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Delivering growth
Marshalls plc Annual Report and Accounts 2018
We are
delivering growth
Our vision is to “Create
Better Spaces” and
“Futures for Everyone”,
socially, environmentally
and economically.
Our continuing mission is to deliver
sustainable growth through
a brand that drives customer
specification of innovative product
solutions for the Built Environment.
Read more on pages 4 and 5
Our strategic goal is to be the UK’s
leading manufacturer of products
in the Built Environment.”
Martyn Coffey
Chief Executive
Read more on pages 18 and 19
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Strategic report
02 Highlights
04 At a Glance
06 Chair of the Board’s Statement
08 Chief Executive’s Statement
12 Growth Markets
14 Business Model
16 Stakeholder Engagement
18 Strategy
20 Key Performance Indicators
23 Risk Management and Principal Risks
29 Financial Review
34 Sustainability Strategy
Corporate governance
38 Chair of the Boards Q&A
40 Board of Directors
42 Corporate Governance Statement
48 Nomination Committee Report
50
Audit Committee Report
53 Remuneration Committee Report
69 Annual Remuneration Report
73 Directors’ Report – Other Regulatory
Information
75 Statement of Directors’ Responsibilities
77
Independent Auditor’s Report
Financial statements
84 Consolidated Income Statement
85 Consolidated Statement of
Comprehensive Income
86 Consolidated Balance Sheet
87 Consolidated Cash Flow Statement
88 Consolidated Statement of Changes
in Equity
90 Notes to the Consolidated Financial
Statements
124 Parent Company Statement of Changes
in Equity
125 Company Balance Sheet
126 Notes to the Company Financial Statements
132 Financial History – Consolidated Group
133 Shareholder Information
10
11
22
28
Howley park self-help capital investment
Read more about our £3.5m investment
in Howley park on page 10
Acquisition of Edenhall
Integration of CPM
Read more about this on page 11
Delivering our digital strategy
Read more on how we are achieving this on page 22
Find out more online:
www.marshalls.co.uk
Front cover: Scoutmoor Paving and Stanton Moor
facades at Bloomberg HQ.
Inside front cover: Scoutmoor Paving at the National
Memorial Arboretum.
Investing in research and development
Read more about investing in research and
development on page 28
Annual Report and Accounts 2018 01
Marshalls plc
Highlights
Continued progress has been
made in the year to deliver our
sustainable growth strategy
The self help programme to support organic
growth is progressing well and we continue
to outperform our peers and gain market share.
The acquisition of Edenhall and the
successful integration of CPM will allow
us to improve the level of our sustainable
operating margins.”
The Group’s strategic objectives are firmly aligned with delivering
sustainable shareholder value and the Group’s longer-term strategy
set out on pages 18 and 19.
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 on pages 18 and 19
Key Performance Indicators on pages 20 and 21
Delivering our strategic growth objectives
EBITDA growth continues alongside improved ROCE, strong cash flows
•
and a strengthened brand
•
•
•
•
Self help programme well advanced and delivering efficiency gains
Organic capital investment continuing strongly
Research and development expenditure continues to be increased
Focus on innovation, new product development and service to drive
sales growth
• Focus on increasing profitability of the emerging UK businesses continues
•
•
Wide-ranging digital strategy gaining momentum and
continuing to drive real benefits across the business
Integrating CPM and Edenhall and continue to target selective
bolt-on acquisitions
•
Maintain a 2 times dividend cover policy
02
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Financial highlights
•
Revenue up 14% to £491.0 million
(2017: £430.2 million)
•
•
Profit before tax up 21% to £62.9 million
(2017: £52.1 million)
Return on capital employed (“ROCE”) improved
110 basis points to 21.9% (2017: 20.8%) and on a
like-for-like basis (excluding the acquisition of
Edenhall) ROCE was 23.3% (2017: 24.8%)
• EPS up 22% to 26.29 pence (2017: 21.52 pence)
•
•
•
•
•
Strong cash generation has continued with
Group operating cash flow of 92% of EBITDA
Net debt of £37.4 million (2017: £24.3 million)
reflects cash outflow relating to the Edenhall
acquisition of £16.4 million
Final ordinary dividend increased by 18%
to 8.00 pence (2017: 6.80 pence) per share
Supplementary dividend of 4.00 pence
per share reflecting better than expected year
end debt levels
Strong trading start to 2019 – sales up 16%
including Edenhall (up 8% underlying) in first
2 months
Acquisition highlights
•
Acquisition of Edenhall in December 2018
•
Successful integration of CPM during 2018 and
trading has been strong since acquisition
Read more about our acquisitions
on page 11
Revenue (£’m)
£491.0m
+14%
Operating profit (£’m)
£64.8m
+21%
2018
2017
2016
2015
2014
491.0
430.2
396.9
386.2
358.5
2018
2017
2016
2015
2014
25.3
64.8
53.4
47.6
37.5
EPS (p)
26.29p
+22%
Profit before tax (£’m)
£62.9m
+21%
2018
2017
2016
2015
26.29
21.52
18.95
14.32
2018
2017
2016
2015
62.9
52.1
46.0
35.3
2014
10.13
2014 22.4
Return on capital employed (%)
Final dividend recommended (p)
21.9%
up 110 basis points
8.00p
+18%
2018
2017
2016
2015
2014
21.9
20.8
23.0
2018
2017
2016
8.0
4.0
6.8
4.0
5.8
3.0
19.0
2015
4.75
2.0
12.5
2014 4.0
Annual Report and Accounts 2018 03
Marshalls plc
Strategic report
At a Glance
The UK’s leading hard
landscaping manufacturer
Our objective is to create integrated landscapes which promote wellbeing
to the benefit of everyone. So, whether it is through fairly traded stone,
providing products which alleviate flood risks, enabling our business
partners to share in our success or creating innovative street furniture that
protects us from attack, we proudly strive to make our world a better place.
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 increasing
the speed and efficiency of product installation.
Our investment case
Growth agenda
Proven record of sustained growth
with 5-year CAGR growth in revenue
of 10 per cent and PBT of 37 per cent.
Strong market position
Wide market reach targeting growth
areas including New Build Housing,
Road, Rail and Water Management.
Wide-ranging mineral reserves with the
“Marshalls Stone Standard“ quality mark.
Target acquisitions
The acquisitions of both CPM and
Edenhall will enable the Group to
offer a broader product choice that
complements our offering in targeted
growth areas of Water Management
and New Build Housing.
Revenue
£491.0m
+14%
Operating profit margin
13.2%
+6%
CPM
Acquired 19 October 2017
Edenhall
Acquired 11 December 2018
Read more about our strategy
on pages 18 and 19
Read more about our markets
on pages 12 and 13
Read more about our acquisitions
on page 11
Diversified group
Serving Public Sector, Commercial
and Domestic end 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 reinvestment. Capital investment
of £29.2 million in 2018.
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. Delivering sustainable
shareholder value is a key part of
Group strategy.
Public Sector and Commercial
(% of Group revenue)
66%
revenue growth of 20% in 2018
Self help capital investment in 2018
ROCE
£17m
£30.7 million over the last 3 years
23.3%
like-for-like basis
Read more about how we are improving
our digital offering on page 22
Read more about self help capital
investment in Howley Park on page 10
Read more about how we operate as a
sustainable business on pages 34 to 37
04
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Innovation and
new products
The continued focus on innovation and
new product development ensures we
focus on manufacturing and materials
technology capabilities.
Number of new product ranges
67
launched in the current innovation cycle
Read more about our investment in
research and development on page 28
Culture
The Group’s core values of leadership,
excellence, trust and sustainability
underpin our culture along with our
key objective of doing business
responsibly. The corporate culture is
embedded into our engagement
with stakeholders.
Health and safety
61%
reduction in working days lost since 2015 (%)
Read more about our sustainability
strategy on pages 34 to 37
Where we operate
Unique national network of
manufacturing sites and quarries
ensures proximity to customers
and an efficient logistics footprint.
Marshalls Landscape
Mineral Products
Street Furniture
CPM
Premier Mortars
Edenhall
Design Space
Administration
Annual Report and Accounts 2018 05
Marshalls plc
Strategic report
Chair of the Board’s Statement
The Group
continues to
deliver our
long-term
sustainable
growth strategy
Summary
• 2018 has been another year of good profit growth
• Core values remain as leadership, excellence,
trust and sustainability
• 22% increase in earnings per share reflecting continuing
strength of the Marshalls brand
• Strong balance sheet and prudent capital structure
• Full year dividend of 12.00 pence (up 18%) and a
discretionary supplementary dividend of 4.00 pence
Overview
This is my first report to you as your Chair and I am delighted to
announce another year of growth, with both strong earnings and
cash performance. We are continuing to invest in the business,
in addition to proposing an increased ordinary dividend and
a further supplementary dividend. The acquisition of Edenhall
Holdings Limited (“Edenhall”) in December 2018 will support the
Group’s focus on New Build Housing, which is one of our strategic
growth areas.
Results
Group revenue for the year increased by 14 per cent to
£491.0 million (2017: £430.2 million). The Public Sector and
Commercial end market performance was up 20 per cent
during the year and growth in the Domestic end market was
up 3 per cent.
Profit before tax increased by 21 per cent to £62.9 million
(2017: £52.1 million). EBITDA has grown by 19 per cent to
£80.8 million and the Group’s earnings per share, at 26.29 pence,
is up 22 per cent.
Net debt at 31 December 2018 was £37.4 million (2017: £24.3 million),
after funding the acquisition of Edenhall for £16.4 million.
Dividends
The Board is recommending a final dividend of 8.00 pence per
share (2017: 6.80 pence per share) which, together with the interim
dividend of 4.00 pence per share (2017: 3.40 pence per share),
makes a total ordinary dividend of 12.00 pence per share (2017: 10.20
pence per share), an increase of 18 per cent for the year.
The Board is also recommending a supplementary dividend
of 4.00 pence per share for 2018 (2017: 4.00 pence per share).
The payment of a discretionary supplementary dividend is in
line with the Board’s objective of maintaining an efficient capital
structure whilst retaining capacity to invest in further growth
opportunities. The Group’s cash flows remain strong and permit
us to recommend and maintain a supplementary dividend of
4.00 pence. The level of supplementary dividend this year reflects
a better than expected year end debt position and this year
provides increased total returns for shareholders whilst recognising
the increased political and economic uncertainties caused by the
prolonged Brexit negotiations. The Board will continue to adhere
to the Group’s capital allocation policy and the Group’s policy
of rewarding shareholders on the basis of maintaining a 2 times
dividend cover. This is explained in more detail on page 32.
Our culture is built on strong
values and a commitment to
doing business responsibly.
This is embodied in
“The Marshalls Way”,
incorporating our core values
of leadership, excellence,
trust and sustainability.”
06
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Strategy
The 2020 Strategy has delivered strong profit growth and has
been firmly aligned with the Group’s vision to “Create Better
Spaces” for all our customers, socially, environmentally and
economically. We have a strategic goal to become the UK’s
leading manufacturer of product in the Built Environment. The
Group is now well advanced in mapping out its ambitions for the
next 5 years, setting strategic objectives that continue to support
long-term sustainable growth while also building further resilience.
The Board’s priorities for 2019 include the launch of the Group’s
strategy for the next 5 years. This will set out the Group’s strategic
priorities for the medium term and how these will deliver value for
our stakeholders.
Strong corporate culture
Marshalls is committed to an open and transparent culture
that fosters excellence. The Board recognises its responsibility to
provide strong leadership in the promotion of corporate culture
and this has continued to be a focus over the past 12 months,
as we develop better ways of engaging with our employees
and other stakeholders. Our long-standing commitment to high
ethical standards, minimising adverse environmental and social
impact, while delivering great service for our customers, provides
a strong foundation on which we can build to improve. Doing
business the right way is extremely 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.
“The Marshalls Way” captures the elements and values that
support the Group’s culture of doing business responsibly. I have
no doubt that having a clear and consistent culture that all our
employees live by, and that is visible to all our stakeholders, is key
to the development of our brand. During the past year, we have
worked on exploring how to promote and communicate our
values throughout the business, as well as with our shareholders,
business partners, employees and other stakeholders. Your Board
is committed to working alongside employee focus groups
over the next year to further develop and fully articulate
“The Marshalls Way” to reflect the Group’s culture in a way that
is understood by all. It is underpinned by the Group’s core values
of leadership, excellence, trust and sustainability and the reward
structures across the business are being aligned with our cultural
vision. The Board’s priorities for 2019 include further focus on the
development of Marshalls’ corporate culture and I talk more about
this on pages 38 and 39 and in my introduction to the Corporate
Governance Statement on page 42.
Highest standards of governance
The Board remains committed to the highest standards of
corporate governance and to operating in accordance with
strong ethical and corporate social responsibility principles.
Our ethical principles transcend all parts of the business and are
a key element of the Marshalls brand. In reviewing governance
in 2018, while continuing to comply with the provisions of the UK
Corporate Governance Code published in April 2016, as outlined
in our Corporate Governance Statement on pages 42 to 47, we
also acknowledge the development of governance standards set
out in the new version of the Code published in July 2018. We
have reviewed our own compliance against the 2018 Code and
have already implemented some changes to ensure that we are
able to report positively on compliance in 2019; we also comment
on this in the Corporate Governance Statement. Having a Board
that is well balanced and diverse in the widest sense remains key
to the delivery of strong governance standards. There is a formal
and transparent succession plan in place, and there will be
resolutions proposed at the 2019 Annual General Meeting to
update the Articles as well as in relation to the election and
re-election of Directors that are designed to support the
effectiveness of the Board while allowing membership to be
regularly refreshed.
We continue to improve the Annual Report disclosures to ensure
they give a fair, balanced and understandable assessment of the
Group’s position and prospects. On pages 16 and 17 we set out
more detailed information about all our key stakeholder groups,
explaining how we engage and strive to develop collaborative
relationships. In compliance with s172 Companies Act 2006, the
Board plans to undertake its own stakeholder mapping process
and review stakeholder engagement on an annual basis. The
ongoing aim is to consider whether there are any ways in which
this can be more effective.
During 2018, we carried out an internal evaluation of Board
performance and effectiveness, applying the principles of
the 2016 Code while also taking into account the 2018 Code.
No areas of material concern were highlighted. We will commission
an external Board evaluation in 2019.
People
It is very evident to me that our employees are a major strength of
Marshalls. There is a real drive to deliver our core values amongst
the workforce and to grow the business and I would like to thank
all our employees for their commitment and contribution during
the last year. It is a real strength that so many employees are now
able to participate in the Company’s success through Sharesave
and share purchase plans.
Outlook
The Group delivered a strong result in 2018 and continues to
outperform the Construction Products Association’s (“CPA”) growth
figures, despite ongoing macro-economic and Brexit uncertainty.
The CPA’s recent Winter Forecast predicted a decrease in UK
market volumes of 0.2 per cent in 2018, followed by an increase of
0.3 per cent in 2019. However, our recent trading has been strong
and the underlying indicators in the New Build Housing, Road, Rail
and Water Management markets remain supportive to our growth
strategy and plans.
Good progress has been made during the year, notably the
successful integration of CPM and the ongoing self help
programme to drive organic growth and these have been
enhanced by the acquisition of Edenhall. The Group’s focus
remains the delivery of long-term sustainable growth, whilst
maintaining a strong balance sheet and a flexible capital structure.
Vanda Murray OBE
Chair
Annual Report and Accounts 2018 07
Marshalls plc
Strategic report
Chief Executive’s Statement
Delivering growth
Summary
• Profit before tax up 21% to £62.9 million
• Acquisition of Edenhall in December 2018
• The integration of CPM is now complete
• The Group’s positive cash generation has continued
• Continued commitment to our self help capital investment
programme and new product development
• Acceleration of the digital strategy development
Marshalls is a Superbrand 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.
2018 trading summary
Group revenue for the year ended 31 December 2018 was up
14 per cent at £491.0 million (2017: £430.2 million). This was a very
positive result given the first 4 months of the year were affected by
severe weather conditions. Revenue growth in the second half of
the year was particularly strong at 17 per cent.
Sales in the Domestic end market, which represented approximately
29 per cent of Group sales, continue to outperform CPA forecasts
and were up 3 per cent compared with the prior year. Whilst the first
half of the year was particularly affected by the severe weather,
revenue growth in the second half of the year was up 7 per cent
against the prior period. The survey of domestic installers at the end
of February 2019 revealed order books of 10.0 weeks (2018: 10.8 weeks)
which compared with 10.8 weeks at the end of October 2018.
Sales in the Public Sector and Commercial end market, which
represented approximately 66 per cent of Group sales, were up
20 per cent compared with 2017. This included a full year
contribution from CPM.
Introduction
The Group’s proven strategy has continued to deliver strong profit
growth in 2018. The self help programme to support organic growth
is progressing well, with continued focus on New Build Housing, Road,
Rail and Water Management, where higher levels of growth are
anticipated. Sales and order intake have remained strong in the first
couple of months of 2019 and were up 16 per cent against the prior
year comparative (8 per cent up excluding the impact of Edenhall).
The core Commercial and Domestic businesses continue to deliver
benefits from operational efficiency improvements. The strong
performance of our Landscape Protection business in the second
half of the year and the growth in the sustainable profitability
of our emerging UK businesses remain key parts of the Group’s
strategy. The growth of protective security street furniture
continues with strong focus on new product development
and new target markets.
The Group has delivered an operating profit in 2018 of £64.8 million
(2017: £53.4 million), an increase of 21 per cent. This result is also
after charging £1.2 million of operational restructuring costs
(2017: £1.2 million) and £0.4 million of acquisition costs
(2017: £0.8 million).
International revenue grew by 4 per cent during 2018 and
represents approximately 5 per cent of Group sales. Marshalls
has made continued progress in developing the International
business and its trading performance has improved in line with
revenue growth.
Edenhall Holdings Limited (“Edenhall”) was acquired on
11 December 2018. Edenhall is a leading UK manufacturer and
supplier of sustainable concrete products and the acquisition is
in line with our stated strategy to complement our organic growth
with targeted acquisitions. CPM is now fully integrated into
Marshalls’ IT and financial systems. CPM has traded strongly
during 2018, surpassing expectations, and the business’
integration into the Marshalls Group is now complete.
Profit before tax increased by 21 per cent to £62.9 million
(2017: £52.1 million) and EBITDA increased by 19 per cent to
£80.8 million (2017: £67.9 million). Basic EPS was 26.29 pence
(2017: 21.52 pence), an increase of 22 per cent.
We are developing our
strategic objectives to
be sustainable over the
longer term.”
08
Strategic report
Capital discipline remains a key priority for the Board and
the Group’s strong cash generation has continued in the year.
Operating cash flow was 92 per cent of EBITDA. Net debt at
31 December 2018 of £37.4 million (2017: £24.3 million) was better
than expected, even after the total cash outflow of £16.4 million
in connection with the acquisition of Edenhall.
Acquisition of Edenhall
The acquisition of Edenhall is in line with our stated Group strategy
of expanding into adjacent building products related to New Build
Housing. This is a strategic focus for Marshalls. Edenhall is a concrete
brick manufacturer capable of providing a spectrum of colours,
shades and textures to meet any specification requirements for
facing bricks and specials. The acquisition will enable us to offer
customers a broader product choice. The combination of Marshalls
and Edenhall will build our specification ability for both brands and
will also create leverage for our existing business in Mortars and
Screeds. Trading since completion has been strong and integration
is on track with our expectations.
Current priorities and operational strategy
The Group’s 2020 Strategy has been successful and the results in
2018 demonstrate this. Our long-term strategy remains to grow the
business, deliver increasing operating margins in all businesses and
improve return on capital employed (“ROCE”). We are mindful of
increased political and economic uncertainties and a conservative
approach is being taken to the development of our strategic
objectives over the longer term. We are currently developing our
strategic plan for sustainable growth over the next 5 years and
this will become the Group’s 2023 Strategy.
During 2018, the ongoing development of the self help capital
investment programme has been complemented by the
acquisition of Edenhall and the successful integration of CPM.
ROCE, defined as EBITA / shareholders’ funds plus net debt,
was 23.3 per cent for the year ended 31 December 2018
(2017: 24.8 per cent). This ROCE calculation excludes the
impact of Edenhall and is therefore on a like-for-like basis.
Capital expenditure was £29.2 million in the year ended
31 December 2018, which included £17.0 million of additional,
planned, self help investment. We continue to identify 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 as part of
our growth strategy.
We continue to explore bolt-on acquisitions within our targeted
growth sectors of New Build Housing, Water Management,
Landscape Protection and Minerals. Our approach remains
focused and any proposed acquisition target will be carefully
assessed against strict investment criteria and will be thoroughly
investigated during the detailed due diligence phase.
Marshalls’ digital strategy remains a key priority and continued
investment is being directed to enhancing the Group’s digital
capability. The aim is to provide our customers with world-class
experiences and the digital objective is to ensure they receive
the right data, at the right time, in the right format. During 2018, we
have established a new platform for our Commercial end market
customers which runs a state-of-the-art digital infrastructure
that provides greater ability and a blueprint for future systems
architecture. We are planning to release a new platform for our
Domestic end market customers in 2019. Our web and mobile
applications enable customers to model their requirements and
allow full digital access. The digital strategy is underpinned by
continuous improvement driven by data analysis and customer
insight. We are integrating artificial intelligence in key transactional
systems and, during 2019, we aim to create an artificial intelligence
infrastructure upon which other business initiatives will be able
to leverage.
The Group’s strategic initiatives are set out in detail in the
Strategic Report on pages 2 to 37.
Innovation and new product development
In the core Landscape Products business, the growth in revenue
from new products continued strongly and new product sales
represented 12 per cent of total revenue in 2018. 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. Further details have
been included on page 28 including a case study relating to our
new Surface Performance Technology paving products. This new
technology is generating increased sales, specifically in New Build
Housing, which is one of our targeted growth areas.
Improvements in operational efficiency
The self help capital investment programme is continuing to
improve operational and manufacturing efficiency. By way of
example, we are now seeing significant efficiency benefits following
the £3 million investment in a modern sawmill and production
facility at Natural Stone Paving in 2017. The more recent new
£3.5 million static crushing plant at Howley Park is described in
more detail in the case study on page 10. This plant is capable
of crushing 7 different products at one time and will both reduce
operating costs and improve efficiency. In addition, the Group’s
in-house logistics fleet provides a competitive advantage and
the vehicles have industry leading safety technology. With around
375,000 deliveries made each year, this remains part of the
Group’s operations where there are still further opportunities
for improvement.
Health and safety
Marshalls 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. The achievement of annual health and safety
improvement targets is directly linked to the remuneration of
the Executive Directors and senior management.
During 2018, there was a 14 per cent reduction in lost time workplace
incidents. There was also a 46 per cent reduction in working days lost
over a 3-year period, which is comfortably ahead of the Group’s
headline target. In addition, during the year, the Group successfully
gained ISO 45001 accreditation across the UK businesses, being
the first company in the building products industry to achieve
this standard.
Marshalls has also introduced a Mental Health Awareness
Strategy, and this has included the training of key individuals
in the business to become Mental Health First Aiders to support
our employees. We continue to promote a culture in which all
managers visibly demonstrate health and safety leadership.
Responsible business
In 2018 the total amount of community support, including
charitable donations raised by employees, amounted to £267,000.
The total raised for MIND, the Group’s chosen national charity has
been over £200,000 over the last 2 years. This includes amounts
raised by employees, supported by the Company’s contribution.
Marshalls continues to share its success by encouraging employee
share ownership. The Group’s all-employee 2015 Sharesave scheme
matured in 2018 and 684 employees have either exercised, or are
still able to exercise, their options and achieve a 50 per cent return
over 3 years.
Martyn Coffey
Chief Executive
Annual Report and Accounts 2018 09
Marshalls plc
Strategic report
Case Study
Self help capital investment
Self help investment
Self help capital expenditure is additional to ongoing replacement
spend. It must be “value added”, targeting volume growth areas and
cost reduction and efficiency opportunities. The investment objective
is to achieve a payback in less than 3 years and a healthy IRR. Self
help capital expenditure was £17.0 million in 2018 and has been
£30.7 million over the last 3 years. The £3.5 million investment in a
static crushing plant at Howley Park and the £3 million investment
in saws and automation in a new production facility at Brookfoot
are 2 examples of significant capital expenditure projects.
Total 2018 capital expenditure
£29.2m
(self help = £17.0m)
Total capital expenditure over
the last 3 years
£63.8m
(self help = £30.7m)
Howley Park quarry static crushing investment
• Site capital investment of £3.5 million
• Static crushing plant capable of crushing 7 different products at any one time
• Comprises of:
• Tip hopper loaded directly from 45 tonne capacity dumpers
• Jaw crusher
• Cone crusher
• 3 screening stations each with 2 decks
• Increase in capacity of 75 per cent
• Reduction in operating costs of 24 per cent
• Quarry reserves of over 50 years
Read more on the strategy on pages 18 and 19
www.marshalls.co.uk/commercial
10
Marshalls plc
Annual Report and Accounts 2018
Hi res to be supplied
Strategic report
Case Study
Acquisitions
Integration of CPM
Acquired in October 2017, CPM is now fully integrated into Marshalls Landscape
Products and has been performing ahead of expectations.
Key strengths
• Comprehensive range of technical and innovative water management solutions;
• Growing business with a strong track record of quality and service; and
• The provision of bespoke “off-site” solutions.
Opportunities
• We can now offer a broader product choice that complements Marshalls’
existing water management offering. CPM now extends the Group’s range
to include below ground drainage products; and
• The acquisition of CPM will enable Marshalls to deliver a fuller system-based
water management proposition.
Acquisition of Edenhall
Edenhall is a concrete brick manufacturer capable of producing a spectrum
of colours, shades and textures to meet any specification requirements for
facing bricks and specials.
The acquisition will enable us to offer customers a broader product choice
in line with our stated strategy of expanding into adjacent building products
related to New Build Housing.
Key strengths
• Edenhall is a profitable business with a strong track record of quality,
reliability and service; and
• The business offers facing brick colours in all shades from white to blue
and in a wide variety of textures from smooth to sand-faced and
weathered finishes.
Opportunities
• Marshalls has a strong presence in the New Build Housing Sector, and
Edenhall will fit in with our existing customer frameworks and agreements;
• The combined offer will build the specification ability for both brands; and
• We can leverage our existing business in Mortars and Screeds as Edenhall
also sell directly into this sector.
The joining of the two companies will add real value to our
customers and accelerate the growth of Edenhall.”
Andrew Cotton
Managing Director of Edenhall Holdings Limited
Read more on the strategy on pages 18 and 19
Marshalls plc
Annual Report and Accounts 2018
11
Strategic report
Growth Markets
Public Sector and Commercial
According to the CPA, construction output is forecast to remain broadly flat (+0.3 per cent) in 2019 before growth of 1.6
per cent in 2020. However, this masks a considerable variation by sector, with growth in private housing, industrial
warehouses and many parts of infrastructure offsetting falls in education, health and commercial activity.
• Construction output has remained robust in 2018 in spite of
political uncertainty over Brexit.
• The CPA forecasts that private housing starts will rise 2.0 per
cent in 2019 and 1.0 per cent in 2020, as Help to Buy sustains
growth outside London.
• The CPA forecasts that infrastructure work will rise by 8.8 per
cent in 2019 and 7.7 per cent in 2020.
Forecasts for the roads sub-sector show modest growth over the
next 2 years, with activity split between smart motorways and
traditional road construction. The CPA forecasts that output in the
roads sub-sector will increase by 3.0 per cent in 2019 and 5.0 per
cent in 2020. Rail construction output is forecast to increase by
10.0 per cent in 2019, driven by ongoing projects in London and the
South East and the completion of the Crossrail project. Looking
further ahead, the HS2 rail project will be a key driver.
Total Construction output
CPA 2019 £163bn L £495m
CPA total construction output
Chain linked volume – 2016 prices
Infrastructure
CPA 2019 £21.5bn L £1.7bn
CPA infrastructure
Chain linked volume – 2016 prices
s
e
c
i
r
p
t
n
a
t
s
n
o
c
6
1
0
2
t
a
m
£
e
u
a
V
l
190,000
180,000
170,000
160,000
150,000
140,000
130,000
120,000
110,000
100,000
s
e
c
i
r
p
t
n
a
t
s
n
o
c
6
1
0
2
t
a
m
£
e
u
a
V
l
28,000
26,000
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
2010
2011
2012
2013
2014
2015
2016
2017
2018 (f)
2019 (f)
2020 (f)
2010
2011
2012
2013
2014
2015
2016
2017
2018 (f)
2019 (f)
2020 (f)
Lower
Upper
Central
Lower
Upper
Central
Total Public inc. PFI output
CPA 2019 £37.8bn L £513m
CPA Public in PFI total
Chain linked volume - 2016 prices
Total Private output
CPA 2019 £125.1bn K £19m
CPA Private total
Chain linked volume - 2016 prices
s
e
c
i
r
p
t
n
a
t
s
n
o
c
6
1
0
2
t
a
m
£
e
u
a
V
l
45,000
40,000
35,000
30,000
s
e
c
i
r
p
t
n
a
t
s
n
o
c
6
1
0
2
t
a
m
£
e
u
a
V
l
145,000
135,000
125,000
115,000
105,000
95,000
85,000
75,000
2010
2011
2012
2013
2014
2015
2016
2017
2018 (f)
2019 (f)
2020 (f)
2010
2011
2012
2013
2014
2015
2016
2017
2018 (f)
2019 (f)
2020 (f)
Lower
Upper
Central
Lower
Upper
Central
Response to market challenges – our strategic priorities
• Drive specification and sales for the Group’s new product ranges, e.g. Modal Paving and Urbex textured paving.
• Gain further leverage from our digital strategy which is focused on the customer experience.
• Maintain focus on the significant growth opportunities in the Greater London area – but also on further developing our strategic
relationships with contractors, housebuilders and merchants across the UK.
12
Marshalls plc
Annual Report and Accounts 2018
Strategic report
The consumer driveway and patio market
The prospects for private housing repair, maintenance and improvement activity in the near term are likely to
be driven by home improvements spending by demographic groups with pension and housing wealth.
Private housing market background
There has been a slowdown recently in the general housing market,
which is expected to deteriorate further until Brexit uncertainty
reduces. Although mortgage applications and property transactions
have fallen, house prices have continued to rise in most regions, as
supply has adjusted accordingly. Latent demand remains strong
and the Government’s focus continues to be to increase net supply
to 300,000 homes per year by the mid-2020s. Private housing
repair, maintenance and improvement expenditure is driven by
housing wealth, pension wealth and household savings which are
the main sources of finance and continue to be robust in the
over-55s age category, which is a key demographic for Marshalls.
CPA Private housing RM&I
Chain linked volume - 2016 prices
25,000
m
£
’
20,000
15,000
2010
2011
2012
2013
2014
2015
2016
2017
2018 (f)
2019 (f)
2020 (f)
Lower
Upper
Central
Source: Moneysupermarket and Government Statistics.
The move or improve question
• 21 per cent of households (3 million) are considering moving to a
new house.
• 1.2 million (40 per cent) actually moved in last 12 months.
• 1.85 million (13 per cent) are considering extending.
• Collectively 37 per cent believe outdoor improvements will add the
most value.
• On average UK homeowners believe an extension of any type
will add around 20 per cent to the value of a house.
