Marshalls:H1 results

7:05 a.m. Fri 09 Sep 2005

Building materials supplier Marshalls reported a 7.2% increase in sales but flat operating profits for the half year to June 2005. Sales reached £185.2m from £172.7m last year, mainly due to acquisitions. Like for like sales were down 1.2%. Operating profit before works closure costs was flat at £28.6 (H1 2004: £28.7m) as margins were eroded by rising costs.

The company said market conditions in the first half of 2005 were the toughest experienced for a number of years. Sales to commercial developers and the public sector were ahead of last year but sales to the domestic market (which makes up around half the company's sales) were poor, due to the consumer slowdown.

Operating profits were maintained through tight cost control. A production facility at Hipperholme was closed (at a total cost of about £2m, half of which has already been incurred) and production output throughout the group has been reduced further to reflect the weaker market conditions.

The company is looking for acquisitive led growth and recently spent £8.5m to buy Paver Systems, a maker of paving stones in Scotland. A string of acquisitions last year helped boost turnover but earnings remained flat, although, admittedly, earnings are likely to have dropped had the acquisitions not taken place.

Demand remains firm in commercial and public sector development (a growth of 1.4% in 2005 and 2.5% in 2006 are forecast) but these may fall if consumer spending continues to decline. In the longer term the company hopes to benefit from Terminal 5 contracts at Heathrow and the preparations for the Olympic Games in London.

The share trades at 297p, on a prospective PE (2005 earnings) of 13.6x at the upper end of the sector range with a yield of 4.1%.