,761)
–
–
–
–
–
–
–
2,884
122
442
(19,034)
(1,175)
–
(16,761)
2,243
19,927
24,077
326
24,403
Prior year
At 1 January 2016
Total comprehensive income
for the year
Profit 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 gain
Deferred tax arising
Total other comprehensive income
Total comprehensive income
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 2016
49,845
22,695
(3,622)
75,394
(213,067)
590 283,821
215,656
1,465
217,121
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
77
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements
1 Accounting policies
Significant accounting policies
Marshalls plc (the “Company”) is a Public Company limited by shares, incorporated in the United Kingdom under the Companies Act and is
registered in England and Wales. The Consolidated Financial Statements of the Company for the year ended 31 December 2017 comprise the
Company and its subsidiaries (together referred to as the “Group”).
The Consolidated Financial Statements were authorised for issue by the Directors on 14 March 2018.
The Company’s registered address is Landscape House, Premier Way, Lowfields Business Park, Elland, HX5 9HT.
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.
Amendments to IFRSs that are mandatorily effective for the current year
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 2017. Their adoption has not had any material impact on the
disclosures or on the amounts reported in these Financial Statements.
Amendments to IAS 7 –
“Disclosure Initiative.”
The Group has adopted the amendments to IAS 7 for the first time in the current year. The amendments require an entity
to provide disclosures that enable users of Financial Statements to evaluate changes in liabilities arising from financing
activities, including both cash and non-cash changes. The Group’s liabilities arising from financing activities consist of
borrowings (Note 15) and certain derivatives (Note 16). A reconciliation between the opening and closing balances of
these items is provided in Note 16. Consistent with the transition provisions of the amendments, the Group has not
disclosed comparative information for the prior year. Apart from the additional disclosure in Note 24, the application of
these amendments has had no impact on the Group’s Consolidated Financial Statements.
Amendments to IAS 12
“Recognition of Deferred
Tax Assets for Unrealised
Losses.”
The Group has adopted the amendments to IAS 12 for the first time in the current year. The amendments clarify how an entity
should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary
difference. The application of these amendments has had no impact on the Group’s Consolidated Financial Statements as
the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.
“Annual Improvements
to IFRSs 2014-2016
Cycle.”
The Group has adopted the amendments to IFRS 12 included in the “Annual Improvements to IFRSs 2014-2016 Cycle” for the
first time in the current year. The other amendments included in this package are not yet mandatorily effective and they have
not been early adopted by the Group. IFRS 12 states that an entity need not provide summarised financial information for
interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held
for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
New and revised IFRSs in issue but not yet effective
At the date of authorisation of these Financial Statements, the Group has not applied the following new or revised IFRSs that have been issued but
are not yet effective and, in some cases, have not yet been adopted by the EU:
IFRS 9
IFRS 15
IFRS 16
IFRS 17
“Financial Instruments”;
“Revenue from Contracts with Customers (and the related Clarifications)”;
“Leases”;
“Insurance Contracts”;
IFRS 2 (amendments)
“Classification and Measurement of Share-based Payment Transactions”;
IFRS 4 (amendments)
“Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”;
IAS 40 (amendments)
“Transfers of Investment Property”;
IFRS 10 and IAS 28 (amendments) “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”;
Annual Improvements to IFRSs
2014-2016 Cycle
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards and IFRS 28
Investments in Associates and Joint Ventures”;
Annual Improvements to IFRSs
2015-2017 Cycle
Amendments to IFRS 3 “Business Combinations, IFRS 11 Joint arrangements, IAS 12 Income tax and IAS 23
borrowing costs”;
IFRIC 22
IFRIC 23
“Foreign Currency Transactions and Advanced Consideration”; and
“Uncertainty over Income Tax Treatments”.
78
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 1 Accounting policies continued
Significant accounting policies continued
New and revised IFRSs in issue but not yet effective continued
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 as noted below:
IFRS 15 “Revenue from Contracts with Customers”
IFRS 15, “Revenue from Contracts with Customers” supersedes IAS 18, “Revenue”, and establishes a principles-based approach to revenue recognition
and measurement based on the concept of recognising revenue when performance obligations are satisfied. An assessment of the impact of IFRS 15
has been completed and revenue recognition under IFRS 15 is expected to be consistent with the current practice for the Group’s revenue.
IFRS 16 “Leases”
IFRS 16, which has not yet been endorsed by the EU, introduces a comprehensive model for the identification of lease arrangements and accounting
treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 “Leases” and the related interpretations
when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group currently expects to adopt IFRS 16 for the year
ending 31 December 2019. No decision has been made about whether to use any of the transitional options in IFRS 16.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating
leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are replaced by a model where a right-of-use
asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of
low value assets. In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues
to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, extensive disclosures are required by IFRS 16.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation
and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease
payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease
modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating lease payments under IAS 17
are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion
which will be presented as financing and operating cash flows respectively.
The Group has established a working group to assess the impact of the new standard. Work performed includes assessing the accounting impacts
of the change, the process of collecting the required data from across the business and the necessary changes to systems and processes. From work
performed to date, it is expected implementation of the new standard will have a significant impact on the consolidated results of the Group. On
adoption, lease agreements will give rise to both a right of use asset and a lease liability for future lease payables. Depreciation of the right of use
asset will be recognised in the Statement of Profit or Loss on a straight-line basis, with interest recognised on the lease liability. This will result in a
change to the profile of the net charge taken to the Statement of Profit or Loss over the life of the lease. These charges will replace the lease costs
currently charged to the Statement of Profit or Loss.
The Directors are currently assessing the potential impact. It is not practicable to provide a reasonable estimate of the financial effect until the
Directors complete the review.
As at 31 December 2017, the Group has non-cancellable operating lease commitments of £65.2 million. IAS 17 does not require the recognition
of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments
in Note 25.
IFRS 9 “Financial Instruments"
“The Group will apply IFRS 9 from 1 January 2018. The Group has elected not to restate comparatives on initial application of IFRS 9. The full impact
of adopting IFRS 9 on the Group’s Consolidated Financial Statements will depend on the financial instruments that the Group has during 2018 as
well as on economic conditions and judgements made as at the year end. The Group has performed a preliminary assessment of the potential impact
of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial application of IFRS 9 (1 January 2018).
Classification and measurement
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been reduced
compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is held and the
contractual cash flow characteristics of the asset. There are 3 principal classification categories for financial assets that are debt instruments:
(i) amortised cost, (ii) fair value through other comprehensive income (“FVTOCI”) and (iii) fair value through profit or loss (“FVTPL”). Equity investments
in scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an irrevocable election is made to recognise
gains or losses in other comprehensive income. Under IFRS 9, derivatives embedded in financial assets are not bifurcated but instead the whole
hybrid contract is assessed for classification.
Under IFRS 9, financial assets can be designated as at FVTPL to mitigate an accounting mismatch.
In respect to classification and measurement of financial liabilities, changes in the fair value of a financial liability designated as at FVTPL due to
credit risk are presented in other comprehensive income unless such presentation would create or enlarge an accounting mismatch in profit or loss.
Based on the Group’s preliminary assessment, the change in the classification and measurement of listed redeemable notes will not have a material
impact on the Group Financial Statements.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
79
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
IFRS 9 “Financial Instruments” continued
Impairment
The impairment model under IFRS 9 reflects “expected” credit losses, as opposed to only “incurred” credit losses under IAS 39. Under the impairment
approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for
expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date.
The new impairment model will apply to the Group’s financial assets that are debt instruments measured at amortised costs or FVTOCI as well as
the Group’s finance lease receivables, contract assets and issued financial guarantee contracts.
The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its trade receivables, finance lease receivables and
contracts assets as required or permitted by IFRS 9. The Group’s preliminary assessment is that the loss allowance for these assets as at 1 January 2018
is not significantly different to that under IAS 39.
Hedge accounting
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39
instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply the IFRS 9 hedge accounting requirements because they
align more closely with the Group’s risk management policies.