Pension withdrawals
7.8% to £7bn in 12 months to 2018 Q2
882,000 individuals = £8,000 each
MAT value of flexible payments from pensions
Equity release
20% to £3.6bn in total during 2018
64% planning to spend on Home and Garden
Equity release over 55s
(Lifetime mortgage values - weighted)
s
n
o
i
l
l
i
b
£
£8.00
£7.00
£6.00
£5.00
£4.00
£3.00
£2.00
£1.00
£0.00
)
m
£
’
(
l
e
u
a
v
d
e
s
i
l
a
m
r
o
N
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
2016 Q 1
2016 Q 2
2016 Q 3
2016 Q 4
2017 Q 1
2017 Q 2
2017 Q 3
2017 Q 4
2018 Q 1
2018 Q 2
P a y d e bts
H olid a y
Total im prove m ents
Tre ats
Cle ar m ortg a g e
P a y bills
S witch pla ns
R e d uce IH T lia bility
To p u p
2017
2018
Response to market challenges – our strategic priorities
• Continue to develop the proposition through our approved domestic installers, leveraging the digital technology advances to enhance
the customer experience.
• Maintain strong relationships at all levels with our national merchant customers.
• Focus on the increasing distribution of our brands across the Independent customer base.
• Launch our new Domestic website in 2019, which builds on the investment already made on the Group’s new digital platform.
Marshalls plc
Annual Report and Accounts 2018
13
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.
Our capital
Our business
Financial
We have a strong balance sheet and a
conservative capital structure. An efficient
portfolio of bank facilities, with extended
maturities, provides prudent headroom.
We target a net debt to EBITDA ratio of
0 – 1 times over the business cycle.
Business
We have national coverage and sustainable
operations across a national network of
manufacturing sites. We have long-standing
relationships with customers and suppliers and
a diverse product range covering a number
of end markets.
Intellectual
We have a reputation built on transparency
and long-standing core values. Marshalls
is a Superbrand underpinned by efficient,
well-invested plants with high skills and
expertise. We focus on innovation and
strong R&D and NPD.
Natural resources
Marshalls has extensive reserves of UK natural
stone. Strong supply chain relationships
ensure the ethical sourcing of natural stone
from India, China and Vietnam.
Human
The Group has an experienced workforce
of 2,790 employees with specialist skills and
a high level of engagement.
Technology
We are accelerating the development of our
digital strategy to enhance service and the
overall customer experience, and to improve
operational efficiency and communication.
Social and relationships
We have strong stakeholder relationships through
constructive dialogue with local authorities,
industry bodies and regulators. Our stakeholder
relationships are underpinned by a focus on
responsible business which is a key part of the
Marshalls culture.
What makes us different?
Sustainability
• Commitment to producing new
quality products that are better
than any existing market offering
• Development of a digital strategy
Innovation
• Benchmark for excellence, widely
regarded as a leader in its field
• Marshalls is one of Britain’s strongest
Superbrands
• Sustainability credentials
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
Our core values:
Leadership
Excellence
• Looking ahead and setting the
direction for others to follow
• Being ambitious and challenging
complacency
• Taking responsibility for our actions
• Making good on our commitments
• Taking collective responsibility for
• Being experts in what we do
making things happen
• Being role models and acting with
integrity at all times
• Seeking continual improvement
and demanding high performance
14
Marshalls plc
Annual Report and Accounts 2018
SourcingThe Group’s main raw materials are cement, sand, aggregates, pigments, fuel oil and utilities. We use the best materials we can source.Related risks• Macro-economic and political • Security of raw material supply• Cyber security risks• Environmental• EthicalManufacturingThe 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• Competitive activity• Threat from new technologies and business models• IT infrastructure• Legal and regulatoryStrategic report
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Outcomes
Shareholders
Progressive dividend policy, targeting
2 times dividend cover supported by
non-recurring and discretionary
supplementary dividends
Dividend per share
16.00p
Customers
Industry leading customer service –
innovative new products, quality,
availability and “on-time” delivery
Employees
Promotion of professional
development, career opportunities
and competitive benefit packages
Suppliers
Global supply chain, long-term and
mutually beneficial partnerships and
ethical trading
Communities and environment
Positive impact, with direct investment in
the community and Fair Tax Mark
Customer
service index
98%
Apprenticeships
in 2018
70
Suppliers trained
on anti-bribery and
modern slavery
70%
Charitable and
community donations
£267k
Government and
regulatory bodies
Reinvestment in R&D and capital
expenditure to drive sustainable growth
R&D expenditure
£4.9m
Capital structure
• Strong and flexible
capital structure
• Clear capital
allocation policy
Priorities for capital on page 32
Dynamic business model
• Our business model is
constantly developing
through collaboration with
customers and feedback
from stakeholders. Our
customer-focused investment
in digital technology is
transforming the customer
experience and advancing
the business model
Trust
Sustainability
• Following through on our promises
• Being transparent and doing
• Doing what we say we will do
• Honest and acting with integrity
• Treating our colleagues and
customers fairly
the right thing
• Taking the long-term view when
making decisions
• Anticipating and adapting
to change
• Considering people, the planet
and our contribution to society
Stakeholder Engagement
on pages 16 and 17
Growth Markets
on pages 12 and 13
Our Strategy
on pages 18 and 19
Key Performance Indicators
on pages 20 and 21
Risk Management and Principal Risks
on pages 23 to 27
Marshalls plc
Annual Report and Accounts 2018
15
DistributionDue 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• Road infrastructure• Cost inflation• EnvironmentalCustomersOur customers range from Domestic homeowners to Public Sector and Commercial. We seek to exceed the expectations of customers in all our end markets.Related risks• Macro-economic and political• Weather• Cyber security risks• Competitor activity• Legal and regulatoryStrategic report
Stakeholder Engagement
Strong relationships across
all stakeholder groups
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Shareholders
Link to strategy
• We generate value for shareholders by delivering
sustainable growth
Why we engage
• To ensure that our long-term
• We maintain a progressive dividend policy – targeting
2 times dividend cover over the business cycle
strategy is aligned with the interests
of shareholders
• We aim to articulate a clear corporate strategy to
shareholders in a way that is easy to understand
• We seek to give a consistent message and style
across all communication channels
• We emphasise personal contact and individual dialogue
– with a significant time for shareholder meetings
• We work with PR consultants (MHP Communications)
to provide ongoing communication support
• To explain how we aim to deliver
sustainable growth and maximise
the growth potential of the business
• To maintain a strong and sustainable
dividend policy
• To increase the share price and total
shareholder return
How we engage
• AGM, Annual Report, Trading
Updates and presentations
• Regular phone calls, face to face
meetings, site visits and investor
roadshows
•
Investor Centre on the website –
which has been redesigned and
upgraded in recent years
Customers
Link to strategy
• We seek to exceed the expectation of customers
in all markets
• We target very high levels of customer service
• We build customer service and health and safety
performance into management and employee
reward schemes
Why we engage
• To ensure customers remain at
the centre of our business model
• To maintain very high quality,
How we engage
• Dedicated “customer experience”
team – with strategic
engagement objectives
availability and delivery metrics
• Service-level agreements and
• To be able to provide new and
innovative products and
integrated solutions
• To develop customer-focused
solutions that can be effectively
and efficiently installed
quality standards
• A customer service resource
structure – with technical
advisory in-field resource
• New websites and digital solutions
focused on the customer
• Customer surveys, customer visits and
a commitment to deliver on feedback
• Continuing investment in
systems improvement
Employees
Link to strategy
• We have 2,790 staff in the Group across all locations
• We have highly experienced and motivated employees
• We are a “Living Wage” employer with pay positioned
at the top end for the industry
• We develop and reward our employees both
financially and through professional development
Why we engage
• To ensure that all employees
are valued and have a “voice”
• To ensure we maintain a skilled and
technically competent workforce
• To ensure promotion of staff
How we engage
• Communication through intranet,
workplace meetings and staff surveys
• Annual Director “communication
roadshow” programme of site visits, staff
presentations and workplace dialogue
• We encourage share ownership with around one-third
of employees owning shares
• We place a high priority on employee engagement,
training and development
development and personal growth
• Focus on development training and
• To ensure ongoing focus on health
and safety
• To encourage equal opportunities
and a more diverse workforce
succession planning
• Competitive salaries –
rewarding excellence
• Focus on new apprenticeships
Our core values:
Leadership
Excellence
16
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Responding to stakeholders
Our approach is to engage in personal dialogue across all major stakeholder groups. Our investor and
shareholder communication is focused around personal contact, individual dialogue, regular presentations
and site visits and ensures that our investor relations programme clearly articulates the strategic priorities of
the business. We aim to build collaborative relationships with employees, customers and suppliers – being
open to change and responding to feedback.
Suppliers
Link to strategy
• We have a global supply chain and maintain
long-term partnerships
• We have a reliable and robust material supply that
enables manufacturing flexibility
• We are leading members of the Ethical Trading
Initiative (“ETI”)
• We continue to focus on the issue of modern slavery
and improve compliance procedures
• We maintain our “Hope for Justice” strategic partnership
• We have developed and deployed to all suppliers the
“MWay” Supplier Code of Conduct
Why we engage
• To ensure use of the best quality
raw materials and resources we
can source
• To develop strong relationships with
our suppliers to ensure they can
support new product development
• To ensure that our materials are
ethically sourced
• To ensure our human rights due
diligence is robust, monitored and
extremely dynamic
How we engage
• Effective, regular communication
– underpinned by Code of Conduct
• Formal tender processes and fair terms
• Strong focus on supply chain
relationships, compliance and risk
– regular supply chain audits
• Active supply chain risk
mapping processes
• ETI Base Code social and ethical
audits in India, China and Vietnam
Communities and environment
Link to strategy
• We ensure the Group maintains strong ethical
and corporate responsibility principles
• We value our brand and a reputation built on
transparency and proven sustainability expertise
Why we engage
• Communities are an important
end user of our products with
shared values
• We ensure that doing business responsibly is a core
part of the Group’s culture
• To recognise the role of our business
in wider society
How we engage
• Sustainable business plans with
appropriate and relevant KPIs
• Continue to support the UN
Global Compact’s commitment
to sustainable development
• We have strong environmental objectives and targets
– driven by our strategic commitment to sustainability
• We are strongly committed to human rights
• To ensure that our strategic operations
• Focus on energy monitoring systems
address economic, social and
environmental aspects
• To maintain adherence
to all legislative and ISO
requirements for environmental
and energy management
and rainwater capture
• Regular dialogue and support for local
community groups around all our sites
• £267,000 raised for local and
national charities and contributed
to community support in 2018
Government and regulatory bodies
Link to strategy
• We operate within a framework for social
and environmental policy set by Government
and regulators
• We ensure that doing business responsibly (the
“Marshalls Way”) is a core part of the Group’s culture
• We conduct business in accordance with the
principles set out in the Bribery Act 2010
• We are a constituent of the FTSE4Good index
• We maintain our Fair Tax Mark status
• We undertake regulatory compliance, operational,
ethical and environmental audits
Why we engage
• The Group is committed to
the highest standards of
corporate governance
• To ensure the Group’s ongoing
monitoring, training and compliance
procedures meet best practice
How we engage
• Regular dialogue with Government,
regulators and industry groups
• Active membership of the Construction
Products Association (“CPA”) and
Mineral Products Association (“MPA”)
• Effective and clear policies against
• To ensure that we pay the right
amount of tax at the right time
bribery and the elimination of
modern slavery
• To ensure that our business practices
provide a solid foundation for
sustainable growth
• Reinforce compliance with regulations
(e.g. GDPR and anti-bribery) with
regular ongoing staff training to
update and refresh awareness
Trust
Sustainability
Governance on pages 42 to 47
Marshalls plc
Annual Report and Accounts 2018
17
Strategic report
Strategy
Delivering growth
Our strategic goal 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.
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.
What we said we would do in 2018
• Grow EBITDA and ROCE.
• Deliver sustainable EPS and operating
• Promote integrated solutions
• Make strategic investments for
organic growth and acquisitions.
cash flow growth.
•
Improve operational efficiency
and continue to invest in the
digital strategy.
ROCE of
21.9% (2017: 20.8%)
EPS growth of
22%
What we have achieved
• ROCE of 23.3 per cent (on a like-for-like
basis, excluding the impact of Edenhall).
• Growth in EBITDA of 19 per cent
• 21 per cent growth in operating
profit driven by sustainable
efficiency improvements.
and increase market share in our
smaller businesses.
• Continue to develop the supply chain.
Registered installer teams now
approx. 1,900
• Dedicated “customer experience”
team with strengthened relationships.
• 98 per cent customer service KPI.
• New Commercial website.
• 1,900 registered installer teams.
•
Increase in operating profit percentage
to 13.2 per cent (2017: 12.4 per cent).
• Sales of new products in the
core business now represent
12 per cent of total revenue.
• Continuing to exceed CPA
growth forecasts.
to £80.8 million.
• Market share gains.
• Supplementary dividend.
Our strategic priorities
• To make strategic investments for
organic growth and acquisitions.
• To strengthen the Marshalls brand by
developing systems-based solutions.
• To have a progressive dividend policy
supported by supplementary
dividends, as appropriate.
Our future targets
• To grow ROCE and EBITDA and
continue to deliver long-term
sustainable shareholder value.
• Digital transformation.
18
Marshalls plc
Annual Report and Accounts 2018
• To outperform the market.
• To deliver new and innovative
product solutions.
• To improve operational efficiency of our
manufacturing and logistics network.
• To drive through sustainable
cost reductions.
• Sustainable and ethical
materials supply – to enable
manufacturing flexibility.
• To focus on customer satisfaction.
• To promote integrated
product solutions.
• To focus on installer training,
marketing and sales support.
• To deliver sustainable EPS growth.
• New product development to
drive growth.
• Logistics excellence.
• To continue to invest in digital and
systems improvements to improve
communication efficiency and
stakeholder engagement.
Strategic report
Developing strategy
Our 2020 strategy has been consistently followed during the last 3 years and has delivered strong growth.
The Group is now well advanced in mapping out its ambitions for the next 5 years, setting strategic objectives
that continue to support long-term sustainable growth. The Group’s strategic planning process incorporates
engagement with stakeholders and a Board priority for 2019 includes the launch of the Group’s strategy for
the next 5 years.
Key Performance Indicators on pages 20 and 21
Risks on pages 23 to 27
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.
• Target growth areas of New
Build Housing, Road, Rail and
Water Management.
•
Increase capital expenditure for
organic growth.
• Maintain “Superbrand” status.
• Focus on product innovation
and customer service.
• Maintain a net debt to EBITDA ratio
of between 0 and 1 times.
• Delivered on the capital
allocation priorities.
Self help capital investment in 2018
£17.0m
R&D investment of
£4.9m
Net debt: EBITDA
0.46 ratio
• Revenue growth of 14 per cent
• “Superbrand“ status.
to £491.0 million.
• Significant growth in key focus
areas whilst maintaining
operational flexibility.
• Strong growth in New Build
Housing revenue.
• Self help capital investment of
£30.7 million over the last 3 years.
• Continued development
of Marshalls brand.
• Developed product range.
•
•
Introduced 67 new product ranges
to market in the current cycle.
Integrated CPM into
Landscape Products.
• To target growth areas such as
New Build Housing, Road, Rail
and Water Management.
• To invest in capital expenditure
for organic growth.
• To increase sustainable
profitability in the smaller UK
and International businesses.
• New product development –
aesthetics, installation, functionality.
• To focus on corporate culture.
• Customer satisfaction – to be the
supplier of choice.
• To focus on innovation, customer
service and product quality.
• To maintain the highest health
and safety standards.
• Strong balance sheet.
• Low gearing of 14 per cent
at 31 December 2018 (post acquisition
of Edenhall).
• Efficient portfolio of bank facilities with
extended maturities and
realigned headroom.
• Continued focus on working capital
management and efficient
inventory control.
• 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.
• To optimise our national network of
manufacturing and distribution sites.
• To further develop our global supply
chains and infrastructure.
• To maintain the Group’s market
leading position and increase brand
preference for product specification.
• Brand preference that drives
product specification.
• 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 2018
19
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 2018.
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Revenue (£’m)
£491.0m
+14%
Operating profit (£’m)
EPS (p)
Return on capital employed (%)
£64.8m
+21%
26.29p
+22%
23.3%
(on a like-for-like basis, excluding the
impact of Edenhall)
2018
2017
2016
2015
2014
491.0
430.2
396.9
386.2
358.5
2018
2017
2016
2015
64.8
53.4
47.6
37.5
2018
2017
2016
2015
21.52
18.95
14.32
2014
25.3
2014 10.13
26.29
2018
2017
2016
2015
2014
19.0
12.5
23.3
24.8
23.0
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Delivering growth is key
to the Group strategy.
2018 performance
Group revenue has
increased by 14 per cent in
2018. Growth in Commercial
revenue was particularly
strong at 20 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
The sustainable
improvement in profitability
is a strategic priority.
2018 performance
Operating profit has
increased by 21 per cent
to £64.8 million in 2018. The
Group’s strong operational
gearing has driven an increase
in reported operating margin
from 12.4 per cent to
13.2 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.
2018 performance
Group EPS has increased
by 22 per cent in 2018 to
26.29 pence.
Strategic targets
EPS growth is a
strategic target.
Remuneration linkage
EPS growth is the
key remuneration
performance target.
Risk management
The Group focuses on sales
opportunities and strategic
growth opportunities.
Stakeholder linkage
Shareholders
Employees
ROCE remains an important
indicator of sustainable
shareholder value.
2018 performance
Group ROCE is 23.3 per
cent for the year ended
31 December 2018, on a
like-for-like basis (excluding
the impact of Edenhall).
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
20
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Non-financial information statement
It is the aim of Marshalls to comply fully with the non-financial reporting
requirements that are contained in Sections 414CA and 414CB of the
Companies Act 2006. The operation of all policies referred to and
consideration of any outcomes are monitored as part of the internal
governance processes. Further information can be found in the
Governance and Risk Management sections of the Annual Report.
Business Model on pages 14 and 15
Stakeholder Engagement on pages 16 and 17
Risks on pages 23 to 27
Sustainability on pages 34 to 37
Remuneration on pages 53 to 72
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Net debt (£’m)
£(37.4)m
(37.4)
2018
2017
(24.3)
2016
5.4
(11.5)
2015
(30.5)
2014
Dividend per share
(recommended, p)
12.00p
+18%
2018
2017
2016
2015
2014
10.20
8.70
7.00
6.00
Customer service index
98%
12.00
2018
2017
2016
2015
2014
Health and safety (reduction
in working days lost, %)
61%
2018
2017
2016 20
2015
2014
30
98
98
98
98
97
61
46
43
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Marshalls continues
to support a prudent
capital structure.
2018 performance
Significant cash generation
has continued and,
notwithstanding the
acquisition of Edenhall,
gearing remains low at
14 per cent at 31 December
2018. Net debt was £37.4 million
at 31 December 2018.
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
A progressive dividend policy
remains a key objective.
2018 performance
The ordinary dividend per
share increased by 18 per
cent to 12.00 pence. On an
IFRS basis, the dividends
declared in the year ended
31 December 2018 are
14.80 pence, an increase
of 21 per cent.
Strategic targets
The continuing strategy is to
maintain up to 2 times cover
over the business cycle.
Remuneration linkage
Significant proportion of
variable pay linked to share
price or held in the form of
deferred shares.
Risk management
Risk management remains
a key factor in the delivery
of the Group’s strategic
objectives and the 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.
2018 performance
The combined customer
service measure continued
to be in excess of 98 per cent
throughout 2018.
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
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.
2018 performance
In 2018 there was a 61 per cent
reduction in days lost from
workplace incidents compared
with the target benchmark.
The CPM sites were fully
integrated into the Group’s
health and safety programme.
Strategic targets
The headline target for 2018
was to achieve an accident
rate for the year no higher
than the 2015 actual results.
Remuneration linkage
Health and safety
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 2018
21
Strategic report
Case Study
Digital transformation
Customer-focused digital strategy and vision
Digital at Marshalls is defined as giving the customer the right data,
at the right time, in the right format. It is all about improving the
customer experience, whether that be for internal or external users.
Like many businesses, we are starting on the journey of providing our
customers with world-class experiences that help us retain their
business and loyalty. In 2018 we have delivered a number of projects
that act as the bedrock for future activities.
Business Model on pages 14 and 15
Strategy on pages 18 and 19
Progress in 2018
E-platform
A key area of focus in 2018 was the Commercial website and the infrastructure
required to deliver better experiences for users. The scope for 2018 was our Commercial
product offering. Customer research and testing informed the design and build of the
website and highlighted the need for access to more imagery and detailed product
data to aid specification of Marshalls products. The challenge was to deliver a new
Commercial website that is shaped around the customer rather than Marshalls. Data
is key to the website and considerable time has been invested in creating a central
product data repository. The website runs on state-of-the-art digital infrastructure,
including third party software and minimal bespoke code, hosted in the cloud,
independent of Marshalls’ internal infrastructure promoting our principle of agility.
Key points
• Commercial website has 300,000+ pieces of data and over 12,000 images;
• Runs on a new digital infrastructure that provides us with greater agility and a blueprint for future systems architecture;
• Mobile optimised; and
• Ability to personalise content for different types of customers and use data to drive automated marketing campaigns.
This will assist in the creation of marketing qualified leads.
Artificial intelligence – Voice Assistant
Artificial intelligence is a technology that can emulate human behaviour by seeming to
learn. It will change the world and Marshalls has started to embrace it, making significant
progress in the area of natural language processing. By 2020 it is expected that 50 per
cent of all searches will be voice searches. Marshalls has created a voice application that
will answer our most frequently asked questions via Google smart speaker home devices
and their virtual assistant, which is available in Android and iOS app stores.
Key points
• The Marshalls Voice Assistant can respond to over 80 questions, asked in over 3,000 ways.
This will grow over time as the application is trained in more areas;
• It ensures the Marshalls brand is present in an emerging digital channel; and
• The framework can be extended to “livechat” via websites to enable out of hours support
on the most frequently asked questions.
What the future holds
Marshalls’ digital strategy and vision have started to deliver realised benefits in 2018 with a number of key milestones reached.
This groundwork will allow the business to accelerate the programme into 2019 and beyond. The focus for 2019 will be around:
• Rolling out the new digital platform to more areas of the business, including the recently acquired businesses of CPM
and Edenhall;
• The extension of the artificial intelligence framework to areas such as machine learning and further developing the
natural language processing capabilities to support customers out of hours; and
• Leveraging cloud technology to modernise IT infrastructure by delivering increased agility, management and security.
22
Marshalls plc
Annual Report and Accounts 2018
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 2018
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. Further internal audit projects and penetration
tests have been undertaken and continued improvements have
been made to mitigate risk, improve IT security and safeguard
business continuity and our industrial network.
• Health and safety has been a key priority for the CPM
integration and the reduction of health and safety risk
continues to be a key focus for the Group.
• KPMG completed a number of targeted internal audit projects
during 2018 including post-acquisition business integration
(following the acquisition of CPM), inventory management,
GDPR, human resource systems and procedures.
• A detailed annual review of the Group’s capital structure has
been undertaken to ensure it remains aligned with corporate
growth objectives and takes full account of the increasing
external political and economic uncertainty in the pre-Brexit risk
environment.
• The Group has maintained a conservative capital structure with
a strong balance sheet and comfortable headroom against
bank facilities provides significant mitigation against potential
market risk.
Priorities for 2019
The priorities for the Group’s risk function in 2019 include the
following areas of focus:
• The potential impact of Brexit and wider economic and political
uncertainty continues to be a major risk. During 2019, the Group’s
Brexit and “downturn” contingency planning will continue to be
a priority.
• The rapid pace of change in the wider environment
necessitates cyber risk remaining a key priority for 2019. Further
assignments and penetration tests are planned.
• 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.
• The completion of a number of targeted projects will again
be a major focus for KPMG. In 2019, projects covering general
IT controls, health and safety, rebates, logistics and fleet
management are planned.
• Proactive supply chain management continues to be a focus
area for the Group and a further internal audit project is being
planned by KPMG in 2019. This will include further consideration
of risk mitigation in relation to the certainty of the supply of raw
materials within the wider supply chain.
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 Group Risk Register is reviewed and updated by the full
Executive management team 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.
KPMG, as the Group’s internal auditor, attended the most recent
risk review meeting. The conclusion of KPMG is that the process
continues to be a robust mechanism for monitoring and
controlling the Group’s principal risks. 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.
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 changing permissions on, base data and metadata.
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.
Marshalls plc
Annual Report and Accounts 2018
23
Strategic report
Risk Management and Principal Risks continued
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;
• oversee the management
of risk;
Internal audit:
•
independently reviews the
effectiveness of internal
control procedures;
• reports on effectiveness of
management actions; and
• monitor risk mitigation and
• provides assurance to the
controls; and
Audit Committee.
• monitor the effective
implementation of
action plans.
Operational managers:
• are responsible for the identification of operational
and strategic risks;
• are responsible for the ownership and control of specific risks;
• are responsible for establishing and managing the
implementation of appropriate action plans; and
• are responsible for the impact of controls (net basis).
Risk heatmap (net risk scores)
1
3
2
4
6
7
8
9
5
H
G
H
I
T
C
A
P
M
I
I
M
U
D
E
M
W
O
L
LOW
MEDIUM
HIGH
LIKELIHOOD
1
Macro-economic
and political
5 Integration of
acquisitions
2 Cyber security risks
6 Customers
3 Security of raw
material supply
4 Weather
7
Competitor
activity
24
Marshalls plc
Annual Report and Accounts 2018
8 Threat from new
technologies and
business models
9 Corporate, legal
and regulatory
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 considers that it has reasonable visibility
of the market over a 3-year period to 31 December 2021. A 3-year
period is consequently considered appropriate for the Viability
Statement. The Group’s strategic plan includes an integrated model
that incorporates the income statement, balance sheet and cash
flow projections. Key KPIs and financial ratios are reviewed along
with the ongoing appropriateness of all assumptions used. Scenario
planning is undertaken along with stress testing against downside
sensitivities. The stress testing reflects the principal risks that could
conceivably threaten the Group’s ability to continue operating
as a going concern and focuses on scenarios that might give
rise to sales volume reductions, deteriorating operating margins
and increases in interest rates. The macro-economic and political
background is the Group’s key risk area and all of the Group’s other
principal risks are covered within the same downside stress tests.
The stress testing applied in 2018 has been especially mindful of the
increased Brexit uncertainty and a greater assessment of market
risk due to political and economic uncertainty. The stress testing
undertaken reflects a suitably cautious economic outlook and
remains a key part of the Group’s detailed approach to capital
structure and forecasting. A significant stress test has been applied
to reflect a dramatic economic downturn and 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. None of the individual
sensitivities applied impact the Directors’ assessment of viability.
Even under the deep stress test all bank covenants are met and
the gearing and net debt / EBITDA metrics remain sustainable. The
Group would undertake significant mitigation measures in a deep
downturn and this would create additional contingency.
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.
Brexit
Prolonged uncertainty over exit terms and continued weakness
in Sterling may lead to a slowdown in the UK economy and a
reduction in consumer confidence. Marshalls has strong market
positions and a strategy of targeting those market areas where
growth prospects are greatest. During 2018, the potential impact
of Brexit and wider economic and political uncertainties have
been considered in the assessment of risk 1 on page 25. This
assessment has included significant stress testing of financial
models and risk mitigation measures within the Group’s supply
chain. The Group has developed a detailed Brexit plan to mitigate
the risk of raw material shortages.
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.
Strategic report
Impact on business model:
Sourcing
Manufacturing
Distribution
Customers
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Macro-economic and political
Impact on business model
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, interest
rates 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 and increased interest
rates could also have an adverse
impact on material costs.
Key risk indicators
• Delays in the awarding of and completion of contracts.
• Reductions in consumer confidence and order pipeline.
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 proactive development of the
product range continues to offer protection.
• The Group has developed a detailed Brexit plan
to mitigate the risk of raw material shortages.
• The Group continues to target those market areas
where growth prospects are greatest, e.g. New Build
Housing, Road, Rail and Water Management.
• The Group focuses on its supplier relationships, flexible
contracts and the use of hedging instruments.
Change in risk in the year
The continued uncertainty and
volatility in world markets has
increased global economic
uncertainty. The CPA forecasts
have continued to soften in
the shorter term in the wake
of continued Brexit uncertainty
and the increased likelihood
of a “no deal” outcome.
Political divisions in the UK
Parliament continue to
increase uncertainty with
implications for Sterling
and business confidence.
Cyber security risks
Impact on business model
Link to strategy
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.
Key risk indicators
• Emergence of new cyber security risks.
• Increased examples of data loss in the wider market.
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 using encryption under confidentiality
agreements with reputable suppliers.
• A continuous 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. The risk is
increasing despite the continued
extension of mitigation controls.
There is a perception that the
risk of data loss through new (or
as yet unseen) security threats
has increased.
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).
Security of raw material supply
Impact on business model
Link to strategy
Nature of risk
In view of the continued Brexit uncertainty,
there is a risk to the security of raw
material supply and the risk of shortages
in some areas.
The Group is susceptible to significant
increases in the price of raw materials,
utilities, fuel oil and haulage costs and
decreases in vehicle availability.
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.
Key risk indicators
• Temporary shortages and exchange rate cost inflation.
• Decreases in vehicle availability and labour /
driver shortages.
Mitigating factors
• The Group benefits from the diversity of its business
and end markets.
• We are collaborating with all EU-based Tier 1 and
Tier 2 suppliers to ensure any supply risks from a
Hard Brexit are minimised.
• 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
The risk of temporary shortages
is mitigated by proactive
supply chain management and
the use of alternative suppliers.
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.
In 2019 we will be digitising
our supply chain through the
implementation of a best-in-
class Supply Relationship
Management System.
Marshalls plc
Annual Report and Accounts 2018
25
Strategic report
Risk Management and Principal Risks continued
Weather
Impact on business model
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.
Key risk indicators
• Prolonged periods of bad weather (e.g. snow, ice
and floods) which makes groundworking difficult or
impossible. An example of this was the extensive period
of snow and ice in Q1 2018 when the Group’s plants had
to be closed for several days.
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 successful integration of CPM has been
a significant step in the stated strategy of providing
a full water management capability.
Change in risk in the year
Weather conditions
continue to be closely
monitored but are beyond
the Group’s control.
Integration of acquisitions
Impact on business model
Link to strategy
Nature of risk
The successful integration of
acquisitions (e.g. Edenhall and CPM)
into the Marshalls Group is a significant
business issue.
Potential impact
There is a risk that business integration
could take longer than expected. This
could impact the expected financial
performance and reduce the positive
impact of potential synergy benefits.
Change in risk in the year
The successful integration of
CPM has provided a proven
template for the Group’s
integration model and
planning. The integration
projects continue to receive
significant management and
Board focus.
Key risk indicators
• The acquisitions of CPM and Edenhall could potentially
put increased pressure on the Group’s resources.
Mitigating factors
• Any legal or regulatory matters identified during due
diligence are addressed in the sale and purchase
agreement. For example, risk mitigation for CPM required
£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.
• The Group has a detailed integration plan which covers
all business areas and is focused on risk reduction and
maximising opportunity. The plan also focuses on ethical
training and a detailed health and safety plan.
• The integration plans have Executive-level focus and is
being administered by a dedicated Integration Manager.
• Post-integration reviews are undertaken by KPMG (e.g.
CPM integration review in Q3 2018).
Customers
Impact on business model
Link to strategy
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.
Key risk indicators
• Changes to market structure or trading relationships.
• New customer strategies.
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
continue to mitigate the risk.
