Marley's cost cuts overcome price rises

Marley, the building materials group, shrugged off sharp rises in raw material prices last year to report a 35 per cent increase in underlying profits as costcutting and improving markets boosted margins.

The group bounced back into the black with reported pre-tax profits of £58.7m, after 1993's goodwill write-off pushed the group £2m into the red.

The market reacted well to the better-than-expected figures and the shares closed 4p higher at 134p. The improvement was the first good news in the past 12 months, during which the shares have lost 38 per cent of their value from a high of 209p.

The strong growth in profits masked a mixed picture at the divisional level, with a strong increase in demand for concrete and clay blocks and pipes but more modest growth in plastic products.

With two-thirds of operating profit coming from plastic products, mainly plumbing, moulding and flooring, rises in PVC prices of up to 40 per cent hit the company hard. The outlook for raw material prices is more stable for 1995, according to the chairman, Sir George Russell.

The figures were flattered by one-off land-sale gains and business disposals. Stripping these out, adjusted profits for the year were £47.8m, an increase of 61 per cent over 1993. Earnings per share were 15.2p. A final dividend of 2.6p was paid, making a total of 4.7p (4.2p).

Strong cash flow pushed gearing down from 50 per cent to 31 per cent despite an increase in capital expenditure from £30.9m to £47m.

In a low-growth and low-inflation environment growth is not expected to come from price increases but from continued cost reductions and volume gains.

David Trapnell, chief executive, said Marley had to look for "new products in existing markets and existing products in new markets".

As part of that drive the company has focused on emerging markets. As well as forming a joint venture in Malaysia, Marley completed an acquisition two weeks ago in Hungary and has established new marketing and distribution networks in Poland and the Czech Republic.