An assessment of the Group’s hedging relationships under IAS 39 has been performed and it has been determined that the relationships will qualify
as continuing hedging relationships under IFRS 9.
(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 112 to 119.
(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 2 to 23. 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 16 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 16 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 1 August 2017. 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. Sterling is the currency of the primary economic
environment in which the Group operates.
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 28 on page 111.
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 28.
80
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 1 Accounting policies continued
Significant accounting policies continued
(c) Basis of consolidation
(i) Subsidiaries
Subsidiaries (which are set out in detail in Note 32 on pages 116 and 117) 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 1 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.
(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 )).
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
81
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(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 (iv) 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 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.
(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).
82
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
1 Accounting policies continued
Significant accounting policies continued
(g) Property, plant and equipment continued
(iv) Depreciation continued
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 2017 were not adjusted in preparing the Group’s opening IFRS balance sheet at 1 January 2017.
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 (v) overleaf ) 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 (v) overleaf ) 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.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
83
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(h) Intangible assets continued
(v) Amortisation
Amortisation is charged to the Consolidated Income Statement on a straight line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Goodwill is systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the
date they are available for use. The rates applied are as follows:
Customer and supplier relationships
Patents, trademarks and know-how
Development costs
Software
–
–
–
–
5 to 20 years
2 to 20 years
10 to 20 years
5 to 10 years
(i) Trade and other receivables
Trade and other receivables are stated at their nominal amount (discounted if material) less impairment losses (see accounting policy (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.
(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 and 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)), 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 if it 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.
84
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
1 Accounting policies continued
Significant accounting policies continued
(n) Share capital continued
(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.
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”).
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 the 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.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
85
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(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.
(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 other comprehensive or in equity, in which case it is recognised accordingly.
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. Following its acquisition, the CPM business has been included within the Landscape
Products operating segment. Financial information for Landscape Products is now reported to the Group’s CODM for the assessment of segment
performance and to facilitate resource allocation.
(y) Alternative performance measures
The Group uses alternative performance measures (“APMs”) which are not defined or specified under IFRS. The Group believes that these APMs, which are
not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned,
reported and assessed internally by management and the Board and provide more meaningful comparative information. In relation to the year ended
31 December 2017 certain APMs are required as a consequence of the acquisition of CPM on 19 October 2017 in order to ensure comparability with the
prior year period.
Like-for-like revenue growth
Management uses like-for-like revenue growth as it provides a consistent measure of the percentage increase / decrease in revenue year on year,
excluding the effect of acquisitions.
Reported revenue
CPM post-acquisition revenue
Like-for-like revenue
2017
£’000
430,194
(9,017)
421,177
2016
£’000
396,922
–
396,922
Increase
%
8%
6%
EBITA and EBITDA
EBITA represents earnings before interest, tax and the amortisation of intangibles. This is a component of the ROCE calculation. EBITDA is calculated
by adding back depreciation to EBITA.
86
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 1 Accounting policies continued
Significant accounting policies continued
(y) Alternative performance measures continued
EBITA and EBITDA continued
EBITDA
Depreciation
EBITA
Amortisation of intangible assets
Operating profit
ROCE
Reported ROCE is defined as EBITA divided by shareholders funds plus cash / net debt.
EBITA
Shareholders funds
Net debt / (cash)
Reported ROCE
2017
£’000
67,895
(13,314)
54,581
(1,142)
53,439
2016
£’000
60,794
(12,146)
48,648
(1,009)
47,639
2017
£’000
54,581
237,627
24,297
261,924
20.8%
Increase
%
12%
12%
2016
£’000
48,648
217,121
(5,413)
211,708
23.0%
ROCE on a like-for-like basis (excluding the impact of CPM) includes adjustments to report the calculation on a basis that eliminates the impact of
the acquisition of CPM. This ensures comparability with the prior year period.
Reported EBITA
CPM post acquisition EBIT
CPM amortisation of intangibles assets
Acquisition costs
Adjusted EBITA
Shareholders funds
Net debt / (cash)
Impact on net debt arising from the acquisition of CPM
As adjusted
ROCE on a like-for-like basis (excluding the impact of CPM)
2 Segmental analysis
Segment revenues and results
2017
£’000
54,581
(749)
132
837
54,801
237,627
24,297
261,924
(41,227)
220,697
24.8%
Total revenue
Inter-segment revenue
External revenue
Segment operating profit
Unallocated administration costs
Operating profit
Finance charges (net)
Profit before tax
Taxation
Profit after tax
2017
2016
Landscape
Products
£’000
339,655
(226)
339,429
56,104
Other
£’000
94,622
(3,857)
90,765
1,873
Landscape
Products
£’000
311,100 1
(89)
311,011 1
50,441 1
Total
£’000
434,277
(4,083)
430,194
57,977
(4,538)
53,439
(1,388)
52,051
(9,925)
42,126
2016
£’000
48,648
–
–
–
48,648
217,121
(5,413)
211,708
–
211,708
23.0%
Other
£’000
89,070 1
(3,159)
85,911 1
3,157 1
Increase
%
8%
Total
£’000
400,170
(3,248)
396,922
53,598
(5,959)
47,639
(1,593)
46,046
(8,539)
37,507
1
The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the CODM. In line with the Group’s emerging strategy, in the second half of the year, the reporting
to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
87
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
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
one integrated production, logistics and distribution network supporting both end markets. Following the acquisition, the CPM business has been
included within the landscape products operating segment.
Included in “Other” are the Group’s Street Furniture, Mineral Products, Premier Mortars 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 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
2017
£’000
2016
£’000
182,391
64,561
246,952
168,494
415,446
157,786 1
57,922 1
215,708
117,370
333,078
1
The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the CODM. In line with the Group’s emerging strategy, in the second half of the
year, the reporting to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.
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
Depreciation and amortisation
Fixed asset additions
2017
£’000
10,878
3,578
14,456
2016
£’000
9,462 1
3,693 1
13,155
2017
£’000
17,041
5,445
22,486
2016
£’000
9,131 1
3,883 1
13,014
1
The 2017 Half Year Report disclosed the results of the Landscape Products segment on a basis consistent with reporting to the CODM. In line with the Group’s emerging strategy, in the second half of the
year, the reporting to the CODM reverted to the 2016 structure with the Natural Stone Paving business reported as part of the Landscape Products segment.
Geographical destination of revenue
United Kingdom
Rest of the World
2017
£’000
407,215
22,979
430,194
2016
£’000
377,659
19,263
396,922
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.
88
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 3 Net operating costs
Raw materials and consumables
Changes in inventories of finished goods and work in progress
Personnel costs (Note 4)
Depreciation
Amortisation of intangible assets
Own work capitalised
Other operating costs
Operational restructuring costs
Acquisition costs
Operating costs
Other operating income
Net gain on asset and property disposals
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 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
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 relating to restructuring (Note 3)
Total personnel costs
2017
£’000
151,343
7,231
100,811
13,314
1,142
(1,919)
106,569
1,217
837
2016
£’000
142,011
2,591
98,128
12,146
1,009
(1,381)
97,069
476
–
380,545
352,049
(2,842)
(948)
(2,157)
(609)
376,755
349,283
2017
£’000
211
11,465
4,651
3,876
2017
£’000
25
166
20
211
2017
£’000
80,811
9,617
3,883
6,500
100,811
1,217
102,028
2016
£’000
163
10,151
4,943
3,364
2016
£’000
20
123
20
163
2016
£’000
79,605
9,361
3,750
5,412
98,128
476
98,604
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
89
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
4 Personnel costs continued
Remuneration of Directors:
Salary
Other benefits
MIP Element A bonus
MIP Element B bonus
Amounts receivable under the MIP at the end of the first cycle
Amounts receivable under the 2005 LTIP
Salary supplement in lieu of pension
Non-Executive Directors’ fees and fixed allowances
2017
£’000
712
39
535
356
2,024
–
142
299
4,107
2016
£’000
699
39
844
339
–
956
139
310
3,326
The aggregate of emoluments and amounts receivable under the MIP of the highest paid Director was £2,383,000 (2016: £1,913,000), including a
salary supplement in lieu of pension of £86,000 (2016: £84,000).