26
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Impact on business model:
Sourcing
Manufacturing
Distribution
Customers
Strategic objectives:
Shareholder value
Sustainable profitability
Relationship building
Organic expansion
Brand development
Effective capital structure and control framework
Competitor activity
Impact on business model
Link to strategy
Nature of risk
The Group has a number of existing
competitors which 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.
Key risk indicators
• Threat from new competitors and new technologies.
• Less demand for traditional products and the
increased emergence of new digital business models
and product solutions.
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.
• The continued development of the Group’s digital
strategy and its focus for customers and all stakeholders.
Change in risk in the year
The more uncertain market
environment has not led to
any significant changes in
competitive pressure.
Threat from new technologies
and new business models
Nature of risk
Reduction in demand for traditional
products. Risk of new competitors
and new substitute products
appearing. Failure to react to market
developments, including digital and
technological advances.
Potential impact
The increased competition could
reduce volumes and margins on
traditional products.
Impact on business model
Link to strategy
Key risk indicators
• Less demand for traditional products.
• Emergence of new competitors and new digital
business models.
Mitigating factors
• Good market intelligence.
• Flexible business strategy able to embrace
new technologies.
• Significant focus on research and development and
new products.
• Development of the Group’s e-platform and
developing 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.
Corporate, legal and regulatory
Impact on business model
Link to strategy
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.
Key risk indicators
•
Increased regulatory and compliance requirements.
•
Integration requirements for new acquisitions.
• Significant increases in the penalty regime for health
and safety and environmental incidents.
Mitigating factors
• The Group has a formal Group sustainability strategy
focusing on impact reduction.
• The Group employs compliance procedures, policies,
ISO standards 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 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.
Significant increases in the penalty
regime have increased the potential
financial impact of health and safety
as well as environmental incidents.
An environmental contamination event
may lead to a prosecution and to
reputational loss.
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.
Marshalls plc
Annual Report and Accounts 2018
27
Strategic report
Case Study
Innovation and new
product development
A strategic objective is to invest in new product development within the
core landscaping product range – in order to focus on consumer demand
and the requirements of the customer.
Our innovation cycle
There is a critical relationship between products, process and
materials for development of new products. The Group’s innovation
cycle combines intelligence, innovation and delivery, and is a driver
of growth. We apply dedicated and focused resources to deliver a
high level of technical competence in materials, automation, digital
technology, engineering and product design. Marshalls has excellent
trial and development facilities and can deliver a high level of
product complexity.
In the current innovation
cycle we have launched
67
new product ranges
R&D investment
£4.9m
R&D case study
Drivesett Coppice incorporates the Group’s new “surface performance
technology” and also provides an innovative blend of colours which
provides a practical solution and beautiful aesthetic for the customer.
Improve
aesthetics
Improve
installation
Improve
sustainability
20+
Reduce
whole life
costs
Improve
functionality
SPT® products accounted for 20%
of overall Domestic Concrete Block
Paving sales in 2018.”
Hi res to be supplied
www.marshalls.co.uk/homeowners
Strategy on pages 18 and 19
28
Marshalls plc
Annual Report and Accounts 2018
Strategic report20
+
20
+
20
+
20
Financial Review
Continued
development
of the Group’s
growth strategy
Summary
• Operating profit up 21% to £64.8 million
• EBITDA up 19% to £80.8 million
• Acquisition of Edenhall in December 2018
• Successful integration of CPM
• Consistently strong return on capital employed at 23.3%
(excluding Edenhall)
• Strong operating cash flow at 92% of EBITDA
• Significant facility headroom for investment
•
Increase in final ordinary dividend of 18%
• Additional supplementary dividend of 4.00 pence
per share
The Group has continued
to strengthen its market
position and its operating
margin has increased
to 13.2 per cent.”
Trading summary
Revenue
Revenue for the year ended 31 December 2018 was £491.0 million
(2017: £430.2 million), which represented an increase of 14 per cent.
Revenue growth in the second half of the year was particularly
strong at 17 per cent. This enabled the Group to gain ground
following the first 4 months of the year, which were affected by
severe weather conditions. Group revenue includes £0.7 million
from Edenhall for the period since its acquisition on 11 December 2018.
Analysis of sales by end market
UK Domestic
Public Sector and Commercial
International
2018
£’m
140.0
327.1
23.9
135.4
271.8
23.0
2017
£’m
Change
%
3
20
4
14
491.0
430.2
%
29
66
5
%
32
63
5
UK Domestic
Public Sector and Commercial
International
Revenue variance analysis
2017/2018
520
56.9
3.9
491.0
430.2
m
£
’
500
480
460
440
420
400
380
360
340
320
300
2017
Revenue
Landscape
Products
Other
2018
Revenue
29
Strategic report
Financial Review continued
Revenue by end market
Revenue by area
Return on capital employed (%)
Domestic
Public Sector and Commercial
International
29%
66%
5%
Landscape Products
Other
81%
19%
L 4%
L 3%
29+
L 20%
L 4%
M 81+
L 17%
23.3%1
(21.9% on a reported basis)
2018
2017
2016
2015
2014
23.3
24.8
23.0
19.0
12.5
1
On a like-for-like basis (excluding the
impact of Edenhall in 2018 and CPM in 2017).
Public Sector and Commercial
Sales in the Public Sector and Commercial end market include
a full year contribution from CPM and were up 20 per cent
compared with 2017. Public Sector and Commercial revenue
represented 66 per cent of Group sales. Sales growth in the
second half of the year has been strong and revenue was up
22 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 customer experience
by digitalisation and commitment to innovation. The Group continues
to receive good feedback for its consistently high standard of
quality, excellent customer service and marketing support.
Marshalls’ strategy continues to deliver 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, Road, Rail and Water Management.
The Group continues to outperform the market in these areas.
Our “Design Space“ office in Central London showcases the
Group’s brand leading capabilities and technical and design
solutions. We continue to develop this facility in order to showcase
new concepts and designs with architects using digital technology
to facilitate the selection and specification of our ranges.
Domestic
Revenue in the Domestic end market grew by 3 per cent. Sales
to the UK Domestic end market now represent approximately
29 per cent of Group sales. Sales growth in the second half of
the year was 7 per cent.
Installer order books at the end of February 2019 were 10.0 weeks
(February 2018: 10.8 weeks), compared with 10.8 weeks at the
end of October 2018. The Group’s industry leading standards
remained high in 2018 with a combined customer service
measure of 98 per cent (2017: 98 per cent) and market leading
geographical coverage.
International
Sales to International markets increased by 4 per cent and
represent 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. The Group’s international focus is centred on the US,
Western Europe and Middle East markets.
Acquisition of Edenhall
New Build Housing is a strategic growth area for Marshalls and the
acquisition of Edenhall on 11 December 2018 provides a significant
extension of the product range. The company has a strong track
record of quality and service.
Edenhall is a leading UK supplier of sustainable concrete products
for the construction industry, supplying facing bricks in all shades
from white to blue and in a wide variety of textures from smooth
to sand-faced and weathered finishes. Manufacturing takes place
at a number of sites across England, Scotland and Wales and the
business offers full national coverage and distribution. Edenhall’s
revenue for the year ended 31 December 2018 was £33 million.
A new factory in South Wales is to be commissioned in Spring 2019
to increase capacity and drive growth. The acquisition has been
funded from existing facilities and an additional £25 million debt
facility was established to maintain headroom capacity.
CPA Forecasts – cumulative growth
2020 growth cumulative %
2019 growth cumulative %
2018 growth %
)
s
e
c
i
r
p
6
1
0
2
@
m
£
’
(
e
m
u
o
v
n
l
i
h
t
w
o
r
g
%
t
s
a
c
e
r
o
F
Key sectors for Marshalls
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
Private N e w H o usin g
Pu blic N e w H o usin g
All N e w H o usin g
N e w infrastructure
N e w Private In d ustrial
N e w Pu blic O ther
N e w Private C o m
m ercial
All N e w N o n- H o usin g
Private H o usin g R M &I
Pu blic H o usin g R M &I
All N e w W ork
All H o usin g R M &I
Pu blic O ther R & M
Private O ther R M &I
Infrastructure R & M
All N o n- H o usin g R M &I
All R M &I
All W ork
30
Marshalls plc
Annual Report and Accounts 2018
Strategic report66
+
5
+
19
+
M
Integration of CPM
A detailed integration plan was instigated upon the acquisition of
the business in October 2017. This covered all areas of the business
and required close engagement between Marshalls and CPM’s
operational management team. KPMG undertook an internal
audit project to review the design and content of the integration
plan and to assess the controls in place around its management
and implementation. The governance around the integration has
been effective and feedback from key stakeholders involved in the
project was positive in relation to how the successful integration
was managed.
Systems were fully integrated in the second half of 2018 and a
number of synergies and efficiency improvement projects are now
in progress. Recent growth has been supported by an expansion
in production capabilities following the commissioning of a new
factory at Mells, in Somerset. The provision of bespoke “off-site“
solutions is a particularly successful part of the business operations
and this area of the business has continued to expand in 2018.
Operating profit
Operating profit was £64.8 million (2017: £53.4 million), which
represents an increase of 21 per cent. This is after charging
£1.2 million (2017: £1.2 million) of operational restructuring costs
and £0.4 million (2017: £0.8 million) of acquisition costs.
Operating profit
Continuing operations
EBITDA
Depreciation / amortisation
2018
£’m
80.8
(16.0)
2017
£’m
Change
%
67.9
(14.5)
19
21
Operating profit
64.8
53.4
EBITDA increased by 19 per cent to £80.8 million (2017: £67.9 million)
and EPS was 26.29 pence (2017: 21.52 pence), an increase of
22 per cent.
ROCE remained strong and, notwithstanding the acquisition of
Edenhall in December 2018, was 21.9 per cent (2017: 20.8 per cent),
on a reported basis, at 31 December 2018. On a like-for-like basis
(excluding the acquisition of Edenhall) ROCE was 23.3 per cent
(2017: 24.8 per cent). Capital employed has increased by 16.1 per
cent to £304.1 million (2017: £261.9 million) following the acquisition
of Edenhall. The consistently high ROCE reflects the Group’s focus
on capital structure and the tight control and management of
inventory and monetary working capital.
Profit margins
The Group has continued to strengthen its market position
and operating margin has increased to 13.2 per cent
(2017: 12.4 per cent).
Margin analysis
2017
Landscape Products
Other
2018
Reported
operating
profit
£’m
Revenue
£’m
430.2
53.4
56.9
3.9
8.1
3.3
491.0
64.8
Margin
impact
%
12.4
0.2
0.6
13.2
The table illustrates the impact of operational gearing in the core
business 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 £56.9 million and operating profit grew by £8.1 million in the
Landscape Products business.
Those businesses that are not large enough to comprise separate
operating segments 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 Group’s growth strategy
During 2018, capital investment in property, plant and equipment
(including software) totalled £27.3 million (2017: £22.5 million). This
compares with depreciation of £16.0 million (2017: £14.5 million).
Self help expenditure is additional to ongoing spend and must
be “value added” providing significant improvement in yields and
efficiency. Self help capital expenditure was £17.0 million in 2018
(2017: £8.6 million). This includes 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, including Edenhall, capital
expenditure of £23 million is planned for 2019. Further details of the
Group’s self help capital investment during 2018 are shown on page
10, including a case study focusing on a £3.5 million investment in a
static crushing plant at Howley Park. This investment will increase
capacity significantly and reduce operating costs.
Capital expenditure
Last 3 years
m
£
’
30
25
20
15
10
5
0
Self-help growth capex
Ongoing capex
5.0
8.9
8.6
12.1
17.0
12.2
2016
2017
2018
Research and development expenditure in the year ended
31 December 2018 amounted to £4.9 million (2017: £3.9 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 in 2018 in the core Landscape Products
business represented 12 per cent of total sales.
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 22.
Net financial expenses
Net finance costs were £1.9 million (2017: £1.4 million) and interest
was covered 34.1 times (2017: 38.5 times). Interest charges on
bank loans totalled £1.4 million (2017: £1.0 million) and, including
scheme administration costs, there was an IAS 19 notional interest
charge of £0.5 million (2017: £0.4 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 18.0 per cent (2017: 19.1 per cent).
The Group paid £9.9 million (2017: £10.5 million) of corporation tax
during the year. Deferred tax of £1.7 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.
For the fifth year running, Marshalls has 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. Taking into account not only corporation tax paid but
also the PAYE and NI paid on our employee wages, aggregate
levy, VAT, fuel duty and business rates, Marshalls has funded total
taxation receipts to the UK economy of £108 million during 2018.
Marshalls plc
Annual Report and Accounts 2018
31
Strategic report
Financial Review continued
Dividends
The recommended supplementary dividend of 4.00 pence
(2017: 4.00 pence) per share is discretionary and non-recurring.
The level of recommended supplementary dividend recognises
external market uncertainty and the need to remain cautious
and maintain a conservative and flexible capital structure. It also
reflects that the business has sufficient capital both to finance
increased investment and to maintain an appropriate
supplementary dividend. When added to the normal full year
dividend of 8.00 pence, this gives a total dividend for the year of
16.00 pence, which represents an increase against the prior year
of 13 per cent. The incremental cash outflow in 2018 in relation to
the supplementary dividend has been £7.9 million and will be
approximately £7.9 million in 2019.
e
c
n
e
p
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
3.50
1.75
2013
4.00
2.00
2014
Interim
Final
Supplementary
4.00
8.00
4.00
6.80
3.40
4.00
2017
2018
3.00
5.80
2.90
2016
2.00
4.75
2.25
2015
Balance sheet
Net assets at 31 December 2018 were £266.7 million (2017: £237.6
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.
Group balance sheet
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Net debt
2018
£’m
295.6
210.7
2017
£’m
248.1
166.3
(134.6)
(109.5)
(105.0)
(67.3)
266.7
237.6
(37.4)
(24.3)
Priorities for capital
Working capital management
The Group continues to prioritise the close control of inventory,
the improvement in inventory turn 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.
We do not engage in debt factoring. The Group complies with
prompt payment guidelines and best practice and abides by
a clearly defined payment policy which has been agreed with
all major suppliers.
Pension
The balance sheet value of the Group’s defined benefit pension
scheme was a surplus of £13.5 million (2017: £4.1 million). The amount
has been determined by the scheme actuary. The fair value of the
scheme assets at 31 December 2018 was £343.7 million (2017: £354.7
million) and the present value of the scheme liabilities is £330.2
million (2017: £350.6 million). Following the High Court ruling in the
Lloyds Banking case, an adjustment of £1.5 million has been made to
increase scheme liabilities for GMP equalisation. This has been
recorded in the current year Income Statement as a past service cost.
These changes have resulted in an actuarial gain, net of deferred
taxation, of £8.3 million (2017: £0.3 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.
Capital allocation
The Group’s capital allocation strategy remains 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.
Analysis of net debt
Net debt at 31 December 2018 was £37.4 million (2017: £24.3 million),
which reflects the payment of initial consideration of £11.7 million
in relation to the acquisition of Edenhall, together with the impact
of Edenhall’s net borrowings taken on of £4.7 million. The ratio of
net debt to EBITDA was 0.5 times at 31 December 2018 which is
comfortably within our target range of between 0 to 1 times and
well below covenant levels.
Organic growth
Capital investment
in growth projects.
Plan £23 million
in 2019.
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 New Build Housing,
Water Management,
Landscape Protection
and Minerals.
Supplementary
dividends
Supplementary
dividends when
appropriate.
Discretionary and
non-recurring.
Delivery over the last 3 years
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
32
Marshalls plc
Annual Report and Accounts 2018
Strategic report
Banking facility headroom
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
Jun-18
Dec-18
Committed
On demand
Seasonal
Net debt
Cash management continues to be a high priority with continued
focus on the close control of inventory and the effective
management of working capital. The key working capital metrics
are in line with the Group plan.
Borrowing facilities
On 9 August 2018, 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. To support the acquisition of
Edenhall the Group has taken out an additional committed facility
of £25.0 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 2024. 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 2018 amounted to
£140 million (2017: £115.0 million), of which £60.5 million (2017: £71.1
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.
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 (debt) / cash at beginning
of year
Net debt at end of year
2018
£’m
63.3
(39.4)
(36.9)
(13.0)
(0.1)
(24.3)
(37.4)
2017
£’m
57.3
(58.0)
(28.5)
(29.2)
(0.5)
5.4
(24.3)
Cash outflow on capital expenditure in the year was £29.2 million
(2017: £20.7 million). This included self help growth expenditure
of £17.0 million and the replacement of existing assets, business
improvements and new process technology. Dividend payments
in the year were £29.2 million (2017: £24.1 million).
Analysis of cash utilisation
2018
£’m
2017
£’m
Last 3
years
£’m
Net cash from operating activities
63.3
57.3
170.0
Facility
£’m
Cumulative facility
£’m
Capital expenditure
Proceeds from sale of property assets
Share issues / (purchases)
Share-based payments
(29.2)
(20.7)
(63.8)
1.6
0.6
(3.7)
3.9
(1.1)
—
9.3
(1.6)
(3.7)
Expiry date
Committed facilities
Q1 2024
Q3 2023
Q3 2022
Q3 2021
Q3 2020
Q3 2019
On demand facilities
Available all year
Seasonal (February to August inclusive)
25
20
20
20
20
20
15
10
25
45
65
85
105
125
140
150
Cash generation
The Group is significantly cash generative. In the year ended
31 December 2018 net cash flow from operating activities was
£63.3 million (2017: £57.3 million). The increase in net debt arising on
the acquisition of Edenhall comprises the cash outflow in connection
with the acquisition and the fair value of borrowings acquired.
Acquisition of subsidiary undertakings
(16.4)
(44.5)
(60.9)
Dividends
Movement in net debt
(29.2)
(24.1)
(72.3)
(13.0)
(29.2)
(23.0)
The chart above also provides a medium-term 3-year analysis
of the cash generation capacity of the Group and how cash
has been invested to grow the business and also to show the
cash returned to shareholders. Cash generated from operating
activities was £170.0 million. The Group has invested £63.8 million
back into the business to generate growth, improve productivity
and provide industry leading manufacturing facilities. The Group
has also invested £60.9 million in the targeted acquisitions of CPM
and Edenhall. Dividends to shareholders over the last 3 years have
totalled £72.3 million, which equates to 43 per cent of net cash
generated from operating activities.
Jack Clarke
Group Finance Director
Annual Report and Accounts 2018 33
Marshalls plc
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
Labour rights
Objectives
Objectives
Marshalls continues to support the Universal Declaration of Human
Rights. Our corporate responsibility to human rights means acting
with due diligence to address any issues that do occur. We recognise
that our responsibility applies across all business activities and our
supply chain.
Marshalls’ new Ethical Trading Initiative Strategic Plan (2018 – 2020)
has been developed to support, strengthen and maximise our
existing labour and human rights programme. We seek to further
embed ethical trade into business activities and decision making
and seek to improve conditions for workers, their families
and communities.
Progress
Human rights legislation and the issue of modern slavery remain
key priorities. We are collaborating with Governments and UN
agencies including the United Nations Global Compact. Our
continued focus on mapping and understanding human rights
risks in sourcing countries continues to inform our dynamic Ethical
Risk Index. This is a leading source of information for stakeholders
seeking to specify responsibly sourced building materials.
2019 priorities
• The implementation of our modern slavery programme remains
a key focus, in tandem with our Ethical Trading Initiative
Strategic Plan, which is built upon the ETI’s Human Rights Due
Diligence framework; and
• Collaborating with multiple stakeholders, both in the UK and
in our overseas supply chains.
Future goals
• Further develop and implement a modern slavery identification
and remediation process in the UK, and in supply chains in India,
Vietnam and Europe;
• Report transparently on all efforts to respect human rights
and prevent modern slavery; and
• Continue to develop our Ethical Risk Index methodology
and procedures.
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.
The Plan honours our commitment to the ETI Base Code.
2019 priorities
• Develop internal processes and procedures to assess human
rights risks and the effectiveness of ETI Base Code implementation
in our business operations and global supply chain.
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;
• Maintain commitment to the abolition of slavery in all its forms; and
• Continue to improve working conditions across the globe.
We have undertaken detailed
modern slavery analysis for 25
of our sourcing countries.
Marshalls maintains its Living Wage
accreditation, which we have had
since 2015.
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.
34
Marshalls plc
Annual Report and Accounts 2018
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
Responsible business
Objectives
Objectives
Marshalls has a commitment to achieve the highest standards of
environmental performance, preventing pollution and minimising
the impact of its operations. The aim is to operate within the
relevant legal frameworks and meet, or exceed, appropriate
legislation and applicable best practice. The business has
redefined its Sustainability Policies to align its business strategy
and to ensure they are relevant and appropriate to its
stakeholders. We are a founding signatory of the Sustainable
Concrete Forum.
Progress
Marshalls has clear environmental, energy and climate change
policies and a sustainable business plan with set KPIs. Marshalls
is committed to reducing the energy and carbon impact of the
business and is in line with the UK Government targets for 2020
and 2050.
2019 priorities
• To target 95 per cent of Group production to be manufactured
at sites operating an integrated management system in
accordance with Publicly Available Specification 99:2006
(“PAS 99”); and
• To fully integrate the acquisitions of CPM and Edenhall into the
Group’s environmental systems and procedures.
Future goals
• Continue to reduce the energy and carbon impact of the
business and remain within UK Government targets;
• Progress commitment to our Science Based Target Initiative
(“SBTi”);
• Reduce the use of water from mains and licensed boreholes
to 0.05m3 per tonne of production; and
• Reduce by 3 per cent the total waste to landfill per tonne
of production.
By being transparent in our dealings, whether they be financial,
social or environmental, we seek to inspire trust with all our
stakeholders. We have held the Fair Tax Mark for the last 5 years,
and remain committed to conducting our business affairs with the
utmost integrity and in accordance with the principles set out in
the Bribery Act 2010. Our focus on doing business responsibly
provides the solid foundations required for sustainable growth.
Progress
Marshalls has a clear Anti-Bribery Policy and Code of Conduct
which sits alongside our Employee Code of Conduct. We have
effectively communicated with employees, suppliers and a range
of stakeholders.
2019 priorities
• Maintain our Fair Tax Mark accreditation and be open and
transparent about the Group’s tax affairs;
• Maintain and enhance our monitoring, training and
compliance procedures;
• Maintain our Living Wage accreditation; and
• Deliver against our modern slavery KPIs.
Future goals
• Continue to promote the United Nations Global Compact’s
commitment to sustainable development and the
implementation of the UN’s Sustainable Development Goals; and
• To maintain focus to extend the implementation of these goals
– especially those goals where Marshalls is well placed to make
a significant contribution.
Marshalls is a world leader in terms of
products having a calculated carbon
footprint – over 2,000 products.
We hold the Fair Tax Mark which means
that we are paying the right amount of
tax, at the right time and in the right place.
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.
Annual Report and Accounts 2018 35
Marshalls plc
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.
During the year Marshalls committed to the Science Based Targets
Initiative to set a target for its carbon emissions. This work is
being undertaken with the assistance of the Carbon Trust.
Marshalls acquired the business of Edenhall Holdings Limited in
December 2018 with the associated energy and carbon data from
this business being excluded from this year’s report as it is
considered insignificant. It will be included in future reports.
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 2017 to March
2018 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 ISO 50001,
gaining accreditation in November 2015 and maintaining this
through 2018. The Group continues to voluntarily disclose data to
the “Carbon Disclosure Project”, receiving a B rating for its 2018
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
Report and Directors’ Report) Regulations 2015 and the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2013. Marshalls uses The Greenhouse Gas Protocol:
A Corporate Accounting and Reporting Standard (revised edition)
and the June 2018 Department for Business, Energy and Industrial
Strategy (“BEIS”) published CO2e conversion factors to measure its
GHG emissions.
The Government consulted on its proposals for a streamlined and
more effective energy and carbon framework in 2017 – 18. One of
the proposals was for businesses to report on their energy use, so,
in advance of a mandatory requirement, Marshalls has decided
to voluntarily report its energy use for the last 5 years.
The Group has conducted an audit of its UK fugitive emissions
and found these to be 0.59 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, and energy use
in kilowatt hours, between 2014 and 2018.
The chart below (right) illustrates the Group’s CO2e intensity
emissions as a proportion of production output, including
transport activities between 2014 and 2018.
A number of factors have contributed to the Group’s flat carbon
emission and decrease in energy consumption during the year
including a full year contribution from the acquisition of CPM Group
Limited in October 2017. This accounts for an increase in 7 per cent
in the GHG emissions, product mix, weather (noting an increase
of 2 per cent in degree days when comparing 2018 to 2017),
investment in more energy efficient production processes, energy
management activities and a reduction in carbonisation of the
electricity grid supply.
The Group reports that it is responsible for the GHG emissions
of Marshalls NV. The CO2 emissions from Marshalls NV activities
(using Belgian Government emissions data) in 2018 were (absolute)
521 tonnes and (intensity) 10.55 kg per tonne production.
Marshalls aims to publish its environmental KPI performance for the
financial year in a separate document, the Marshalls Environmental
KPI 2019 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 2019 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 2018 and contains no misleading information.
Scope 1 and 2 emissions (tonnes CO2e)
GHG emissions intensity relative to production
Scope 1 43,559 tonnes CO2e
Scope 2
10,670 tonnes CO2e
70,000
60,000
50,000
16,769
16,436
14,251
12,106
10,670
e
2
O
C
s
e
n
n
o
t
G
H
G
40,000
30,000
20,000
10,000
0
36,166
38,746
40,873
41,610
43,559
2014
2015
2016
2017
2018
Scope 1
Scope 2
GHG target
Energy
36
Marshalls plc
Annual Report and Accounts 2018
280
260
240
220
200
180
160
140
120
h
W
k
0
0
0
0
0
0
,
,
y
g
r
e
n
E
9.9kg CO2e / t
-3.0%
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
g
k
12.50
12.00
11.50
11.00
10.50
10.00
9.50
9.00
11.5
10.9
10.6
10.2
9.9
2014
2015
2016
2017
2018
kg CO2e per tonne
Intensity target set from 2013
kg CO2e / tonne
Strategic report
Employee Engagement
Employee engagement
and development
Our ambition is to recruit and retain the very best people
with a wide range of talents, skills and experiences. We have a
commitment to investing in employee development, progression
and career success. We aim to operate without discrimination
and to embrace diversity so that every employee should feel
respected for their contribution.
With the advent of a refreshed People Strategy emphasis is on
planning for more change in the area of employee engagement.
We continue with our long-standing commitment of hosting
annual roadshows at every site 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.
We maintained our regular feedback channels and, in 2018,
enlisted the support and assistance of an external strategic
partner to help us form a detailed engagement plan for 2019.
This will focus on employee communications, engaging leaders
and staff wellbeing. We continue to be a Living Wage employer
underpinning continued commitment to fairness and integrity
towards our employees. We have maintained our focus on
supporting charitable events across the business and our work
with MIND will have raised an overall total of £200,000 over the
last 2 years.
The Company’s Sharesave employee share scheme (in which over
40 per cent of colleagues invested) delivered significant benefit to
employees exercising their options on maturity in December 2018.
The Company also operates a Share Purchase Plan to encourage
employee participation in the Company’s success.
We are focused on building a stronger work environment.
Succession management is helping us identify individuals who can
be developed to take on bigger or more challenging roles as well
as identifying where we need to build new capabilities to meet
our strategic goals.
As a business, we are committed to investing in our employees.
The corporate intranet contains the Marshalls Learning Zone,
which is accessible to all colleagues, and provides an easy route
for learning to be accessed on general skills and capabilities. We
continually refresh and add to the learning curriculum. We also
continue to run 3 leadership development programmes aimed at
the development of our emerging and more established leaders.
We work with 3 strategic partners, University of Salford, Ashridge
Business School and Cranfield School of Management, to ensure
we access best practice and external perspectives.
Apprenticeships give employees on-the-job skills and training
and help us secure a talent pipeline. We have developed our
Apprenticeship Programmes in the last 12 months. During the year,
we have also increased the number of employees who are now
working towards an apprenticeship qualification to 70. We remain
committed to growing these schemes as well as building other
methods of increasing our talent pipelines and improving the
diversity of our operation.
We continue to maintain strong community connections,
particularly in locations near our offices and factories, and
we continue to develop closer relations with local schools and
colleges in order to encourage young people into the industry
as well as the business.
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.
In 2017, the Executive Board agreed a formal 5-year health
and safety strategy with set objectives.
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 53 to 72.
The headline target for 2018 was to maintain days lost resulting from
workplace incidents at a figure no higher than the 2015 actual result.
The actual results achieved were:
• 61 per cent reduction in days lost resulting from all accidents
frequency rate;
• 46 per cent reduction in all incidents frequency rate;
• 56 per cent reduction in lost time incidents (“LTIs”) frequency
rate; and
• 5 per cent reduction in incidents reportable to the HSE under
the Reporting of Injuries, Diseases and Dangerous Occurrence
Regulations (“RIDDOR”).
The primary target for 2019 will be to achieve an accident rate for
the year no higher than the 2015 actual result.
Accident frequency and severity rates (per 1 million hours worked)
2013
2014
2015
2016
2017
2018
All accidents
65.6
59.1
48.8
49.2
43.4
26.4
All lost time accidents
All RIDDORs
All days lost
12.2
3.6
7.2
3.3
5.1
1.6
5.6
2.3
4.1
1.4
2.2
1.7
114.6
80.7
45.8
38.0
24.6
18.2
Average UK headcount 2,055 2,132 2,237 2,253 2,307 2,640
In 2018 the business successfully gained ISO 45001 accreditation
across the UK businesses, being the first in the building products
industry to achieve this standard. Other achievements are listed below.
• Integration of the recently acquired CPM business into the
Marshalls health and safety management system.
• 100 per cent of all first line supervisors attended and passed the
Marshalls health, safety and environmental stage 2 training course.
• Introduced a Mental Health Awareness strategy; this included
the training of key individuals in the business to become Mental
Health First Aiders to support our employees.
• Introduced and fully implemented across the business the SHE
development tool.
In 2019 the main health and safety initiatives will include:
• a programme whereby all senior managers within the business
will complete the Marshalls health, safety and environmental
stage 3 training programme;
• 65 per cent of all non-supervisory employees will attend and
successfully pass the Marshalls health, safety and environmental
stage 1 training programme;
• the integration of PD Edenhall into the Marshalls health and
safety management system and culture; and
• the development and implementation of a new digital
integrated management system.
These initiatives will enhance the already high standard the Company
demands in health and safety and take it to a completely new level.
Marshalls plc
Annual Report and Accounts 2018
37
Strategic report
Chair of the Board’s Q&A
Defining, promoting
and sustaining a
good corporate
culture is a key priority
for the Group
Introduction
I strongly believe that good governance is a core component
of corporate success, and that a well-managed governance
structure provides real value in shaping the culture of the Group
and driving sustainable growth. The Board sets the tone from
the top by defining corporate purpose and demonstrating
the underlying values and standards that will sustain it. I am
committed to maintaining Marshalls’ robust corporate governance
framework associated with the delivery of the Group’s strategy
and ensuring the highest standards of behaviour and integrity.
Q
What are your reflections on your first year
as Chair of Marshalls’ Board?
A
My first impressions have been positive and, as I have visited our
operations and talked to employees, shareholders and other
stakeholders, the strength of the Group’s core values has been
very evident. A key highlight for me has been the Board’s focus
on culture and the articulation of “The Marshalls Way.” Marshalls
is a Group with a great culture, a strong focus on sustainability
and a desire to engage in business in a responsible way.
Operationally, I think the Group has further opportunities to
improve efficiency and to optimise its operations. The focus on
customer experience, stakeholder engagement and digital and
technological advancement should enable the Group to deliver
further strategic growth over the medium term.
