Business Radar | MARSHALLS PLC | Annual Report of 2011

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ANNUAL R E PO R T 2011

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LG Arena, Birmingham, La Linia, Light Granite Financial Highlights Reported results: • Revenue £334.1m up 8% • EBITDA £35.0m up 10% • Operating profit £16.7m up 29% • Profit before tax £13.7m up 32% • Basic EPS (continuing operations) 6.30p up 50% • Basic EPS (total operations) 3.78p up 1% • Dividends declared and paid 5.25p • Final dividend recommended 3.50p • Net debt £77.1m Marshalls plc Annual Report 2011 1

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Corporate Objectives Marshalls' vision is to be the supplier of choice to the landscape architect and contractor for architectural landscaping and to the consumer for garden and driveway improvement projects. Customers are at the centre of our business. Marshalls supplies its customers with innovatively designed ranges of the highest quality landscape and walling products and provides outstanding levels of customer service in our chosen markets. Marshalls is committed to maintaining and developing its market leading position. At the same time the Group is committed to conducting business in a manner which achieves sustainable growth whilst incorporating and demonstrating a high degree of social responsibility. Marshalls undertakes to deliver superior rates of return to its shareholders and provide opportunities and reward for its employees. Cautionary Statement Please read the full cautionary statement which can be found on page 55. Tegula Palissades, Grey 2 Marshalls plc Annual Report 2011

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Drivesett Tegula Deco, Traditional CONTENTS Highlights 1 Corporate Objectives 2 Chairman’s Statement 4-5 Directors’ Report • Business Review 6-25 • Directors’ Biographical Notes and Advisers 26-27 • Corporate Responsibility 28-35 • Environmental Report 36-44 • Other Regulatory Information 45-47 • Corporate Governance Statement 48-55 • Directors’ Remuneration Report 56-72 • Nomination Committee Report 73 • Report of the Audit Committee 74-75 Independent Auditor’s Report 76-77 Consolidated Income Statement 78 Consolidated Statement of Comprehensive Income 79 Consolidated Balance Sheet 80 Consolidated Cash Flow Statement 81 Consolidated Statement of Changes in Equity 82-83 Notes to the Consolidated Financial Statements 84-119 Company Balance Sheet 120 Company Reconciliation of Movements in Shareholders’ Funds 121 Notes to the Company Financial Statements 122-126 Shareholder Information 127 Financial History – Consolidated Group 128 Marshalls plc Annual Report 2011 3

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Chairman’s Statement Flexibility and sales market outperformance in uncertain times In my statement last year I highlighted the continuing market uncertainty around the shape of economic recovery. It is no surprise to record that 2011 has been another challenging year with depressed levels of construction activity, some reduction in public spending and low consumer confidence. Against this background and the current expectation that any general economic recovery will be slow, your Board has continued its strategy of ensuring that Marshalls retains maximum flexibility whilst at the same time seeking opportunities to grow revenues ahead of market and improve margins and cash performance in order to grow shareholder value. Your Company retains flexibility through a well invested operating base, available additional capacity of at least 25 per cent, tight control of costs and cash, and good financial headroom. This is important to enable Marshalls to react swiftly to changes in demand or conditions in this period of uncertainty. This year I am particularly encouraged by our sales performance. In total, sales for the year of £334 million are 8.2 per cent higher than in 2010. This reflects the success to date of key elements of our strategy including: 1. Focusing our Public Sector and Commercial end market activities on those areas expect future spending to be relatively high, such as education, rail, home and retail; 2. Providing a fully integrated product offer to the Public Sector and Commercial end market uniquely providing a “one-stop shop” for all products that landscape architects need to produce imaginative, practical and cost effective designs; 3. Continuing to build our Installer increase consumer awareness of our products and reinforce the product quality and excellent customer service Marshalls provides; 4. Increasing investment in merchandising displays to provide a showcase for our 4 Marshalls plc Annual Report 2011 premium and added value products to the Domestic end market; and 5. Cautious and low risk International expansion. We have benefitted from sales to the Olympics site, which are now coming to an end. Sales have been around £10 million which is at the top end of our target range. We are proud to have been involved with this important project, which will be a showcase for Britain. During the year we made a small, low risk opportunistic investment to acquire a business in Belgium. This will provide a foothold in Europe enabling us to market manufactured concrete products and natural stone from India and China more widely. International sales were 3 per cent of Group sales in 2011, up from 1 per cent in 2010. Our target is to grow International sales to 10 per cent of Group sales by 2015. The operating margin, before the net gain on asset and property disposals, for 2011 was 4.6 per cent compared with 4.1 per cent in 2010, levels somewhat lower than we aspire to. The Board clearly recognises the need to improve margins and this will be a key area for the Board’s focus during 2012. Looking forward we expect another challenging year. Our lead indicators for the Public Sector and Commercial end market show some weakness in the second half and overall a small reduction in activity for the year. In the Domestic end market there are some signs of consumer confidence stabilising albeit at a relatively low level. where we We will continue to focus on opportunities to grow revenues, reduce costs and deliver efficiency improvements whilst retaining operational and financial flexibility. Whilst the economic outlook is challenging we are confident in our strategy and the progress we are making and accordingly the Board has decided to maintain the dividend at the same level as last year. Register to At the beginning of each year a number of Board priorities are agreed. Last year these included continued focus on strategy, greater exposure to executive management below Board level and increased contact with investors.

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The Board agenda is firmly focused on strategy and detailed reviews of key aspects such as International expansion have been undertaken during the year. In addition, the Board has met and received presentations from all members of the senior executive team as well as holding a number of individual meetings. This has been very beneficial both in terms of input and knowledge on particular business issues but also enabling the Board to form a view on the strength of the organisation. Also as part of our Board development we looked particularly at how the Board worked together in order to ensure we were achieving the maximum benefit from the skills, knowledge and experience around the table. The Board actions we have highlighted for 2012 include ongoing focus of the Board on strategy and value creation. In addition, we have identified a number of specific areas for the Board to consider including, for example, contingency planning. Also I and my fellow Non-Executive Directors would welcome greater contact with investors. I plan to report on these initiatives next year. During the year I have visited many of our locations and have seen first hand the excellent work our employees do and their tremendous commitment to the Business. The Group has strong values and carries out business in a responsible way and I believe treats people with respect. There are quite a number of employees who have worked over 25 years with Marshalls, a fact we are proud of, and these now include our Chief Executive, Graham Holden, who completed 25 years at the end of 2011. It would be wrong not to record this and our gratitude to Graham for his leadership and commitment in establishing Marshalls as the Company it is today. I would like to thank all our employees for the job they do, their support and ongoing commitment to Marshalls. Andrew Allner Chairman 9 March 2012 Sunderland Marina, Keyblok Buff Marshalls plc Annual Report 2011 5