There are no Directors to whom retirement benefits are accruing in respect of qualifying services. As set out in the Annual Remuneration Report on
page 60, 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
Annual Remuneration Report on pages 50 to 63.
The average monthly 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 the 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
90
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
2017
Number
2,307
2017
£’000
377
1,005
6
1,388
2016
Number
2,253
2016
£’000
445
1,143
6
1,594
–
1
2017
£’000
2016
£’000
11,554
(732)
10,822
(797)
(100)
9,925
10,611
(921)
9,690
(1,098)
(53)
8,539
FINANCIAL STATEMENTS 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
2017
%
100.0
19.3
0.3
1.2
(1.4)
1.4
20.8
(1.2)
(0.2)
(0.1)
1.0
(0.2)
(1.0)
19.1
2017
£’000
52,051
10,020
184
630
(732)
720
10,822
(618)
(103)
(77)
532
(100)
(531)
9,925
2016
%
100.0
20.0
0.4
1.0
(2.0)
1.6
21.0
(1.0)
(0.1)
0.3
(0.9)
(0.1)
(0.7)
18.5
2016
£’000
46,046
9,209
173
480
(921)
749
9,690
(443)
(66)
127
(397)
(53)
(319)
8,539
The net amount of deferred taxation (debited) / credited to the Consolidated Statement of Comprehensive Income in the year was £21,000 debit
(2016: £798,000 debit).
The majority of the Group’s profits are earned in the UK with the standard rate of corporation tax being 19.25 per cent for the year to 31 December 2017.
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 ended 31 December 2017 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 ended 31 December 2017. In total, the trading profits
were not material and no tax was due.
7 Earnings per share
Basic earnings per share of 21.52 pence (2016: 18.95 pence) per share is calculated by dividing the profit attributable to Ordinary Shareholders for
the financial year, after adjusting for non-controlling interests, of £42,503,000 (2016: £37,350,000) by the weighted average number of shares in issue
during the period of 197,518,109 (2016: 197,130,419).
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
91
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
7 Earnings per share continued
Profit attributable to Ordinary Shareholders
Profit for the financial year
Loss / (profit) attributable to non-controlling interests
Profit attributable to Ordinary Shareholders
Weighted average number of Ordinary Shares
Number of issued Ordinary Shares
Effect of shares transferred into employee benefit trust
Weighted average number of Ordinary Shares at end of the year
2017
£’000
42,126
377
42,503
2016
£’000
37,507
(157)
37,350
2017
Number
2016
Number
199,378,755
199,378,755
(1,860,646)
(2,248,336)
197,518,109
197,130,419
Diluted earnings per share of 21.37 pence (2016: 18.61 pence) per share is calculated by dividing the profit for the financial year, after adjusting for
non-controlling interests, of £42,503,000 (2016: £37,350,000) by the weighted average number of shares in issue during the period of 197,518,109
(2016: 197,130,419) plus potentially dilutive shares of 1,384,707 (2016: 3,561,243), which totals 198,902,816 (2016: 200,691,662).
Weighted average number of Ordinary Shares (diluted)
Weighted average number of Ordinary Shares
Potentially dilutive shares
Weighted average number of Ordinary Shares (diluted)
2017
Number
2016
Number
197,518,109
197,130,419
1,384,707
3,561,243
198,902,816
200,691,662
8 Dividends
After the balance sheet date a final dividend of 6.80 pence (2016: 5.80 pence) per qualifying Ordinary Share was proposed by the Directors. In
addition a supplementary dividend of 4.00 pence (2016: 3.00 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:
2017 supplementary
2017 final
2017 interim
2016 supplementary
2016 final
2016 interim
The following dividends were approved by the shareholders and recognised in the year:
2017 interim
2016 supplementary
2016 final
2016 interim
2015 supplementary
2015 final
92
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
2017
£’000
7,904
13,436
6,718
28,058
2017
£’000
6,718
5,927
11,460
24,105
Pence per
qualifying share
4.00
6.80
3.40
14.20
3.00
5.80
2.90
11.70
Pence per
qualifying share
3.40
3.00
5.80
12.20
2.90
2.00
4.75
9.65
2016
£’000
5,927
11,460
5,720
23,107
2016
£’000
5,720
3,945
9,369
19,034
FINANCIAL STATEMENTS 8 Dividends continued
The Board recommends a 2017 final dividend of 6.80 pence per qualifying Ordinary Share (amounting to £13,436,000), alongside a supplementary
dividend of 4.00 pence per qualifying Ordinary Share (amounting to £7,904,000), to be paid on 29 June 2018 to shareholders registered at the close
of business on 8 June 2018.
9 Property, plant and equipment
Cost
At 1 January 2016
Exchange differences
Additions
Reclassified as held for sale
Disposals
At 31 December 2016
At 1 January 2017
Exchange differences
Additions
Acquisition of subsidiary
Disposals
At 31 December 2017
Depreciation and impairment losses
At 1 January 2016
Depreciation charge for the year
Reclassifications and transfers to assets held for sale
Exchange differences
Disposals
At 31 December 2016
At 1 January 2017
Depreciation charge for the year
Exchange differences
Disposals
At 31 December 2017
Net book value
At 1 January 2016
At 31 December 2016
At 31 December 2017
Land and
buildings
£’000
Quarries
£’000
Plant, machinery
and vehicles
£’000
84,392
22,951
–
446
–
–
313,434
624
11,083
–
(1,665)
Total
£’000
420,777
1,568
12,080
(1,910)
(1,962)
23,397
23,397
323,476
430,553
323,476
430,553
–
67
–
–
223
18,160
7,639
(2,629)
534
20,736
16,076
(3,910)
23,464
346,869
463,989
7,004
531
288
–
–
7,823
7,823
583
–
–
229,717
9,801
–
382
(1,181)
238,719
238,719
10,902
132
(2,089)
273,288
12,146
(998)
397
(1,275)
283,558
283,558
13,314
139
(2,115)
944
551
(1,910)
(297)
83,680
83,680
311
2,509
8,437
(1,281)
93,656
36,567
1,814
(1,286)
15
(94)
37,016
37,016
1,829
7
(26)
38,826
8,406
247,664
294,896
47,825
46,664
15,947
15,574
83,717
84,757
147,489
146,995
54,830
15,058
99,205
169,093
Mineral reserves and associated land have been separately disclosed under the heading of “Quarries”.
Assets disclosed as held for sale as at 31 December 2016 have been disposed of in the year ended 31 December 2017.
The carrying amount of tangible fixed assets includes £402,000 (2016: £402,000) in respect of land assets held under finance leases. Group cost of
land and buildings and plant and machinery includes £1,484,000 (2016: £nil) and £7,105,000 (2016: £999,000) respectively for assets in the course
of construction.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
93
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
9 Property, plant and equipment continued
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:
2017
£’000
2016
£’000
5,058
1,427
2017
£’000
2016
£’000
13,314
12,146
Net operating costs (Note 3)
10 Intangible assets
Cost
At 1 January 2016
Additions
At 31 December 2016
At 1 January 2017
Additions
Recognised on acquisition of subsidiary
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
11,676
60,596
934
934
12,610
61,530
43,691
2,210
1,200
1,660
159
12,610
61,530
–
–
25,145
6,704
–
429
–
100
–
–
1,750
1,750
–
32,378
At 31 December 2017
68,836
8,914
1,629
1,760
159
14,360
95,658
Amortisation and impairment losses
At 1 January 2016
Amortisation for the year
At 31 December 2016
At 1 January 2017
Amortisation for the year
At 31 December 2017
Carrying amounts
At 1 January 2016
At 31 December 2016
At 31 December 2017
8,912
–
8,912
8,912
–
8,912
34,779
34,779
2,210
–
2,210
2,210
121
2,331
–
–
59,924
6,583
728
60
788
788
69
857
472
412
772
1,366
32
1,398
1,398
34
1,432
294
262
328
93
8
101
101
8
109
66
58
50
7,119
909
20,428
1,009
8,028
21,437
8,028
21,437
910
1,142
8,938
22,579
4,557
4,582
40,168
40,093
5,422
73,079
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.