Q
How important is culture to Marshalls?
A
Culture is an increasingly important enabling factor for success.
Defining, promoting and sustaining a good corporate culture is a key
priority for the Group, building on our established core values of
leadership, excellence, trust and sustainability. The work that we
started in 2017 with external consultants has led to a Group-wide
internal consultation programme to help articulate our vision of
“The Marshalls Way” of doing business. The objective is to develop
methods of successfully embedding this into our operations in a way
that can be monitored against pre-determined criteria. Alignment
of corporate culture with the Group’s purpose, values and strategy,
and leading by example on culture, are Board priorities for 2019.
Q
Sustainability is integral to the business. What role
does the Board play in managing this?
A
The Board clearly understands its role in promoting the long-term
sustainable success of the Group. Sustainability involves both the
generation and protection of value over the long term, and for
Marshalls is closely tied to “The Marshalls Way” of doing business.
The Group constantly strives to achieve highly sustainable
operations, minimising adverse environmental and social impacts
while delivering high standards of customer service and health
and safety. Sustainability objectives continue to be embedded in
management and employee reward schemes. The Board can help
through constructive challenge, monitoring, risk assessment and
support for well-planned initiatives aligned with strategy.
A well-managed governance
structure provides real value in
shaping the culture of the Group
and driving sustainable growth.”
Vanda Murray OBE
Chair
38
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
The Marshalls Way
We have the right people with
the right skills and behaviours
and who stay safe
We have the right products
made in the right way
We do business
in the right way
We get our
products specified
We exceed customer
and user expectations
We have a brand
that inspires trust
Business Model on pages 14 and 15
Q
An internal Board effectiveness review was
undertaken this year. What did it identify?
A
Q
What engagement with shareholders has the Board
had during the year?
A
The annual Board evaluation enables the Board to consider its own
performance and whether it is delivering value for shareholders and
other stakeholders. This year, we updated our questionnaire to
include criteria from the 2018 UK Corporate Governance Code.
Action points from our review range from the high level (articulating
our purpose and values more effectively) to the detailed (establishing
smart KPIs to monitor progress against culture and succession
planning initiatives and developing the Board’s understanding of
governance changes through training). The overall conclusion was
that the Board worked well and continued to function in an open
and collaborative way with a high level of trust and respect.
The Board seeks to maintain regular dialogue and engages with
shareholders throughout the year. There are regular meetings, briefings
and updates between the Directors and major shareholders or
potential shareholders in order to keep them informed of significant
developments and to listen to their views. During 2018 as part of my
introduction to the Group I also held one-to-one meetings with a
number of our major shareholders, the object of which was to gain
feedback on performance and governance matters and to reinforce
good communication channels between shareholders and the Chair.
I plan to offer this on an annual basis. You can read more about how the
Board members engaged with shareholders during 2018 on page 16.
Q
How has the Board approached the increased
disclosure requirements for UK companies?
A
Our reporting is aimed at delivering clarity and visibility to
shareholders and other stakeholders in a transparent and
understandable way while meeting all regulatory requirements.
The Board strives to ensure that it is fully compliant with current
codes and good practice in its corporate reporting and receives
advice from its auditor and external advisers. This year we have
expanded our Remuneration Committee Report to add more
information on our wider workforce pay conditions, our CEO
to employee pay ratio, our gender pay statistics and our
diversity initiatives.
Q
Appropriate design and control around remuneration is
one of the key factors in the Code. What is the Board’s
approach to remuneration policy?
A
Our Remuneration Policy was approved by shareholders in 2017
and it will be reviewed again in 2020. It is designed to promote
behaviours that are aligned with strategy and the long-term success
of the Group. Under our Management Incentive Plan, a high proportion
of value is represented by shares that are subject to a combined
vesting and holding period of 5 years or more. Incentive schemes
operating at other levels also include an element of reward based
on shareholding. More detail is given in the Remuneration Report
on pages 53 to 72. Marshalls is committed to creating an inclusive
working environment and to rewarding our employees throughout
the organisation in a fair manner. We believe that all employees
should be able to share in the success of the Group and we
encourage opportunities for share ownership. We aim to achieve
clarity, simplicity and proportionality in our remuneration policies
and procedures, and we were particularly pleased that Marshalls’
2017 Remuneration Report won a “Building Public Trust” award for
transparency in corporate reporting during 2018.
Annual Report and Accounts 2018 39
Marshalls plc
Corporate governance
Board of Directors
Vanda Murray OBE
Chair of the Board
Martyn Coffey
Chief Executive
Jack Clarke
Group Finance Director
N R
I
Term of office
Appointed as Non-Executive Director and
Chair of the Board on 9 May 2018. Also
chairs the Nomination Committee.
Term of office
Joined the Company and appointed
to the Board in September 2013.
Last re-elected in May 2018.
Term of office
Joined the Company and appointed
to the Board on 1 October 2014.
Last re-elected in May 2018.
Length of service
8 months
Length of service
5 years 4 months
Length of service
4 years 3 months
Skills and experience
Fellow of the Chartered Institute of
Marketing with extensive experience of
corporate leadership in both executive and
non-executive roles with a wide range of
UK and international businesses. Previous
executive roles include Chief Executive of
Blick plc from 2001 until its successful sale
to Stanley Works Inc. in 2004 and Managing
Director of Ultraframe plc between 2004
and 2006. She is a Non-Executive Director
of Manchester Airports Group and
Pro-Chancellor and Chair of the Board
of Governors of Manchester Metropolitan
University, and was also Non-Executive
Chair of Fenner plc until May 2018.
External appointments
Senior Independent Non-Executive
Director and Chair of the Remuneration
Committee of Bunzl plc. Non-Executive
Director of Redrow plc.
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
Director of the Mineral Products
Association. Non-Executive Director and
Chair of Remuneration Committee at
Eurocell plc.
Skills and experience
Chartered Accountant. Joined Marshalls
from AMEC Foster Wheeler plc, where he
was Executive Vice President and Director
of Change Management. He has extensive
experience in managing international
operations, having previously served as
CFO of AMEC’s £850 million power and
process division and its US$1.5 billion
environment and infrastructure division.
He has extensive M&A experience. Previous
experience includes senior finance and
operational management roles with
Halliburton and Mobil Oil. Holds an MSc
(Civil Engineering) and BA (Economics
and Management).
External appointments
None.
COMMITTEE KEY:
A
Audit Committee
N
Nomination Committee
R
Remuneration Committee
Chair of the Committee
GENDER COMPOSITION
EXPERIENCE AND SKILLS
Female
Male
Leadership
Housebuilders
LENGTH OF SERVICE
Finance
M&A
I
Independent Director
1 - 2 years
3 - 4 years
Product development
5+ years
Retired in year
Retail
40
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Janet Ashdown
Senior Independent
Non-Executive Director
Graham Prothero
Non-Executive Director
Tim Pile
Non-Executive Director
NA
R
I
NA
R
I
NA
R
I
Term of office
Appointed in March 2015. Last re-elected
in May 2018.
Term of office
Appointed in May 2017 and elected
in May 2018.
Term of office
Appointed in October 2010. Last re-elected
in May 2018.
Length of service
3 years 9 months
Length of service
1 year 8 months
Length of service
8 years 3 months
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). Also nominated
for appointment as a Non-Executive
Director and Chair of the Corporate
Sustainability Committee of RHI Magnesita
N.V. at its 2019 AGM. 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.
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
listed contractor / developer, 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.
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
Senior Independent Director and Chair
of Finance and Performance of the Royal
Orthopaedic Hospital. Chair of Greater
Birmingham and Solihull LEP. Non-Executive
Director of the Greater Birmingham
Chambers of Commerce and the City
of Birmingham Symphony Orchestra.
External appointments
Non-Executive Director and Chair of
Remuneration Committee of SIG plc and
Victrex plc. Non-Executive Director of
the Nuclear Decommissioning Authority.
Nominated as Non-Executive Director
of RHI Magnesita N.V.
External appointments
Group Chief Financial Officer
of Galliford Try plc.
Cathy Baxandall
Group Company Secretary
Andrew Allner
Chair
(retired 9 May 2018)
N R
Term of office
Joined the Board in July 2003; appointed
as Chairman in May 2010. Last re-elected
in May 2017 and retired in May 2018. Also
chaired the Nomination Committee up to
his retirement. Served on the Board for
a total of 14 years 9 months (7 years 9
months as Chair). He was independent
on his appointment as Chair.
Skills and experience
Significant listed company board
experience, as chairman and as a
non-executive director. Previous
executive roles include Group Finance
Director of RHM plc 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 and graduate of
the University of Oxford.
External appointments
Non-Executive Director and Chairman
of SIG plc, The Go-Ahead Group plc
and Fox Marble Holdings plc.
Marshalls plc
Annual Report and Accounts 2018
41
Corporate governance
Dear Shareholder
I am pleased to introduce our Corporate
Governance Statement, which explains how
Marshalls’ governance framework supports
the principles of integrity, strong ethical
values and professionalism integral to our
business. The Board recognises that we are
accountable to shareholders for good
corporate governance, and this report,
together with the Reports of the Audit,
Nomination and Remuneration Committees,
seeks to demonstrate our commitment to
high standards of governance that are
recognised and understood by all.
Leadership, governance and purpose
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.
We aim to stay abreast of developments in good governance
and practice, and have well-developed plans to ensure that we
will meet the standards of the UK Corporate Governance Code
dated July 2018 by the end of 2019. This includes making sure
our purpose, vision and values are clearly articulated, and that
we have in place effective channels of engagement with our
workforce, shareholders and stakeholders. The Board is
involved in setting measurable objectives to promote a healthy
corporate culture that is aligned with strategy and delivers on
our commitment to “The Marshalls Way” and the principles of
sustainability and trust that are the hallmark of our business.
Nomination Committee Report on pages 48 - 49
Statement of Directors’ Responsibilities on pages 75 - 76
Audit Committee Report on pages 50 - 52
Remuneration Committee Report on pages 53 - 72
Corporate Governance Statement
A clear vision
of purpose
and strategy,
aligned with an
inclusive culture
2018 highlights
• Recruitment and induction of new Chair
• Successful integration of acquisition with positive
profit impact
• Created framework for greater employee
and stakeholder engagement
• Strengthened controls to increase resilience
2019 priorities
• Setting strategic direction and vision over the next 3 – 5
years for long-term sustainable success
• Focus on contribution to wider society and development
of an inclusive and positive corporate culture
• Embedding policies that support our core values and are
aligned with strategic priorities
• Maintaining resilience while pursuing opportunity
Our aim is to create
strong foundations for
sustainable future success,
delivering value for our
employees, shareholders
and wider society.”
42
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
The reports of our Board Committees show how our policies and
processes have been applied and developed during the year in a
way that remains consistent with our values and strategy, focusing
on engagement, operational improvement, and reward and
incentive structures, ensuring progress can be measured and
monitored appropriately and promoting a business that is resilient,
responsible and alive to opportunity.
Board evaluation
During 2018, the Board conducted an evaluation of its
performance led by the Chair and Company Secretary. This took
into account the 2018 Code principles as well as the 2016 Code in
its review of composition, effectiveness, skills and diversity. The
Nomination Committee Report comments on the priorities for 2018
following the 2017 evaluation and the extent to which they were
achieved. The Board continues to have a good balance of skills
and experience, and works very effectively incorporating robust
challenge with a high degree of mutual respect and trust. The
Board’s gender balance has improved. The outcomes of the 2018
evaluation were discussed and an action plan has been identified
for the coming year. The Board expects to use an external
facilitator for its 2019 evaluation.
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 more
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, and this, together with the Nomination
Committee Report, 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 has been prepared in
accordance with the principles of the UK Corporate Governance
Code dated April 2016 (the “2016 Code”), but also recognises the
recommendations in the new UK Corporate Governance Code
dated July 2018 which applies to the financial year 2019. The
Board has carried out a review of how the 2016 Code principles
have been applied, and considers that the Company has
complied with the relevant provisions of the 2016 Code throughout
the year in all material respects. The Company has also made
good progress towards implementing the provisions of the 2018
Code and is supportive of the changes that will result from the
application of that new Code.
Board evaluation process
During the year an internal
evaluation was conducted.
Stage 1
July – August 2018
The Chair and Company Secretary prepared the evaluation
questionnaire based on both 2016 and 2018 Code principles
Stage 2
September 2018
Questionnaire circulated to Board members
Stage 3
September – October 2018
Detailed one-to-one interviews between the Company
Secretary and each Board member, using the questionnaire
as the framework
Stage 4
December 2018
Consolidated questionnaire results reviewed by the Chair
and Company Secretary, and the conclusions tabled to the
Board; the Board reviewed themes and progress against
2018 objectives
Stage 5
December 2018 – January 2019
Board actions to improve Board effectiveness agreed,
based on the key conclusions of the evaluation process
Stage 6
January 2019
The Senior Independent Director met Non-Executive
Directors to conduct a separate evaluation of the
Chair’s performance
Responsibility
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.
Annual Report and Accounts 2018 43
Marshalls plc
Corporate governance
Corporate Governance Statement continued
Role of the Board
The Board currently comprises an Independent Non-Executive
Chair, 3 Non-Executive Directors and 2 Executive Directors. Their
biographical details are on pages 40 and 41.
There is a written Schedule of Matters Reserved for the Board,
reviewed annually, which is available on the website
www.marshalls.co.uk. The reserved matters include:
Approving major
transactions
Overall strategy,
business plans
and budgets
Culture,
governance and
remuneration
matters
17+
Approval
of accounts,
financial
reporting, internal
controls and
key policies
Board
appointments,
succession
planning and
Terms of
Reference
Any changes to
capital, constitution
or corporate
structure
Board meetings and attendance*
Key =
Present
Absent
Board
Audit Committee
The Board delegates specific responsibilities to the Audit,
Remuneration and Nomination Committees. The Audit
Committee Report provides details of the Board’s application
of Code principles in relation to financial reporting, audit, risk
management and internal controls. The Nomination Committee
Report reports how Board and senior management composition,
succession and development are managed to reflect Code
principles. The Remuneration Report explains how the Group’s
Remuneration Policy has been implemented, and shows
Directors’ remuneration for 2018. The Remuneration Report also
provides gender pay and balance information. Ad hoc Board
Committees are established for particular purposes: for example,
during 2018 Board Committees were established to approve
the allotment of shares under the 2015 Sharesave scheme,
to approve certain acquisition transactions and to approve
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
decisions are made by the most appropriate people in a timely
manner. Management teams report to members of the Executive
Committee (9 senior managers, including the 2 Executive Directors).
The Executive Directors and other Executive Committee members
give regular briefings to the Board in relation to business issues and
developments. Clear and measurable KPIs are in place to enable
the Board to monitor progress. These policies and procedures
enable the Board to make informed decisions on key issues
including strategy and risk management.
Remuneration
Committee
Nomination
Committee
Briefing
topics 2018
Andrew Allner (Non-Executive)+
Vanda Murray OBE (Non-Executive)+
Janet Ashdown (Non-Executive)+
Jack Clarke
Martyn Coffey
Graham Prothero (Non-Executive)
Tim Pile (Non-Executive)
–
–
–
–
–
–
–
–
Health, safety and environment
Emerging businesses
Sales and service delivery
Market trends
Cyber security and innovation
Acquisition integration updates
Manufacturing operations
HR strategy
*
+
The Chief Executive and the Finance Director normally attend Audit Committee meetings, and the Non-Executive Directors also meet the Auditor in private. The Chief Executive
attends Remuneration Committee meetings by invitation. The Company Secretary attends Board Committee meetings as Secretary. Board members also participate in site
visits, training sessions and events such as the Group’s annual management conference.
Andrew Allner attended all scheduled meetings prior to his retirement except for Nomination Committee meetings relating to the appointment of his successor. Janet Ashdown
was conflicted and could not attend these Nomination Committee meetings. Vanda Murray attended all scheduled meetings following her appointment.
Interaction between Board and management bodies
Audit
Committee
Board
Nomination
Committee
Remuneration
Committee
Chair, SID and CEO Terms of Reference
www.marshalls.co.uk/investor/corporate-governance
Committee Terms of Reference
www.marshalls.co.uk/investor/corporate-governance
44
Marshalls plc
Annual Report and Accounts 2018
Executive
Directors
Executive
Committee
Group / corporate support
Operational and
functional management
Corporate governance
17
+
16
+
17
+
17
+
16
Roles and division of
responsibilities
There is a clear division of responsibilities between the
Chair and the Chief Executive, each of whom has annually
reviewed written Terms of Reference.
The Chair leads the Board and is responsible for its overall
effectiveness, ensuring adequate time is available for
discussion of all agenda items, in particular strategic issues,
promoting openness and debate, ensuring all Directors,
particularly the Non-Executive Directors, are able to
contribute, and facilitating a constructive relationship
between the Executive and 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 provides a sounding board for the Chair and
also acts as an intermediary for other Directors
and shareholders.
The Chair and other Non-Executive Directors were
independent on appointment, and the Board has
determined each of the Non-Executive Directors to be
independent in character and judgement in accordance
with principle B.1.1 of the 2016 Code and Section 2 Provision
10 of the 2018 Code. At least once a year the Chair meets
the Non-Executive Directors without the Executive Directors
being present. The Non-Executive Directors also meet
annually without the Chair to appraise the
Chair’s performance.
Any concerns raised by Directors about the running of the
Company or a proposed action would be recorded in the
Board minutes. If a Non-Executive Director did have any
such concerns on resignation the Chair would invite that
Director to provide a written statement for circulation
to the Board.
Culture and engagement
There has been good progress in defining our desired culture
and identifying the key actions designed to promote and embed
“The Marshalls Way”, with the Board being involved in setting
objectives and reviewing feedback. Janet Ashdown is the Director
designated to act as Board representative in relation to our
workforce engagement programme. The Group has developed
a framework to improve the way in which employee views are
communicated to the Board, how employees engage with values and
culture, and how we align strategy with our workforce development
and reward policies, which the Board expects to review and monitor
throughout the year using agreed KPIs. On joining, the Chair met
major shareholders to canvas views on governance and performance
and will continue to seek opportunities to engage with shareholders.
During 2018 the Group also engaged with other stakeholders such
as customers and suppliers through its in-depth customer
experience review and ethical supply chain initiatives.
Conflicts of interest
The Board has adopted procedures for the identification,
authorisation (where appropriate) and monitoring of situations
which may give rise to a conflict of interest. Existing situations
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 well balanced with an appropriate
combination of skills, experience and knowledge. The process for
appointments, evaluation of the Board and individual Directors,
succession planning and diversity is commented on further in
the Nomination Committee Report.
On appointment, the expected time commitment for Board
members is made clear. The Chair and other Non-Executive
Directors disclosed their other commitments prior to appointment
and agreed 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
commitments of the Chair and other Directors are shown on
pages 40 and 41.
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, all Non-Executive Directors and Executive
Directors stand for re-election at every Annual General Meeting,
and all current Directors will stand for re-election or election at
the 2018 Annual General Meeting. The Directors’ biographical
details on pages 40 and 41 show their term of appointment and
length of service on the Board.
Annual Report and Accounts 2018 45
Marshalls plc
Corporate governance
Corporate Governance Statement continued
Board induction, development and support
There is a full formal induction programme for new Directors. New
Directors receive an induction pack incorporating the Company’s
constitutional and governance documents, Group policies and
other key information. Induction training to familiarise Directors
with the “virtual boardroom“ resource and other Group systems
and programmes is also provided. On joining, there is a
programme of site visits at which the new Director meets site-
based staff, including the Executive Committee and other senior
managers. All Non-Executive Directors are offered training as part
of the Group’s health and safety programme. Other tailored
training may be arranged, for example to update knowledge of
developments in regulatory compliance and Director
responsibilities. A new Director will meet the Chair and other
Non-Executive Directors in one-on-one sessions; they will have
meetings with key management, and they are also expected to
avail themselves of opportunities to meet external advisers and
shareholders to gain a full understanding of the business.
Directors attend external courses and seminars as appropriate
to maintain and develop their Board competencies. The Board
meeting programme includes a range of topics of relevance to
the business, with opportunities for in-depth questioning and
discussion. Details of senior management presentations during
2018 are on page 44. Separate meetings between Non-Executive
Directors and senior management on matters of particular interest
are arranged; for example, Janet Ashdown and the Group HR
Director held meetings in relation to employee engagement and
Tim Pile provided expertise in relation to Group digital marketing
strategy. Training needs are identified through the Board
evaluation process and through individual one-to-one reviews
between the Directors and the Chair.
Directors have access to the advice and services of the Company
Secretary and may rely on their being impartial and independent.
The Company Secretary is responsible for ensuring that Board
procedures are complied with and, through the Chair, advises the
Board on corporate governance matters. The appointment or removal
of the Company Secretary are matters for the Board as a whole.
There is an approved procedure for all Directors to take independent
professional advice at the Company’s expense. Board Committees
have sufficient resources to undertake their duties, and may appoint
external advisers when they deem it appropriate.
Indemnities and insurance
The Company maintains directors’ and officers’ liability insurance
to cover legal proceedings against 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.
How we assess our performance, prospects and viability
The Group has 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,
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.
46
Marshalls plc
Annual Report and Accounts 2018
We maintain an open
and regular dialogue
with shareholders and
stakeholders.”
At each regular Board meeting the monthly financial results are
reviewed, 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 medium and long-term
strategy on a regular basis and meets at least annually with the
Executive Committee to review strategy. Individual members of
senior management meet and present to the Board regularly
on current business and strategic issues.
In this way, the Board assesses the prospects of the Group using
all the information at its disposal, and considering historical
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 24. 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 has responsibility for determining the nature and extent
of the principal risks the Company is willing to take to achieve its
strategic objectives, and for the Group’s internal control framework.
The Board has a well-established procedure to identify, monitor
and manage risk, and has carried out reviews of the Group’s risk
management and internal control systems and the effectiveness
of all material controls, including financial, operational and
compliance controls. The Strategic Report comments in detail
(pages 23 to 27) on 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. The Board has conducted a rigorous assessment
of these risks, particularly operational risks that might affect the
Group’s viability. The Board’s risk review also incorporates some
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 on
the business and its prospects. The Audit Committee Report on
pages 50 to 52 describes the internal control system, how the
Board assures itself of the independence and effectiveness of
internal and external audit functions and how they are 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 misstatement or loss.
Corporate governance
Shareholder relations
The Board places great emphasis on communication and
engagement with the Company’s 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, arrange site visits for
investors, and provide regular and comprehensive feedback to
the Board. The Board also receives copies of analysts’ and brokers’
briefings. During 2018, there were 80 investor meetings, with 752 of
the Group’s institutional shareholders having met or engaged with
Executive and / or Non-Executive Directors in the past 12 months.
The Chair met a number of major shareholders following her
appointment, and expects to establish a programme of regular
meetings with shareholders to gain understanding of their views
on governance and performance. The Senior Independent
Director is also available to meet shareholders separately if
requested. Chairs of Committees would expect to meet
shareholders to consult on significant matters related to their
areas of responsibility, for example in relation to preparation
of the Group’s 2020 Remuneration Policy.
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 Year Reports,
together with the Marshalls website, are substantial means of
communication with all shareholders during the year. There has
been no significant voting against recommended resolutions at
recent AGMs, and the Board would wherever practicable seek
to ensure that shareholder views on any unusual or potentially
controversial proposals were canvassed and incorporated prior to
a vote; however, the Board expects to respond to any significant
vote against a recommended resolution, should this arise,
in accordance with the 2018 Code principles.
Annual General Meeting
The Notice of Annual General Meeting is despatched to shareholders,
with explanatory notes or a circular on items of special business,
at least 20 working days before the meeting. The Company’s
practice is to propose separate resolutions on each substantially
separate issue, including a resolution on the Annual 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 Audit, Remuneration and Nomination Committee
Chairs, 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 form provides
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 voting results make it clear that a “vote
withheld“ is not a vote in law and is not 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.
Vanda Murray OBE
Chair
14 March 2019
Investor communications
strategy throughout
the year
2018
March
• Full year results presentation
• Full year results roadshows
May
• Annual General Meeting
June
• Site visits with key stakeholders
August
• Interim results presentation
• Interim results roadshow
October
• Investor roadshow
2019
January
• Shareholder meetings
Throughout year
• Regular updates to corporate website
• Liaison with stakeholders
80 meetings
with current or prospective
shareholders
752
of the Group’s institutional
shareholders were represented
at investor meetings
Annual Report and Accounts 2018 47
Marshalls plc
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 2018.
I chair Nomination Committee meetings,
but would not do so where the Committee
was dealing with my own re-appointment
or replacement as Chair.
The performance of the Committee was evaluated as part of
the Board evaluation process in 2018 described on page 43.
The Committee Terms of Reference were reviewed and updated
to take account of the UK Corporate Governance Code published
in July 2018 (the “2018 Code”), which applies from 1 January 2019.
During the year the Nomination Committee held 2 scheduled
meetings. Additional meetings and discussions in connection with
succession planning and recruitment were held by telephone. As
both meetings were held before my appointment, I did not attend.
Janet Ashdown was conflicted from attending these meetings.
Recruitment and succession planning
The Committee maintains a formal succession plan and in
accordance with this plan the Board’s membership is reviewed
at least on an annual basis. The policy of the Committee is that
recruitment and succession should reflect the changing strategic
needs and objectives of the Group, both now and into the future,
and that its composition should contribute to the Company’s
desired values and culture. In this context, we are wholly
committed to achieving diversity in its widest sense in the
composition of the Board and senior management. The
Committee’s Terms of Reference incorporate the 2018 Code
principles in promoting diversity of gender, social and ethnic
backgrounds, and cognitive and personal strengths in the selection
of candidates. Our Nomination Policy sets out how these principles
will be applied for Board appointments.
Nomination Committee Report
A well-managed
transition
2018 highlights
• Successful recruitment of new Chair to succeed
Andrew Allner
• Formal succession plan adopted and tested against
the Group’s strategic plans for the next 5 years
• Terms of Reference reviewed and updated to reflect
2018 Code
2019 priorities
• Refresh Board membership in line with strategic needs
through recruitment of an additional Non-Executive
Director to succeed Tim Pile
• Maintain policies for recruitment and succession
planning that are designed to reinforce the Company’s
desired values and culture
Members and attendance
Meetings
Vanda Murray OBE – Chair
Janet Ashdown – SID
Graham Prothero
Tim Pile
Andrew Allner was a member of the Nomination Committee
until 9 May 2018 but did not attend any meetings as they
related to his successor’s appointment.
Link to TOR and Nomination Policy
www.marshalls.co.uk/investor/corporate-governance
Our Board composition
supports our strategy.”
48
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Before any Director is proposed for re-election, or has their
appointment renewed, the Committee considers the outcome
of the reviews to ensure that the Director continues to be effective
and demonstrates commitment to the role. The 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 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 40 and 41.
My other commitments were reported on joining the Company’s
Board, and I retired from the Board of Fenner plc in May 2018.
There have been no other changes to my other commitments
during the year, which are listed on page 40.
Governance
The Committee has acted throughout 2018 in accordance with
the principles of the UK Corporate Governance Code issued in
April 2016 (the “2016 Code”) in the application of its succession
plans and policies. In addition, the Committee has assessed its
effectiveness during 2018 against both the 2016 Code and the
2018 Code, and measured its performance against the
governance principles of both Codes as part of the annual
Board evaluation process. The evaluation concluded that the
Committee had been successful in securing a good mix of skills
and experience in the composition of the current Board. The
framework for the refreshment of skills, experience and diversity
to support the needs of the business and its stakeholders in the
future is transparent and well understood.
Vanda Murray OBE
Chair of the Nomination Committee
14 March 2019
The Nomination Committee’s main task during 2018 was
completing the recruitment of a Chair to replace Andrew Allner,
who retired as Chairman in May 2018. This process was led by
Tim Pile supported by The Inzito Partnership, an independent
search consultant not otherwise connected with the Company.
The selection criteria were objective and detailed and took
account of the Committee’s policies and recruitment philosophy.
I was pleased to be invited to join the Board in early 2018, and
my appointment was confirmed on Andrew Allner’s retirement
following the Company’s Annual General Meeting in May 2018.
On joining, I received full induction training and have followed
a programme of site visits to familiarise myself with the business.
I have also met many of our major shareholders and will continue
to seek opportunities to develop the shareholder dialogue. I am
grateful to Andrew Allner and my fellow Directors for their
welcoming support during the handover.
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. Our framework for succession
planning is designed to phase future recruitment so that the
composition of the Board can be refreshed whilst ensuring continuity.
With this in mind, it is proposed to extend Tim Pile’s appointment
(which would normally expire in October 2019) to May 2020, to
give sufficient time for the Committee to complete the recruitment
of a successor and to provide continuity for a further period while
they familiarise themselves with the business. The Committee
considers that Tim Pile remains a highly effective member of the
Board who brings valuable insights, skills and experience and
whose independence of thought and judgement is not at risk
of being affected by the extension of his term of appointment
for an additional 7 months.
The Committee also keeps under review the leadership needs
of the Company and works with management to ensure that
the Company has strong succession planning processes below
Board level for the development of internal talent and potential
succession to the Board that are fully reflective of our policy
principles of diversity, gender equality, objectivity and fairness.
Having established a clear policy commitment, the Board will
be developing its work to support and monitor progress against
the Group’s HR diversity and inclusivity objectives.
Evaluation and 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. These one-to-one assessments were
carried out in 2018 by Andrew Allner, and similar one-to-one
appraisal meetings are scheduled for early 2019 between the
Chair and individual Directors.
Annual Report and Accounts 2018 49
Marshalls plc
Corporate governance
Dear Shareholder
In this report I set out the Audit Committee’s
objectives and responsibilities and also
explain the activities undertaken during 2018
and the priorities for 2019. This report, which
is part of the Directors’ Report, explains how
the Audit Committee has discharged its
responsibilities during 2018.
How the Audit Committee operates
During the year, the Audit Committee held 4 formal meetings and
there were also meetings between the Audit Committee Chair, the
Group 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. This is explained in detail in the Corporate Governance
Statement on pages 42 to 47. The review found the Committee to
be effective and well run. No areas of concern were highlighted
during this review.
The Chair 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 40 and 41.
Members and attendance
Meetings
Janet Ashdown
Graham Prothero
Tim Pile
Terms of Reference
www.marshalls.co.uk/investor/corporate-governance
Audit Committee Report
Planning for
the future
2018 highlights
• Review of the significant financial judgements during the year
and the preparation of the 2018 Financial Statements. Areas
of focus in 2018 were inventory provisioning, accounting for the
acquisition of Edenhall and revisions to provisional fair value
adjustments on the CPM acquisition in 2017
• Provided assurance to the Board on whether the 2018
Annual Report and Financial Statements, taken as a whole,
is fair, balanced and understandable and reviewed the
forecasts and sensitivity analyses underlying the Group’s
going concern assessment and Viability Statement
• Detailed review of the outcomes of cyber security audits
undertaken by KPMG LLP during 2018 in order to improve
cyber security controls and to ensure that IT controls
remain appropriate and robust
• Commissioned internal audit reviews by KPMG LLP in relation
to inventory, treasury management, supplier payments and
expenses, and the integration of CPM. Update reviews were
undertaken in relation to the Group’s General Data Protection
Regulation (“GDPR”) and anti-bribery compliance, controls
and procedures. In total, 8 individual internal audit reviews
were undertaken
2019 priorities
• Continue to oversee the significant financial judgements
made by management
• Review the delivery of the external and internal audit,
to monitor progress and to monitor changes in external
regulatory environment and best practice
• Assess and improve cyber security controls and ensure that
IT controls remain appropriate and robust. This will involve
further cyber security audits
• 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 a further 8 individual internal audit reviews planned
for 2019, including procurement, rebates, logistics and fleet
management, health and safety processes and controls
and employee codes of conduct, including specific focus
on awareness and monitoring of whistleblowing
The Committee continues
to ensure the Group has
an effective system of
risk management and
internal control.”
