Marshalls : Half Year Results 2022

Embargoed until 7.00am on Thursday 18 August 2022

Marshalls plc, a leading manufacturer of products for the built environment, announces its

results for the half year ended 30 June 2022

Transformational acquisition and robust first half trading performance

Highlights	HY ended	HY ended	Change 2022
	£M	30 June 2022	30 June 2021	/ 2021 (%)
		(as restated)
	Revenue	348.4	298.1	17
	Adjusted results (Notes 1, 2 and 3)
	Adjusted EBITDA	64.2	56.4	14
	Adjusted operating profit	48.0	41.6	15
	Adjusted profit before tax	44.6	39.5	13
	Adjusted basic EPS - pence	16.4	15.6	5
	Interim dividend pence	5.7	4.7	21
	Net debt	252.3	52.4
	Net debt - pre-IFRS 16	208.3	7.6
	Statutory results
	EBITDA	45.7	56.4
	Operating profit	27.3	41.0
	Profit before tax	23.9	38.9
	Basic EPS - pence	7.9	15.3

Strategic highlights

• Transformational acquisition of Marley Group plc ('Marley') completed on 29 April 2022 o Further diversifies enlarged Group's coverage of construction market sub-sectorso Traded positively in the post-acquisition period
  o Integration tracking in line with plan
• Conservative capital structure maintained and no changes to capital allocation policy
• Construction of £24 million dual block plant at St Ives progressing in line with plan: first line expected to be operational in Q4 2022
• Growth opportunities arising from ESG leadership

Financial and operational highlights

• Revenue growth of 17 per cent reflecting two months contribution from Marley and growth of 7 per cent on a like for like basis
• Adjusted operating profit of £48.0 million, an increase of 15 per cent on 2021 (statutory operating profit: £27.3 million; 2021: £41.0 million)
• Adjusted profit before tax of £44.6 million, an increase of 13 per cent on 2021
• Profit before tax on a statutory basis was £23.9 million (2021: £38.9 million) reflecting the impact of adjusting items of £20.7 million
• Adjusted basic earnings per share up 5 per cent at 16.4 pence per share (statutory earnings per share: 7.9 pence; 2021: 15.3 pence)
• Net debt of £252.3 million reflects the bank funding implemented to partially fund the acquisition of Marley
• Interim dividend of 5.7 pence per share, an increase of 21 per cent on 2021 - maintaining two times dividend cover of adjusted earnings per share
• Construction Product Association's ("CPA's") latest Summer forecast predicts growth in total construction output of 2.5 per cent in 2022 and 1.6 per cent in 2023, with strong growth in infrastructure

Commenting on the results, Martyn Coffey, Chief Executive, said:

"Marshalls delivered a robust first half trading performance, demonstrating the strength of our business model and the benefits of greater diversification resulting from the transformational Marley deal completed in April 2022 and other acquisitions of recent years.

Looking forward, the Board acknowledges that the macro outlook is becoming less certain due to geopolitical events driving up inflation and adversely impacting consumer confidence. Notwithstanding this, the Board's expectations for the Group as a whole remain in line with market expectations for the full year, with the more positive backdrop within Marshalls Building Products and Marley expected to balance the continuation of tougher trading conditions in Marshalls Landscape Products, which has greater exposure to the discretionary element of private housing RMI.

Our strategy is underpinned by our strong market positions, established brands and focused investment plans to drive ongoing operational improvement. We remain confident that this will continue to deliver profitable long-term growth and that we will be able to continue to manage inflation through the effective management of our supply chain."

There will be a video webcast for analysts and investors today at 09:00am. The presentation will be available for analysts and investors who are unable to view the webcast live and can be viewed on Marshalls' website at www.marshalls.co.uk. Users can register to access the webcast using the following link:

https://stream.brrmedia.co.uk/broadcast/62d690d10485375c36e40299

There will also be a telephone dial in facility available Tel: [phone] or [phone] - access code 9246370.