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Business Review Business Profile Current Strategy Marshalls is a market focused UK Group During the last few years the Group’s main focus combining inspirational design and innovative has been to respond to the impact of the products and services to aid the transformation of recession and Marshalls continues to balance Britain’s patios, driveways and urban and short term performance with medium term commercial landscapes. Marshalls is committed investment. to quality in everything it does, including the achievement of high environmental and ethical Against the backdrop of an uncertain economic standards and continual improvement in health environment the Group has focused on short and safety performance. term actions to create greater levels of certainty by reducing cost and conserving cash by tight The Group manufactures and supplies landscape, control of working capital and capital driveway and garden products from a range of expenditure. These actions have been balanced materials including concrete, natural stone, iron, with the need to protect, and continue to build steel, wood, glass and polyurethane, to the on, Marshalls’ market leading capability for the Domestic and Public Sector and Commercial end medium term. The Group has concentrated its markets. In Domestic end markets, home sales effort on market sectors where activity is improvement and home building projects are the more robust, and has continued to invest in largest users of the Group’s products. In Public innovation to reduce its operating costs and Sector and Commercial end markets, customers extend its competitive advantage through new use Marshalls’ products to transform landscapes product development and service solutions. including retail and industrial developments and These initiatives have been providing the new build as well as repair and maintenance foundations for a return to sustainable growth projects. and both sales and production are now on an upward trend. The Group’s strategic focus has Marshalls’ customers are the large builders’ now turned to recovery and preparation for merchant groups, independent builders’ growth. merchants, garden centres, contractors, Local Authorities and domestic consumers. There continues to be a potential for growth in the Group's existing markets and also additional The Group operates its own quarries and opportunities in new market areas. Three areas manufacturing sites throughout the UK, including have been identified to generate sustainable a national network of manufacturing and outperformance. These are: distribution sites. Products are distributed from 1. Targeted marketing and product innovation in this network of sites either to customers’ depots the Public Sector and Commercial end market or, at their request, direct to site. As a result of to provide a broader range of product International investment there are now two solutions; additional operating sites in Belgium and the 2. Enhanced merchandising initiatives and Group is well placed to extend its customer base increasingly developed links with installers to into wider European markets. Ethically sourced drive market share and improved product mix natural stone products are imported from India, in the Domestic end market; and China and Vietnam to supply both UK and 3. International expansion, selling a range of European markets. innovative premium landscape products into new markets. 6 Marshalls plc Annual Report 2011

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Business Review (continued) Long Term Strategy and Business This objective is supported by selective investment in market and brand development, Objectives developing long term customer relationships, The Group’s objective is to emerge from the continually innovating and introducing new current economic downturn in a stronger position products and services to meet the needs of and consequently, the longer term strategic consumers and installers that have been objectives which are set out below, remain the identified through extensive market research and Group’s cornerstone objectives. investing in manufacturing technology to improve the quality of products. The Group The Group aims to deliver superior returns for continues to develop, inovate and improve its shareholders, in a sustainable way, from the timely unique sourcing, manufacturing and distribution and efficient supply of high quality, value for network, reducing costs wherever possible. The money landscaping and walling products. The business ensures it has high quality, timely continued objective is to exceed the expectations management information and analysis, and uses of its customers in all end markets through quality this to focus on areas for improvement. materials produced, administered, delivered and sold by highly motivated and engaged 2. To maintain a strong market position and employees. sustainable profitability with the national Long Term Corporate Objectives builders’ merchants and the Public Sector and Commercial end market and to improve Marshalls’ long term corporate objectives are to market share in other target markets. deliver: The Public Sector and Commercial end market 1. Sustainable revenue growth of 7 per cent or requires a range of integrated products that more based on a compound annual growth deliver technical performance and visual appeal. rate (“CAGR”) over a three year period; The Group strives to be responsive to the requirements of all clients, architects and 2. Annual earnings per share growth of RPI plus 9 contractors and to be the “best in class” for per cent, with a target of RPI plus 21 per cent technical and design support, product innovation, over a three year period; product quality and customer service. The Group is continually looking to deliver innovation, 3. Annual operating cash flow growth of RPI plus improve and extend its products and services in 9 per cent, with a target of RPI plus 21 per cent areas such as water management, street furniture, over a three year period; education, rail and sustainability, where it perceives there is opportunity for growth. 4. A dividend policy where dividends will move in line with medium term earnings growth; and 3. To develop relationships with installers to deliver more effective penetration of the key 5. Return on capital employed of 15 per cent per domestic routes to market and to improve annum. product mix. Long Term Strategy The Group has a long term commitment to the The strategy to achieve these objectives is: Domestic end market and continues to drive more sales through its strong relationships with quality 1 To deliver sustainable shareholder value by installers. The Group has extended its approved improving the profitability of the Group’s installer register, and continues to focus on lead operations and optimising the operating generation and sales and marketing support. The performance of the business. “Better Business Programme” specifically focuses Marshalls plc Annual Report 2011 7