94
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 10 Intangible assets continued
The recoverable amounts of the CGUs are determined from value-in-use calculations and at both 31 December 2017 and 31 December 2016 the full
amount of goodwill in the Group Balance Sheet related to the Landscape Products CGU. The goodwill arising on the acquisition of CPM is included
within 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 2.45 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 9.8 per cent (2016: 9.5 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 £910,000 (2016: £819,000) 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 Inventories
Raw materials and consumables
Finished goods and goods for resale
2017
£’000
1,142
2017
£’000
15,690
62,169
77,859
2016
£’000
1,009
2016
£’000
13,788
54,925
68,713
Inventories stated at a net realisable value less than cost at 31 December 2017 amounted to £4,148,000 (2016: £7,848,000). The write down of
inventories made during the year amounted to £1,477,000 (2016: £2,868,000). There were £73,000 reversals of inventory write-downs made in
previous years in 2017 (2016: £nil).
12 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2017
£’000
47,925
15,839
4,457
68,221
2016
£’000
42,133
3,003
3,874
49,010
Included within other receivables is a reimbursement asset of £12,000,000 which is held in escrow in relation to the acquisition of CPM Group Limited
(Note 22).
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
2017
£’000
21,363
19,117
3,653
3,792
47,925
2016
£’000
23,687
14,499
2,032
1,915
42,133
Receivables totalling £nil (2016: £208,000) were due after more than 1 year. All amounts disclosed above are considered recoverable and are
disclosed net of an allowance for doubtful debts of £609,000 (2016: £804,000).
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
95
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
13 Cash and cash equivalents
Bank balances
Cash in hand
Cash and cash equivalents in the Consolidated Cash Flow Statement
14 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.
15 Loans
Current liabilities
Finance lease liabilities
Non-current liabilities
Bank loans
Finance lease liabilities
2017
£’000
19,833
12
19,845
2016
£’000
20,661
20
20,681
2017
£’000
2016
£’000
52,180
10,449
15,056
19,867
97,552
2017
£’000
35
43,883
224
44,107
36,605
9,217
19,148
14,676
79,646
2016
£’000
34
14,975
259
15,234
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
2017
2016
Minimum
lease
payments
£’000
40
40
120
80
280
Interest
£’000
Principal
£’000
5
4
10
2
21
35
36
110
78
259
Minimum
lease
payments
£’000
40
40
120
120
320
Interest
£’000
Principal
£’000
6
5
11
5
27
34
35
109
115
293
96
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 16 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 100.
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 2016.
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 2017
and 31 December 2016.
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 2 to 33. 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 101.
(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, 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 £14,000 asset (2016: £49,000 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 £23,000
(2016: £nil) has been recognised in other comprehensive income for the year with £43,000 (2016: £75,000) 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 16(e)) and forward contracts this gives a total of £146,000 credit (2016: £1,123,000 credit) recognised in
other comprehensive income for the year with £385,000 debit (2016: £1,681,000 credit) being reclassified from equity to the Income Statement.
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
97
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
16 Financial instruments continued
Financial risks continued
(b) Interest rate risk continued
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 2016.
Increase of 100 basis points
Decrease of 100 basis points
2017
£’000
(211)
211
2016
£’000
(185)
185
(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 12 on page 95.
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
£42,000 asset (2016: £30,000 asset) and is adjusted against the hedging reserve on an ongoing basis. At 31 December 2017 all outstanding forward
exchange contracts had a maturity date within 6 months.
The foreign currency profile of monetary items was:
2017
2016
Sterling
£’000
Euro US Dollar
£’000
£’000
AED
£’000
Total
£’000
Sterling
£’000
Euro
£’000
US Dollar
£’000
AED
£’000
Total
£’000
65
20,681
–
–
–
–
42,133
(14,975)
(36,605)
657
Cash and cash equivalents
17,830
912
1,006
97 19,845
16,733
46,530
1,035
(28,251) (15,632)
360
–
– 47,925
38,804
– (43,883)
–
(14,975)
(42,943)
(8,328)
(909)
– (52,180)
(28,333)
(8,014)
(258)
2,373
2,972
1,510
357
–
Trade receivables
Secured bank loans
Trade payables
Derivative financial instruments
405
42
–
–
447
627
37
(7)
Balance sheet exposure
(6,429) (21,971)
457
97 (27,846)
27,831
(17,607)
1,602
65
11,891
A 10 per cent strengthening and weakening of the following currencies against the Pound Sterling at 31 December 2017 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.
98
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 16 Financial instruments continued
Financial risks continued
(d) Foreign currency risk continued
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 2016:
10 per cent strengthening of £ against €
10 per cent weakening of £ against €
10 per cent strengthening of £ against $
10 per cent weakening of £ against $
10 per cent strengthening of £ against Dhs
10 per cent weakening of £ against Dhs
2017
£’000
1,953
(1,598)
(41)
33
(9)
7
2016
£’000
1,565
(1,280)
(142)
117
(6)
9
(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 2017. The Group classifies its fuel hedges as cash flow hedges and states
them at fair value. The fair value of the fuel hedges is £391,000 asset (2016: £676,000 asset) 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 £123,000 (2016: £1,123,000) has been recognised in other comprehensive income, with £428,000 (2016: £1,606,000)
being reclassified from equity to the Income Statement. The fuel hedges have been fully effective in the period.
(f) Other risks
Further information about the Group’s strategic and financial risks is contained in the Strategic Report on pages 2 to 33.
Effective interest rates and maturity of liabilities
At 31 December 2017 there were £259,000 (2016: £293,000) 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 2017
Cash and cash equivalents (Note 13)
Bank loans
Finance lease liabilities
31 December 2016
Cash and cash equivalents (Note 13)
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
1.97
1.97
10.0
(19,845)
(19,845)
–
–
43,883
259
–
–
14,500
24,239
35
36
–
5,144
110
24,297
(19,845)
14,535
24,275
5,254
–
–
78
78
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
1.50
1.50
10.0
(20,681)
(20,681)
14,975
293
–
–
(5,413)
(20,681)
–
–
34
34
–
10,048
35
10,083
–
4,927
109
5,036
–
–
115
115
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
99
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
16 Financial instruments continued
Financial risks continued
(f) Other risks continued
Effective interest rates and maturity of liabilities continued
At 31 December the undiscounted outstanding contractual payments (including interest) of financial liabilities were as follows:
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
31 December 2017
Bank loans
Trade payables
Finance lease liabilities
Derivative financial assets
31 December 2016
Bank loans
Trade payables
Finance lease liabilities
Derivative financial assets
Variable
43,883
44,519
244
14,665
24,427
5,183
Variable
52,180
52,180
52,180
Fixed
Fixed
259
(447)
280
(391)
–
37
3
(236)
(155)
–
40
–
–
120
–
95,875
96,588
52,191
14,547
24,467
5,303
–
–
80
–
80
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
14,975
36,605
293
(657)
15,182
36,605
320
(624)
43
36,605
3
(416)
51,216
51,483
36,235
43
–
37
(208)
(128)
10,108
4,988
–
40
–
–
120
–
10,148
5,108
–
–
120
–
120
Borrowing facilities
The total bank borrowing facilities at 31 December 2017 amounted to £115.0 million (2016: £95.0 million), of which £71.1 million (2016: £80.0 million)
remained unutilised. There are additional seasonal bank working capital facilities of £10.0 million available between 1 February and 31 August each
year. The undrawn facilities available at 31 December 2017, 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
2017
£’000
50,617
5,500
15,000
71,117
2016
£’000
65,025
–
15,000
80,025
On 17 August 2017, the Group renewed its short-term working capital facilities of £25.0 million. On 16 October 2017 the Group took out an
additional committed facility of £20.0 million with a 2022 maturity date. The committed facilities are all revolving credit facilities with interest
charged at variable rates based on LIBOR. The Group’s bank facilities continue to be aligned with the current strategy to ensure that headroom
against available facilities remains at appropriate levels.