50
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
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.
IFRS 16 has been adopted from 1 January 2019 and has required
all leases to be recognised on the Group’s balance sheet. The
Group established a project team during 2017 to prepare for
transition and to assess the impact of the new standard. New
systems and operating procedures have been introduced and
a major exercise has been undertaken during 2018 to obtain all
the necessary data requirements. The Committee has been
monitoring the progress of the project during the last year and
has been assessing the financial impact. Key priorities for the
Committee have been system selection, the integration of
authorisation and data processing procedures and controls
within the Group’s core systems and the adequacy of controls
over data accuracy and completeness. Further information about
the financial impact for the Group is included in Note 1 on page 91.
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, which
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. The Group has a formal process
for the ongoing assessment of operational financial and IT-based
controls, the objective being to gain assurance that the control
framework is complete and that individual controls are operating
effectively. A rolling programme of independent internal checking
is undertaken focusing on key controls, reconciliations and access
to, and changing permissions on, base data.
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 2018.
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. Each risk has a
designated control owner and, 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 23 to 27.
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.
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 2018 are analysed in Note 3 on page 101. Other than
a specific "cyber review" which was approved by the Committee
and 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 £387,000 (2017: £368,000).
Internal audit
The Committee has responsibility for monitoring the effectiveness
of internal controls and reviews these on an ongoing basis.
The internal audit process 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 uses 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, and the process is overseen by the Group Finance
Director. KPMG LLP is independent from the Company’s external
auditor and has 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,
inventory, treasury management, supplier payments and expenses
and the integration procedures, processes and controls following
the acquisition of CPM.
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 2018. 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.
Marshalls plc
Annual Report and Accounts 2018
51
Corporate governance
Audit Committee Report continued
Effectiveness of the external audit
An annual review of external audit effectiveness was
undertaken by the Committee in 2018. 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 2018.
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 2019 plan.
Whistleblowing and bribery
The Audit Committee monitors on behalf of the Board 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 Committee is satisfied that arrangements are in place
for the proportionate and independent investigation of such
matters and for appropriate follow-up action. No matters of
serious concern were raised under the policy during 2018.
The Company is committed to a zero-tolerance position with
regard to bribery, made explicit through its Anti-Bribery Code
and supporting guidance 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 to reinforce the Anti-Bribery Code and procedures,
and classroom-based training sessions are also held throughout
the year. During 2018, CPM employees received their training as
a key part of their integration. 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 an update review of the adequacy of the Company’s
procedures in relation to anti-bribery controls and procedures.
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 2019
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 Group Finance Director from the
internal audit function, the Risk Committee and the Group’s
external auditor. The significant areas considered by the
Committee for 2018 are summarised below. In each case the
Committee considered the findings of the external auditor
and concurred with the assessments and conclusions made
by management:
• 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
and its use of data analytics.
• 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.
• Revisions to the provisional fair value adjustments on the
CPM acquisition in 2017 – management’s assessment of the
process for identification and revised valuation of fair value
adjustments. The Committee considered those areas where
management judgement was applied. The external auditor
tested significant revisions to provisional fair value
adjustments by reference to supporting evidence.
• Acquisition accounting in relation to the acquisition of
Edenhall – 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 determining 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
2018 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 2018
Annual Report and Financial Statements is fair, balanced
and understandable.
52
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Remuneration Committee Report
A clear and transparent policy linked
to delivery of long-term success
2018 highlights
• Strong Group performance resulting in achievement
of Executive incentive targets, with significant element
of variable award in shares or share equivalents
• Committee Terms of Reference, procedures and evaluation
measures updated to incorporate the principles set out
in the UK Corporate Governance Code issued in July 2018
(the “2018 Code”) which applies for 2019
• Improved monitoring of gender pay gap statistics and
the Company’s action plan to address the gap
• Review of current Remuneration Policy and its application
for 2019 to ensure it remains appropriate
• Executive Director remuneration packages for 2019 set, having
taken into account the pay and benefits of the wider workforce
and the comparator group, and review extended to senior
management remuneration below Board level
• Incentive scheme targets set for 2019 using stretching financial
and non-financial measures designed to align with strategic
objectives and shareholder interests
• Development of the remit and supporting framework for Janet
Ashdown (the Non-Executive Director responsible for employee
engagement) to engage with employees and stakeholders on
pay and benefits during the year
2019 priorities
• Consult with shareholders and other stakeholders in relation
to 2020 Policy
• Monitor the success of the 2019 action plan for engagement
with employees and other stakeholders on remuneration
• Review alignment with wider workforce pay policies and incentives
• Review the action plans to reduce scope for gender pay gaps
and progress against measurable KPIs
• Seek shareholder approval to extend the Management
Incentive Plan to 2020 to align the incentive plan with the
Remuneration Policy under which it operates, and which is
due to be tabled for shareholder approval at the 2020 AGM
Members and attendance
Meetings
Janet Ashdown
Andrew Allner (retired 9 May 2018)
Vanda Murray OBE (appointed 9 May 2018)
Tim Pile
Graham Prothero
Terms of Reference
www.marshalls.co.uk/investor/corporate-governance
Our Policy and incentive
plans are clearly linked
to our strategy, values
and culture.”
53
Corporate governance
Remuneration Committee Report continued
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 2018.
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.
Business performance
The Group’s KPIs monitor progress towards the achievement of the
Group’s objectives. All of the Group’s strategic KPIs have moved
forward strongly during 2018, as shown on pages 20 and 21 of
the Strategic Report. The Company operates a single long-term
incentive plan, the Management Incentive Plan (“MIP”), which
focuses directly and indirectly on aligning the reward of Executive
Directors and senior management with delivery of these KPIs.
EPS, net debt, customer service and health and safety are the
measures expressly used to determine awards under the MIP.
Outcomes for 2018
Page 56 sets out the performance conditions, targets set, level
of satisfaction and corresponding percentages of salary earned
under the MIP for 2018 by the Executive Directors. Martyn Coffey
(CEO) received an MIP award of 245 per cent of salary (maximum
250 per cent) and Jack Clarke (Group Finance Director) received
a MIP award of 245 per cent of salary (maximum 250 per cent).
Discretions
The Committee determined that the incentive outcomes for 2018
based on the application of the MIP Rules and performance
conditions were in line with the overall performance of the
business and did not exercise its discretion to alter the outcomes.
The Committee did not adjust any incentive outcome to account
for share price appreciation over the vesting period, having
concluded that the value delivered was commensurate with
performance over the period. The consideration of performance
against non-financial ESG measures is integrated into our review
of overall remuneration.
Wider workforce considerations
Marshalls is committed to creating an inclusive working environment
and to rewarding its employees 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. For example, under our tax-advantaged 2015
Sharesave Plan, options became exercisable from December 2018
at a price of £2.91 per share, a significant discount against the
market price. 684 employees have either exercised or remain able
to exercise their Sharesave options under the scheme. We also
operate a Share Purchase Plan allowing employees to invest a
monthly amount in Marshalls’ shares. We are proud to be a Living
Wage employer. 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. This report includes information
on our wider workforce pay conditions, our CEO to employee pay
ratio, our gender pay statistics and our diversity initiatives. The
Committee’s role in monitoring and reporting on such issues is key
to the promotion and development of our values and culture.
Compliance with the new UK Corporate Governance Code
We have considered the current compliance of our Remuneration Policy and its application with the 2018 Code which applies for
financial years beginning on or after 1 January 2019. While we are not required to comply with the new Code for the current year being
reported on, the following table demonstrates the extent to which we are already substantially compliant with the 2018 Code:
Key remuneration element of the code
Company position
5-year period between the date of grant
and realisation
Element B of the MIP meets this requirement.
Phased release of equity awards
The MIP ensures the phased release of equity awards.
Discretion to override formulaic outcomes
The Remuneration Policy approved by shareholders at the 2017 AGM contains these provisions.
Post-termination holding requirement
Pension alignment
It has been the practice to apply post-vesting holding requirements in respect of Directors’
incentive scheme shares, notwithstanding an earlier termination date; however, the 2017
Policy does not specify a minimum post-termination holding requirement encompassing
all shares. The Committee will continue to monitor evolving market practice.
It is the Committee’s current intention to bring new Executive Directors in at a pension
contribution aligned with the average employee contribution. The Committee does not
intend to change the contractual provision for existing Executive Directors.
Extended malus and clawback
The current malus and clawback provisions of the MIP already exceed the best practice
guidance associated with the new Code.
54
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Board changes
Vanda Murray joined the Committee on her appointment
as Non-Executive Chair of the Board following the 2018 AGM.
Vanda is an experienced non-executive director and has served
as a member or chair of a number of other remuneration committees.
Her experience is welcomed.
Shareholders
There was no express need to consult with shareholders during
2018, given that there have been no material changes to policy
or incentive scheme structure since the 2017 AGM at which the
Remuneration Policy received 96 per cent shareholder support.
The Policy approved at the 2017 AGM took into account the views
of the Company’s key shareholders. As Remuneration Committee
Chair I remain willing to engage with shareholders on remuneration
matters, and will be arranging, with Vanda Murray, to meet and
consult with our major shareholders prior to the Policy review in 2020.
I would like to thank our shareholders for their continued support
during the year demonstrated by the vote at the 2018 AGM.
I will be available at the Company’s Annual General Meeting
on 15 May 2019 to answer any questions in relation to this
Remuneration Report.
Janet Ashdown
Chair of the Remuneration Committee
14 March 2019
External advisers
The Company re-appointed external remuneration advisers
PricewaterhouseCoopers LLP (“PwC”) after a tender process
in 2017. 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 Company during the year in relation to general consulting
services. 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 2018 included assistance in the preparation of the 2018
Remuneration Committee Report, benchmarking of total
remuneration in respect of the Company and its comparator group,
and general advice on remuneration trends, regulations and best
practice. The amount paid to PwC in respect of remuneration
advice received during 2018 was £52,000 (2017: £40,000).
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 meets the requirements of
the UK Corporate Governance Code issued in April 2016 and
anticipates the requirements of the new Code issued in July 2018.
It is also prepared in accordance with the UK Listing Authority’s
Listing Rules and Disclosure and Transparency Rules.
Remuneration Report
For
Against
Votes withheld
Voting outcomes 2018
90+
94.25 per cent of shareholders voted in favour of the Remuneration
Report at the Company’s 2018 AGM.
Voting results were:
For: 136,785,808 (94.25 per cent of votes cast)
Against: 8,344,183 (5.75 per cent of votes cast)
Withheld: 5,730,503
The Remuneration Policy received a vote of 96 per cent in favour
at the 2017 AGM, and a new Policy will be submitted to
shareholders again at the 2020 AGM.
Annual Report and Accounts 2018 55
Marshalls plc
Corporate governance6
+
4
+
I
Remuneration Committee Report continued
At a glance
2018 remuneration outcome
The tables below set out how we performed against targets for the MIP in 2018. The performance measures and targets are linked to the key
strategic objectives highlighted on pages 18 and 19 of the Strategic Report.
MIP Element A: 98.0 per cent of maximum (2017: 100 per cent of maximum) was awarded to the Chief Executive Officer and Chief Financial Officer.
MIP Element B: 98.0 per cent of maximum (2017: 100 per cent of maximum) was awarded to the Chief Executive Officer and Chief Financial Officer.
Threshold
(0% payable)
Maximum
(100% payable)
Actual
(2018)
EPS (75% of maximum)
23.54p
26.21p
26.57p
Weighting
outcome
(% total award)
CEO
£’000
CFO
£’000
100%
£835,106 max
£835,106 actual
£547,809 max
£547,809 actual
Operating cash flow
(“OCF”) to EBITDA ratio
(25% of maximum)
Non-financial targets
Total
£64.8m
£78.6m
£76.4m
92.3%
£278,369 max
£257,053 actual
£182,603 max
£168,621 actual
100%
No deduction
No deduction
Performance conditions were set at the beginning of 2018 and the Committee took account of both internal budgets and external
factors such as the market consensus of investors for the full year 2018.
Definitions:
EPS and OCF are 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.
EPS
EPS relates to our strategic objective to grow profits. EPS grew by 22 per cent to 26.29 pence in 2018.
OCF
OCF targets are set by reference to EBITDA and relate to our strategic objective to convert projects into cash flow. The OCF to EBITDA
ratio was 92 per cent in 2018.
Non-financial targets
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 2018. 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 26 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.
See page 70 for details of the awards made.
Link to Company 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
The use of EPS under the MIP as the main performance condition ensures that the Executive Directors are focused on driving increased
profitable growth in accordance with the Company strategy. The OCF to EBITDA ratio ensures that this growth in profit is not at the
expense of its sustainability. The customer metric and health and safety performance conditions reflect our commitment to service
and employee wellbeing and the need to ensure that growth and profitability are not achieved in a way that is detrimental to the
Company’s customers and employees.
Full details of the Company’s strategy are set out in the Strategic Report on pages 18 and 19.
56
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Long-term performance
The following chart shows the single figure of remuneration for the CEO over the last 4 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.
300
250
200
150
100
2014
2015
2016
2017
2018
— CEO single figure — EPS — Operating cash flow (£’m)
2017 / 18 single figure
The following charts summarise the single figure of remuneration for 2018 in comparison with 2017 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 2017 and 2018, 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. With such a high proportion of MIP awards expressed in or linked to
shares, the impact of share price movement on overall Executive reward can be significant. The increase in the value of awards due to share
price growth over the vesting periods is another demonstration of how our Policy aligns with strategy and the interests of shareholders.
Explanatory notes on the single figure can be found in the Annual Report on Remuneration (page 69).
Martyn Coffey
(CEO)
2018
(12)
2017
477
456
89
497
218
333
1,602
86
323
215
840
463
2,383
Jack Clarke
(CFO)
2018
(7)
305
58
326
143
191
1,016
2017
295
56
212
141
464
257
1,425
0
500
1,000
£’000
1,500
2,000
2,500
Salary and other benefits
Salary supplement in lieu of pension
MIP Element A
MIP Element B
LTIP / MIP
Proportion due to share price change
Total remuneration opportunity under the Policy for each of the Executive Directors at 3 different levels of performance is shown below:
Chief Executive
Outperformance
Finance Director
Outperformance
566
668
445
223
363
438
292
146
Target
Target
566
468
312
78
363
307
204
51
Below threshold
566
Below threshold
363
0
500
1,000
£’000
1,500
2,000
0
500
1,000
1,500
£’000
Salary, benefits and pension
MIP Element A
MIP Element B
Proportion due to share price growth
Notes:
(a) Base salary, benefits and pension information is taken from the single figure remuneration table in the 2018 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.
Marshalls plc
Annual Report and Accounts 2018
57
Corporate governance
Remuneration Committee Report continued
At a glance continued
Long-term performance continued
Comparison to peers
The following chart shows the relative position of base salary and total compensation for our Executive Directors compared to our peers.
2,000
1,500
1,000
500
0
0
0
0
£
’
)
O
E
C
(
y
e
ff
o
C
n
y
t
r
a
M
Base salary
Total compensation
1,200
1,000
800
600
400
200
0
0
0
0
£
’
)
O
F
C
(
l
e
k
r
a
C
k
c
a
J
Base salary
Total compensation
Lower quartile to median
Middle to upper quartile
Martyn Coffey (CEO) / Jack Clarke (CFO)
The charts demonstrate 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)
469%
200%
200%
330%
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. The following table sets out the single figure for 2018, 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 change on single figure remuneration
Impact of share price change on value of shares held
Martyn Coffey
(CEO)
Jack Clarke
(CFO)
1,602
1,614
2,089
2,044
1,016
1,023
964
944
0
500
1,000
1,500
0
500
1,000
1,500
2,000
Full impact of share price change
Assuming no share price change
£’000
58
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Company’s remuneration principles
The Company applies the following remuneration principles throughout the organisation at all levels:
• The Company’s policy is to target a remuneration package that is at around median for median performance, and in the upper
quartile for exceptional performance, and which is closely linked with the Company’s strategic objectives.
• In setting all elements of remuneration the Company seeks to benchmark itself against comparable companies.
• The aim of the Company’s policy is to attract, retain and continue to motivate talented employees while aligning remuneration with the
achievement of the Company’s strategic objectives.
When determining remuneration policy specifically for the Executive Directors the Remuneration Committee also addressed the following:
Factor
Clarity
Simplicity
How addressed under the Remuneration Policy
The Company’s performance-based remuneration framework is linked to the
implementation of the Company’s strategy. Overall strategic performance is measured
through KPIs which are the same measures as used for the incentive plan. This provides
clarity to all stakeholders on the relationship between the successful implementation
of the Company’s strategy and the remuneration paid.
The Company operates a single incentive plan for Executive Directors and senior
management that incorporates both an annual bonus and a long-term share incentive
plan, using common performance measures that are clearly explained in reports to
shareholders and stakeholders. This avoids complexity.
Risk
The Remuneration Policy:
• sets defined limits on the maximum award which can be earned;
• requires deferral of a substantial proportion of the incentives in shares for a material
period of time;
• aligns performance conditions with the strategy of the Company;
• incorporates an underpin on part of the incentive; and
• ensures there is sufficient flexibility to adjust payments through malus and clawback
and that the Committee has overriding discretion to depart from formulaic outcomes.
These elements mitigate against the risk of target-based incentives by:
• limiting the maximum value that can be earned;
• deferring the value in shares for the long term which helps ensure that the performance
earning the award is sustainable and thereby discouraging short-term behaviours;
• aligning any reward to the achievement of Company strategy;
• using an underpin to focus on the sustainability of performance over the longer term;
• reducing the award or cancelling it if the behaviours giving rise to the award are
inappropriate; and
• reducing the award or cancelling it if it appears that the criteria on which the award
was based do not reflect the underlying performance of the Company.
The Committee provided illustrations of potential outcomes when the MIP was submitted
for shareholder approval in 2014. The measurement of performance over a single year
provides a more predictable outcome and aligns with the performance actually delivered
during the year. This helps avoid the situation where rewards are tested against historical
performance measures, but performance in the year of vesting may not appear to warrant
the outcome.
The Company’s incentive plan clearly rewards the successful implementation of its strategy
and, through deferral into shares or share equivalents, ensures that the Executive Directors
have a strong drive to ensure that the performance is sustainable over the long term.
The focus on long-term sustainable performance and share participation is a key part
of the Company’s culture. This is supported by the Remuneration Policy.
Predictability
Proportionality
Alignment to culture
It should be noted that the Remuneration Policy operated over the 2018 financial year as intended by the Committee.
Annual Report and Accounts 2018 59
Marshalls plc
Corporate governance
Remuneration Committee Report continued
Implementation of Policy in 2018 and 2019
Period over which earned
Element and link to strategy
2019
2020
2021
2022
2023
2024
2025
How we implemented the Policy in 2018
How we will implement the Policy in 2019
Executive Director salaries for 2018
A salary increase of 3.3 per cent will be applied at the salary review date. From 1 January 2019,
were as follows:
CEO – £445,000
Executive Director salaries will be:
CEO – £460,000
Group FD – £292,000
Group FD – £302,000
Salary increases were 3.5 per cent
The general employee base salary increase for 2019 was 3.3 per cent.
in 2018, in line with inflation and
increases for the Group’s UK
employees generally.
as follows:
CEO – 147 per cent of base salary
base salary
A minimum of 50 per cent of
bonus is based on financial
performance measures.
The performance measures were:
The maximum Company contribution
No change to benefits, and no intention to retrospectively amend existing contractual rights.
or pension allowance is 20 per cent
The Committee will consider a change for new recruits to align more closely with general
of salary.
workforce contribution.
Maximum opportunity in 2018 was
No change to opportunities under the MIP.
No change to the performance conditions under the MIP.
Group FD – 147 per cent of
with on-target (budget) performance expected to deliver 70 per cent of maximum.
Targets are set between a minimum (0 per cent) and maximum (100 per cent) range in each case,
Additional non-financial performance conditions to reflect our focus on brand, customers
and employees will continue to apply:
• customer service (must remain at or above 95 per cent); and
• health and safety incidence: the rate of lost time due to accidents must not fall below
an agreed threshold, benchmarked by reference to the “base” year (2015).
If they are not met, there is a reduction of award value earned by 10 per cent in relation
• EPS (75 per cent);
to each of these additional conditions.
• ratio of OCF to EBITDA
(25 per cent); and
Element A awards have a forfeiture threshold set annually at the time of confirmation of the
award. If this is breached, 50 per cent of the deferred balance in a participant’s Element A MIP
• non-financial targets (which,
account is forfeited.
if not met, result in a deduction
Element B awards also have a long-term financial underpin based on a minimum EPS threshold that
from amount earned under
must be maintained over the 3 years from the date of grant. If this is breached, 50 per cent of the
financial measures).
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.
Outcome level for 2018 was as follows:
CEO – 98 per cent
Group FD – 98 per cent
The performance measures were the
same as for Element A.
The measurement period under the MIP by reference to which these targets must be met will be the
full financial year ending 31 December 2019. It is the view of the Committee that the targets for the
MIP are commercially sensitive as they are primarily related to budgeted future profit and cash 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.
Malus and clawback apply to both 2018 and 2019 awards.
Salary
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 and pension
Benefits are company car, medical health insurance, life cover and
annual health checks. Pension contribution is designed to enable
Executive Directors to make appropriate provision for retirement.
Management Incentive Plan Element A
Enabling the successful implementation of Group strategy through
setting relevant targets to measure Executive Director performance.
Aligns the interests of Executives with shareholders and contributes to
the retention of key individuals by ensuring that Executives 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 level of
performance determined annually by the Committee.
Management Incentive Plan Element B
To link variable pay to achievement of annual financial and
business objectives.
To promote long-term shareholding in the Company and strengthen
alignment between interests of Executive Directors and senior
managers and those of shareholders.
Awards are made annually in shares. Awards are subject to continued
employment for 3 years.
Awards, once vested (net of tax), may not be sold for a further 2 years.
There is a financial underpin which, if not achieved over 3 years, results
in the loss of up to 50 per cent of unvested awards.
60
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Implementation of Policy in 2018 and 2019
Element and link to strategy
Salary
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 and pension
Benefits are company car, medical health insurance, life cover and
annual health checks. Pension contribution is designed to enable
Executive Directors to make appropriate provision for retirement.
Management Incentive Plan Element A
Enabling the successful implementation of Group strategy through
setting relevant targets to measure Executive Director performance.
Aligns the interests of Executives with shareholders and contributes to
the retention of key individuals by ensuring that Executives 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 level of
performance determined annually by the Committee.
Management Incentive Plan Element B
To link variable pay to achievement of annual financial and
business objectives.
To promote long-term shareholding in the Company and strengthen
alignment between interests of Executive Directors and senior
managers and those of shareholders.
Awards are made annually in shares. Awards are subject to continued
employment for 3 years.
Awards, once vested (net of tax), may not be sold for a further 2 years.
There is a financial underpin which, if not achieved over 3 years, results
in the loss of up to 50 per cent of unvested awards.
Period over which earned
2019
2020
2021
2022
2023
2024
2025
How we implemented the Policy in 2018
How we will implement the Policy in 2019
Executive Director salaries for 2018
were as follows:
A salary increase of 3.3 per cent will be applied at the salary review date. From 1 January 2019,
Executive Director salaries will be:
CEO – £445,000
CEO – £460,000
Group FD – £292,000
Group FD – £302,000
Salary increases were 3.5 per cent
in 2018, in line with inflation and
increases for the Group’s UK
employees generally.
The general employee base salary increase for 2019 was 3.3 per cent.
The maximum Company contribution
or pension allowance is 20 per cent
of salary.
No change to benefits, and no intention to retrospectively amend existing contractual rights.
The Committee will consider a change for new recruits to align more closely with general
workforce contribution.
Maximum opportunity in 2018 was
as follows:
CEO – 147 per cent of base salary
Group FD – 147 per cent of
base salary
A minimum of 50 per cent of
bonus is based on financial
performance measures.
The performance measures were:
• EPS (75 per cent);
• ratio of OCF to EBITDA
(25 per cent); and
• non-financial targets (which,
if not met, result in a deduction
from amount earned under
financial measures).
Outcome level for 2018 was as follows:
CEO – 98 per cent
Group FD – 98 per cent
The performance measures were the
same as for Element A.
No change to opportunities under the MIP.
No change to the performance conditions under the MIP.
Targets are set between a minimum (0 per cent) and maximum (100 per cent) range in each case,
with on-target (budget) performance expected to deliver 70 per cent of maximum.
Additional non-financial performance conditions to reflect our focus on brand, customers
and employees will continue to apply:
• customer service (must remain at or above 95 per cent); and
• health and safety incidence: the rate of lost time due to accidents must not fall below
an agreed threshold, benchmarked by reference to the “base” year (2015).
If they 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 confirmation of the
award. If this is breached, 50 per cent of the deferred balance in a participant’s Element A MIP
account is forfeited.
Element B awards also have a long-term financial underpin based on a minimum EPS threshold that
must be maintained over the 3 years from the date of grant. If this is breached, 50 per cent of the
Element B award is forfeited. Element B awards are granted after the end of the financial period by
reference to which they have been earned and the underpin is set at the time of grant.
The measurement period under the MIP by reference to which these targets must be met will be the
full financial year ending 31 December 2019. It is the view of the Committee that the targets for the
MIP are commercially sensitive as they are primarily related to budgeted future profit and cash 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.
Malus and clawback apply to both 2018 and 2019 awards.
Marshalls plc
Annual Report and Accounts 2018
61
Corporate governance
Remuneration Committee Report continued
Implementation of Policy in 2018 and 2019 continued
Non-Executive Directors
The Board approved an increase in the base fee of Non-Executive Directors of 3.3 per cent from 1 January 2019, in line with Executive
Directors and UK employees. An increase to the fee for Committee Chairs and the SID was also approved to reduce the gap with the
Company’s comparator group. Non-Executive Directors reclaim business expenses incurred in the performance of their duties
retrospectively against duly presented invoices.
Director
Andrew Allner (Chair) – retired on 9 May 2018
Vanda Murray (Chair) – appointed on 9 May 2018
Janet Ashdown (SID, Chair of Remuneration Committee)
Tim Pile
Graham Prothero (Chair of Audit Committee)
Fairness, diversity and wider workforce considerations
Introduction
This section of the Remuneration Report deals with the following:
1 January 2019
£’000
1 January 2018
£’000
Percentage
increase
–
170.4
63.1
47.8
56.1
148.3
–
54.5
46.3
53.4
–
–
15.7
3.3
5.0
• the Committee’s approach to the review of wider workforce pay policies and whether the approach to Executive remuneration
is consistent;
• the alignment of the incentives operated by the Company with its culture and strategy;
• general pay and conditions in the Company;
• gender and diversity; and
• comparison metrics relating to executive and employee remuneration.
Process
In order for the Committee to fulfil its responsibility for the oversight and review of wider workforce pay and policies and incentives and
ensure they are designed to support the desired culture and values of the Group, a formal process has been introduced, under which
the Committee receives a report twice a year from the Company setting out key details of remuneration throughout the Company.
The information received by the Committee in this report is then reviewed at the end of the financial year. The reports will incorporate,
for each area of the business, data on:
• salary and salary increases;
• general positioning of remuneration packages;
• bonus (total eligible population, target and maximum range, performance conditions, payment method, scope for discretion /
recovery under malus and clawback provisions);
• sales and commission plans;
• long-term incentive plans (total eligible population, target and maximum range, performance conditions, payment method, scope
for discretion / recovery under malus and clawback provisions, vesting and holding periods); and
• pension schemes (defined contribution plan, total eligible population, Company contribution and employee contribution).
As Senior Independent Director and designated Director for employee engagement, Janet Ashdown will avail herself of opportunities to
attend employee forums within a planned engagement framework developed following the work done with consultants Corporate
Culture in 2017 and 2018. The Committee also expects to receive feedback from employee surveys and the Company “town hall”
meeting programme of site visits by the Executive Directors and senior management.
62
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
The Committee has the authority to ask for additional information from the Company in order to carry out its responsibilities.
Clearly the levels of remuneration and the packages offered will vary across the Company depending on the employee’s level of
seniority and role. The Committee is not looking for a homogeneous approach; however, when conducting its review it is paying
particular attention to:
• whether the element of remuneration is consistent with the Company remuneration principles (see page 59);
• whether the incentive structure is designed in a way that promotes the Company’s strategy, values and culture;
• if there are differences, they are objectively justifiable; and
• whether the approach seems fair and equitable in the context of other employee packages.
Once the Committee has conducted its review of the wider workforce remuneration and incentives it considers the approach applied
to the remuneration of the Executive Directors and senior management. In particular, the Committee is focused on whether within the
framework set out above, the approach to the remuneration of the Executive Directors and senior management is consistent with that
applied to the wider workforce.
Overview of findings
The key findings of the Committee’s review for 2018 are as follows:
• Average salary increases for employees across the Company are being applied on an equitable and objective basis. The average
rise of 3.3 per cent is the same as that applied to the salaries of the Executive Directors, consistent with our policy to provide
generally the same percentage increase for employees whose roles have not changed during the year.
The majority of our employees are able to share in the success of the Company through incentive compensation. In line with market practice the
level of incentive compensation and whether it is paid solely in cash or in a mixture of cash and deferred shares depends on the level of seniority
of the employee. The incentive approach applied to the Executive Directors aligns with the wider Company policy on incentives, which is to
associate a higher percentage of at-risk performance pay with the seniority of the role, and to increase the amount of incentive deferred,
provided in equity and / or measured over the longer term for roles with greater seniority.
The following table shows the cascade of incentives throughout the Company:
Level (number)
Executive Directors (2)
Executive Committee (6)
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
all-employee
equity plans
(Sharesave / SPP)
• Equity participation is offered to all employees of the Company through the Share Purchase Plan and SAYE schemes and to
managers and the Executive through the MIP or the BSP, each of which involves the award of shares. It is the Company’s wider pay
policy to allow employees to share in Company success by means of equity participation.
• In line with the Company’s wider policy on pay, all employees are eligible for enrolment in a Company defined contribution pension
arrangement. The current basic contribution (4 per cent employer, 4 per cent employee for the Marshalls Group) is likely to increase
by agreement with the workforce in 2020. The Committee would expect the pension contribution for new Executive Directors and senior
management who may be recruited in future to be aligned more closely with the pension contribution applicable to the wider workforce.
• In line with the wider Company policy on pay, the Company offers life assurance cover for death in service to all its employees.
The minimum lump sum benefit for all employees has increased to £50,000 with effect from 1 January 2019. Other benefits such as
private medical cover and health screening are offered according to the level of seniority of the role in line with market practice.
In summary the Committee is satisfied that the approach to remuneration across the Company is consistent with the Company’s
principles of remuneration. Further, in the Committee’s opinion the approach to Executive remuneration aligns with wider Company
pay policy and there are no anomalies specific to the Executive Directors.
Annual Report and Accounts 2018 63
Marshalls plc
Corporate governance
Remuneration Committee Report continued
Fairness, diversity and wider workforce considerations continued
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.