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Business Review (continued) on customer service and design improvements in These strategic KPIs are supported by a range of this area and the demonstration of quality. other KPIs designed to ensure that the short term priorities of cash management, cost reduction 4. To invest in selective synergistic acquisitions and working capital management are and organic expansion in existing and related consistently aligned, and that both short and long markets and product categories to expand our term KPIs are closely monitored across the Group. core business. Review of the Operations The Group has acquired a business comprising Market Outlook two operational sites and manufacturing assets in Belgium to expand the geographical reach of the The Construction Products Association (“CPA”) Group's specialist product portfolio into mainland forecasts that overall construction output will fall Europe, to acquire new innovative products and to by 5.2 per cent in 2012 with only marginal growth extend and expand its routes to market. of 0.4 per cent in 2013. It is expected that prevailing uncertainty in the euro-zone will Strategic Key Performance Indicators continue to influence the UK economy over the (“KPIs”) next twelve months. The CPA predicts more significant increases of 3.8 per cent in 2014 and Performance is monitored using a full suite of KPIs, 4.6 per cent in 2015. The construction sector as but the Directors have identified the six measures a whole will remain boosted by infrastructure, below as the Group’s strategic KPIs. The first three are especially within rail and energy, which are measured over a three year period. anticipated to grow in the medium term. Within Target the Public Sector and Commercial end market Revenue growth: 7 per cent per annum Other New Work, a proxy for demand, was up 0.8 Earnings per share growth: RPI + 21 per cent over per cent in 2011, but the CPA predicts that falls of a three year period Operating cash flow growth: RPI + 21 per cent over a 7.5 per cent and 1.3 per cent will be experienced three year period in 2012 and 2013. Return on capital employed: 15 per cent Customer service index*: 95 per cent Health & Safety accident As far as the Group is concerned the outlook for reduction: 10 per cent per annum Public Sector demand has weakened in the * This index combines measures of product availability, on-time second half of 2011, as projects are completed, delivery performance and administrative and delivery accuracy. and further reductions are expected in 2012. In contrast, Commercial demand has continued to Additional long term KPIs have also been be positive boosted by the impact of the developed to cover the key areas of Energy Olympics and the completion of other projects. Management and Environmental Sustainability to The Group remains realistic about the medium support the Group’s emphasis on these key areas term outlook, but confident that the continuous of future development. improvement of the business and its competitive strength will continue to deliver market outperformance. In the Domestic end market the CPA has reported that Private Housing Repair, Maintenance and Improvement expenditure, a proxy for Domestic end market demand, fell by 1.0 per cent in 2011. A flat 2012 is expected with increases of 3.0 per cent and 4.0 per cent forecast in 2013 and 2014 respectively. Natural Courtstones, Belgium Blue 8 Marshalls plc Annual Report 2011

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Business Review (continued) Despite this economic backdrop, the strength of outperformance with sales and production the Group’s installer base and the economic continuing their upward trend. A specific resilience and age profile of the core customer initiative to provide additional operating base remain positive factors that will continue flexibility includes a programme to re-balance to drive demand. Order books at the end of production nationally to meet stronger demand February were slightly lower at 6.3 weeks, in the South East, compared to the North, in order benefitting from the better weather conditions to minimise distribution distance and reduce (2011: 7.2 weeks). costs. Trading Summary Marshalls’ operating strategy continues to combine regional manufacturing with a unique Continuing revenue for the year ended 31 December national network of distribution sites with a wide 2011 was £334.1 million (2010: £308.8 million) which geographical spread. The Group continues to represented a year-on-year increase of 8.2 per cent utilise well invested modern plants which have from one less trading day. Sales to the Public Sector sufficient capacity to meet medium term demand and Commercial end market, which represent requirements efficiently and has the operational approximately 64 per cent of Marshalls’ sales, were and financial flexibility to respond to any further up 9 per cent for the full year. Sales to the Domestic changes in market conditions as they occur. The end market were up 7 per cent compared to the prior same capital equipment produces products year. Sales to International markets increased by £8.9 for both the Public Sector and Commercial million and at £11.7 million grew to 3 per and Domestic end markets and this flexibility cent of Group revenue. The Group’s target is that remains a key operational objective. The national International sales will reach 5 per cent by the end manufacturing works produce newly introduced of 2012. and specialist products that may have not reached the commercial volumes to justify The Group announced in June 2011 the closure of regional manufacture. These factors optimise its non-core garage and greenhouse manufacturing manufacturing efficiency and ensure that operations. Agreement was also reached to sell, Marshalls continues to have the lowest cost to separately, the Compton garage brand and the Alton market. The Group’s “lowest cost to market” and Robinson greenhouse brands. The operations operating model is expected to deliver further have been treated as discontinued in the year ended operating cost savings over the next two years. 31 December 2011. The Group’s plants are modern and well invested Manufacturing and Distribution and this continues to enable capital expenditure The Group has well invested modern plants which to be maintained at historically low levels for have sufficient capacity to meet medium term the medium term without any noticeable impact demand requirements efficiently. The Group on the effectiveness of the business. Capital continues to have the operational and financial investment in 2011 totalled £13.6 million (2010: flexibility to respond to any further changes in £11.9 million), although this includes £1.3 million market conditions. in relation to a strategic land purchase adjacent to our existing Newport site and £1.0 million in During the last four years, the Group has relation to the Group’s newly acquired operational simplified and refocused its operations with sites in Belgium. This compares to depreciation of emphasis on financial and operating flexibility. £17.3 million (2010: £17.8 million). The Group will The strategy has combined established and new continue to invest selectively in innovation to initiatives to deliver growth and, despite deliver new products and improvement projects economic and market uncertainty, these that reinforce its market leading position. initiatives have been delivering consistent market Marshalls plc Annual Report 2011 9

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Business Review (continued) These strengths support the Group’s medium term growth ambitions and, in addition to the existing routes to market, a number of other markets have been identified that will open up new routes to market for both existing and new products. In relation to International end markets the Group’s operating sites in Belgium lie at the heart of an area of high population density with approximately 40 million people living within a two hour drive time. The International offer combines natural sandstone, granite and limestone from India, China and Vietnam with specialist manufactured products from the UK. Key synergies include marketing and sales collateral, sales processes and systems, a broader Jubilee Library, Brighton, Light and Grey Granite Concrete range of products and manufacturing and technical Block Paving expertise. Sustainability and the Environment The Group continues to focus on customer service Marshalls has won numerous national and with industry leading standards of product quality, international awards for its ground breaking work availability and “on time” delivery. The customer on ethical sourcing and carbon labelling. service index KPI measures product availability, Marshalls was the first business in its sector to accuracy and timeliness of deliveries as well as become a member of the Ethical Trading Initiative administrative accuracy. The Group’s industry and is also the UK’s first heavyside materials leading standards remained high in 2011 giving a manufacturer to be accepted into the prestigious combined customer service measure of 97 per cent UN Global Compact. Looking forward, these (2010: 97 per cent). Marshalls continues to receive initiatives will be a “must have” and consequently good feedback from its customers and installers for the consistency and quality of its products and the Group continues to ensure that sustainability service. is embedded in everything it does. Cash management continues to be a high priority The Group has pioneered the ethical sourcing of and the Group remains committed to realising natural stone paving from India and China. With a value from surplus properties. The Group has local partner the Group has established schools, realised cash of £5.4 million from the sale of a health facilities and health insurance programmes surplus property and in the year ended 31 in India. Marshalls “Fairstone” products combine December 2011 the Income Statement net gain on the attributes of fair trade and ethical sourcing. asset and property disposals was £1.4 million (2010: £0.4 million). Since the year end, the Group has sold As part of its ongoing commitment to the ETI Base an additional area of surplus land for net cash Code, the Group has been driving forward ethical proceeds of £2 million and holds remaining assets best practice within its Indian and Chinese natural for sale with an expected realisable value of around stone suppliers. Marshalls’ ethical sourcing £5 million over the next few years. The timing of programme incorporates regular independent sales remains dependent on suitable planning supply chain audits. permissions being obtained and the position has also been made considerably more difficult by the More details can be found in the Corporate depressed state of the property market. Responsibility and Environmental Reports 10 Marshalls plc Annual Report 2011