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014), as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Notes:

1. Alternative performance measures are used consistently throughout this Interim Announcement. These relate to like-for-like revenue growth, operating profit, EBITDA, return on capital employed ("ROCE"), net debt, net debt pre-IFRS 16 and results before adjusting items. For further details of their purpose, definition and reconciliation to the equivalent statutory measures, see Note 3.
2. The results for the half year ended 30 June 2022 have been disclosed before adjusting items. These are set out in Note 6.
3. Following a change to the reporting segments and the inclusion of the amortisation of acquired intangibles in adjusting items, the comparative figures have been restated to ensure consistent classification with the analysis reported for the half year ended 30 June 2022 (Note 4)

Enquiries:
Martyn Coffey	Chief Executive	Marshalls plc	+44	(0)1422 314777
Justin Lockwood	Chief Financial Officer	Marshalls plc	+44	(0)1422 314777
Andrew Jaques		MHP	+44	(0)20 3128 8540
Charlie Barker		Communications

Introduction

I am pleased to report significant strategic progress in the first half, which included the transformational acquisition of Marley and was achieved alongside a robust first half performance.

Market overview

A core element of the Group's strategy has been to broaden its product range to complement its strong market position in landscaping products with a particular focus on new build housing and water management. During the first half we accelerated the execution of our strategy through the acquisition of Marley in April 2022. The deal is transformational for the Group, building on the acquisitions of concrete pipe manufacturer CPM in 2017 and concrete brick manufacturer Edenhall in 2018 and further diversifying our Group's coverage of the construction market sub-sectors. We estimate that around 35 per cent to 40 per cent of the enlarged Group's revenues are focused in each of the new build housing and commercial, infrastructure and industrial end markets. The remaining revenues of around 20 per cent to 25 per cent are focused on private housing RMI and of this, around 15 per cent represent driveway and patio products that are supplied to the UK market with the balance being less

discretionary products and international revenues.

The new build housing sector has been very resilient in the first half of the year and the CPA's recently published summer forecast anticipates volume growth of 1 per cent in 2022. This sector is supported by the structural deficit in new house building compared to Government targets, a strong employment market and house price growth exceeding build cost inflation. Commercial, infrastructure and industrial end markets have also been supportive with CPA forecasts for 8.5 per cent infrastructure growth in 2022 being particularly strong. Forward looking indicators remain positive and are expected to underpin continued revenue growth in these end markets in the second half of the year.

Private housing RMI activity was a key driver of construction recovery following the first COVID-19 lockdown and grew by 21 per cent in 2021. The CPA is forecasting this sector to contract from the elevated levels reported last year by 3 per cent and 4 per cent in 2022 and 2023, respectively. This is due to a combination of the normalisation of expenditure priorities, a decline in consumer confidence and pressures on household budgets arising from the inflationary environment. Installer order books at the end of June 2022 remain above the historical average at

17.4 weeks (June 2021: 21.4 weeks; June 2019: 14.5 weeks) demonstrating continued demand for professional installations. However, there is reduced installation capacity relative to prior years and DIY activity levels have declined.

Macro-economic and geopolitical factors have resulted in challenges for the UK economy during the first half of the year and the construction sector has not been immune with a number of external factors increasing market volatility and generating uncertainty. The conflict in Ukraine continues to impact world markets and supply chains, particularly in relation to energy supplies, although proactive management is continuing to reduce the impact of raw material shortages. However, these factors are combining to cause significant cost inflation in the economy, with the July CPI recording a twelve month inflation rate of 10.1 per cent, which is putting pressure on household budgets and negatively impacting consumer confidence.

Notwithstanding these factors, the outlook for commercial construction demand in the second half of 2022 remains positive and these end markets represent around 75 per cent to 80 per cent of the Group's revenues. In contrast, the softening demand for private housing RMI, which represents 20 per cent to 25 per cent of revenues, is expected to continue in the second half of the year.

Group results

The Group delivered a robust performance in the first half of the year reporting record revenues driven from a combination of organic growth and the benefit of the acquisition of Marley on 29 April 2022.