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 was introduced to encourage wider ownership of Marshalls plc shares across the entire workforce,
so that the employees are able to participate in the Group’s success in a way that aligns their interests with those of shareholders. The
2015 SAYE matured in December 2018 and employees may, until June 2019, exercise their option to acquire shares from their savings fund
at a discounted share price of £2.91. Participating employees in the Share Purchase Plan may purchase shares in the market 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, which
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/our-policies). 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 employee pay ratios for 2018 are as follows:
• lower quartile – 58:1
• median – 44:1
• upper quartile – 37:1
The calculation has been performed in line with the new Regulations’ Option A in line with best practice and is based on the total single
figure of remuneration methodology.
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 ensuring 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.
The factors leading to the increase in the ratio over the previous 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. Shareholders expect
the CEO to have a significant proportion of pay based on performance and paid in shares. It is this element of the package which
provides the volatility in CEO remuneration and the variations in the ratio. The Committee is satisfied that the underlying picture does
not show a divergence trend between the CEO remuneration and employees generally, i.e. excluding share price volatility, the
relationship with employee pay is consistent.
2011
2012
2013
2014
2015
2016
2017
2018
Ratio of single figure total remuneration to
average employee
23.6x
30.6x
98.1x
32.0x
60.0x
51.4x
64.1x
44.6x
64
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
There is significant volatility in this ratio, and we believe that this is caused by the following:
• Our CEO pay is made up of a higher proportion of performance related incentives than that of our employees, in line with the
expectations of our shareholders. This introduces a higher degree of variability in CEO pay each year which affects the ratio.
• The value of long-term incentives which measure performance over 3 years is disclosed in pay in the year it vests; this affects
historical years up to 2017. This increases the CEO pay in that year, again impacting the ratio for that year.
• Long-term incentives are provided in shares, and therefore an increase in share price during any deferral or vesting period magnifies
the impact of a long-term incentive award in the year in which it vests. The high ratio in 2013 reflects the early vesting of long-term
incentive awards held by the previous CEO, Graham Holden, on his retirement.
• We recognise that the ratio is driven by the different structure of the pay of our CEO versus that of our employees, as well as the
make-up of our workforce. This ratio varies between businesses even in the same sector. What is important from our perspective
is that this ratio is influenced only by the differences in structure, and not by divergence in fixed pay between the CEO and
wider workforce.
• Where the base structure of remuneration is similar, for example between the Executive Committee and the CEO, the ratio is much
more stable over time.
CEO / average pay against TSR
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0
2014
2015
2016
2017
2018
— CEO single figure — Average pay — Total shareholder return
CEO pay in the last 9 years
This table shows how pay for the CEO role has changed in the last 9 years:
Year
£’000
£’000
£’000
2010
2011
2012
2013
(Note b)
£’000
Single figure remuneration
671
752
938
3,143
2014
£’000
1,101
2015
£’000
2,064
2016
£’000
1,913
2017
£’000
2018
£’000
2,383
1,602
% of maximum annual
bonus earned
% of maximum LTIP / MIP
awards vesting
Notes:
38.6%
78.1%
33.0%
63.6%
99.3%
100%
96.9%
100%
–
–
–
63.0%
–
100%
100%
100%
98%
98%
(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).
Annual Report and Accounts 2018 65
Marshalls plc
Corporate governance
Remuneration Committee Report continued
Fairness, diversity and wider workforce considerations continued
Total shareholder return
900
800
700
600
500
400
300
200
100
0
Dec
2008
Dec
2009
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
— 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 2018
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 improved by 5.8 per cent in 2018,
compared with a fall of 9.5 per cent in the FTSE Small Cap Index and a fall of 13.3 per cent in the FTSE 250 in 2018.
Percentage change in CEO’s remuneration
The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2017 and 2018 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
Percentage
change
(Note a)
Taxable benefits
£’000
Percentage
change
Bonus (Note b)
£’000
Percentage
change
2018
445
94,768
2,639
35.9
2017
430
81,571
2,306
35.4
%
3.5
16.2
14.4
1.5
2018
32
2,190
320
6.8
2017
26
2,517
365
6.9
%
23.1
(13.0)
(12.3)
(0.8)
2018
715
2017
538
3,912
3,372
521
7.5
527
6.4
%
32.9
16.0
(1.1)
17.3
CEO pay
UK total pay
Number of employees
Average per employee
Notes:
(a) Martyn Coffey’s salary was increased on 1 January 2018 by 3.3 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 69.
(c)
A 3.3 per cent increase was awarded to the workforce on 1 January 2018. The table above shows, however, that the average salary increase per employee for 2018 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 increased by 17.3 per cent in 2018 compared with the prior year.
66
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Gender balance and pay
At the end of 2018 our total workforce excluding CPM and Edenhall, comprised 2,207 employees with the following gender balance:
Total workforce
Senior managers
Directors
Male
1,845
6
4
Female
362
2
2
1
Senior managers are defined according to the 2018 Code and comprise the Executive Committee and the Company Secretary.
Our gender pay gap disclosure is based on amounts paid in the April 2018 payroll. The bonus gap is based on incentives paid in the
year to 31 March 2018. Our disclosures are made pursuant to UK Government Equalities legislation. Marshalls Group has 2 employing
companies: Marshalls plc (which has fewer 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 remained a separate employer until June 2018, at which time its employees transferred to Marshalls Group Limited.
A separate report for CPM Group Limited as at April 2018, calculated consistently with the methodology used for Marshalls Group and
Marshalls plc, is therefore available on the Company website. Edenhall Holdings, acquired in December 2018, employed fewer than
250 employees so is not required to report in 2018.
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 2018 there is a median gender pay gap of 21.2 per cent (consolidated) (22 per cent: Marshalls Group Limited), and a mean
gender pay gap of 15.2 per cent (consolidated) (16.6 per cent: Marshalls Group Limited). These ratios have not changed significantly
since 2017.
Our recruitment policies, salary and bonus structures are designed to be gender neutral. 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. During 2018 we have carried out an in-depth review of pay and benefits across
the Group and worked on harmonising hours, rates and pay grading structures. This has enabled us to develop our understanding of the
detailed contributory factors and identify areas for action. 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. In addition, there is a very high
proportion of male workers within our production workforce, where packages are generally in the upper quartile of the comparator
group. These appear to be the main reasons for the current difference. We have an action plan designed to identify and address any
anomalies in the pay and grading structure between different gender groups, and over the longer term to balance the ratios through
better recruitment and retention policies that encourage applications from female candidates and provide a flexible and family-friendly
working environment.
Upper quartile
Upper middle quartile
Lower middle quartile
87+
90+
92+
F 94+
89+
F 91+
65+
F 70+
Consolidated
Male 65%
Consolidated
Male 89%
Consolidated
Male 87%
Consolidated
Male 92%
Female 35%
Female 13%
Female 11%
Female 8%
Lower quartile
Marshalls Group Limited
Marshalls Group Limited
Marshalls Group Limited
Marshalls Group Limited
Male 90%
Female 10%
Male 94%
Female 6%
Male 91%
Female 9%
Male 70%
Female 30%
Marshalls plc
Annual Report and Accounts 2018
67
Corporate governance13
+
I
8
+
I
11
+
I
35
+
I
10
+
6
+
9
+
30
+
F
Remuneration Committee Report continued
Fairness, diversity and wider workforce considerations continued
Gender balance and pay continued
The same factors are relevant on bonus outcomes. 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
15.6%
14.6%
33.7%
40.8%
85%
70%
20%
2.5%
Diversity initiatives
The Group has policies that promote equality and diversity in the workforce as well as prohibiting discrimination in any form. The Group’s
Code of Conduct, M-Way, launched in 2017, 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 has formed a key element of our planning for 2018 and beyond. The Remuneration Committee
Chair’s engagement programme will support the initiatives in our action plan 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 have made some progress on our gender diversity objectives: during 2018 the appointment of Vanda Murray
to succeed Andrew Allner meant that we achieved our 2020 target of at least 33 per cent of our Board being female, and the number
of females among senior management doubled. 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 employment policies can be found in our Strategic Report on page 37, and in the Nomination Committee Report on pages 48
and 49.
68
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Annual Remuneration Report
This report covers the reporting period from 1 January 2018 to 31 December 2018 and explains how the Remuneration Policy has been
implemented. Comparative figures for the 2017 financial year have also been provided.
Single total figure of remuneration in 2018 – Executive Directors (audited)
Fixed (£’000)
Performance related (£’000)
Annual bonus
Long-term
incentives
Salary
Other benefits
Salary supplement
in lieu of pension
MIP Element A
MIP Element B
LTIP / MIP
Total
2018
2017
2018
2017
2018
2017
2018
2017
445
292
737
430
282
712
32
13
45
26
13
39
89
58
86
56
147
142
497
326
823
323
212
535
2018
218
143
361
2017
215
141
2018
2017
2018
2017
321
184
1,303
1,602
2,383
721
1,016
1,425
356
505 2,024
2,618 3,808
Note a
Note b
Note c
Note d
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 2018 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 2018 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 2018 Element B shares is subject to performance and employment-based forfeiture for a 3-year deferred period. These deferred elements will be disclosed in the LTIP
column when the conditions are satisfied. The deferred shares in relation to both Element A and Element B may change in value during the holding period depending on
Marshalls' share price.
(d) The LTIP column shows the aggregate value of sums released from MIP or LTIP account balances from earlier years that are no longer subject to deferral and forfeiture risk.
The LTIP figure for 2017 includes the 2014 Performance Share Awards under the 2005 LTIP that vested in 2017. There were no further outstanding LTIP awards, so the 2018 column
relates solely to MIP awards.
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 2018 the Group was re-accredited with the Fair Tax Mark.
Relative importance of spend on pay (percentage change)
Staff pay
(£’m)
+19.5%
80.1
82.0
Distributions to
shareholders (£’m)
+21.2%
Capital investment
(£’m)
+54.5%
Tax
(£’m)
+12.1%
98.0
29.2
29.2
83.4
24.1
19.0
18.9
12.9
71.0
74.4
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Marshalls plc
Annual Report and Accounts 2018
69
Corporate governance
Remuneration Committee Report continued
Annual Remuneration Report continued
Outcomes of incentive schemes in 2018 (audited)
See page 56 for details of the satisfaction of the performance conditions under the MIP for 2018.
MIP awards 2018
Element A
Plan accounts
Opening balance (number of shares) (Note a)
2018 contribution (% of salary earned)
Value
2018 element released (Note b)
Closing balance (deferred into shares)
Number of shares represented by closing balance (Note c)
Element B
Number of shares awarded
Percentage of salary
Value
EPS forfeiture threshold (Note d)
Notes:
Martyn Coffey
Jack Clarke
73,341
147%
£655,296
£496,971
£496,971
111,194
48,110
147%
£429,858
£326,001
£326,001
72,940
Martyn Coffey
Jack Clarke
97,745
98%
£436,864
14.32p
64,118
98%
£286,572
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 2017 Element A award was converted into shares by reference to the mid-market average value for the 30-day period ending
on 31 December 2017. Dividends paid during the year are also added to the carried-forward plan account. The chart above shows the resulting opening balance value calculated
by reference to the mid-market average value for the 30-day period ended 31 December 2018 and adding the value of dividends of 14.8 pence per share paid during 2018.
(b) The earned Element A award for 2018 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.
(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 2018 (446.94 pence).
(d) If the actual EPS falls below the forfeiture threshold over the 3 years before vesting, 50 per cent of the balance of the award is forfeited. Once Element B shares have vested,
they must normally be held for a further 2 years. Element B shares lapse on cessation of employment except in “good leaver” circumstances, in which case they vest on leaving
and must be held for 2 years from the date of leaving.
Single total figure of remuneration: Non-Executive Directors (audited)
Non-Executive Directors do not participate in any of the Company’s incentive arrangements. Their fees are reviewed periodically and
were last reviewed in October 2018. The Chair’s fees are set by the Committee; other Non-Executive Directors’ fees are set by the Board
as a whole. The Non-Executive Directors reclaim travel and accommodation expenses incurred in the performance of their duties, and
where this is a taxable benefit it is shown below as a grossed-up taxable amount.
Board fee
£’000
Committee fees
£’000
Expenses
£’000
Total
£’000
2018
55
106
47
46
46
–
300
2017
143
–
45
45
29
17
279
2018
2017
2018
2017
–
–
8
–
7
–
15
–
–
8
–
4
2
14
1
1
1
1
1
–
5
2
–
1
2
1
–
6
2018
56
107
56
47
54
–
320
2017
145
–
54
47
34
19
299
Andrew Allner
Chair and Chair of Nomination
Committee (until 9 May 2018)
Vanda Murray
Chair and Chair of Nomination
Committee (from 9 May 2018)
Janet Ashdown
Senior Independent Director, Chair of
Remuneration Committee and member
of Audit and Nomination Committees
Tim Pile
Member of Audit, Remuneration and
Nomination Committees
Graham Prothero
Chair of Audit Committee and
member of Remuneration and
Nomination Committees
Mark Edwards (retired 10 May 2017)
Total
70
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
The fees were increased by 3.3 per cent from 1 January 2019 in line with other Group employees. There was also an adjustment to the
fee paid to Committee Chairs and to the Senior Independent Director with effect from 1 January 2019 to move closer to the comparator
group following a benchmarking review in October 2018. Andrew Allner stepped down as Chair and was replaced by Vanda Murray on
9 May 2018. Fees for both these individuals reflect the period during the year when they were Chair.
Statement of implementation of Remuneration Policy in the following financial year (2018)
See pages 60 to 63.
Payments to past Directors / payments for loss of office
Except for the fees paid to Andrew Allner in respect of service up to his retirement date shown on page 70, there were no payments
to past Directors. There were no payments to Directors or former Directors for loss of office.
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; and
• the number of shares subject to unvested incentive awards as at 31 December 2018.
Shareholding requirement
Number of
shares
required
(Note a)
% of
salary
Beneficially
owned
Number of
shares
(Note b)
Shares
that will
vest
following
2018
results (note c)
Deferred and
contingent
share
interests
(Note e)
Deferred
shares
(Note d)
Total
interests
in shares
(including
contingent
interests)
Number of
shares
Number of
shares
Number of
shares
Number of
shares
200
200
191,648
125,716
311,898
128,436
137,454
79,035
169,208
280,402
898,962
110,996
183,936
502,403
–
–
–
–
–
–
–
–
15,000
11,210
44,740
2,417
–
–
–
–
–
–
–
–
–
–
–
–
15,000
11,210
44,740
2,417
Director
Executive
Martyn Coffey
Jack Clarke
Non-Executive
Vanda Murray
Janet Ashdown
Tim Pile
Graham Prothero
Notes:
(a) The closing price on 31 December 2018 of 464.8 pence per share has been used to measure the number of shares required.
(b) As at the date of this report the number of shares beneficially owned by Martyn Coffey was 311,987 and by Jack Clarke was 107,834. Changes were due to share purchases under
the Share Purchase Plan and changes to their “persons closely associated”.
(c)
This comprises Element B awards granted in March 2016 (based on 2015 performance) that will vest 3 years from grant (i.e. March 2019) before deduction of any tax and NIC.
This must be held for a minimum of 2 further years.
(d) This column includes the 50 per cent proportion of share interests awarded in 2016, 2017 and 2018 under Element B of the MIP in the form of nil-cost options or conditional shares
that may be exercised after the 3-year deferral period but where vesting is only dependent on continuing employment throughout the 3-year deferral period with no other
performance conditions.
(e) 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.
(f)
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 2018
(446.94 pence).
(g) The table above includes the interests of “persons closely associated” as defined under the Financial Services and Markets Act (Market Abuse) Regulations 2016.
It should be noted that both Executive Directors have met their minimum shareholding requirements.
Marshalls plc
Annual Report and Accounts 2018
71
Corporate governance
Remuneration Committee Report continued
Annual Remuneration Report continued
Service contracts and policy on termination payments
Each Executive Director has a service contract with the Company which is terminable by the Company on not more than 12 months’ notice
and by the Director on 6 months’ notice. 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. There are no provisions for compensation for loss of office on a takeover.
In the event of early termination of an Executive Directors’ service contract, our policy is to ensure that termination is effected in
accordance with Company obligations while fully reflecting the individual’s obligation to mitigate loss.
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
Annual General Meeting.
Element
Term
Executive Directors
Martyn
Coffey
Date of contract
/ appointment
September
2013
Non–Executive Directors
Janet
Ashdown
Tim **
Pile
Graham
Prothero
Jack
Clarke
October
2014
Andrew
Allner *
July 2003
(renewed in
July 2013 and
May 2016)
Vanda
Murray
May
2018
March
2015
(renewed
March 2018)
October 2010
(renewed in
July 2013 and
May 2016)
May
2017
6
(6)
Notice period in months
Company
Director
*
Retired May 2018.
12
(6)
12
(6)
6
(6)
6
(6)
6
(6)
6
(6)
** Term to be extended to May 2020 subject to shareholder approval at the 2019 AGM.
Janet Ashdown
Chair of the Remuneration Committee
14 March 2019
72
Marshalls plc
Annual Report and Accounts 2018
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 40 and 41.
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 (2017: £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 2 to 37. 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 109 to 114.
Greenhouse gas emissions: The Group’s CO2 (greenhouse gas) emissions in 2018 are disclosed in the Strategic Report on page 36.
Employees: The Company’s policies in relation to disabled employees and employee involvement and communication are explained
in the Strategic Report on page 37.
Corporate governance: Details of how the Group complies with the UK Corporate Governance Code are set out on pages 42 to 47.
Post-balance sheet events of importance since 31 December 2018: 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 37.
Dividends
The Board is recommending a final dividend of 8.00 pence (2017: 6.80 pence) per share which, together with the interim dividend
of 4.00 pence (2017: 3.40 pence) per share, makes a combined dividend of 12.00 pence (2017: 10.20 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 28 June 2019
to shareholders registered at the close of business on 7 June 2019. The ex-dividend date will be 6 June 2019.
The dividend paid in the year to 31 December 2018 and disclosed in the Consolidated Income Statement is 14.8 pence (2017: 12.20 pence)
per share, being the previous year’s final dividend of 6.80 pence (2017: 5.80 pence) per share, the interim dividend of 4.00 pence (2017: 3.40 pence)
per share in respect of the year ended 31 December 2018 and the prior year supplementary dividend of 4.00 pence per share. The 2017
final and supplementary dividends were paid on 29 June 2018 and the 2018 interim dividend was paid on 5 December 2018.
Share capital and authority to purchase shares
The Company’s share capital at 1 January 2019 was 199,993,443 Ordinary Shares of 25 pence. This represented an increase of 614,678
Ordinary Shares during the year ended 31 December 2018 following the issue of shares to participants exercising their Sharesave
options in December 2018. A further 58,724 Ordinary Shares were issued between 31 December 2018 and 14 March 2019 to satisfy
Sharesave options exercised. Sharesave allotments were made for cash based on an exercise price of £2.91 per share and pre-emption
rights were disapplied under the authority granted at the 2018 AGM. Details of the share capital are set out in Note 20 on page 119.
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 2018 the EBT held 1,736,213 Ordinary Shares in the Company (2017: 1,770,354 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 117 and 118. 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 2018 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 2018 and 14 March 2019 under this authority, which will expire at the
Annual General Meeting in May 2019. 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.
Marshalls plc
Annual Report and Accounts 2018
73
Corporate governance
Directors’ Report – Other Regulatory Information continued
Articles of Association
The Company’s Articles of Association give powers to the Board to appoint Directors. Newly appointed Directors are required
to retire and submit themselves for re-election by shareholders at the first Annual General Meeting following their appointment.
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 46 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 53 to 72.
Listing Rule requirements
The applicable requirements of Listing Rule 9.8.4R in respect of long-term incentive schemes (pages 117 and 118) and contracts
of significance (page 73) are included in this Annual Report.
Substantial shareholdings
The Company has no controlling shareholder. As at 14 March 2019, the Company had been notified, in accordance with DTR 5,
of the following disclosable interests of 3 per cent or more in its voting rights:
Aberdeen Standard Investments
Majedie Asset Management
JP Morgan Asset Management
Royal London Asset Management
BlackRock
Montanaro Investment Managers
RWC Partners
Merian Global Investors
Vanguard Group
As at
14 March
2019
%
13.76
8.19
4.26
3.97
3.95
3.87
3.75
3.70
3.22
As at
31 December
2018
%
13.04
7.93
3.34
3.66
3.87
3.82
4.43
4.23
3.12
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 2019
74
Marshalls plc
Annual Report and Accounts 2018
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 Report and Accounts
The Directors who held office at the date of approval of this Directors’ Report and whose names and functions are listed on pages 40
and 41 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.
Marshalls plc
Annual Report and Accounts 2018
75
Corporate governance
Statement of Directors’ Responsibilities continued
in respect of the Annual Report and the Financial Statements
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 2018 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 15 May 2019, 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 2019
76
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Independent Auditor’s Report
to the members of Marshalls plc
Opinion
In our opinion:
• the Financial Statements of Marshalls plc (the “Parent Company”) and its subsidiaries (the “Group”) give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31 December 2018 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 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 Financial Reporting Council’s (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 valuation of the inventory provision;
• acquisition accounting, in particular the identification and valuation of intangible assets and fair value
of other assets and liabilities acquired as part of the Edenhall Group acquisition; and
• revisions to provisional fair value adjustments on the CPM Group acquisition in 2017.
Within this report, any new key audit matters are identified with
the same as the prior year identified with
.
and any key audit matters which are
Materiality
Scoping
The materiality that we used for the Group Financial Statements was £3.1 million which was determined on
the basis of 5 per cent of profit before tax.
Full scope audits were performed on all UK components excluding the Edenhall Group. This accounts for
96 per cent of group revenue, 96 per cent of group net assets and 98 per cent of profit before tax.
Significant changes
in our approach
The Group acquired the Edenhall Group during the year and we have identified a key audit matter for the
current year relating to the acquisition accounting for this transaction, in particular the identification and
valuation of intangible assets and fair values of other assets and liabilities acquired.
We have also refined our key audit matter in relation to the acquisition of CPM Group to be the fair value
adjustments made in the current year.
Apart from the above, there have been no other significant changes in our audit approach since the
prior year.
Marshalls plc
Annual Report and Accounts 2018
77
Corporate governance
Independent Auditor’s Report continued
to the members of Marshalls plc
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 12 months from the date of approval of the Financial Statements.
We considered as part of our risk assessment the nature of the Group, its business model and related risks
including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework
and the system of internal control. We evaluated the Directors’ assessment of the Group’s ability to continue as
a going concern, including challenging the underlying data and key assumptions used to make the assessment,
and evaluated the Directors’ plans for future actions in relation to their going concern assessment.
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 23 to 27 that describe the principal risks and explain how they are being
We confirm that we
have nothing material
to report, add or draw
attention to in respect
of these matters.
managed or mitigated;
• the Directors’ confirmation on page 24 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 24 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 misstatement (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.
Valuation of the inventory provision
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; and
• whether inventories will need to be discounted below their cost price.
Given the significant level of judgement involved, we have also identified this as a potential fraud risk area.
The carrying value of the Group’s inventory is £84.4 million, as disclosed in Note 11, and this is noted as an
area considered by the Audit Committee in its report on page 52.
78
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
Valuation of the inventory provision 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;
• evaluated the design and implementation and tested the operating effectiveness of 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;
• used data analytic techniques and tests of detail to compare sales value by product line to inventory
cost to identify any inventory sold for less than its cost; and
• we assessed the adequacy of provisions recorded for such items in relation to stock turnover periods
including, where relevant, the impact of Brexit.
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 the Edenhall Group on 11 December
2018. The acquisition is accounted for in accordance with IFRS 3 “Business Combinations” and this requires
judgement to be applied in the 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 and other fair value adjustments 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 £3.0 million and intangible assets have been identified and valued at £3.9 million.
This matter is discussed in the Report of the Audit Committee on page 52.
We have:
• evaluated the design and implementation of key controls relating to management’s process for
identification and valuation of intangible assets;
• 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 assessed total consideration
by reference to the SPA;
• reviewed forecasts for the Edenhall Group and performed sensitivity analysis to assess whether the
contingent consideration recorded is appropriate;
• 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 evidence;
• used our valuation specialists to review and challenge the process applied by management for
determining the separable intangible assets and the appropriateness of the valuation methodologies
adopted and the discount rate applied in the valuation calculations; and
• assessed the basis upon which management determines the useful economic life of each intangible
asset, considering any contradictory 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 are reasonable.
Marshalls plc
Annual Report and Accounts 2018
79
Corporate governance
Independent Auditor’s Report continued
to the members of Marshalls plc
Revisions to provisional fair value adjustments on the CPM acquisition in 2017
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The Group acquired CPM Group Limited in the prior year. The acquisition was accounted for in accordance
with the requirements of IFRS 3 “Business Combinations” and this required judgement to be applied in the
determination of fair value adjustments to the net assets within the acquired business. IFRS 3 allows an
adjustment to be made to the fair values of the net assets acquired within the 12 months post acquisition
and revisions to provisional fair values require management judgement. There is a risk that the fair value
adjustments made may be incorrectly valued following these revisions.
As disclosed in Note 22 to the Financial Statements, revisions to provisional fair value adjustments made on the
CPM Group Limited acquisition were £1.0 million. This matter is discussed by the Audit Committee on page 52.
We have:
• evaluated the design and implementation of key controls relating to management’s processes;
• tested the significant revisions to provisional fair value adjustments recorded in respect of the business
acquired by reference to supporting third party evidence; and
• assessed the basis upon which management determines that a revision to the initial fair value
adjustment is required.
Key observations
Based on our procedures we concur that the judgements made by management in identifying and
valuing the fair value adjustments within the acquired business are reasonable.
Our application of materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Materiality
£3.1 million (2017: £2.5 million).
£1.0 million (2017: £1.0 million).
Group Financial Statements
Parent Company Financial Statements
Basis for determining
materiality
Rationale for the
benchmark applied
5 per cent (2017: 5 per cent) of profit before tax.
In our professional judgement, profit before tax
is the principal benchmark within the Financial
Statements that is relevant to users of the Financial
Statements when assessing performance.
0.5 per cent (2017: 0.5 per cent) of net assets which
was capped at 40 per cent (2017: 40 per cent) of
Group materiality.
As a holding company, net assets are considered
to be the primary benchmark.
Group materiality £3.1m
Component materiality
range £2.65m to £1m
PBT £62.9m
96+4+I
PBT
Group materiality
Audit Committee reporting
threshold £0.15m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £147,000 (2017: £100,000),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the Financial Statements.
80
Marshalls plc
Annual Report and Accounts 2018
Corporate governance
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement both at the Group and component level.
The Group and Parent Company audits are performed at the Group’s head office in Elland, West Yorkshire. The Group audit team
performed the audit of all UK components, but excluding the Edenhall Group. The UK components, excluding the Edenhall Group,
accounted for 96 per cent (2017: 95 per cent) of Group revenue, 96 per cent (2017: 99 per cent) of Group net assets and 98 per cent
(2017: 100 per cent) of Group profit before tax.
Edenhall Group and Marshalls NV account for the remaining revenue and net assets of the Group but were not regarded as significant
components for our Group audit. At the Parent Company level, we also tested the consolidation process. The Group audit team carried
out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated
financial information of the remaining component not subject to audit.
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 misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement 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 position and 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 misstatement, 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
misstatement, 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
misstatement when it exists. Misstatements 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
Marshalls plc
Annual Report and Accounts 2018
81
Corporate governance
Independent Auditor’s Report continued
to the members of Marshalls plc
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, our procedures included the following:
• enquiring of management, internal audit and the Audit Committee, including obtaining and reviewing supporting documentation,
concerning the Group’s policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
• the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team and involving relevant internal specialists, including tax, valuations, pensions, IT, regarding
how and where fraud might occur in the Financial Statements and any potential indicators of fraud. As part of this discussion, we
identified potential for fraud in revenue recognition due to occurrence and in stock provisioning due to the judgement involved in
determining the net realisable value; and
• obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and
regulations that had a direct effect on the Financial Statements or that had a fundamental effect on the operations of the Group.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and
tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the valuation of inventory provision as a key audit matter. The key audit matters
section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that
key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations discussed above;
• enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• using data analytics techniques to identify instances where sales postings do not have a matching invoice or despatch note and
understanding the reasons;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
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 light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
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Corporate governance
Report on other legal and regulatory requirements continued
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 Audit Committee 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 reappointments of the firm is 4 years, covering the years ending 31 December 2015
to December 2018.
Consistency of the Audit 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).
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.
Christopher Robertson (Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Manchester, United Kingdom
14 March 2019
Annual Report and Accounts 2018 83
Marshalls plc
Corporate governance
Consolidated Income Statement
for the year ended 31 December 2018
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
2018
£’000
490,988
(426,154)
64,834
(1,904)
5
62,935
(11,307)
51,628
51,958
(330)
51,628
26.29p
26.08p
14.80p
29,250
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
84
Marshalls plc
Annual Report and Accounts 2018
Financial statements
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
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 asset
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 income / (expense) for the year, net of income tax
Total comprehensive income for the year
Attributable to:
Equity shareholders of the Parent
Non-controlling interests
Notes
17
19
19
21
2018
£’000
51,628
9,985
(1,698)
8,287
528
(668)
27
(208)
199
(35)
(157)
8,130
59,758
60,123
(365)
59,758
2017
£’000
42,126
328
(56)
272
146
(385)
35
179
(638)
371
(292)
(20)
42,106
42,112
(6)
42,106
Annual Report and Accounts 2018 85
Marshalls plc
Financial statements
Consolidated Balance Sheet
at 31 December 2018
Notes
2018
£’000
2017 *
£’000
9
10
17
19
11
12
13
16
14
15
15
18
19
20
21
190,991
89,645
13,516
1,406
169,093
72,060
4,127
2,775
295,558
248,055
84,361
80,430
45,709
276
210,776
506,334
121,953
9,683
2,974
134,610
80,168
7,288
17,553
105,009
239,619
266,715
49,998
24,326
(888)
75,394
(213,067)
273
329,585
265,621
1,094
266,715
77,859
68,221
19,845
447
166,372
414,427
100,173
9,299
35
109,507
44,107
8,200
14,986
67,293
176,800
237,627
49,845
22,695
(2,359)
75,394
(213,067)
386
303,274
236,168
1,459
237,627
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Employee benefits
Deferred taxation assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
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
* The comparatives have been restated as a result of a reassessment of the fair value of assets and liabilities acquired (Note 22).
Approved at a Directors’ meeting on 14 March 2019.
On behalf of the Board:
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
The Notes on pages 90 to 123 form part of these Consolidated Financial Statements.