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Business Review (continued) below and on the Group’s website benefitting from the better weather for installation www.marshalls.co.uk/sustainability. (2011: 7.2 weeks). Although Marshalls continues to receive good feedback from its customers and Domestic installers for the consistency and quality of service, Marshalls is the market leader in the domestic the Group remains cautious about the outlook driveway and patio markets and continues to lead given the uncertainty in consumer confidence. the development of the consumer landscape products market. The Group’s Domestic strategy is 1800 Marshalls Register Installer Teams 1750 to drive more sales through quality installers. The 1700 objective is to improve the product mix, continually 1650 develop the Marshalls brand and deliver a market 1600 leading level of service. In the UK the target 1550 1500 customer groups for installed patios and driveways 1450 occupy 8.9 million homes, a far bigger potential 1400 market than new build. These customers are 1350 1300 generally older, have equity in their property, earn Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 more and often have savings. An ageing population with a retired lifestyle should continue Medium term, the Group expects the more to drive sales growth. The recent move towards difficult market conditions to provide greater building more new houses rather than flats is also a opportunity to strengthen its relationships with welcome trend. Quality installers remain busier, installers. An ageing population is combining and confirm that there is a trend towards older with a lifestyle trend towards more outdoor living customers, and a higher proportion of cash and the “outdoor room”. Through marketing and transactions with long term home owners rather product development the Group continues to than new home purchasers. The installed housing promote solutions which facilitate these trends. base is 25 million, far higher than the new build market of between 100,000 and 200,000 houses per year. In the Domestic end market Marshalls has focused on brand development, increasing customer awareness and developing stronger links with installers. During 2011 the Group has increased its marketing support of the installer base through increased training, marketing materials and sales support. Marshalls has now built a substantial and growing network of around 1,800 approved domestic installation teams throughout the country which is unique. The number of installation teams on the Marshalls Register grew by a further 10 per cent during 2011 and is still on an upward trend with an overall 20 per cent growth since the beginning of the initiative in 2010. Against the uncertain economic backdrop installer order books remained fairly consistent in 2011 at around 7 weeks. Installer order books at the end of February 2012 were slightly lower at 6.3 weeks LG Arena, Birmingham, La Linia, Light Granite Marshalls plc Annual Report 2011 11

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Business Review (continued) Marshalls is marketing and sales led with an Within the Public Sector and Commercial end increasingly well known brand. Marshalls has again market precision marketing continues to be used been awarded the accolade of a business in order to develop innovative products and Superbrand in 2012. The Group has a broad range services to meet customer requirements and of initiatives designed to build on its competitive increase sales. In particular, the Group has been advantages and the Group continues to invest targeting growth areas such as rail, education, selectively in innovation to drive growth in the home and retail with experienced technical and medium term. The Group has sector leading sales teams providing a full range of integrated product availability and customer service and projects and sustainable solutions to support the these attributes are both at the heart of the specialist product directories and marketing Marshalls’ “Superbrand” concept together with the collateral. The pie chart below illustrates the Group’s continuing drive to generate value by relative proportion of our sales in each targeted “Creating Better Landscapes.” The Group’s area (or “scape”). The second chart shows the combined measure for product availability and change in enquiry level by scape. customer service is consistently above 97 per cent. The process of identifying projects and following Public Sector and Commercial them through to completion is analytical and data Marshalls continues to be a market leader for the driven and utilises specialist software unique to supply of a wide range of natural stone, concrete Marshalls. The combination of marketing, and fabricated products to the Public Sector and systems, processes and highly experienced sales Commercial end market. This market includes PFI teams continues to provide the Group with a expenditure on schools and hospitals. Such sustainable competitive advantage. products include paving, kerbs, edging, surface drainage and street furniture. The aim is to deliver Marshalls continues to be the only landscape products that are visually attractive and also products company able to provide a fully practical to use and install. Marshalls’ portfolio of integrated product offer to the Public Sector and products can be combined to create an attractive Commercial end market. This integrated offer was landscaped area, with its technical expertise created in response to the specific demand of providing added value as part of the pre and post suppliers, distributors, and architects but its value sales service. Growth by Scape Marshalls Change in Sales Current activity by Scape per Project Type Civil and Public Other Civil Engineering c d Publi Civil an Education nsport Hotel and Catering Rail / Tra Industrial nd Retail a l ng Leisure and Sports rcia gineeri Comme Civil En Medical and Healthcare Mixed Development ntial on Reside Educati Olympics Rail/Transport ial s Industr lympic Residential O Retail and Commercial Utilities 12 Marshalls plc Annual Report 2011