100
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 16 Financial instruments continued
Borrowing facilities continued
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: 2022
Q3: 2021
Q3: 2020
Q3: 2019
Q3: 2018
On-demand facilities
Available all year
Seasonal (February to August inclusive)
Facility
£’000
20,000
20,000
20,000
20,000
20,000
15,000
10,000
Cumulative
facility
£’000
20,000
40,000
60,000
80,000
100,000
115,000
125,000
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 2017 is shown below:
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 instrument assets and liabilities – net
Non-financial instrument assets and liabilities – net
2017
Book amount
£’000
62,787
19,845
Fair value
£’000
62,787
19,845
(43,883)
(42,836)
(259)
(280)
(95,777)
(95,777)
447
447
(56,840)
294,467
237,627
2016
Book amount
£’000
46,033
20,681
(14,975)
(293)
(70,939)
657
(18,836)
235,957
217,121
Fair value
£’000
46,033
20,681
(14,192)
(320)
(70,939)
657
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.
ANNUAL REPORT AND ACCOUNTS 2017 101
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
16 Financial instruments continued
Borrowing facilities continued
Estimation of fair values continued
(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 2017
Derivative financial assets
31 December 2016
Derivative financial assets
Level 1
£’000
–
–
Level 2
£’000
447
657
Level 3
£’000
–
–
Total
£’000
447
657
17 Employee benefits
The Company sponsors a funded defined benefit pension scheme in the UK (“the Scheme”). The Scheme is administered within a trust which is
legally separate from the Company. The Trustee Board is appointed by both the Company and the Scheme’s membership and acts in the 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 provides pension and lump sums to members on retirement and to dependants on death. The defined
benefit section closed to future accrual of benefits on 30 June 2006 with the active members becoming entitled to a deferred pension. Members
no longer pay contributions to the defined benefit section. Company contributions to the defined benefit section after this date are used to fund
any deficit in the Scheme and the expenses associated with administering the Scheme, as determined by regular actuarial valuations.
The Trustee is required to use prudent assumptions to value the liabilities and costs of the Scheme whereas the accounting assumptions must
be best estimates.
The defined benefit section of the Scheme poses a number of risks to the Company, for example longevity risk, investment risk, interest rate risk,
inflation risk and salary risk. The Trustee is aware of these risks and uses various techniques to control them. The Trustee has a number of internal
control policies, including a risk register, which are in place to manage and monitor the various risks it faces. The Trustee’s investment strategy
incorporates the use of liability-driven investments (“LDIs”) to minimise sensitivity of the actuarial funding position to movements in interest rates
and inflation rates.
The defined benefit section of the Scheme is subject to regular actuarial valuations, which are usually carried out every 3 years. The next actuarial
valuation is expected to be carried out with an effective date of 5 April 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 2017 by a qualified
independent actuary. The figures in the following disclosure were measured using the projected unit method.
The amounts recognised in the Consolidated Balance Sheet were as follows:
Present value of Scheme liabilities
Fair value of Scheme assets
2017
£’000
(350,554)
354,681
2016
£’000
(355,793)
360,069
2015
£’000
(298,812)
302,239
Net amount recognised at year end (before any adjustments for deferred tax)
4,127
4,276
3,427
102
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 17 Employee benefits continued
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 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)
Loss arising from changes in financial assumptions
Gain arising from changes in demographic assumptions
Experience gain
Credit recorded in other comprehensive income
Total defined benefit charge / (credit)
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% p.a.)
CPI pension increases (maximum 5% p.a., minimum 3% p.a.)
CPI pension increases (maximum 3% p.a.)
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
2017
£’000
477
(2,819)
10,158
(7,667)
–
(328)
149
2017
£’000
2.50%
3.15%
2.15%
n/a
2.15%
2.15%
3.20%
1.95%
0%
50.0%
2016
£’000
545
(59,837)
62,332
–
(3,889)
(1,394)
(849)
2016
£’000
2.65%
3.20%
2.20%
n/a
2.20%
2.20%
3.10%
2.10%
0%
50.0%
Same as
post retirement
S2PMA tables
105%
Year of birth
CMI_2016 1.0%
S2PFA tables
105%
Year of birth
Same as
post retirement
S2PMA tables
105%
Year of birth
CMI_2015 1.0%
S2PFA tables
105%
Year of birth
CMI_2016 1.0%
CMI_2015 1.0%
86.2
88.0
87.2
89.2
86.5
88.5
87.8
89.8
ANNUAL REPORT AND ACCOUNTS 2017 103
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
17 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)
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 losses / (gains):
Actuarial losses arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Other experience gains
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)
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
2017
£’000
360,069
9,313
2,819
(16,937)
(583)
354,681
12,132
2017
£’000
355,793
9,207
10,158
(7,667)
–
(16,937)
2016
£’000
302,239
10,943
59,837
(12,291)
(659)
360,069
70,922
2016
£’000
298,812
10,829
62,332
–
(3,889)
(12,291)
350,554
355,793
2017
£’000
193,464
157,090
350,554
18
2017
£’000
42,464
20,015
41,784
104,263
819
575
249,024
250,418
354,681
2016
£’000
195,742
160,051
355,793
18
2016
£’000
37,333
17,348
39,739
94,420
1,251
7,165
257,233
265,649
360,069
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 2018.
104
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 17 Employee benefits continued
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 £6.6 million
(increase by £6.9 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 £2.7 million (decrease by £2.7 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 £15.8 million (decrease by £15.6 million) if all the
other assumptions remained unchanged.
Share-based payments
Marshalls plc 2005 Long Term Incentive Plan (“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 2017 under the LTIP. The remaining LTIP awards made in respect of the 2014 scheme year were subject to the
achievement of a 3-year performance target. The awards vested on 15 March 2017. Details of the performance criteria applicable to 2014 LTIP
awards were set out in the Remuneration Report in the 2016 Annual Report.
Outstanding at 1 January
Lapsed
Exercised
Outstanding at 31 December
Weighted average
share price at
date of grant
(pence per share)
2017
172
172
172
–
Number of
options
2017
693,479
(51,051)
(642,428)
–
Weighted average
share price at
date of grant
(pence per share)
2016
141
180
139
172
Number of
options
2016
1,647,146
(27,108)
(926,559)
693,479
The Company’s share price at 31 December 2017 was 454.90 pence.
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 Annual Remuneration Report on pages 50 to 53.
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 other employees
Equity settled awards granted to 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 other employees
Equity settled awards granted to 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 other employees
Number of
instruments
318,631
347,801
276,140
350,577
417,093
557,129
283,385
380,310
£’000
820
929
983
1,250
1,476
1,985
1,247
1,674
Date of grant
Vesting period
11 April 2014
11 April 2014
10 March 2015
10 March 2015
11 March 2016
11 March 2016
15 March 2017
15 March 2017
4 years
4 years
3 years
3 years
2 years
2 years
4 years
4 years
2,931,066
10,364
2017
£’000
4,526
5,838
Shares
1,295,249
1,635,817
10,364
2,931,066
2016
£’000
3,144
3,990
7,134
Shares
1,074,635
1,364,249
2,438,884
ANNUAL REPORT AND ACCOUNTS 2017 105
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
17 Employee benefits continued
Share-based payments continued
Management Incentive Plan (“MIP”) continued
Outstanding at 1 January
Granted
Change in value of notional shares
Element released
Outstanding at 31 December
2017
Value
£’000
7,134
2,921
1,145
Number of
options
2,438,884
663,695
19,286
(836)
(190,799)
10,364
2,931,066
The total expenses recognised for the period arising from share-based payments were as follows:
Awards granted and total expense recognised as employee costs
2016
Value
£’000
5,504
2,757
(106)
(1,021)
7,134
2017
£’000
5,218
Number of
options
1,693,639
942,785
222,456
(419,996)
2,438,884
2016
£’000
3,428
Further details in relation to the Directors are set out in the Annual Remuneration Report on pages 50 to 63. Included in the total expense of
£5,218,000 (2016: £3,428,000) is an amount of £1,804,000 (2016: £525,000) which is expected to be settled as interim cash payments under the terms
of the scheme and which has been included within wages and salaries in Note 3 and accruals in Note 14.
