Specialist landscape and paving products group Marshalls is set to close two of its concrete manufacturing plants in the West Midlands as demand from the new build housing market continues to decline.
The proposed closure of the two manufacturing plants, at Cannock and Sawley, will put around 140 jobs at risk.
Chief executive Graham Holden said the group was in consultation with the workforce, but that the decision to close the two sites reflected continued inflationary pressures on key input costs and the need to get current capacity in line with demand.
He said: "The slowdown in the UK new homes market has reduced demand for our concrete products."
The closures form part of a wider move to reduce the group’s overall cost base, which will involve a charge of 8 million pounds in the accounts in the second half of 2008. Some 3.5 million pounds of this will be a cash cost. The group expects to claw this back in less than a year. The Sawley plant will be retained as a regional distribution centre.
The sharp downturn in the housing market has also dented sales of block and paving products in the domestic market as customers are increasingly deferring spending on ‘big ticket’ items such as driveways and patios. Marshalls sales to the domestic market were down 10 percent in the six months to end-June 2008.
‘The established housing market is holding its own, but areas like DIY and RMI (repair, maintenance and improvement) are seeing some weakness,’ said Holden.
The group’s main sales channel to the public sector and commercial building market, however, is holding up well with like-for-like sales up by 9 percent in the first six months.
Total group turnover for the period was slightly ahead at £211 million, compared to £210 million in the comparable period, although acquisitions largely accounted for this increase.
Looking ahead, Holden said installer order books - a key gauge of customer demand - were running at 8.2 weeks at the end of June, the same as in April. However, it is down on the same period last year when installer order books were running at 9.7 weeks.
The group is also putting a greater emphasis on cash retention and said it will hold the total dividend for 2008 at last year’s level of 13.85 pence a share.
‘In today’s uncertain markets we need to focus on sales, cost reduction and cash management. We recognise the importance of dividends to shareholders, but the shares are still yielding around 10 percent,’ he said.
In the stock market, the group reversed earlier weakness to trade a net 7-1/4 pence higher at 138-3/4 at 9:00 a.m.
Citigroup said higher input costs and weaker demand is likely to see consensus forecasts come down by around 8.0-10.0 percent for 2008.
‘Estimates for 2009 are likely to come down by more than this if a negative view of commercial work in 2009 is adopted,’ it added. However, the broker is maintaining its ‘buy’ recommendation and 255 pence price target for the stock.
Panmure Gordon also expects to rein back its earnings forecasts by 20 percent for both 2007 and 2008 to reflect a weakening consumer environment and higher input costs. This would bring forecast earnings back from 20.5 pence to 17.0 pence a share for 2008, while for the following year estimates are revised down from 22.5 pence to 15.4 pence a share. The broker has also cut its price target from 150 pence to 131-1/2 pence, although it is retaining its ‘buy’ recommendation for the stock.
Landsbanki also reiterated a ‘buy’ for the shares, although it, too, is cutting its earnings estimates. For 2008, the house has cut its pretax profits forecast from 37.5 million to 35.0 million pounds, while for the following year it has cut its estimate from £38 million to £30 million. It also slashed its price target from 310 pence to 245 pence this morning.
"There is caution over the level of consumer demand. While the statement points to 10 percent decline in domestic sales for the first half of 2008, it is quite possible that the true like-for-like figure is worse than this may indicate,’"the broker said in an investment note.