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Business Review (continued) is now also appreciated in a wider environmental Historically, the Barbour ABI chart has provided a context and increasingly by local authorities and reliable picture of future demand. It consolidates other Public Sector bodies. Around 50 per cent of planning information for all the sub sectors all sales enquiries in 2011 covered more than requiring hard landscaping. On average, there is a one product category with 20 per cent covering 12 month lag between contracts being awarded three or more. Delivery of product to the Olympic and the landscape products being required, so sites is now drawing to a close and overall sales provides 12 month advance information on likely have been around £10 million, which is at future demand. the upper end of management’s original expectations. The installation of Marshalls' Corporate Development products at the Northern Spectator Transport There continues to be a potential for growth in the Mall, which is the size of fourteen football pitches, Group's existing markets. The Group continues to has recently been completed leaving the Athletes' seek opportunities to expand reserves and Village as the final area of landscaping. geographical coverage in dimensional natural stone and strategically located aggregates The Group has experienced technical and sales reserves. During the year the Group also teams focused on the key growth areas and by expanded its capacity to process stone walling in working with clients, architects and contractors the Cotswolds and stone paving in South Wales by they are able to provide a unique overview of the investing in new stone sawing capacity. The table project and offer a complete solution comprising below shows the Group’s total mineral reserves a full suite of products. comprising block stone for paving, walling stone and crushed aggregates. Many projects have a lead time of two to three years. The Group has deliberately retained its Mineral Reserves Reserves Reserves experienced technical and sales teams whilst tonnes (m) years tonnes (m) years some competitors have cut back. Relationships 2011 2011 2010 2010 with clients, architects and contractors and the Block stone 8.5 57 8.5 57 development of systems to identify projects are a Aggregates 45.1 24 46.1 25 key priority. The visibility of projects through Notes: externally measured sources such as Barbour ABI 1. Reserves means fully consented and available for gives a measure of control over securing future extraction volume. This approach continues to deliver good 2. Years means number of years available at current extraction rates growth in bespoke street furniture, natural stone paving and sustainable urban drainage products. Contract Awarded 12 Month Rolling Average of Hard Landscape Value Adjusted (Barbour ABI Lead Indicator with 12 Month Lag) 330 275 220 £ millions 165 110 55 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Exhibition Road, London, Geo Seats and Bespoke Lighting Marshalls plc Annual Report 2011 13

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Business Review (continued) In March 2011 the Group acquired a business The aim internationally is to be a niche, premium comprising two operational sites and product supplier of specialist paving and manufacturing assets in Belgium, via a newly- associated products from India, China, Vietnam formed subsidiary, to enable the manufacture of and the UK into Western Europe and other export landscape products locally and to provide a areas. The focus will be on products which are not physical stock location in mainland Europe from generally available in those export markets. which to supply the wider Group’s specialist product portfolio. This investment provides the Organisation and Key Contractual logistics potential to link our range of ethically Relationships sourced natural stone products, from India, China The Group operates a number of centrally and Vietnam, with UK manufactured products and managed production units throughout the wider European markets. Marshalls NV is also able United Kingdom, supported by a single to manufacture a unique patented driveway integrated logistics and distribution operation. product which is currently only available in The Group’s operating assets produce and deliver Belgium and Holland. The business will provide a a range of products that are sold into each market core logistics operation for the Group’s expansion area. The structure gives flexibility in the in Europe with over 40 million people living within development of individual products under the a two hour drive from the two sites, an area that Marshalls’ brand whilst providing strategic focus covers Belgium, Holland, Northern France and through the integrated national and centrally parts of Germany. administered functions. Geographically, the Group is committed to The Principal Risks section on pages 22 to 25 increasing its resources in Western Europe, the outlines the risk management aspects of the Middle East and Asia with particular emphasis on Group’s contractual arrangements. Marshalls has natural stone paving, street furniture and water a wide range of suppliers and customers, and management. Most recently, the Group has whilst the loss of, or disruption to, certain of these established a Chinese subsidiary to maximise the arrangements could temporarily affect the efficiency and quality and ethical control of the Group’s operations, there are no significant Group’s Chinese and Vietnamese supply chain. contractual arrangements that are considered essential to the Group’s business in the long term. The Group remains keen to develop partnerships with both suppliers and customers in order to maintain high standards of quality, value, ethics and service throughout its operations. Corporate Responsibility Marshalls places special emphasis on Corporate Responsibility and considers that this is very much aligned with the sustainable and economic growth objectives which are for the benefit of all stakeholders. Further details relating to social and community issues, including employees, health and safety, the policies of the Group and the effectiveness of these policies, are set out in the Corporate Responsibility Report on pages 28 to 35. Liverpool Lime Street Station, Natural Stone, Scout Moor 14 Marshalls plc Annual Report 2011

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Business Review (continued) Research and Development Financial History Marshalls has a world class Manufacturing, Revenue (£’m) Innovation and Development team, staffed by (Continuing operations) high calibre engineers and technicians, which 385.3 delivers competitive advantage through 363.9 334.1 machinery design and installation. Excellent levels 297.8 308.8 of product availability and on-time delivery performance have enabled distribution costs to be controlled despite pressures from legislation, congestion and rising fuel prices. The Group is continually striving to improve the flexibility and effectiveness of product manufacture and is at the forefront of technical research and development. 2007 2008 2009 2010 2011 Innovation in all areas of the business over an extended period has been a key element of the Group’s success and significant resources will continue to be invested in Research and Operating profit (£’m) (Continuing operations) Development in the future. As disclosed in Note 3 - before works closure costs, goodwill and intangible asset impairments on page 94, research and development expenditure in the year ended 31 December 2011 48.4 amounted to £3,166,000 (2010: £3,341,000). Operating profit and basic earnings per share are 32.3 disclosed before works closure costs, goodwill and intangible asset impairments and the 17.6 redemption of the debenture. 16.7 13.0 As at 31 December 2011 the Company’s share price was 90.5 pence per share. When dividends are included this gives a negative total 2007 2008 2009 2010 2011 shareholder return (“TSR”) of 62.4 per cent over a five year performance period. A performance graph has been disclosed on page 68 showing the Basic earnings per share (pence) Group’s TSR compared with the FTSE 250 Index (Continuing operations) and the FTSE Small Cap Index. - before works closure costs, goodwill and intangible asset impairments and redemption of debenture 18.85 11.16 5.85 6.30 4.21 2007 2008 2009 2010 2011 Marshalls plc Annual Report 2011 15