86
Marshalls plc
Annual Report and Accounts 2018
Financial statements
Consolidated Cash Flow Statement
for the year ended 31 December 2018
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
(Increase) / decrease in trade and other receivables
Increase in inventories
Increase / (decrease) 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
Proceeds from issue of share capital
Payments to acquire own shares
Payment in respect of share-based payment awards
Increase in debt on acquisition of subsidiaries
Net increase in other debt and finance leases
Equity dividends paid
Net cash flow from financing activities
Net increase / (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
6
9
10
3
3
22
2018
£’000
51,628
11,307
62,935
14,199
1,759
(738)
534
1,899
80,588
(6,927)
(4,314)
6,909
(1,244)
(594)
74,418
(1,308)
(9,855)
63,255
1,637
5
(11,726)
(27,296)
(1,995)
(39,375)
1,784
(1,210)
(3,683)
(4,742)
39,000
(29,250)
1,899
25,779
19,845
85
45,709
2017
£’000
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
Annual Report and Accounts 2018 87
Marshalls plc
Financial statements
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
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
(2,359)
75,394
(213,067)
386 303,274 236,168
1,459 237,627
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
153
1,631
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,210)
2,681
153
1,631
1,471
153
1,631
1,471
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51,958
51,958
(330) 51,628
–
(9)
(9)
(35)
(44)
528
(668)
27
–
–
–
–
–
528
(668)
27
9,985
9,985
(1,698)
(1,698)
–
–
–
–
–
528
(668)
27
9,985
(1,698)
(113)
8,278
8,165
(35)
8,130
(113) 60,236
60,123
(365) 59,758
–
–
–
(2,249)
(2,249)
(171)
(171)
426
426
–
–
–
(2,249)
(171)
426
– (29,250)
(29,250)
– (29,250)
–
–
–
–
–
1,784
(1,210)
(2,681)
–
–
–
–
1,784
(1,210)
–
– (33,925)
(30,670)
– (30,670)
(113)
26,311
29,453
(365) 29,088
Current year
At 1 January 2018
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
Shares issued
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 2018
49,998
24,326
(888)
75,394
(213,067)
273 329,585
265,621
1,094 266,715
88
Marshalls plc
Annual Report and Accounts 2018
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
(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
–
–
(204)
–
–
–
328
(56)
(187)
146
(385)
35
328
(56)
(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)
19,453
20,512
(6) 20,506
Prior 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
Annual Report and Accounts 2018 89
Marshalls plc
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 2018
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 2019.
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.
Adoption of new standards in 2018
IFRS 15, “Revenue from Contracts with Customers” superseded IAS 18, “Revenue”, and has been adopted from 1 January 2018. IFRS 15
establishes a principles-based approach to revenue recognition and measurement based on the concept of recognising revenue when
performance obligations are satisfied. The adoption has not had any material impact on the disclosures or on the amounts reported
in these Consolidated Financial Statements.
IFRS 9, “Financial Instruments”, has been adopted from 1 January 2018. IFRS 9 has introduced new classification and
measurements requirements for financial assets and financial liabilities. These changes have not had a material impact
on the Group’s 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 2018. Their adoption has not had any
material impact on the disclosures or on the amounts reported in these Consolidated Financial Statements.
Amendments to IFRS 2:
“Classification and
Measurement of
Share-based Payment
Transactions.”
The amendments clarify the following:
a) In estimating the fair value of a cash settled share-based payment, the accounting for the effects of vesting
and non-vesting conditions should follow the same approach as for equity settled share-based payments;
b) Where tax law or regulation requires an entity to withhold a specified number of equity instruments equal
to the monetary value of the employee’s tax obligation to meet the employee’s tax liability which is then
remitted to the tax authority (typically in cash), i.e. the share-based payment arrangement has a “net
settlement feature”, such an arrangement should be classified as equity settled in its entirety, provided
that the share-based payment would have been classified as equity settled had it not included the net
settlement feature; and
c) How the modification of a share-based payment that changes the transaction from cash settled to equity
settled should be accounted for.
Amendments to
IAS 40: “Transfers of
Investment Property.”
The Group has adopted the amendments to IAS 40, “Transfers of Investment Property”, for the first time in the
current year. The amendments clarify that a transfer to, or from, investment property necessitates an
assessment of whether a property meets, or has ceased to meet, the definition of investment property,
supported by observable evidence that a change in use has occurred. The amendments further clarify that
the situations listed in IAS 40 are not exhaustive and that a change in use is possible for properties under
construction (i.e. a change in use is not limited to completed properties).
“Annual Improvements
to IFRSs
2014-2016 Cycle.”
IFRIC 22 Foreign
Currency
“Transactions
and Advance
Consideration.”
The Group has adopted the amendments to IAS 28 included in the “Annual Improvements to IFRS Standards
2014–2016 Cycle” for the first time in the current year. The amendments clarify that the option for a venture
capital organisation and other similar entities to measure investments in associates and joint ventures at
FVTPL is available separately for each associate or joint venture, and that election should be made at initial
recognition. In respect of the option for an entity that is not an investment entity (“IE”) to retain the fair value
measurement applied by its associates and joint ventures that are IEs when applying the equity method, the
amendments make a similar clarification that this choice is available for each IE associate or IE joint venture.
IFRIC 22 addresses how to determine the “date of transaction” for the purpose of determining the exchange
rate to use on initial recognition of an asset, expense or income, when consideration for that item has been
paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset
or non-monetary liability (for example, a non-refundable deposit or deferred revenue).
The Interpretation specifies that the date of transaction is the date on which the entity initially recognises the
non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the
date of transaction for each payment or receipt of advance consideration.
90
Marshalls plc
Annual Report and Accounts 2018
Financial statements
1 Accounting policies continued
Significant accounting policies continued
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 (amendments)
“Prepayment Features with Negative Compensation” (effective 1 January 2019)
IAS 28 (amendments)
“Long-term Interests in Associates and Joint Ventures” (effective 1 January 2019)
IAS 19 (amendments)
“Plan Amendment, Curtailment or Settlement” (effective 1 January 2019)
IFRS 17
IAS 1 and IAS 8
“Insurance Contracts” (effective 1 January 2021)
“Definition of Material” (effective 1 January 2020)
IAS Conceptual Framework
“Definition of Material” (effective 1 January 2020)
“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” (effective 1 January 2019)
IFRIC 23
“Uncertainty over Income Tax Treatments” (effective 1 January 2019)
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 16 “Leases”
IFRS 16 is effective from 1 January 2019 and replaces IAS 17 “Leases” and related interpretations. It will result in almost all leases being
recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed.
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.
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.
In adopting IFRS 16 from 1 January 2019, the Group is applying the modified retrospective transition approach and will not restate
comparative amounts for the year ended 31 December 2018. For certain leases the Group has elected to measure the right-of-use asset
as if IFRS 16 had been applied since the start of the lease, but using the incremental borrowing rate at 1 January 2019, with the difference
between the right-of-use asset and the lease liability taken to retained earnings. In other cases, the Group is electing to measure
right-of-use assets at the amount of the lease liability on adoption (adjusted for any lease prepayments or accrued lease expenses,
onerous lease provisions and leased assets which have subsequently been sub-leased). The Group has elected to adopt the following
practical expedients on transition:
• where an onerous lease provision is in existence, to utilise this provision to reduce the right-of-use asset value rather than undertaking
an impairment review;
• to use hindsight in determining the lease term;
• to exclude initial direct costs from the measurement of the right-of-use asset; and
• to apply the portfolio approach where a group of leases has similar characteristics.
Impact of adoption of IFRS 16 “Leases”
Upon transition on 1 January 2019, the Group will recognise a right-of-use lease asset that is expected to be between £42 million and
£47 million and a financial lease liability that is expected to be between £44 million and £51 million. A transition adjustment that is
expected to be between £2 million and £4 million will be taken to retained earnings along with an opening deferred taxation adjustment.
The change in presentation, as a result of the adoption of IFRS 16, will see an improvement in cash flow generated from operating
activities, offset by a corresponding decline in cash flow from financing activities. There is no overall cash flow impact from the adoption
of the new standard.
Depreciation of the right-of-use asset will be recognised in the Income Statement 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 Income Statement over the life of the lease.
These charges will replace the lease costs currently charged to the Income Statement.
The Group results announcement for the half year ending 30 June 2019 will be the first to be prepared under IFRS 16.
As at 31 December 2018, the Group has non-cancellable operating lease commitments of £66.5 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.
Marshalls plc
Annual Report and Accounts 2018
91
Financial statements
Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(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 124 to 131.
(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 37. 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 9 August 2018. 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/investor/financial-performance).
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 123. 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.
(c) Basis of consolidation
(i) Subsidiaries
Subsidiaries (which are set out in detail in Note 32 on pages 128 and 129) 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.
92
Marshalls plc
Annual Report and Accounts 2018
Financial statements
1 Accounting policies continued
Significant accounting policies continued
(c) Basis of consolidation continued
(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)).
The Group has applied IFRS 9 from 1 January 2018. The Group has elected not to restate comparatives on initial application of IFRS 9.
Classification and measurement
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.
The change in the classification and measurement of listed redeemable notes has not had a material impact on the Group
Financial Statements.
Impairment
Credit losses and expected credit losses are recognised in accordance with IFRS 9. The amount of expected credit losses are updated
at each reporting date.
The IFRS 9 impairment model has been applied to the Group’s financial assets that are debt instruments measured at amortised cost
or FVTOCI as well as the Group’s finance lease receivables, contract assets and issued financial guarantee contracts.
The Group has applied 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 loss allowance for these assets as at 1 January 2018 was not
significantly different to that under IAS 39.
Marshalls plc
Annual Report and Accounts 2018
93
Financial statements
Notes to the Consolidated Financial Statements continued
1 Accounting policies continued
Significant accounting policies continued
(f) Hedging
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 was performed and it was determined that
the relationships will qualify as continuing hedging relationships under IFRS 9.
(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 –
2.5 per cent to 5 per cent per annum
Short leasehold property
Fixed plant and equipment
Mobile plant and vehicles
Quarries
–
–
–
–
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);
94
Marshalls plc
Annual Report and Accounts 2018
Financial statements
1 Accounting policies continued
Significant accounting policies continued
(g) Property, plant and equipment continued
(iv) Depreciation continued
• purchase, installation and assembly of any necessary extraction equipment; and
• costs of testing whether the extraction process is functioning properly (net of any sales of test products).
Depreciation commences when commercial extraction commences and is based on the rate of extraction.
In accordance with IAS 37, provision is made for quarry restoration where a legal or constructive obligation exists, it is probable that
an outflow of economic benefits will occur and the financial cost of restoration work can be reliably measured. The lives of quarries are
almost always long and it is difficult to estimate the length with any precision. The majority of quarry restoration work is undertaken
while extracting minerals from new areas (backfilling) and therefore work can be completed without additional cost. As a result of the
particular characteristics of the Group’s quarries, the IAS 37 criteria have not been met to date based on the assets so far acquired
and, therefore, no provisions have been recognised.
(h) Intangible assets
(i) Goodwill
All business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control
is transferred to the Group.
For acquisitions on or after 1 January 2004, the Group measures goodwill at the acquisition date as:
• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree; plus
• the fair value of the existing equity interest in the acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in the Consolidated Income Statement.
Costs relating to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as
equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the
contingent consideration are recognised in profit or loss.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests either at their fair value or at their
proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date.
In respect of business acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the cost of
the acquisition and the fair value of the net identifiable assets and contingent liabilities acquired. The classification and accounting
treatment relating to the acquisition of CPM Group Limited on 19 October 2017 was adjusted in preparing the Group’s opening IFRS
balance sheet at 1 January 2018. Further details of this business combination is included in Note 22.
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.
Annual Report and Accounts 2018 95
Marshalls plc
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 –
5 to 20 years
Patents, trademarks and know-how –
2 to 20 years
Development costs
Software
–
–
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.
96
Marshalls plc
Annual Report and Accounts 2018
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
performance obligations to customers have been satisfied. 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 2018
97
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 income 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. 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 2018 certain APMs are required as a consequence
of the acquisition of Edenhall on 11 December 2018 in order to ensure comparability with the prior period. 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.
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
Edenhall post-acquisition revenue
Like-for-like revenue
2018
£’000
490,988
(675)
490,313
2017
£’000
430,194
–
430,194
Increase
%
14%
14%
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.
98
Marshalls plc
Annual Report and Accounts 2018
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
Reported ROCE
2018
£’000
80,792
(14,199)
66,593
(1,759)
64,834
2017
£’000
67,895
(13,314)
54,581
(1,142)
53,439
2018
£’000
66,593
266,715
37,433
304,148
21.9%
Increase
%
19%
21%
2017
£’000
54,581
237,627
24,297
261,924
20.8%
ROCE on a like-for-like basis (excluding the impact of acquisitions) includes adjustments to report the calculation on a basis that
eliminates the impact of the acquisition of Edenhall in 2018 and CPM in 2017. This ensures comparability with the prior year period.
Reported EBITA
Post-acquisition EBIT
Amortisation of intangible assets in year of acquisition
Acquisition costs
Adjusted EBITA
Shareholders’ funds
Net debt
Impact on net debt arising from the acquisitions in the year
As adjusted
ROCE on a like-for-like basis (excluding the impact of acquisitions)
2 Segmental analysis
Segment revenues and results
2018
£’000
66,593
(21)
17
375
66,964
266,715
37,433
304,148
(16,468)
287,680
23.3%
2018
2017
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
Landscape
Products
£’000
398,128
(228)
397,900
68,418
Other
£’000
96,943
(3,855)
93,088
2,095
Total
£’000
495,071
(4,083)
490,988
70,513
(5,679)
64,834
(1,899)
62,935
(11,307)
51,628
Landscape
Products
£’000
339,655
(226)
339,429
56,104
Other
£’000
94,622
(3,857)
90,765
1,873
2017
£’000
54,581
(749)
132
837
54,801
237,627
24,297
261,924
(41,227)
220,697
24.8%
Total
£’000
434,277
(4,083)
430,194
57,977
(4,538)
53,439
(1,388)
52,051
(9,925)
42,126
Annual Report and Accounts 2018 99
Marshalls plc
Financial statements
Notes to the Consolidated Financial Statements continued
2 Segmental analysis continued
Segment revenues and results continued
The Group has 2 customers which 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.
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. Following the acquisition, the Edenhall business has been included within “Other”.
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
2018
£’000
2017 *
£’000
201,489
73,863
275,352
230,982
506,334
182,391
64,561
246,952
167,475
414,427
* The comparatives have been restated as a result of a reassessment of the fair value of assets and liabilities acquired (Note 22).
For the purpose of monitoring segment performance and allocating resources between segments, the Group’s CODM monitors the
tangible fixed assets and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments.
Other segment information
Landscape Products
Other
Geographical destination of revenue
United Kingdom
Rest of the world
Depreciation and amortisation
Fixed asset additions
2018
£’000
13,251
2,707
15,958
2017
£’000
10,878
3,578
14,456
2018
£’000
21,060
6,256
27,316
2018
£’000
467,032
23,956
490,988
2017
£’000
17,041
5,445
22,486
2017
£’000
407,215
22,979
430,194
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.
100
Marshalls plc
Annual Report and Accounts 2018
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
* This reflects the proceeds of the sale of a domain name and is net of associated digital strategy 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 Financial Statements of Marshalls plc
Audit of Financial Statements of subsidiaries of the Company
Half yearly review of Marshalls plc
Other assurance services
4 Personnel costs
Personnel costs (including amounts charged in the year in relation to Directors):
Wages and salaries
Social security costs
Share-based payments
Contributions to defined contribution pension scheme
Included within net operating costs (Note 3)
Personnel costs relating to restructuring (Note 3)
Total personnel costs
2018
£’000
172,175
6,267
116,588
14,199
1,759
(3,340)
120,187
1,244
375
429,454
(2,562)
(738)*
426,154
2018
£’000
247
12,522
4,838
4,927
2018
£’000
30
173
20
24
247
2018
£’000
97,417
10,341
1,789
7,041
116,588
634
117,222
2017
£’000
151,343
7,231
100,811
13,314
1,142
(1,919)
106,569
1,217
837
380,545
(2,842)
(948)
376,755
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
Marshalls plc
Annual Report and Accounts 2018
101
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
Salary supplement in lieu of pension
Non-Executive Directors’ fees and fixed allowances
2018
£’000
737
45
823
362
505
147
320
2,939
2017
£’000
712
39
535
356
2,024
142
299
4,107
The aggregate of emoluments and amounts receivable under the MIP of the highest paid Director was £1,602,000 (2017: £2,383,000),
including a salary supplement in lieu of pension of £89,000 (2017: £86,000).
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 69, 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 69 to 72.
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
102
Marshalls plc
Annual Report and Accounts 2018
2018
Number
2,640
2018
£’000
496
1,403
5
1,904
2017
Number
2,307
2017
£’000
377
1,005
6
1,388
5
–
2018
£’000
2017
£’000
11,269
(934)
10,335
921
51
11,307
11,554
(732)
10,822
(797)
(100)
9,925
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
2018
%
100.0
19.0
(0.6)
0.9
(1.5)
(1.4)
16.4
(0.2)
1.8
(0.2)
0.5
0.1
(0.4)
18.0
2018
£’000
62,935
11,957
(402)
595
(934)
(881)
10,335
(130)
1,139
(101)
300
51
(287)
11,307
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
The net amount of deferred taxation (debited) / credited to the Consolidated Statement of Comprehensive Income in the year was
£1,671,000 debit (2017: £21,000 debit).
The majority of the Group’s profits are earned in the UK with the standard rate of corporation tax being 19.0 per cent for the year
to 31 December 2018.
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 2018 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.
Additional shares vesting in March 2018 have impacted corporation tax (in expenses not deductible for tax purposes) and deferred tax
(in short-term timing differences).
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 2018.
In total, the trading profits were not material and no tax was due.
7 Earnings per share
Basic earnings per share of 26.29 pence (2017: 21.52 pence) per share is calculated by dividing the profit attributable to Ordinary
Shareholders for the financial year, after adjusting for non-controlling interests, of £51,958,000 (2017: £42,503,000) by the weighted
average number of shares in issue during the period of 197,669,293 (2017: 197,518,109).
Annual Report and Accounts 2018 103
Marshalls plc
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 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 the end of the year
2018
£’000
51,628
330
51,958
2017
£’000
42,126
377
42,503
2018
Number
2017
Number
199,419,571
199,378,755
(1,750,278)
(1,860,646)
197,669,293
197,518,109
Diluted earnings per share of 26.08 pence (2017: 21.37 pence) per share is calculated by dividing the profit for the financial year, after
adjusting for non-controlling interests, of £51,958,000 (2017: £42,503,000) by the weighted average number of shares in issue during
the period of 197,669,293 (2017: 197,518,109) plus potentially dilutive shares of 1,548,929 (2017: 1,384,707), which totals 199,218,222
(2017: 198,902,816).
Weighted average number of Ordinary Shares (diluted)
Weighted average number of Ordinary Shares
Potentially dilutive shares
Weighted average number of Ordinary Shares (diluted)
2018
Number
197,669,293
1,548,929
2017
Number
197,518,109
1,384,707
199,218,222
198,902,816
8 Dividends
After the balance sheet date a final dividend of 8.00 pence (2017: 6.80 pence) per qualifying Ordinary Share was proposed by the
Directors. In addition a supplementary dividend of 4.00 pence (2017: 4.00 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:
2018 supplementary
2018 final
2018 interim
2017 supplementary
2017 final
2017 interim
The following dividends were approved by the shareholders and recognised in the year:
2018 interim
2017 supplementary
2017 final
2017 interim
2016 supplementary
2016 final
104
Marshalls plc
Annual Report and Accounts 2018
Pence per
qualifying share
4.00
8.00
4.00
16.00
4.00
6.80
3.40
14.20
Pence per
qualifying share
4.00
4.00
6.80
14.80
3.40
3.00
5.80
12.20
2018
£’000
7,930
15,860
7,906
31,696
2018
£’000
7,906
7,905
13,439
29,250
2017
£’000
7,904
13,436
6,718
28,058
2017
£’000
6,718
5,927
11,460
24,105
Financial statements
8 Dividends continued
The Board recommends a 2018 final dividend of 8.00 pence per qualifying Ordinary Share (amounting to £15,860,000), alongside
a supplementary dividend of 4.00 pence per qualifying Ordinary Share (amounting to £7,930,000), to be paid on 28 June 2019 to
shareholders registered at the close of business on 7 June 2019.
9 Property, plant and equipment
Cost
At 1 January 2017
Exchange differences
Additions
Acquisition of subsidiary
Disposals
At 31 December 2017
At 1 January 2018
Exchange differences
Additions
Acquisition of subsidiary
Reclassification
Disposals
At 31 December 2018
Depreciation and impairment losses
At 1 January 2017
Depreciation charge for the year
Exchange differences
Disposals
At 31 December 2017
At 1 January 2018
Depreciation charge for the year
Exchange differences
Disposals
At 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017
At 31 December 2018
Land and
buildings
£’000
Quarries
£’000
Plant, machinery
and vehicles
£’000
Total
£’000
83,680
23,397
323,476
430,553
311
2,509
8,437
(1,281)
93,656
93,656
124
7,053
3,915
(1,744)
(313)
–
67
–
–
23,464
23,464
–
3,481
–
1,744
–
223
18,160
7,639
(2,629)
346,869
346,869
88
14,787
7,116
–
(445)
534
20,736
16,076
(3,910)
463,989
463,989
212
25,321
11,031
–
(758)
102,691
28,689
368,415
499,795
37,016
1,829
7
(26)
38,826
38,826
1,756
4
(13)
7,823
583
–
–
8,406
8,406
228
–
–
238,719
10,902
132
(2,089)
247,664
247,664
12,215
84
(366)
283,558
13,314
139
(2,115)
294,896
294,896
14,199
88
(379)
40,573
8,634
259,597
308,804
46,664
54,830
62,118
15,574
15,058
20,055
84,757
99,205
108,818
146,995
169,093
190,991
Mineral reserves and associated land have been separately disclosed under the heading of “Quarries”.
The carrying amount of tangible fixed assets includes £402,000 (2017: £402,000) of land assets and £1,175,000 (2017: £nil) of plant and
machinery held under finance leases. Group cost of land and buildings and plant and machinery includes £1,926,000 (2017: £1,484,000)
and £16,779,000 (2017: £7,105,000) respectively for assets in the course of construction.
Annual Report and Accounts 2018 105
Marshalls plc
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:
2018
£’000
2017
£’000
4,635
5,058
2018
£’000
14,199
2017
£’000
13,314
Net operating costs (Note 3)
10 Intangible assets
Cost
At 1 January 2017
Additions
Recognised on acquisition of subsidiary
At 31 December 2017
At 1 January 2018
Additions
Recognised on acquisition of subsidiary
Supplier
Customer
Goodwill * relationships relationships
£’000
£’000
£’000
Patents,
trademarks
and Development
costs
£’000
know-how
£’000
Software
£’000
Total
£’000
43,691
2,210
1,200
1,660
–
24,126
67,817
67,817
1,419
12,033
–
6,704
8,914
8,914
–
3,897
–
429
1,629
1,629
–
–
–
100
1,760
1,760
–
–
159
–
–
159
159
–
–
12,610
1,750
61,530
1,750
–
31,359
14,360
94,639
14,360
94,639
1,995
3,414
–
15,930
At 31 December 2018
81,269
12,811
1,629
1,760
159
16,355
113,983
Amortisation and impairment losses
At 1 January 2017
Amortisation for the year
At 31 December 2017
At 1 January 2018
Amortisation for the year
At 31 December 2018
Carrying amounts
At 1 January 2017
At 31 December 2017
At 31 December 2018
8,912
–
8,912
8,912
–
2,210
121
2,331
2,331
670
8,912
3,001
34,779
58,905
72,357
–
6,583
9,810
788
69
857
857
103
960
412
772
669
1,398
34
1,432
1,432
42
1,474
262
328
286
101
8
109
109
8
117
58
50
42
8,028
910
21,437
1,142
8,938
22,579
8,938
22,579
936
1,759
9,874
24,338
4,582
40,093
5,422
72,060
6,481
89,645
* The comparatives have been restated as a result of a reassessment of the fair values of assets and liabilities acquired (Note 22).
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.
106
Marshalls plc
Annual Report and Accounts 2018
Financial statements
10 Intangible assets continued
The recoverable amounts of the CGUs are determined from value-in-use calculations and at both 31 December 2018 and 31 December 2017
the full amount of goodwill in the Group Balance Sheet related to the Landscape Products CGU. The goodwill arising on the acquisition
of Edenhall is included within the Landscape Products CGU. These calculations use cash flow projections based on a combination of
individual financial 3-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 8.2 per cent (2017: 9.8 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 £915,000 (2017: £910,000) 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
2018
£’000
1,759
2018
£’000
15,925
68,436
84,361
2017
£’000
1,142
2017
£’000
15,690
62,169
77,859
Inventories stated at a net realisable value less than cost at 31 December 2018 amounted to £3,420,000 (2017: £4,148,000). The write
down of inventories made during the year amounted to £1,024,000 (2017: £1,477,000). There were £nil reversals of inventory write downs
made in previous years in 2018 (2017: £73,000).
12 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2018
£’000
58,056
14,940
7,434
80,430
2017
£’000
47,925
15,839
4,457
68,221
Included within other receivables is a reimbursement asset of £9,418,000 (2017: £12,000,000) which is held in escrow in relation to the
acquisitions of CPM Group Limited and Edenhall Holdings 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
2018
£’000
25,822
20,952
4,148
7,134
58,056
2017
£’000
21,363
19,117
3,653
3,792
47,925
There were no receivables due after more than 1 year (2017: £nil). All amounts disclosed above are considered recoverable and are
disclosed net of a provision for expected credit losses of £716,000 (2017: £609,000).
Marshalls plc
Annual Report and Accounts 2018
107
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
Bank overdrafts
Finance lease liabilities
Non-current liabilities
Bank loans
Finance lease liabilities
2018
£’000
45,694
15
45,709
2017
£’000
19,833
12
19,845
2018
£’000
2017
£’000
59,354
11,894
23,868
26,837
121,953
2018
£’000
2,673
301
2,974
79,528
640
80,168
52,180
10,449
15,056
22,488
100,173
2017
£’000
—
35
35
43,883
224
44,107
Bank loans
The bank loans are secured by intra-group guarantees with certain subsidiary undertakings.
Finance lease liabilities
2018
2017
Less than 1 year
1 to 2 years
2 to 5 years
In more than 5 years
Minimum
lease
payments
£’000
335
299
363
40
1,037
Interest
£’000
Principal
£’000
34
30
31
1
96
301
269
332
39
941
Minimum
lease
payments
£’000
40
40
120
80
280
Interest
£’000
Principal
£’000
5
4
10
2
21
35
36
110
78
259
108
Marshalls plc
Annual Report and Accounts 2018
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 pages 112 and 113.
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 2017.
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 2018 and 31 December 2017.
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 23 to 27. 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 pages 112 and 113.
(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.
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
£nil (2017: £14,000 asset) 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 £70,000 (2017: £23,000) has been recognised in other comprehensive income for the year with £14,000 (2017: £43,000) 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 £528,000 credit (2017: £146,000 credit)
recognised in other comprehensive income for the year with £668,000 debit (2017: £385,000 debit) being reclassified from equity to
the Income Statement.
Annual Report and Accounts 2018 109
Marshalls plc
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 2017.
Increase of 100 basis points
Decrease of 100 basis points
2018
£’000
(650)
650
2017
£’000
(211)
211
(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 107.
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 which 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 £30,000 liability (2017: £42,000 asset) and is adjusted against the hedging reserve on an ongoing basis.
At 31 December 2018 all outstanding forward exchange contracts had a maturity date within 6 months.
The foreign currency profile of monetary items was:
2018
2017
Sterling
£’000
Euro
£’000
US Dollar
£’000
AED
£’000
Total
£’000
Sterling
£’000
Euro
£’000
US Dollar
£’000
AED
£’000
Total
£’000
Cash and cash equivalents
Bank overdrafts
Trade receivables
Secured bank loans
Trade payables
1,029
123 45,709
17,830
1,006
97
19,845
43,644
(2,673)
913
–
54,536
3,319
(63,250)
(16,278)
–
163
–
–
(2,673)
–
38 58,056
46,530
1,035
– (79,528)
(28,251)
(15,632)
–
360
–
912
–
(50,114)
(8,555)
(685)
– (59,354)
(42,943)
(8,328)
(909)
–
–
–
47,925
– (43,883)
– (52,180)
–
447
Derivative financial instruments
306
(24)
(6)
–
276
405
42
–
Balance sheet exposure
(17,551) (20,625)
501
161
(37,514)
(6,429)
(21,971)
457
97
(27,846)
A 10 per cent strengthening and weakening of the following currencies against the Pound Sterling at 31 December 2018 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.
110
Marshalls plc
Annual Report and Accounts 2018
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 2017:
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
2018
£’000
1,833
(1,500)
(45)
36
(14)
12
2017
£’000
1,953
(1,598)
(41)
33
(9)
7
(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 2019. The Group classifies its fuel hedges as cash flow
hedges and states them at fair value. The fair value of the fuel hedges is a £306,000 asset (2017: £391,000 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 £598,000 (2017: £123,000) has been recognised in other comprehensive
income, with £682,000 (2017: £428,000) 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 37.
Effective interest rates and maturity of liabilities
At 31 December 2018 there were £941,000 (2017: £259,000) of Group borrowings on a fixed rate. The interest rate profile of the financial
liabilities was:
31 December 2018
Cash and cash equivalents (Note 13)
Bank overdrafts (Note 15)
Bank loans (Note 15)
Finance lease liabilities (Note 15)
Fixed or
Effective
variable interest rate
%
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
Variable
Fixed
1.81
3.0
1.81
10.9
(45,709)
(45,709)
2,673
79,528
941
2,673
–
135
–
–
–
–
–
–
19,820
20,000
39,708
166
269
332
37,433
(42,901)
19,986
20,269
40,040
–
–
–
39
39
Effective
Fixed or
variable interest rate
%
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
31 December 2017
Cash and cash equivalents (Note 13)
Bank loans (Note 15)
Finance lease liabilities (Note 15)
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
Marshalls plc
Annual Report and Accounts 2018
111
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:
31 December 2018
Bank overdrafts
Bank loans
Trade payables
Finance lease liabilities
Derivative financial assets
31 December 2017
Bank loans
Trade payables
Finance lease liabilities
Derivative financial assets
Fixed or
variable
rate
Carrying
value
£’000
Total
£’000
6 months
or less
£’000
6 – 12
months
£’000
1 – 2 years 2 – 5 years
£’000
£’000
More than
5 years
£’000
Variable
Variable
Variable
Fixed
Fixed
2,673
79,528
59,354
941
(276)
2,673
82,347
59,354
1,037
(276)
2,673
–
–
–
595
20,318
20,811
40,623
59,354
152
(249)
–
183
(27)
–
299
–
–
363
–
142,220
145,135
62,525
20,474
21,110
40,986
–
–
–
40
–
40
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
43,883
52,180
Fixed
Fixed
259
(447)
44,519
52,180
280
(391)
244
14,665
24,427
5,183
52,180
3
(236)
–
37
(155)
–
40
–
–
120
–
95,875
96,588
52,191
14,547
24,467
5,303
–
–
80
–
80
Borrowing facilities
The total bank borrowing facilities at 31 December 2018 amounted to £140.0 million (2017: £115.0 million), of which £60.5 million (2017: £71.1 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 2018, in respect of which all conditions precedent had been met,
were as follows:
Committed:
Expiring in more than 5 years
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
2018
£’000
25,000
20,292
180
15,000
60,472
2017
£’000
–
50,617
5,500
15,000
71,117
On 9 August 2018, the Group renewed its short-term working capital facilities of £25.0 million. To support the acquisition of Edenhall
Holdings Limited, the Group has taken out an additional committed facility of £25.0 million with a 2024 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.