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 years ended 31 December 2017 and 31 December 2016. 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. Awards are made to participants following publication of the Group’s year-end results. Awards outstanding at
31 December 2017 were over 328,267 shares (31 December 2016: 55,587). The total expenses recognised for the year arising from share-based
payments were £169,000 (2016: £116,000).
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.
The total expense recognised for the year arising from share-based payments was £300,000 (2016: £300,000).
Employee profit sharing scheme
At 31 December 2017 the scheme held 42,328 (2016: 42,328) Ordinary Shares in the Company.
18 Provisions
At 1 January 2017
On acquisition of subsidiary undertaking
At 31 December 2017
Legal and regulatory
provisions
£’000
–
11,840
11,840
Provisions have been made for the estimated cost of settlement of certain legal and regulatory matters relating to the CPM Group Limited business
acquired during the year, reflecting the Directors’ estimate of the likely outflow from settlement of these matters. These provisions are expected to
be settled within the next 2 years. As explained in Note 12, the Group has a right of access to the cash paid into an escrow account at the date of
acquisition to be used to settle these matters to the extent that a liability crystallises.
106
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 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
2017
£’000
–
–
–
–
2,775
–
2,775
2016
£’000
–
–
–
–
1,821
–
1,821
Liabilities
2017
£’000
(10,545)
(1,351)
(368)
(702)
–
(2,020)
(14,986)
2016
£’000
(10,838)
(265)
(377)
(727)
–
(1,448)
(13,655)
The March 2016 Budget announced that the UK corporation tax rate will reduce to 17 per cent by 2020. The reduction in the rate to 17 per cent
(effective April 2020) was substantively enacted at the balance sheet date. This will reduce the Group’s future current tax charge accordingly. The
deferred taxation liability at 31 December 2017 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 £702,000 (2016: £727,000) in relation to employee benefits is in respect of the net surplus for the defined benefit
obligations of £4,127,000 (2016: £4,276,000 net surplus) (Note 17) calculated at 17 per cent (2016: 17 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.
1 January
2017
£’000
(10,838)
(265)
(377)
(727)
1,821
(1,448)
(11,834)
Movement in temporary differences
Year ended 31 December 2017
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Other items
Year ended 31 December 2016
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Other items
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
On
acquisition of
subsidiary
undertaking
£’000
(425)
(1,111)
–
–
–
(602)
(2,138)
–
–
–
(56)
–
35
(21)
–
–
–
–
885
–
885
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
496
18
50
127
383
77
–
–
–
(237)
–
(561)
(798)
–
–
–
–
122
–
122
(12,309)
1,151
718
25
9
81
69
(5)
897
1 January
2016
£’000
(11,334)
(283)
(427)
(617)
1,316
(964)
31 December
2017
£’000
(10,545)
(1,351)
(368)
(702)
2,775
(2,020)
(12,211)
31 December
2016
£’000
(10,838)
(265)
(377)
(727)
1,821
(1,448)
(11,834)
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.
ANNUAL REPORT AND ACCOUNTS 2017 107
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
19 Deferred taxation continued
Movement in temporary differences continued
The deferred tax liabilities disclosed in the year ended 31 December 2017 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.
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
2017
£’000
49,845
2016
£’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.
6.80 pence final dividend (2016: 5.80 pence) per Ordinary Share
4.00 pence supplementary dividend (2016: 3.00 pence) per Ordinary Share
21 Non-controlling interests
At 1 January
Share of (loss) / profit for the year
Foreign currency transaction differences
At 31 December
2017
£’000
13,436
7,904
21,340
2017
£’000
1,465
(377)
371
1,459
2016
£’000
11,460
5,927
17,387
2016
£’000
1,139
157
169
1,465
108
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 22 Acquisition of subsidiary
On 19 October 2017, Marshalls Mono Limited acquired 100 per cent of the issued share capital of CPM Group Limited, a precast concrete manufacturer
which specialises in underground water management solutions. The acquisition is in line with the Group’s 2020 Strategy. CPM Group Limited
operates within the UK and is registered in England and Wales.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below:
Land and buildings
Plant, machinery and vehicles
Identifiable intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Borrowings
Corporation tax
Deferred tax
Total identifiable assets
Goodwill
Initial cash consideration
Monies paid into escrow
Total cash payments in connection with the acquisition
Analysis of amounts paid in connection with the acquisition
Total cash payments
Net borrowings acquired
Total cash outflow in connection with the acquisition
Provisional
fair values
acquired
£’000
8,437
7,639
7,233
4,580
12,334
(2,955)
(16,931)
(11,840)
(3,407)
(1,825)
(2,138)
1,127
25,145
26,272
12,000
38,272
38,272
2,955
41,227
Initial cash consideration paid to the vendors was £26,272,000 and, in addition, a further £12,000,000 was paid into an escrow account in relation to
certain ongoing legal and regulatory matters identified during the course of due diligence carried out prior to concluding the acquisition. Provisions
of £11,840,000 have been recorded at the date of acquisition, for the estimated liabilities arising from concluding these ongoing matters (see Note 18).
The Group has a right of reimbursement of amounts held in an escrow account to the extent that any liability crystallises in respect of these ongoing
legal and regulatory matters to enable the Group to settle these liabilities, up to the full value of the £12,000,000 held in escrow and consequently
a reimbursement asset of £12,000,000 has been recognised within other debtors. To the extent that any liabilities arising from these ongoing legal
and regulatory matters are resolved at a lower amount than the escrow balances, the excess balance remaining in escrow is payable to the vendors
as additional consideration.
Due to their contractual dates, the fair value of the receivables (shown above) approximate to the gross contractual amounts receivable.
The amount of gross contractual receivables not expected to be recovered is immaterial.
The goodwill arising from the acquisition represents the opportunity to grow by utilising the capabilities and technical expertise of the acquired
workforce and by developing synergistic opportunities.
The goodwill arising from the acquisition is not expected to be deductible for income tax purposes.
Transaction costs incurred on acquisition were £837,000, and these have been fully expensed in the period (Note 3).
CPM Group Limited contributed revenue of £9,017,000 and profit of £749,000 to the Group’s profit for the period between the date of acquisition
and the balance sheet date.
If the acquisition of CPM Group Limited had been completed on the first day of the financial year, Group revenue for the period would have been
£485,532,000 and Group profit before tax would have been £56,255,000.
ANNUAL REPORT AND ACCOUNTS 2017 109
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1 January
2017
£’000
20,681
(14,975)
(293)
5,413
On acquisition of
subsidiary
undertaking
£’000
(2,955)
(2,847)
(560)
(6,362)
Cash flow
£’000
1,925
(25,413)
594
(22,894)
23 Analysis of net debt
Cash at bank and in hand
Debt due after 1 year
Finance leases
Reconciliation of net cash flow to movement in net debt
Net increase / (decrease) in cash equivalents
Cash (inflow) / outflow from decrease in debt and lease financing
On acquisition of subsidiary undertaking
Effect of exchange rate fluctuations
Movement in net debt in the year
Net debt at 1 January
Net debt at 31 December
Other
changes
£’000
31 December
2017
£’000
194
(648)
–
(454)
2017
£’000
1,925
(24,819)
(6,362)
(454)
(29,710)
5,413
(24,297)
19,845
(43,883)
(259)
(24,297)
2016
£’000
(4,680)
23,831
–
(2,276)
16,875
(11,462)
5,413
24 Changes in liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s Consolidated Cash Flow
Statement as cash flows from financing activities.