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Business Review (continued) Financial Review of 2011 continuing operations was £35.0 million (2010: £31.9 million) an increase of 9.7 per cent helped Continuing revenue for the year ended 31 by a small improvement in margins. December 2011 was £334.1 million (2010: £308.8 million) which represented an increase of 8.2 per The Income Statement charge for discontinued cent from one less trading day. Sales to operations is £4.9 million (2010: £0.9 million) and International markets increased by £8.9 million and included the operating loss together with the at £11.7 million were 3.5 per cent of Group revenue. impact of writing off intangible assets, the costs of site closure and the net sale proceeds of the Revenue Change garage and greenhouse brands. £’m % 2010 308.8 The net cash effect in the year ended 31 Working day adjustment (1 fewer in 2011) (1.3) (0.4) December 2011 is broadly neutral and once the closed operational site is sold it is estimated that Sub-total 307.5 positive cash of around £2 million will have been UK 17.7 5.7 generated from these transactions. International 8.9 2.9 2011 334.1 8.2 Margin reconciliation Movement in Overall sales growth in the UK was 5.7 per cent Operating Margin and included sales price increases of around 4 per Revenue Profit Impact cent. Sales increased by a further 2.9 per cent £’m £’m % from expansion in International end markets. In 2010* 308.8 13.0 4.2 the Public Sector and Commercial end market Price increases to recover costs 12.3 (0.4) (0.3) sales volumes were up 5 per cent and sales prices Volume 13.0 3.1 0.8 were up by 4 per cent. In the Domestic end Property – 1.0 0.3 market sales volumes were up 3 per cent and sales 2011* 334.1 16.7 5.0 price increases were up 4 per cent. This included Underlying operating profit 334.1 15.3 4.6 the increase in sales into International end Property 1.4 markets. As part of the Group’s growth strategy, Reported operating profit 16.7 International sales have grown from 1 per cent to *Continuing operations 3 per cent of Group revenues. The Group’s target for 2012 is 5 per cent of Group revenues. Operating profit was £16.7 million with a resulting operating margin of 5.0 per cent (2010: 4.2 per 2011 2010 change cent). Operating margin, excluding the net gain Continuing operations £’m £’m % on asset and property disposals, was 4.6 per cent EBITDA 35.0 31.9 9.7 (2010: 4.1 per cent). In the year ended 31 Depreciation / amortisation (18.3) (18.9) December 2011 realised sales price increases were in aggregate around 4 per cent and generated Operating profit 16.7 13.0 28.6 additional revenue of £12.3 million. Inflationary Discounted operations (4.9) (0.9) cost increases were not quite fully absorbed, due primarily to higher than expected fuel cost Reported operating profit from continuing increases. Volume growth contributed additional operations was up 28.6 per cent to £16.7 million revenue of £13.0 million and improved operating (2010: £13.0 million) including a net gain of margin by 0.8 per cent. In the UK the volume lost £1.4 million on asset and property disposals. in late 2010 due to severe weather conditions of Operating profit, excluding the net gain on asset £5.0 million was fully recovered. The year on year and property disposals, was up 22.1 per cent at net gain from asset and property disposals was £15.3 million (2010: £12.6 million). EBITDA from £1.0 million and improved margin by 0.3 per cent. 16 Marshalls plc Annual Report 2011

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Business Review (continued) Underlying operating profit 2011 2010 change revenue has fallen by 2.8 per cent (2008-2011) £’m £’m % on a CAGR basis. Underlying operating profit 15.3 12.6 22.1 Net gain on asset and property • Earnings per share growth disposals 1.4 0.4 Operating profit: reported 16.7 13.0 28.6 Against a target of RPI + 21 per cent over a three year period the Group’s earnings per Basic earnings per share, for the continuing share has fallen by 17.4 per cent (2008-2011). operations, were up 49.6 per cent at 6.30 pence (2010: 4.21 pence) per share. Excluding the net • Operating cash flow growth gain on asset and property disposals basic earnings per share was up 37.1 per cent at 5.40 Against a target of RPI + 21 per cent over a pence (2010: 3.94 pence) per share. three year period the Group’s operating cash flow has fallen by 32.3 per cent (2008-2011). When markets improve, there continues to be a real opportunity to benefit both from improved • Return on capital employed (“ROCE”) is defined operational gearing in both sales and production as EBITA / Shareholders’ Funds plus Net Debt levels and from the lower cost base. ROCE for 2011 was 6.3 per cent which is Analysis of revenue by compared with the long term target of 15.0 per end market sector 2011 2010 change cent. £’m £’m % Domestic 120.9 113.4 6.6 To support these, the Group operates a range of Public Sector and Commercial 213.2 195.4 9.1 short term KPIs. Total 334.1 308.8 8.2 Overall percentage % % Domestic 36.2 36.7 Public Sector and Commercial 63.8 63.3 The Public Sector and Commercial end market now comprises approximately 64 per cent of the Group revenue. Like for like revenue showed an increase of 9.1 per cent in the year. Sales to the Domestic end market rose by 6.6 per cent. Financial KPIs The key financial KPIs were set out on page 8. Performance against these targets continues to be affected by the severe economic recession that has impacted the UK economy and therefore the Group’s markets. Measured at 31 December 2011, performance was as follows: • Revenue growth Against a target of 7 per cent per annum growth, over a three year period, the Group’s Tottenham Hale Tube Station Marshalls plc Annual Report 2011 17

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Business Review (continued) Net Financial Expenses Dividend per ordinary share (pence)* Traditional basis Net financial expenses were £3.0 million (2010: £2.6 million) and interest was strongly covered 5.6 12.38 times. Higher external interest charges, totalling £3.5 million, have been offset by an IAS 19 notional interest credit of £0.5 million in relation to the Group’s Pension Scheme. The IAS 19 5.37 5.25 5.25 5.25 notional interest comprises interest on obligations under the defined benefit section of the Marshalls plc Pension Scheme net of the expected return on Scheme assets. 2007 2008 2009 2010 2011 Taxation Dividend per ordinary share (pence)* The tax charge for 2011 was £1.5 million (2010: IFRS basis £2.2 million) which represented an effective rate 11.98 12.38 of 11.1 per cent (2010: 21.1 per cent). The effective tax rate benefitted from the reduction in the rate of corporation tax, with its impact on deferred tax, and the utilisation of brought forward capital losses being applied against the 5.25 5.25 capital gain on the disposal of the surplus 3.05 property. Deferred tax of £2.5 million in relation to the actuarial gain arising on the defined benefit 2007 2008 2009 2010 2011 Pension Scheme in the year has been taken to the * Dividends per share have been adjusted by the Consolidated Statement of Comprehensive “bonus factor” in the Rights Issue. Income. The Board remains committed to a progressive Dividends dividend policy and the level of future dividend An interim dividend of 1.75 pence (2010: 1.75 payments will take into account the Group’s pence) per share was paid on 2 December 2011. A underlying earnings, cash flows and capital final dividend of 3.50 pence (2010: 3.50 pence) per investment plans, and the need to maintain an share is now being recommended for payment on appropriate level of dividend cover. 6 July 2012 to shareholders on the register at the close of business on 8 June 2012. The ex-dividend date will be 6 June 2012. This gives a total dividend of 5.25 pence (2010: 5.25 pence) per share for the year. On an IFRS basis, which does not account for the final dividend until it is approved at the 2012 Annual General Meeting, the dividend declared for the year ended 31 December 2011 is 5.25 pence (2010: 5.25 pence) per share. Dark Drivesett Argent 18 Marshalls plc Annual Report 2011