£'m	HY ended 30	HY ended 30	Change 2022 /	Year ended
	June 2022	June 2021	2021	31 December
		(as restated)	(%)	2021
				(as restated)
Revenue	348.4	298.1	17	589.3
Net operating costs	(300.4)	(256.5)	17	(511.9)
Adjusted operating profit	48.0	41.6	15	77.4
Adjusting items	(20.7)	(0.6)		(1.2)
Statutory operating profit	27.3	41.0	(33)	76.2
Financial expenses	(3.4)	(2.1)		(6.9)
Profit before taxation	23.9	38.9	(38)	69.3
Adjusted EPS	16.4	15.6	5	29.2
Statutory EPS	7.9	15.3	(48)	27.5
Interim dividend per share	5.7	4.3	33	14.3

Group revenue for the half year ended 30 June 2022 was £348.4 million (2021: £298.1 million) which is 17 per cent higher than 2021 including the benefit of Marley's revenues following the acquisition. On a like-for-like basis, Group revenue increased by 7 per cent.

Following the acquisition of Marley, the Group has reviewed its reporting segments. This is the first set of results which report under the new structure of three separate reporting segments, being Marshalls Landscape Products, Marshalls Building Products and Marley Roofing Products. This reflects the new internal performance reporting and management responsibility framework. Adjusted operating profit is analysed between the Group's reporting segments as follows:

£'m	HY ended 30	HY ended 30	Change 2022 /	Year ended
	June 2022	June 2021	202131 December 2021
		(as restated)	(%)	(as restated)
Marshalls Landscape Products	30.0	35.5	(15)	62.4
Marshalls Building Products	13.0	9.0	44	19.6
Marley Roofing Products	8.6	-	-	-
Central costs	(3.6)	(2.9)	(25)	(4.6)
Adjusted operating profit	48.0	41.6	15	77.4

The growth in adjusted operating profit for the Group of 15 per cent was largely driven by the benefit of Marley from 29 April 2022 together with a strong performance from Marshalls Building Products. This has been partially offset by Marshalls Landscape Products where the impact of a softer private housing RMI market compared to the elevated levels reported in 2021 saw reduced volumes and profitability. The Group adjusted operating margin was marginally lower than 2021 at 13.8 per cent (2021: 14.0 per cent) and reflects some compression in margins within Marshalls Landscape Products largely offset by an improved performance by Marshalls Building Products together with the benefit of Marley's structurally higher margins. Commentary on the performance of each reporting segment is set out below.

The statutory operating profit is stated after a number of adjusting items, the net impact of which is £20.7 million (Note 6). These items comprise £14.6 million for transaction costs relating to the acquisition of Marley and £6.1 million in relation to certain non-cash adjustments arising as a consequence of the purchase price allocation ("PPA") exercise required to recognise the assets of Marley on acquisition at fair value and the amortisation of acquired intangible assets (Note 14). The Group's accounting policy is that adjusting items are disclosed separately because of their size, nature or incidence and to provide additional information in order to enable a full understanding of the Group's results. The policy to exclude amortisation of acquired intangible assets has required a modest restatement of Marshalls' 2021 alternative performance measures. The disclosure of results before adjusting items represents an alternative performance measure, in order to demonstrate the enlarged Group's capacity to deliver dividends to shareholders.

Net financial expenses were £3.4 million (2021: £2.1 million) including £1.2 million (2021: £0.9 million) of IFRS 16 lease interest. The increase in the period reflects the impact of the additional debt taken on to fund the acquisition of Marley. Adjusted profit before tax was £44.6 million (2021: £39.5 million). Statutory profit before tax was £20.7 million lower than the adjusted result at £23.9 million (2021: £38.9 million), reflecting the impact of the adjusting items.

The adjusted effective tax rate was 19.1 per cent (2021: 21.3 per cent). On a reported basis, the effective tax rate is 27.1 per cent due to the impact of the adjusting items as acquired intangibles and a significant proportion of the Marley transaction costs do not qualify for a tax deduction.

Adjusted earnings per share for the half year was 16.4 pence (2021: 15.6 pence) which is a 5 per cent increase

year on year. Reported earnings per share was 7.9 pence (2021: 15.3 pence), which is lower than the adjusted number due to the adjusting items and their tax effect.

Segmental performance

Marshalls Landscape Products

Marshalls Landscape Products, which comprises the Group's Commercial and Domestic landscaping business, Landscape Protection and the International businesses, delivered revenue of £216.9 million (2021: £218.8 million) in the first half of the year, and compares with the strong performance reported in 2021.