Bank loans (Note 15)
Finance lease liabilities (Note 15)
1 January
2017
(14,975)
(293)
Financing
cash flows
(i)
(25,413)
594
Acquisition
of subsidiary
(Note 22)
(2,847)
(560)
Interest rate swaps fair value hedging or economically
hedging financing liabilities (Note 16)
657
(385)
–
Total liabilities from financing activities
(14,611)
(25,204)
(3,407)
Non-cash changes
Other changes
(ii)
31 December
2017
(648)
–
175
(473)
(43,883)
(259)
447
(43,695)
(i)
The cash flows from bank loans, loans from related parties and other borrowings make up the net amount of proceeds from borrowings and
repayments of borrowings in the cash flow statement.
(ii) Exchange adjustments.
25 Operating leases
The Group had non-cancellable total minimum lease payments to be paid in respect of operating leases on property, plant, machinery and vehicles
as follows:
31 December 2017
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
Total
£’000
1,758
30,995
32,463
65,216
6 months
or less
£’000
1,173
4,950
1,158
7,281
6 – 12
months
£’000
585
4,922
1,152
6,659
1 – 2 years
£’000
2 – 5 years
£’000
–
9,137
2,234
11,371
–
11,984
6,927
18,911
More than
5 years
£’000
–
2
20,992
20,994
110
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 25 Operating leases continued
31 December 2016
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
Total
£’000
1,185
33,973
35,838
70,996
6 months
or less
£’000
1,021
5,577
1,203
7,801
6 – 12
months
£’000
164
5,549
1,197
6,910
1 – 2 years
£’000
2 – 5 years
£’000
–
9,704
2,471
12,175
–
13,140
8,759
21,899
More than
5 years
£’000
–
3
22,208
22,211
The total minimum lease payments under non-cancellable operating leases (above) comprise property of £30,236,000 (2016: £27,606,000) and
plant, machinery and vehicles of £34,980,000 (2016: £43,390,000).
Certain leased properties have been sublet by the Group. Sublease payments of £306,020 (2016: £200,020) are expected to be received during the
following financial year. An amount of £345,446 (2016: £246,186) was recognised as income in the Consolidated Income Statement within net
operating costs in respect of subleases.
26 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
M S Amlin Limited
Aviva Insurance Limited
M S Amlin Limited
27 Related parties
Identity of related parties
The Group has a related party relationship with its Directors.
Amount
£675,000
£350,000
£350,000
Period
Purpose
23 Dec 2011 to 30 Oct 2018
Employer’s liability
19 Mar 2014 to 30 Oct 2018
Vehicle insurance
30 Oct 2016 to 30 Oct 2018
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 plc has the appropriate
expertise and experience for the management of its business.
Directors of the Company and their immediate relatives control 0.1804 per cent (2016: 0.0881 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 Annual Remuneration Report on pages 50 to 63.
28 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 78 to 87. As stated in the
accounting policies, revenue is disclosed net of rebates. Whilst the Directors do not regard the determination of accruals for rebates as a key area of
estimation uncertainty, the estimation of appropriate accruals for rebates requires commercial assessment. Note 11 contains details of the Group’s
inventory. Whilst not considered by the Directors to be a key source of estimation uncertainty, 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 and for net realisable value. The Directors consider the following to be the only key source of estimation uncertainty.
• Note 17 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 17 on page 105.
The critical accounting judgements applied in the preparation of the Financial Statements are:
• 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”; and
• Note 22 contains information relating to the acquisition of CPM Group Limited. Judgement was applied in determining the fair value adjustments.
ANNUAL REPORT AND ACCOUNTS 2017 111
MARSHALLS PLC
FINANCIAL STATEMENTS Parent Company Statement of Changes in Equity
for the year ended 31 December 2017
Current year
At 1 January 2017
Total comprehensive loss for the year
Loss for the financial year
Total comprehensive loss 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
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
(3,622)
75,394
5,377
118,079
267,768
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,210)
2,473
1,263
1,263
–
–
–
–
–
–
–
–
–
–
–
(7,755)
(7,755)
(7,755)
(7,755)
2,278
365
1,603
–
3,881
365
–
–
–
(24,107)
(24,107)
–
(1,210)
(2,473)
–
2,643
(24,977)
(21,071)
2,643
(32,732)
(28,826)
At 31 December 2017
49,845
22,695
(2,359)
75,394
8,020
85,347
238,942
There were no items of other comprehensive income / (expense) in the year other than the loss for the financial year recorded above.
Prior year
At 1 January 2016
Total comprehensive loss for the year
Loss for the financial year
Total comprehensive loss 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
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
(5,529)
75,394
4,122
144,836
291,363
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,175)
3,082
1,907
1,907
–
–
–
–
–
–
–
–
–
–
–
(6,030)
(6,030)
(6,030)
(6,030)
1,195
60
–
–
–
1,255
1,255
1,389
–
2,584
60
(19,034)
(19,034)
–
(1,175)
(3,082)
–
(20,727)
(17,565)
(26,757)
(23,595)
At 31 December 2016
49,845
22,695
(3,622)
75,394
5,377
118,079
267,768
There were no items of other comprehensive income / (expense) in the year other than the loss for the financial year recorded above.
112
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS Company Balance Sheet
at 31 December 2017
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
Notes
2017
£’000
2016
£’000
32
33
34
35
36
345,785
1,492
347,277
343,507
1,010
344,517
1,602
1,257
(109,937)
(108,335)
(78,006)
(76,749)
238,942
267,768
49,845
22,695
(2,359)
75,394
8,020
85,347
238,942
49,845
22,695
(3,622)
75,394
5,377
118,079
267,768
The Company reported a loss for the financial year ended 31 December 2017 of £7,755,000 (2016: £6,030,000).
Approved at a Directors’ meeting on 14 March 2018.
On behalf of the Board:
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
The Notes on pages 114 to 119 form part of these Company Financial Statements.
ANNUAL REPORT AND ACCOUNTS 2017 113
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Company Financial Statements
29 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 2017 were authorised for issue by the Board of Directors
on 14 March 2018. 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 and loss account 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 2017.
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”.
The Company also intends to take advantage of these exemptions in the Financial Statements to be issued in the following year. Objections may be
served in the Company by shareholders holding in aggregate 5 per cent or more of the total allocated shares in the Company. Where required,
additional disclosures are given in the Consolidated Financial Statements.
(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 if it 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 profit and loss account 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).
(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 17 on
pages 103 to 106.
(ii) Defined contribution scheme
Obligations for contributions to defined contribution schemes are recognised as an expense as incurred.
114
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 29 Accounting policies continued
(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 the Employee Bonus Share Plan (“BSP”).
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.
30 Operating costs
The audit fee for the Company was £25,000 (2016: £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 50 to 63 of
the Annual Remuneration Report.
The average monthly number of employees of Marshalls plc (including Executive Directors) in the year ended 31 December 2017 was 178 (2016: 95).
The personnel costs for the majority of these employees are borne by Marshalls Group Limited. The personnel costs charged to Marshalls plc in the
year were £5,090,000 (2016: £4,071,000) in relation to 19 employees (2016: 17), including the Directors.
31 Ordinary dividends: equity shares
2016 final: paid 30 June 2017
2016 supplementary: paid 30 June 2017
2016 interim: paid 6 December 2017
2017
2016
Pence per share
£’000
Pence per share
5.80
3.00
3.40
12.20
11,460
5,927
6,718
24,105
4.75
2.00
2.90
9.65
£’000
9,369
3,945
5,720
19,034
ANNUAL REPORT AND ACCOUNTS 2017 115
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Company Financial Statements continued
31 Ordinary dividends: equity shares continued
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.
2017 final: 6.80 pence (2016: 5.80 pence) per Ordinary Share
2017 supplementary: 4.00 pence (2016: 3.00 pence) per Ordinary Share
32 Investments
At 1 January 2017
Additions
At 31 December 2017
2017
£’000
13,436
7,904
21,340
2016
£’000
11,460
5,927
17,387
£’000
343,507
2,278
345,785
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 £2,278,000 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 2017 are set
out below.