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Business Review (continued) Balance Sheet assets and a further £4.1 million in working Consolidated Balance Sheet 2011 2010 capital. Marshalls acquired 66.7 per cent of the £’m £’m ordinary share capital of Marshalls NV and the Fixed assets 236.2 236.9 balance sheet records the 33.3 per cent minority Current assets 128.6 113.6 interest at 31 December 2011 of £3.4 million. The Current liabilities (88.5) (94.6) additional revenue in the period was £8.9 million. Non-current liabilities (83.2) (53.6) Risk management has been a key focus for the Sub-total 193.1 202.3 Group’s Pension Scheme over recent years and the Employee benefits (before deferred tax) 13.0 (4.1) actions the Group has taken have reduced Net assets 206.1 198.2 actuarial volatility and risk. In accordance with Net debt (77.1) (66.8) the Scheme specific funding and recovery plan Period end gearing 37.4% 33.7% the Group made cash contributions of £6.6 million into the Scheme in the year ended 31 December Net assets at 31 December 2011 were £206.1 2011. The change from RPI to CPI for inflation million (2010: £198.2 million). purposes means actuarial deficits have reduced and lower levels of cash contribution are expected The Group continues to keep a tight control of in the medium term as a consequence. The receivables. The balance sheet at 31 December actions the Group has taken to manage the 2011 shows an increase in trade and other actuarial position have also helped manage the receivables to £40.3 million (2010: £27.9 million). accounting risk. In the year ended 31 December The normal weather conditions in November and 2011 the AA corporate bond rate reduced from December 2011, compared with 2010, added £6 5.5 per cent to 4.8 per cent and liabilities million with underlying sales growth and the VAT increased by around £25 million as a result. The rate change to 20 per cent adding a further £3 Group’s Liability Driven Investments (“LDIs”), million. The return of normal credit insurance however, provide a hedge against Scheme availability for a number of customers added a liabilities and have risen in value to offset this. further £3 million and the impact of Marshalls NV accounts for the remainder of the increase. The Group maintains credit insurance which provides excellent intelligence to minimise the number and value of bad debts and ultimately provides compensation if bad debts are incurred. The Group's UK stock reduction programme (including the impact of the discontinued operation) has led to a volume reduction of around £7 million which, after the impact of upward cost inflation of £4 million, has released cash of approximately £3 million. The Group balance sheet shows a net increase of £0.7 million at 31 December 2011 compared with the prior year and this also reflects the increase in inventory to support the Group’s investment in Marshalls NV and the growth of the Group’s international operations. The Group’s investment in Marshalls NV has been £8 million, with £3.9 million comprising capital Drivesett Tegula, Pennant Grey Marshalls plc Annual Report 2011 19

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Business Review (continued) The fair value of the Scheme assets at 31 December committed facilities totalling £75 million that 2011 increased to £250.6 million (2010: £208.3 were due to mature in December 2012 and million) and the present value of funded January 2013. The strategy continues to be to obligations increased to £237.6 million (2010: retain significant committed facilities with a £212.4 million) and this has given rise to an positive spread of medium term maturities. accounting surplus of £13.0 million (2010: £4.1 Following the signing of these new facility million deficit) at the balance sheet date. These agreements, the Group has no need for further changes have resulted in an actuarial gain, net of committed facility renewals for two and a half deferred taxation, of £7.5 million (2010: £20.2 years. The total bank borrowing facilities at 31 million) and this has been recorded in the December 2011 amounted to £170.0 million Consolidated Statement of Comprehensive (2010: £168.4 million) of which £87.1 million Income. The values have been determined by the (2010: £97.5 million) remained unutilised. In Scheme Actuary using prudent assumptions in line addition, the Group has a seasonal working with current market levels for accounting purposes. capital facility of £20.0 million which is available between 1 February and 31 August each year. The Analysis of Net Debt Group has significant headroom in its facilities Analysis of net debt 2011 2010 with utilisation at 31 December 2011 representing £’m £’m just over 45 per cent of the available facilities. Cash and cash equivalents 6.0 4.1 Bank loans < 12 months (25.0) (40.9) Interest cover and net debt to EBITDA covenants Bank loans > 12 months (57.9) (30.0) in the facilities were met at the year end. The bank Finance leases (0.2) – facilities are unsecured save for inter-company (77.1) (66.8) guarantees between the Group and its subsidiary undertakings in favour of the facility banks. Net debt increased from £66.8 million to £77.1 million during the year with gearing at 31 The Group has a robust balance sheet with a good December 2011 being 37.4 per cent (2010: 33.7 per range of medium term bank facilities available to cent). The main reason for the increase has been the fund investment initiatives to generate growth as investment the Group has made in Marshalls NV market conditions improve. and its other international growth initiatives. £m 220 £m 220 Excluding this investment, net debt would have 200 200 been £69.1 million, being close to the previous year. 180 180 160 160 Borrowing facilities 140 140 The Group continues to focus on working capital 120 120 and capital expenditure management. Cash 100 100 management continues to be a high priority and 80 80 60 60 the Group remains committed to realising value 40 40 from surplus properties. The Group has realised 20 20 cash of £5.4 million from the sale of a surplus 0 0 property in the year ended 31 December 2011 2011 2011 2012* 2012* delivering a net profit on asset and property On demand: Seasonal (Feb to Aug) disposals of £1.4 million (2010: £0.4 million). On demand: Overdrafts (all year) The Group renewed certain bank facilities in Committed August 2011 and has also recently taken the Net debt opportunity in March 2012 to re-finance further *2012 based on consensus information 20 Marshalls plc Annual Report 2011