112
Marshalls plc
Annual Report and Accounts 2018
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
Q1: 2024
Q3: 2023
Q3: 2022
Q3: 2021
Q3: 2020
Q3: 2019
On-demand facilities
Available all year
Seasonal (February to August inclusive)
Facility
£’000
25,000
20,000
20,000
20,000
20,000
20,000
15,000
10,000
Cumulative
facility
£’000
25,000
45,000
65,000
85,000
105,000
125,000
140,000
150,000
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 2018
is shown below:
Trade and other receivables
Cash and cash equivalents
Bank overdrafts
Bank loans
Finance lease liabilities
Trade and other payables
Interest rate swaps, forward contracts and fuel hedges
Contingent consideration
Financial instrument assets and liabilities – net
Non-financial instrument assets and liabilities – net
2018
2017
Book amount
£’000
Fair value
£’000
Book amount
£’000
71,710
45,709
(2,673)
(79,528)
(941)
71,710
45,709
(2,673)
(77,931)
(1,037)
(107,908)
(107,908)
276
(2,420)
276
(2,420)
(75,775)
342,490
266,715
62,787
19,845
—
(43,883)
(259)
(95,777)
447
—
(56,840)
294,467
237,627
Fair value
£’000
62,787
19,845
—
(42,836)
(280)
(95,777)
447
—
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. Other than contingent consideration, which uses a level 3 basis, all use level 2 valuation techniques.
(a) Derivatives
Derivative contracts are either marked to market using listed market prices or by discounting the contractual forward price at the
relevant rate and deducting the current spot rate. For interest rate swaps, broker quotes are used.
(b) Interest-bearing loans and borrowings
Fair value is calculated based on the expected future principal and interest cash flows discounted at the market rate of interest at the
balance sheet date.
(c) Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease
agreements. The estimated fair values reflect changes in interest rates.
(d) Trade and other receivables / payables
For receivables / payables with a remaining life of less than 1 year, the notional amount is deemed to reflect the fair value. All other
receivables / payables are discounted to determine the fair value.
(e) Contingent consideration
The basis of calculating contingent consideration is set out in Note 22 on page 121.
Marshalls plc
Annual Report and Accounts 2018
113
Financial statements
Notes to the Consolidated Financial Statements continued
16 Financial instruments continued
Borrowing facilities continued
Estimation of fair values continued
(f) 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 2018
Derivative financial assets
31 December 2017
Derivative financial assets
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
276
447
–
–
Total
£’000
276
447
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 2018
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
Net amount recognised at the year end (before any adjustments for deferred tax)
2018
£’000
(330,222)
343,738
13,516
2017
£’000
(350,554)
354,681
2016
£’000
(355,793)
360,069
4,127
4,276
114
Marshalls plc
Annual Report and Accounts 2018
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 Consolidated Statement of Comprehensive Income. Remeasurements of the net defined benefit
surplus are included in other comprehensive income.
Following the High Court ruling in the Lloyds Banking case, an adjustment of £1.5 million has been made to increase Scheme liabilities
for GMP equalisation. This has been recorded in the current year Income Statement as a past service cost.
Net interest expense recognised in the Consolidated Income Statement
Remeasurements of the net liability:
Return on scheme assets (excluding amount included in interest expense)
(Gain) / loss arising from changes in financial assumptions
Gain arising from changes in demographic assumptions
Credit recorded in other comprehensive income
Total defined benefit (credit) / charge
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
2018
£’000
596
7,872
(16,326)
(1,531)
(9,985)
(9,389)
2018
£’000
2.75%
3.15%
2.15%
n/a
2.15%
2.15%
3.20%
1.95%
0%
50%
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%
Same as post
retirement
Same as post
retirement
S2PXA tables
S2PMA tables
105%
105%
Year of birth
Year of birth
CMI_2017 1.0% CMI_2016 1.0%
S2PXA tables
S2PFA tables
105%
105%
Year of birth
Year of birth
CMI_2017 1.0% CMI_2016 1.0%
86.1
88.0
87.1
89.2
86.2
88.0
87.2
89.2
Marshalls plc
Annual Report and Accounts 2018
115
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 the 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 the end of the year
Actual return on assets over the year
Changes in the present value of liabilities over the year
Liabilities at the start of the year
Past service cost
Interest cost
Remeasurement (gains) / losses:
Actuarial (gains) / losses arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Benefits paid
Liabilities at the 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
2018
£’000
2017
£’000
354,681
360,069
8,729
(7,872)
(11,094)
(706)
343,738
857
9,313
2,819
(16,937)
(583)
354,681
12,132
2018
£’000
2017
£’000
350,554
355,793
(7)
8,626
(16,326)
(1,531)
(11,094)
–
9,207
10,158
(7,667)
(16,937)
330,222
350,554
2018
£’000
182,701
147,521
330,222
18
2017
£’000
193,464
157,090
350,554
18
2018
£’000
2017
£’000
20,747
9,767
37,976
68,490
760
2,335
272,153
275,248
343,738
42,464
20,015
41,784
104,263
819
575
249,024
250,418
354,681
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 2019.
116
Marshalls plc
Annual Report and Accounts 2018
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
£6.1 million (increase by £6.3 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 £3.1 million (decrease by £2.5 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 £14.7 million (decrease by £14.1 million)
if all the other assumptions remained unchanged.
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 69 to 72.
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
Outstanding at 1 January
Granted
Change in value of notional shares
Element released
Outstanding at 31 December
Number of
instruments
200,083
252,338
235,541
306,208
224,669
300,005
283,261
364,746
2,166,851
£’000
Date of grant
Vesting period
648
10 March 2015
818
677
881
993
1,326
1,266
10 March 2015
11 March 2016
11 March 2016
15 March 2017
15 March 2017
16 March 2018
1,631
16 March 2018
8,240
3 years
3 years
2 years
2 years
4 years
4 years
3 years
3 years
2018
£’000
3,584
4,656
8,240
Shares
943,554
1,223,297
2,166,851
2017
£’000
4,526
5,838
Shares
1,295,249
1,635,817
10,364
2,931,066
2018
2017
Value
£’000
10,364
2,896
203
Number of
options
2,931,066
648,016
48,293
(5,223)
(1,460,524)
Value
£’000
7,134
2,921
1,145
(836)
Number of
options
2,438,884
663,695
19,286
(190,799)
8,240
2,166,851
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
2018
£’000
3,349
2017
£’000
5,218
Further details in relation to the Directors are set out in the Annual Remuneration Report on pages 69 to 72. Included in the total
expense of £3,349,000 (2017: £5,218,000) is an amount of £2,422,000 (2017: £1,804,000) 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.
Marshalls plc
Annual Report and Accounts 2018
117
Financial statements
Notes to the Consolidated Financial Statements continued
17 Employee benefits continued
Sensitivity of the liability value to changes in the principal assumptions continued
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 2016, 31 December 2017 and 31 December 2018.
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. In addition, a special Bonus Share Award was granted to qualifying CPM employees following its acquisition
on 19 October 2017. This took the form of a nil-cost option to acquire Ordinary Shares in Marshalls plc at the end of a 3-year period.
Awards outstanding at 31 December 2018 were over 352,117 shares (31 December 2017: 328,267). The total expenses recognised for the
year arising from share-based payments were £563,000 (2017: £169,000).
All-employee Sharesave (“SAYE”) scheme
On 5 October 2015 options were granted over up to 1,000,000 shares to employees who had subscribed to the SAYE scheme.
The option price was 291 pence, a discount of 20 per cent to the market price on the date of grant. The options were exercisable by
relevant employees after a period of 3 years and accordingly reached maturity and became exercisable during the year, and as at
31 December 2018 614,678 Ordinary Shares had been issued. As at 14 March 2019 a further 58,724 Ordinary Shares had been issued to
SAYE participants having exercised options. SAYE options that are not exercised will lapse on 1 June 2019. The total expense recognised
for the year arising from share-based payments was £275,000 (2017: £300,000).
Employee profit sharing scheme
At 31 December 2018 the scheme held 42,329 (2017: 42,328) Ordinary Shares in the Company.
18 Provisions
At 1 January 2017
On acquisition of subsidiary undertaking
At 1 January 2018 as previously reported
Restatement (Note 22)
At 1 January 2018 as restated
Utilised in the year
On acquisition of subsidiary undertaking
At 31 December 2018
Legal and regulatory
provisions
£’000
–
11,840
11,840
(3,640)
8,200
(1,912)
1,000
7,288
Provisions were made for the estimated cost of settlement of certain legal and regulatory matters relating to the CPM business
acquired on 19 October 2017, reflecting the Directors’ estimate of the likely outflow from settlement of these matters. In addition,
provisions of £1,000,000 were made for the estimated cost of settlement of certain legal and regulatory matters relating to the Edenhall
business acquired on 11 December 2018. 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.
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
2018
£’000
–
–
–
–
1,406
–
1,406
2017
£’000
–
–
–
–
2,775
–
2,775
Liabilities
2018
£’000
(10,924)
(1,985)
(337)
(2,299)
–
(2,008)
(17,553)
2017
£’000
(10,545)
(1,351)
(368)
(702)
–
(2,020)
(14,986)
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 2018 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 £2,299,000 (2017: £702,000) in relation to employee benefits is in respect of the net surplus for the
defined benefit obligations of £13,516,000 (2017: £4,127,000) (Note 17) calculated at 17 per cent (2017: 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.
118
Marshalls plc
Annual Report and Accounts 2018
Financial statements
19 Deferred taxation continued
Movement in temporary differences
Year ended 31 December 2018
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Other items
Year ended 31 December 2017
Property, plant and equipment
Intangible assets
Inventories
Employee benefits
Equity settled share-based payments
Other items
1 January
2018
£’000
(10,545)
(1,351)
(368)
(702)
2,775
(2,020)
(12,211)
1 January
2017
£’000
(10,838)
(265)
(377)
(727)
1,821
(1,448)
(11,834)
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
On
acquisition of
subsidiary
undertaking
£’000
79
28
31
101
(1,198)
(15)
(974)
–
–
–
(1,698)
–
27
(1,671)
–
–
–
–
(171)
–
(171)
(458)
(662)
–
–
–
–
(1,120)
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
Recognised
in statement
of changes
in equity
£’000
On
acquisition of
subsidiary
undertaking
£’000
718
25
9
81
69
(5)
897
–
–
–
(56)
–
35
(21)
–
–
–
–
885
–
885
(425)
(1,111)
–
–
–
(602)
(2,138)
31 December
2018
£’000
(10,924)
(1,985)
(337)
(2,299)
1,406
(2,008)
(16,147)
31 December
2017
£’000
(10,545)
(1,351)
(368)
(702)
2,775
(2,020)
(12,211)
Deferred taxation liabilities represent sums that might become payable as tax in future years as a result of transactions that have
occurred in the current year. The explanation as to why such liabilities may arise is included in the notes to the tax reconciliation (Note 6).
The deferred tax balances on short-term timing differences are expected to reverse within 1 to 3 years.
Based on the current investment programme of the Group and assuming that current rates of capital allowances on fixed asset
expenditure continue into the future, there is little prospect of any significant part of the deferred taxation liability of the Company
becoming payable over the next 3 years. It is not realistic to make any projection after a 3-year period.
The deferred tax liabilities disclosed in the year ended 31 December 2018 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
Ordinary Shares
At 1 January
Issued in year
At 31 December
2018
Number
199,378,755
614,678
199,993,433
2018 nominal
value
£’000
49,845
153
49,998
2017
Number
199,378,755
–
199,378,755
2017 nominal
value
£’000
49,845
–
49,845
On 5 October 2015 options were granted up to 1,000,000 shares to employees who had subscribed to the SAYE Scheme (Note 17). The
options were exercisable by relevant employees after a period of 3 years and consequently during the year 614,678 Ordinary Shares
were issued to those employees whose options had reached maturity.
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.
Marshalls plc
Annual Report and Accounts 2018
119
Financial statements
Notes to the Consolidated Financial Statements continued
20 Capital and reserves continued
Dividends
After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided for and
there were no income tax consequences.
8.00 pence final dividend (2017: 6.80 pence) per Ordinary Share
4.00 pence supplementary dividend (2017: 4.00 pence) per Ordinary Share
21 Non-controlling interests
At 1 January
Share of loss for the year
Foreign currency transaction differences
At 31 December
2018
£’000
15,860
7,930
23,790
2018
£’000
1,459
(330)
(35)
1,094
2017
£’000
13,436
7,904
21,340
2017
£’000
1,465
(377)
371
1,459
22 Acquisition of subsidiary
On 11 December 2018, Marshalls Mono Limited acquired 100 per cent of the issued share capital of Edenhall Holdings Limited, a concrete
brick manufacturer. Edenhall Holdings Limited operates within the UK and is registered in England and Wales. The fair values acquired are
disclosed as provisional given that the acquisition was made on 11 December 2018.
The amounts recognised in respect of the provisional 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
Finance leases
Corporation tax
Deferred tax
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash consideration
Deferred consideration
Contingent consideration
Total cost of investment
Monies paid into escrow
Analysis of amounts paid in connection with the acquisition
Total cash payments
Net (cash) / borrowings acquired
Total cash outflow in connection with the acquisition
120
Marshalls plc
Annual Report and Accounts 2018
2018
Edenhall
provisional
fair values
acquired
£’000
3,915
7,116
3,897
2,105
5,726
33
(12,192)
(1,000)
(3,959)
(783)
(692)
(1,120)
3,046
12,033
10,759
1,900
2,420
15,079
1,000
16,079
11,759
(33)
11,726
2017
CPM
fair values
acquired
£’000
8,437
7,639
7,233
4,580
12,334
(2,955)
(19,552)
(8,200)
(3,407)
–
(1,825)
(2,138)
2,146
25,545
27,691
–
–
27,691
10,581
38,272
38,272
2,955
41,227
Financial statements
22 Acquisition of subsidiary continued
Acquisition of Edenhall Holdings Limited
Initial cash consideration paid to the vendors was £10,759,000 and, in addition, a further £1,000,000 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. The Group has a right to be reimbursed from amounts held in escrow to the extent that any liability crystallises in respect of
these ongoing legal and regulatory matters, up to the full value of the £1,000,000 held in escrow and consequently a reimbursement
asset of £1,000,000 was recognised within other debtors. To the extent that any such liabilities are resolved at a lower value than the
escrow balances, the excess balance remaining in escrow is payable to the vendors as additional consideration.
The Group has agreed to pay the vendors deferred consideration of £1,900,000 which is payable on 11 December 2021. This is not
dependent on performance. Additional consideration is also payable dependent on the achievement of performance targets in the
periods post acquisition. These performance periods are up to 3 years in duration and will be settled in cash on their payment date on
achieving the relevant targets. The range of the additional consideration payment is estimated to be between £nil and £2.4 million. The
Group has included £2.4 million as contingent consideration related to the additional consideration, which represents its fair value at
the acquisition date. Contingent consideration has been calculated based on the Group’s expectation of what it will pay in relation to
the post-acquisition performance of the acquired entities.
Due to their contractual dates, the fair value of the receivables (shown above) is 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 £375,000 and these were fully expensed in the period to 31 December 2018 (Note 3).
Edenhall Holdings Limited contributed revenue of £675,000 and profit of £4,000 to the Group’s profit for the period between the date
of acquisition and 31 December 2018.
If the acquisition of Edenhall Holdings Limited had been completed on the first day of the financial year, Group revenue for the period
would have been £524,165,000 and Group profit before tax would have been £64,643,000.
Acquisition of CPM Group Limited
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.
Initial cash consideration paid to the vendors was £26,272,000 and 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 were recorded at the date of acquisition, for the estimated liabilities arising from concluding these
ongoing matters (see Note 18). The Group has a right to be reimbursed from amounts held in escrow 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 was recognised within other debtors. To the
extent that such liabilities are resolved at a lower value than the escrow balances, the excess balance remaining in escrow is payable
to the vendors as additional consideration.
As required under the terms of the sale and purchase agreement, a net working capital review was undertaken in the period.
Adjustments were agreed with the vendor which resulted in a reimbursement of £2,163,000 to Marshalls Mono Limited during the period
to 31 December 2018. This amount covered both the required working capital adjustment and monies that were required to settle
certain of the legal and regulatory matters which crystallised during the period.
In addition, and as part of the same review required under the terms of the sale and purchase agreement, an amount of £1,419,000
was paid to the vendors from the escrow account during the period.
As part of the ongoing review of the fair value of assets and liabilities acquired, adjustments were made to certain accruals and
provisions during the period. These had the effect of increasing the fair value of the net assets acquired under the acquisition by
£1,019,000, which has given rise to a reduction in goodwill of a similar amount. Goodwill, trade and other payables and provisions
have been restated accordingly in respect of the reported 31 December 2017 balance sheet.
Due to their contractual dates, the fair value of the receivables (shown above) is 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 were fully expensed in the period to 31 December 2017 (Note 3).
Marshalls plc
Annual Report and Accounts 2018
121
Financial statements
Notes to the Consolidated Financial Statements continued
23 Analysis of net debt
Cash at bank and in hand
Debt due within 1 year
Debt due after 1 year
Finance leases
1 January
2018
£’000
19,845
–
(43,883)
(259)
(24,297)
On acquisition of
subsidiary
undertaking
£’000
33
(3,959)
–
(783)
(4,709)
Cash flow
£’000
25,746
1,286
(35,450)
106
(8,312)
Reconciliation of net cash flow to movement in net debt
Net increase in cash equivalents
Cash inflow from increase 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
85
(19,820)
19,625
(5)
(115)
2018
£’000
25,746
(34,063)
(4,709)
(110)
(13,136)
(24,297)
(37,433)
31 December
2018
£’000
45,709
(22,493)
(59,708)
(941)
(37,433)
2017
£’000
1,925
(24,819)
(6,362)
(454)
(29,710)
5,413
(24,297)
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.
Non-cash changes
Acquisition
of subsidiary
(Note 22)
£’000
Other
changes
(ii)
£’000
31 December
2018
£’000
Bank overdrafts (Note 15)
Bank loans (Note 15)
Finance lease liabilities (Note 15)
1 January
2018
£’000
–
(43,883)
(259)
Financing
cash flows
(i)
£’000
(1,122)
(34,539)
106
Interest rate swaps fair value hedging or
economically hedging financing liabilities (Note 16)
447
(668)
(1,551)
(911)
(783)
–
Total liabilities from financing activities
(43,695)
(36,223)
(3,245)
Bank loans (Note 15)
Finance lease liabilities (Note 15)
Interest rate swaps fair value hedging or
economically hedging financing liabilities (Note 16)
Total liabilities from financing activities
Non-cash changes
1 January
2017
£’000
(14,975)
(293)
657
(14,611)
Financing
cash flows
(i)
£’000
(25,413)
594
(385)
Acquisition
of subsidiary
(Note 22)
£’000
(2,847)
(560)
–
(25,204)
(3,407)
–
(195)
(5)
497
297
Other
changes
(ii)
£’000
(648)
–
175
(473)
(2,673)
(79,528)
(941)
276
(82,866)
31 December
2017
£’000
(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 and other movements.
122
Marshalls plc
Annual Report and Accounts 2018
Financial statements
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 2018
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
31 December 2017
Expiring:
Within 1 year
Between 1 and 5 years
In more than 5 years
Total
£’000
6 months or less
£’000
6 – 12 months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than 5 years
£’000
1,652
31,939
32,917
66,508
1,256
5,583
891
7,730
396
5,555
897
6,848
–
9,811
1,800
11,611
–
10,990
5,400
16,390
–
–
23,929
23,929
Total
£’000
6 months or less
£’000
6 – 12 months
£’000
1 – 2 years
£’000
2 – 5 years
£’000
More than 5 years
£’000
1,758
30,995
32,463
65,216
1,173
4,950
1,158
7,281
585
4,922
1,152
6,659
–
9,137
2,234
11,371
–
11,984
6,927
18,911
–
2
20,992
20,994
The total minimum lease payments under non-cancellable operating leases (above) comprise property of £34,831,000
(2017: £30,236,000) and plant, machinery and vehicles of £31,677,000 (2017: £34,980,000).
Certain leased properties have been sublet by the Group. Sublease payments of £211,164 (2017: £306,020) are expected to be received
during the following financial year. An amount of £207,779 (2017: £345,446) 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
Amount
Period
Purpose
£675,000
23 Dec 2011 to 30 Oct 2019
Employer’s liability
£350,000
19 Mar 2014 to 29 Oct 2019
Vehicle insurance
£400,000
30 Oct 2016 to 30 Oct 2019
Vehicle insurance
27 Related parties
Identity of related parties
The Group has a related party relationship with its Directors.
Transactions with key management personnel
Other than the Directors, there are no senior managers in the Group who are relevant for establishing that Marshalls plc has the
appropriate expertise and experience for the management of its business.
Directors of the Company and their immediate relatives control 0.2202 per cent (2017: 0.1804 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 69 to 72.
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 90 to 99. 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 117.
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 acquisitions of both Edenhall Holdings Limited and CPM Group Limited. Judgement was
applied in determining the fair value adjustments.
Marshalls plc
Annual Report and Accounts 2018
123
Financial statements
Parent Company Statement of Changes in Equity
for the year ended 31 December 2018
Current year
At 1 January 2018
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
Shares issued
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
(2,359)
75,394
8,020
85,347
238,942
–
–
–
–
–
–
–
–
–
–
153
1,631
–
–
–
–
–
–
–
–
153
153
–
–
1,631
1,631
(1,210)
2,681
1,471
1,471
–
–
–
–
–
–
–
–
–
–
–
–
(7,317)
(7,317)
(7,317)
(7,317)
1,355
(1,505)
(71)
–
(150)
(71)
–
–
–
–
(29,250)
(29,250)
–
–
(2,681)
1,784
(1,210)
–
1,284
(33,436)
(28,897)
1,284
(40,753)
(36,214)
At 31 December 2018
49,998
24,326
(888)
75,394
9,304
44,594
202,728
There were no items of other comprehensive income / (expense) in the year other than the loss for the financial year recorded above.
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.
124
Marshalls plc
Annual Report and Accounts 2018
Financial statements
Company Balance Sheet
at 31 December 2018
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
2018
£’000
2017
£’000
32
33
34
35
36
347,140
735
347,875
345,785
1,492
347,277
1,830
1,602
(146,977)
(145,147)
202,728
49,998
24,326
(888)
75,394
9,304
44,594
(109,937)
(108,335)
238,942
49,845
22,695
(2,359)
75,394
8,020
85,347
202,728
238,942
The Company reported a loss for the financial year ended 31 December 2018 of £7,317,000 (2017: £7,755,000).
Approved at a Directors’ meeting on 14 March 2019.
On behalf of the Board:
Martyn Coffey
Chief Executive
Jack Clarke
Finance Director
The Notes on pages 126 to 131 form part of these Company Financial Statements.
Marshalls plc
Annual Report and Accounts 2018
125
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 2018 were authorised for issue by the Board
of Directors on 14 March 2019. 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 the historical cost basis of accounting and 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 2018.
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 requirements of IFRS 7 “Financial Instruments: Disclosures”;
• the requirements 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 114 to 118.
(ii) Defined contribution scheme
Obligations for contributions to defined contribution schemes are recognised as an expense as incurred.
126
Marshalls plc
Annual Report and Accounts 2018
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 (2017: £25,000). 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
69 to 72 of the Annual Remuneration Report.
The average monthly number of employees of Marshalls plc (including Executive Directors) in the year ended 31 December 2018 was 176
(2017: 178). 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 £4,093,000 (2017: £5,090,000) in relation to 17 employees (2017: 19), including the Directors.
31 Ordinary dividends: equity shares
2017 final: paid 29 June 2018
2017 supplementary: paid 29 June 2018
2018 interim: paid 5 December 2018
2018
2017
Pence per share
£’000
Pence per share
6.80
4.00
4.00
14.80
13,439
7,905
7,906
29,250
5.80
3.00
3.40
12.20
£’000
11,460
5,927
6,718
24,105
Marshalls plc
Annual Report and Accounts 2018
127
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.
2018 final: 8.00 pence (2017: 6.80 pence) per Ordinary Share
2018 supplementary: 4.00 pence (2017: 4.00 pence) per Ordinary Share
32 Investments
At 1 January 2018
Additions
At 31 December 2018
2018
£’000
15,860
7,930
23,790
2017
£’000
13,436
7,904
21,340
£’000
345,785
1,355
347,140
Investments comprise shares in the subsidiary undertaking, Marshalls Group Limited. The Directors have considered the carrying value
of the Company’s investments and are satisfied that no provision is required.
The increase in the year of £1,355,000 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 subsidiary undertakings of Marshalls plc at 31 December 2018 are set
out below.
Subsidiaries
Acraman (418) Limited
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
Edenhall Limited
Edenhall Building Products Limited
Edenhall Concrete Limited
Edenhall Concrete Products Limited
Edenhall Holdings Limited
Edenhall Technologies Limited
Locharbriggs Sandstone Limited
Lloyds Quarries Limited
Marshalls Building Materials Limited
Principal activities
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Landscape products manufacturer
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
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
128
Marshalls plc
Annual Report and Accounts 2018
Class of share
% ownership
Ordinary /
preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary /
preference
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
Financial statements
32 Investments continued
Subsidiaries
Principal activities
Class of share
% ownership
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
Marshalls Street Furniture Limited
Ollerton Limited
Panablok (UK) Limited
Paver Systems (Carluke) Limited
Paver Systems Limited
Property management
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
PD Edenhall Holdings Limited
Intermediate holding company
PD Edenhall Limited
Premier Mortars Limited
Quarryfill Limited
Rhino Protec Limited
Manufacture and sale of concrete products for
the building industry
Non-trading
Non-trading
Non-trading
Robinson Associates Stone Consultants Limited
Non-trading
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
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
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
66.7
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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.
Marshalls plc
Annual Report and Accounts 2018
129
Financial statements
Notes to the Company Financial Statements continued
32 Investments continued
All the other companies excluding the ones below 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. Paver Systems Limited, Paver Systems (Carluke) Limited and
Locharbriggs Sandstone Limited are registered in Scotland. The respective registered offices are:
Acraman (418) Limited, PD Edenhall Holdings Limited, PD Edenhalll Limited, Edenhall Building Products Limited, Edenhall Concrete
Limited, Edenhall Concrete Products Limited, Edenhall Holdings Limited, Edenhall Technologies Limited operate within the United
Kingdom and are registered in England and Wales at the following address: Danygraig Road, Risca, Newport NP11 6DP.
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
33 Deferred taxation
Recognised deferred taxation assets and liabilities
Assets
2018
£’000
735
2017
£’000
1,492
Liabilities
2018
£’000
–
2017
£’000
–
1 January
2018
£’000
1,492
Recognised
in income
£’000
Recognised
in other
comprehensive
income
£’000
31 December
2018
£’000
(686)
(71)
735
2018
£’000
1,830
2017
£’000
1,602
2018
£’000
2017
£’000
146,977
109,937
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
130
Marshalls plc
Annual Report and Accounts 2018
Financial statements
36 Capital and reserves
Called-up share capital
As at 31 December 2018, the issued and fully paid up ordinary share capital was as follows:
Ordinary
At 1 January
Issued in the period
At 31 December
2018
number
199,378,755
614,678
199,993,433
2018 nominal
value
£’000
49,845
153
49,998
2017
number
199,378,755
–
199,378,755
2017 nominal
value
£’000
49,845
–
49,845
On 5 October 2015 options were granted up to 1,000,000 shares to employees who had subscribed to the SAYE Scheme (Note 17). The
options were exercisable by relevant employees after a period of 3 years and consequently during the year 614,678 Ordinary Shares
were issued to those employees whose options had reached maturity.
Distributable reserves
The Company’s distributable reserves amount to £44 million (2017: £85 million) at the end of the period. In addition, the Group has
£297 million (2017: £230 million) of distributable reserves in subsidiary undertakings that are able to be passed up by way of dividend.
The intention is that upstream dividends will be paid during 2019 in order to increase the distributable reserves in Marshalls plc.
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 2018 or 31 December 2017.
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
23 Dec 2011 to 30 Oct 2019
Employer’s liability
£350,000
19 Mar 2014 to 29 Oct 2019
Vehicle insurance
£400,000
30 Oct 2016 to 30 Oct 2019 Vehicle insurance
40 Pension scheme
The Company is the sponsoring employer of the Marshalls plc pension scheme (the “Scheme”) which is primarily a closed defined
benefit scheme with a small defined contribution element (mainly AVC’s). 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 2018 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.
There are no critical accounting adjustments or key sources of estimation uncertainty.
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.
Marshalls plc
Annual Report and Accounts 2018
131
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
Profit for the year attributable to:
Equity shareholders of the Parent
Non-controlling interests
EBITA1
EBITDA1
Basic earnings per share (pence)
Dividends per share (pence) – IFRS
Dividend cover (times) – IFRS
Dividends per share (pence) – traditional
Dividends per share (pence) – supplementary
Dividend cover (times) – traditional
Year-end share price (pence)
Tax rate (%)
Year ended
31 December 2014
£’000
Year ended
31 December 2015
£’000
Year ended
31 December 2016
£’000
Year ended
31 December 2017
£’000
Year ended
31 December 2018
£’000
358,516
(333,211)
25,305
(2,884)
22,421
(4,198)
18,223
19,857
(1,634)
18,223
26,536
38,518
10.13
5.50
1.8
6.00
–
1.7
234.0
18.7
386,204
(348,752)
396,922
(349,283)
37,452
(2,174)
35,278
(7,387)
27,891
28,149
(258)
27,891
38,774
51,828
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
37,350
157
37,507
48,648
60,794
18.95
9.65
2.0
8.70
3.00
1.6
292.5
18.5
430,194
(376,755)
53,439
(1,388)
52,051
(9,925)
42,126
42,503
(377)
42,126
54,581
67,895
21.52
12.20
1.8
10.20
4.00
1.5
454.9
19.1
490,988
(426,154)
64,834
(1,899)
62,935
(11,307)
51,628
51,958
(330)
51,628
66,593
80,792
26.29
14.80
1.8
12.00
4.00
1.6
464.8
19.0
1 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.
Consolidated Balance Sheet
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Net assets
Net borrowings
Gearing ratio
2014
£’000
2015
£’000
2016
£’000
2017 *
£’000
2018
£’000
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)
217,121
5,413
(2.5%)
248,055
166,372
414,427
(109,507)
(67,293)
237,627
(24,297)
10.2%
295,558
210,776
506,334
(134,610)
(105,009)
266,715
(37,433)
14.0%
* The comparatives have been restated as a result of a reassessment of the fair value of assets and liabilities acquired (Note 22).
132
Marshalls plc
Annual Report and Accounts 2018
Financial statements
Shareholder Information
Shareholder analysis at 31 December 2018
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
1,874
525
651
392
240
152
136
68
33
78
%
45.17
12.65
15.69
9.45
5.78
3.66
3.28
1.64
0.80
1.88
Number of
Ordinary Shares
272,944
398,853
1,098,756
1,403,102
1,684,180
2,473,390
6,839,738
10,576,973
11,585,735
163,659,762
4,149
100.00
199,993,433
%
0.14
0.20
0.55
0.70
0.84
1.24
3.42
5.29
5.79
81.83
100.00
Financial calendar
Preliminary announcement of results for the year ended 31 December 2018
Annual General Meeting
Announced
14 March 2019
15 May 2019
Final dividend for the year ended 31 December 2018
Payable
28 June 2019
Half yearly results for the year ending 31 December 2019
Announcement
15 August 2019
Half yearly dividend for the year ending 31 December 2019
Payable
4 December 2019
Results for the year ending 31 December 2019
Announcement
Early March 2020
Advisers
Stockbrokers
Numis Securities Limited
Peel Hunt
Auditor
Deloitte LLP
Legal advisers
Herbert Smith Freehills LLP
Pinsent Masons LLP
Financial advisers
N M Rothschild & Sons Limited
Bankers
HSBC Bank plc
Lloyds Bank plc
Royal Bank of Scotland 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
Marshalls plc
Annual Report and Accounts 2018
133
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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 Galerie 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.