Subsidiaries
Alton Glasshouses Limited
Bollards Direct Limited
Capability Brown Garden Centres Limited
Capability Brown Landscaping Limited
Classical Flagstones Limited
CPM Group Limited
Dalestone Concrete Products Limited
Locharbriggs Sandstone Limited
Lloyds Quarries Limited
Marshalls Building Materials Limited
Principal activities
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Landscape products manufacturer
Non-trading
Non-trading
Non-trading
Non-trading
Marshalls Building Products Limited
Property management
Marshalls Concrete Products Limited
Marshalls Directors Limited
Marshalls Dormant No. 30 Limited
Marshalls Dormant No. 31 Limited
Marshalls EBT Limited1
Marshalls Estates Limited
Marshalls Group Limited1
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Intermediate holding company
Marshalls Landscape Products Limited
Non-trading
Marshalls Landscape Products FZE
Landscape products supplier
Marshalls Landscape Products (North America) Inc.
Landscape products supplier
Marshalls Mono Limited
Landscape products manufacturer and supplier and
quarry owner supplying a wide variety of paving,
street furniture and natural stone products
Marshalls Natural Stone Limited
Non-trading
Marshalls NV
Landscape products manufacturer and supplier
Marshalls Profit Sharing Scheme Limited
Non-trading
Marshalls Properties Limited
Marshalls Register Limited
Marshalls Stone Products Limited
Property management
Non-trading
Non-trading
116
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
Class of share
% ownership
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
100
100
100
100
100
100
100
100
100
100
100
100
66.7
100
100
100
100
FINANCIAL STATEMENTS 32 Investments continued
Subsidiaries
Principal activities
Class of share
% ownership
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 Limited1
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
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
1 Held by Marshalls plc. All others held by subsidiary undertakings.
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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.
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 at the following
address: Landscape House, Premier Way, Lowfields Business Park, Elland, HX5 9HT. 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. The reflective registered offices are:
Paver Systems Limited and Paver Systems (Carluke) Limited
Roadmeetings, Carluke, Lanarkshire, ML8 4QG
Locharbriggs Sandstone Limited
Locharbriggs, Dumfries, Dumfriesshire, DG1 1QS
Marshalls Landscape Products FZE
TPOFCB00WS58, Jebel Ali, Dubai, United Arab Emirates
Marshalls Landscape Products (North America) Inc.
1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, USA
Marshalls NV
Nieuwstraat 4, 2840 Rumst, Belgium
Xiamen Marshalls Import Export Company Ltd.
12 A4, Xiangyu Building, No. 22 4th Xiangxing Road, Xiangyu Free Trade Zone, Xiamen, China
ANNUAL REPORT AND ACCOUNTS 2017 117
MARSHALLS PLC
FINANCIAL STATEMENTS Notes to the Company Financial Statements continued
33 Deferred taxation
Recognised deferred taxation assets and liabilities
Equity settled share-based payments
Movement in temporary differences
Equity settled share-based payments
34 Debtors
Corporation tax
No debtors were due after more than 1 year.
35 Creditors
Amounts owed to subsidiary undertakings
Assets
2017
£’000
1,492
1 January
2017
£’000
1,010
2016
£’000
1,010
Liabilities
2017
£’000
–
2016
£’000
–
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
31 December
2017
£’000
117
365
1,492
2017
£’000
1,602
2017
£’000
109,937
2016
£’000
1,257
2016
£’000
78,006
36 Capital and reserves
Called-up share capital
As at 31 December 2017, the issued and fully paid up share capital was as follows:
Issued and paid up
2017
Number
2017 nominal
value
£’000
2016
Number
2016 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.
37 Capital and leasing commitments
The Company had no capital or leasing commitments at 31 December 2017 or 31 December 2016.
38 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.
39 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
M S Amlin Limited
Aviva Insurance Limited
M S Amlin Limited
Amount
Period
Purpose
£675,000
£350,000
£350,000
23 Dec 2011 to 30 Oct 2018
Employer’s liability
19 Mar 2014 to 30 Oct 2018
Vehicle insurance
30 Oct 2016 to 30 Oct 2018
Vehicle insurance
118
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS 40 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 17. 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 2017 Financial Statements by a qualified independent actuary.
41 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 17 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 17 on page 105.
Note 33 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.
42 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.
ANNUAL REPORT AND ACCOUNTS 2017 119
MARSHALLS PLC
FINANCIAL STATEMENTS Financial History – Consolidated Group
Consolidated Income Statement
Revenue
Net operating costs
Operating profit
Financial income and expenses (net)
Profit before tax
Income tax expense
Profit for the financial year before post-tax profit of
discontinued operations
Post-tax profit of discontinued operations
Profit for the financial year
Profit for the year attributable to:
Equity shareholders of the Parent
Non-controlling interests
EBITA2
EBITDA2
Earnings per share (pence):
Basic (continuing operations)
Basic (total operations)
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 ended
31 December 2013 1
£’000
Year ended
31 December 2014 1
£’000
Year ended
31 December 2015
£’000
Year ended
31 December 2016
£’000
Year ended
31 December 2017
£’000
307,390
(291,300)
358,516
(333,211)
386,204
(348,752)
396,922
(349,283)
430,194
(376,755)
16,090
(3,064)
13,026
(67)
12,959
503
13,462
14,096
(634)
13,462
17,028
30,227
6.94
7.20
5.25
1.3
5.25
–
1.3
176.25
0.5
25,305
(2,884)
22,421
(4,198)
18,223
–
18,223
19,857
(1,634)
18,223
26,536
38,518
10.13
10.13
5.50
1.8
6.00
–
1.7
234.0
18.7
37,452
(2,174)
35,278
(7,387)
27,891
–
27,891
28,149
(258)
27,891
38,774
51,828
14.32
14.32
6.25
2.3
7.00
2.00
1.6
325.0
20.9
47,639
(1,593)
46,046
(8,539)
37,507
–
37,507
37,350
157
37,507
48,648
60,794
18.95
18.95
9.65
2.0
8.70
3.00
1.6
292.5
18.5
53,439
(1,388)
52,051
(9,925)
42,126
–
42,126
42,503
(377)
42,126
54,581
67,895
21.52
21.52
12.20
1.80
10.20
4.00
1.5
454.9
19.1
1 The comparatives have been restated in respect of discontinued operations.
2 EBITA is defined as earnings before interest, tax and amortisation of intangibles. EBITDA is defined as earnings before interest, tax and amortisation of intangibles and depreciation.
2013
£’000
2014
£’000
2015
£’000
2016
£’000
2017
£’000
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%
193,393
139,685
333,078
(87,068)
(28,889)
249,074
166,372
415,446
(106,886)
(70,933)
217,121
237,627
5,413
(2.5%)
(24,297)
10.2%
Consolidated Balance Sheet
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Net assets
Net borrowings
Gearing ratio
120
MARSHALLS PLC
ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS Shareholder Information
Shareholder analysis at 31 December 2017
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
1,881
497
621
416
252
156
152
68
36
82
%
45.20
11.94
14.93
10.00
6.06
3.75
3.65
1.63
0.87
1.97
Number of
Ordinary Shares
272,227
373,235
1,052,733
1,473,397
1,754,658
2,486,355
7,885,799
10,579,728
12,784,570
160,716,053
4,161
100.00
199,378,755
%
0.14
0.19
0.53
0.74
0.88
1.25
3.95
5.30
6.41
80.61
100.00
Financial calendar
Preliminary announcement of results for the year ended 31 December 2017
Annual General Meeting
Announced
14 March 2018
9 May 2018
Final dividend for the year ended 31 December 2017
Payable
29 June 2018
Half-yearly results for the year ending 31 December 2018
Announcement
16 August 2018
Half-yearly dividend for the year ending 31 December 2018
Payable
5 December 2018
Results for the year ending 31 December 2018
Announcement
Early March 2019
Advisers
Stockbrokers
Peel Hunt
Numis Securities Limited
Auditor
Deloitte LLP
Legal advisers
Herbert Smith Freehills 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 2017 121
MARSHALLS PLC
FINANCIAL STATEMENTS 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.