Having touched on the recently released Travis Perkins results, I thought I would update on Marshalls Landscaping too.
Picking through the statement which accompanied Marshalls results I do get a feeling of ambiguity, so I thought I would pick up on a few points that give more of an indication of what may lay ahead for the UK landscaping industry in the next 12 months.
On first inspection, the results seem bullish with turnover up by 6.6% and eps (earnings per share) rises by 12.8%.
But, reading through the statements and breakdown of the results it is clear to see that expenses are up and loss on installations rises from £2.006m in 2006 to £3.627m in 2007.
Commercial expansion costs have risen by £712,000 and the key to the profits, hidden right down the page is the sale of property of just over £2.1m, without which the bottom line figure would have told a different story.
Reading between the lines
"Inventories were higher due mainly to the commercially beneficial forward purchasing of £7.7 million of imported natural stone to mitigate cost increases in transportation. The impact of this and reduced sales in the summer months due to the severe weather conditions caused inventory to remain higher at the year end. It is planned to manage these stocks down during 2008 and 2009."
Reading between the lines, installations are down, expenses are up, borrowings are up and the dividend is up.
Marshalls also acquired £7.7 million worth of natural stone and it seems failed to shift it. This liability may knock the balance sheet for the coming six months if the domestic market remains flat.
Just look how long this will take, under their proposed route to sell this stone - "It is planned to manage these stocks down during 2008 and 2009." - in my experience, having retained this liability on the balance sheet for such a long period, there tends to be a discounted sale for the last 15-25% or a write down on the balance sheet, knocking a further net sum off of the bottom line.
There is also a hint that the fuel costs, something that will have to be levied at the consumer end, or absorbed into operating profit, might squeeze net profits even further.
After reading the top of the statement and getting into the middle where it matters I see a picture of caution and contraction emerging for the coming year and perhaps a clue is the cautionary note attached to the results.
"The Domestic market is more difficult to predict against the current backdrop of lower consumer confidence, tougher loan conditions and a general housing market that has begun to slow. The CPA is forecasting a flat market in private housing
repair, maintenance and improvement expenditure for 2008."
The most telling indicator, the share price, probably tells the story more succinctly. After the results were released, the share price dropped by 7% and perhaps gives a clue to shareholder confidence for the near future - maintaining the dividend, in a contracting market may just be a bridge too far.
Of course, this is my interpretation and if Marshalls feel I have misrepresented the financial climate, I would be more than happy to make amends.
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