£'m	HY ended 30	HY ended 30	Change 2022 /	Year ended
	June 2022	June 2021	2021	31 December 2021
		(as restated)	(%)	(as restated)
Revenue	216.9	218.8	(1)	424.8
Segment operating profit	30.0	35.5	(15)	62.4
Segment operating margin %	13.8%	16.2%	(2.4) ppts	14.7%

This reporting segment derives approximately 25 per cent to 30 per cent of its revenues from new build housing, 35 per cent to 40 per cent from commercial/infrastructure/industrial and the balance of 30 per cent to 35 per cent from private housing RMI. The market backdrop for the first two of these end markets has been good in the first half of the year and this underpinned revenues in these areas. However, this was offset by a weaker performance of domestic products where we reported a reduction in revenues driven by the relatively high exposure to private housing RMI, which has been softer compared to the elevated levels reported in 2021 for the reasons set out in

the market overview section.

Segment operating profit reduced by £5.5 million to £30.0 million compared to 2021. We continued to operate in an inflationary environment in the first half of the year and we were successful in passing these input price increases through the supply chain with no negative impact on profitability. The decline in segment operating profit reflects lower sales and production volumes which adversely impacted both gross profit and the operational efficiency of our manufacturing facilities. This resulted in operating margins reducing by 2.4 ppts to 13.8 ppts for the half year.

We expect a mixed performance from this reporting segment in the second half of the year with continued positive momentum from new build housing and commercial/infrastructure/industrial end markets supported by positive lead indicators. However, we expect consumers to continue to take a cautious approach to home improvement activity due to inflation putting pressure on household budgets and for revenues in this segment to be impacted in the second half as a result.

Marshalls Building Products

Marshalls Building Products comprises the Group's Civils and Drainage, Bricks and Masonry, Mortars and Screeds and Aggregates businesses. It delivered a strong performance in the first half of the year and reported revenue of £95.9 million, which represents year-on-year growth of 21 per cent.

£'m	HY ended 30	HY ended 30	Change 2022 /	Year ended
	June 2022	June 2021	2021	31 December 2021
		(as restated)	(%)	(as restated)
Revenue	95.9	79.3	21	164.5
Segment operating profit	13.0	9.0	44	19.6
Segment operating margin %	13.6%	11.3%	2.3 ppts	11.9%

This reporting segment generates 55 per cent to 60 per cent of its revenues from new build housing and 30 per cent to 35 per cent from commercial/infrastructure/industrial with the balance of less than 10 per cent being derived from private housing RMI. All the business units in this reporting segment have performed strongly against a positive market backdrop with particularly strong demand for our Bricks and Masonry product range driven by a market shortage of bricks and the lower carbon benefits of concrete products compared to clay.

Segment operating profit increased by £4.0 million to £13.0 million. The growth in profitability was driven by a combination of revenue growth and margin expansion with the adjusted operating margin increasing by 2.3 ppts to 13.6 per cent. This reflects the benefits of strong commercial leadership and proactive management of inflationary pressures.

We expect that the market backdrop for this business unit will remain robust in the second half of the year given the positive outlook for its key end markets and our range of competitively positioned high quality products.

Marley Roofing Products

Marley was acquired by the Group on 29 April 2022 and consequently the half year results include approximately two months of trading from the Marley business. At the time of the acquisition, we highlighted that the business had delivered a strong start to 2022 and this has continued through the first half of the year. Marley's revenues in the post-acquisition period were 18 per cent higher than the corresponding period in 2021.

£'m	HY ended 30 June	HY ended 30	Change 2022 /
	2022	June 2021	2021
			(%)
Revenue	35.6	-	-
Segment operating profit	8.6	-	-
Segment operating margin %	24.2%	-	-

Around 35 per cent to 40 per cent of Marley's revenues are generated from both new build housing and commercial/infrastructure/industrial (including public housing RMI contracts) with the balance of 20 per cent to 25 per cent from private housing RMI. The market environment for this reporting segment was positive in the first half of the year and the private housing RMI segment is focused on repair rather than improvement, which makes the work less discretionary than in our Landscape Products business. Revenue growth has been pleasing against this backdrop and reflects strong commercial management and higher volumes across most product ranges, including its integrated solar panel business.

Segment operating profit in the post-acquisition was £8.6 million, which represents an increase compared to the corresponding period in 2021 of 15 per cent. This growth was driven by proactive management of inflationary