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Business Review (continued) Cash generation terms at 31 December 2011 contributed to the net cash outflow across the year. Consolidated Cash Flow 2011 2010 £’m £’m Analysis of cash utilisation 2011 2010 Net cash from operating activitives (before £’m £’m pension contributions and works closure) 19.6 28.8 Free cash flow 15.9 20.8 Works closure costs (1.2) (1.4) Capital expenditure (13.6) (11.9) Pension contributions (6.6) (6.6) Proceeds from sale of surplus assets 5.4 3.9 Net cash from operating activities 11.8 20.8 Investment/acquisitions* (8.2) (0.1) Working capital investment in International 4.1 – Disposal proceeds 0.6 0.0 Free cash flow 15.9 20.8 Finance leases (0.1) 0.0 Net cash from investing activities (15.8) (8.1) Cash returned to shareholders (10.3) (10.3) Net cash from financing activities (10.3) (10.3) Movement in net debt (10.3) 2.4 Net (decrease) / increase in cash and *Including working capital relating to International expansion cash equivalents (10.2) 2.4 of £4.1 million Movement in debt and lease financing (0.1) – Movement in net debt in the period (10.3) 2.4 Total expenditure on capital expenditure and Net debt at beginning of period (66.8) (69.2) acquisitions in the year was £13.6 million (2010: Net debt at end of period (77.1) (66.8) £11.9 million). The increase in the year was largely due to a strategic land purchase of £1.3 million The Group continues to be cash generative. In the and also includes capital expenditure relating to year ended 31 December 2011 the free cash flow International expansion of £1.0 million. The was £15.9 million (2010: £20.8 million), which majority of the expenditure was invested in the reflects the fact that £4.1 million has been replacement of existing assets, in business invested to fund the growth of working capital in improvements and new process technology. the Group’s International operations. This has Proceeds from the sale of surplus assets been included within the net cash outflow from contributed £5.4 million and £0.6 million was investing activities in the above analysis. received as initial consideration for the sale of the Reported net cash flow from operating activities discontinued garage and greenhouse businesses. was £11.8 million (2010: £20.8 million) after deducting £1.2 million (2010: £1.4 million) of one- off cash expenditure in relation to works closures and pension contributions of £6.6 million (2010: £6.6 million). Excluding the additional inventory added to support the growth of the Group’s International business, but including the stock reduction associated with the discontinued business, the reduced inventory volumes have released cash of approximately £3 million. Including these items, there has been a net cash outflow of £8.3 million from monetary working capital. The main reason for this is that at 31 December 2010 trade receivables were around £6 million lower than might have been expected due to the severe weather conditions in November and December 2010. In addition, the increase in the VAT rate and, in general, a return to normal customer credit Avant-Garde Imperial Marshalls plc Annual Report 2011 21

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Business Review (continued) In 2011 the Group completed the five year paid £15.3 million in Pension Scheme implementation of a Group wide IT system and contributions. Cash generation before dividends, this has provided greater business flexibility and the impact of the Rights Issue and the redemption systems efficiency. It has enabled the Group to of the debenture stock has been £33.5 million integrate new businesses in the UK, Belgium and over the last three years. Net debt has fallen by China in an efficient and cost effective manner. £34.2 million, in the same period, with gearing falling to 37.4 per cent. Dividend payments to shareholders in the year were £10.3 million (2010: £10.3 million). As explained earlier, the Group’s cash generation performance against detailed cash flow targets is a The utilisation of cash over the last three years is strategic KPI. In 2011, the short term targets illustrated below: that were set by the Board to support this were achieved. The Board’s current short term Analysis of cash utilisation, 2009-2011 objective is to conserve cash wherever possible and £’m to maintain gearing at around the current level. Operational cash generation 80.5 Capital expenditure (23.1) Principal Risks and Risk Acquisitions / disposals (8.5) Pension contributions (15.3) Management Other financing items (0.1) The Group’s Risk Committee determines the Sub-total 33.5 Group’s approach to risk, its policies and the Cash returned to shareholders (26.0) procedures that are put in place to mitigate Rights Issue 34.0 exposure to risk. There is a formal ongoing process Redemption of debenture (7.3) to identify, assess and analyse risks and those of a Movement in net debt 34.2 more material nature are included in the Group 2008 2011 Risk Register. The Group Risk Register is reviewed £’m £’m and updated at least every six months and the Net debt (111.3) (77.1) Capital employed 193.2 206.1 overall process has been the subject of a detailed Gearing 57.6% 37.4% re-appraisal during 2011. A number of modifications have been made to facilitate This table provides a medium term three year reporting and to ensure the consistent analysis of the cash generation capacity of the identification and classification of risks across the Group and how cash generated has been utilised. wider Group. Risks are recorded with a full analysis Cash generated from operating activities was £80.5 and risk owners are nominated who have authority million. The Group has re-invested £23.1 million and responsibility for assessing and managing the (net of disposal proceeds) back into the business in risk. All risks are analysed for impact and probability the last three years, which represents a significant to determine exposure and impact to the business reduction from earlier levels. This reduction has and the determination of a “gross risk score” been possible as a consequence of the major enables risk exposure to be prioritised. External capital investment programme in the first half of risks include the weather, political and economic the last decade, which has given the Group conditions, the effect of legislation or other efficient, industry leading manufacturing and regulatory actions, the actions of competitors, distribution facilities, and has enabled it to reduce foreign exchange, raw material prices and pension capital expenditure during the downturn to funding. Internal risks include investment in new preserve cash. products, new business strategies and acquisitions. The Group has also invested £8.5 million in The Group seeks to mitigate exposure to all forms business acquisitions in the last three years and of strategic, financial and operational risk both 22 Marshalls plc Annual Report 2011

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Business Review (continued) external and internal. The effectiveness of key Group’s aim is to ensure an excellent mitigating controls is continually monitored and understanding of market conditions by constant such controls are subjected to internal audit and communication with customers, installers and periodic testing in order to provide independent domestic consumers, together with significant verification where this is deemed appropriate. The investment in market research and active effectiveness and impact of key controls are membership of the CPA. Close monitoring of evaluated and this is used to determine a “net risk trends and lead indicators enables the Group to score” for each risk. The process is used to develop identify and implement necessary action plans to action plans that are used to manage, or respond address issues that are affecting trading. The to, the risks and these are monitored and balance of revenue between the consumer driven reviewed on a regular basis by the Group’s Risk Domestic end market and the Public Sector and Committee. Commercial end market also helps mitigate the potential impact of these risks. The principal risks and uncertainties facing the Group are described below. The additional investment the Group has made to expand its International operations has increased Strategic Risks the Group’s exposure to European markets. Economic Conditions Despite the increasingly uncertain economic backdrop the low cost nature of the investment The Group is susceptible to any economic has helped mitigate the overall risk. downturn and is dependent on the level of activity in its markets. In the Domestic end market Competitor Activity activity levels are driven by many factors including general economic conditions, interest A failure to compete with competitors on price, rates, inflation, unemployment, demographic product range, quality and service could have an trends, general uncertainty in the financial adverse effect on the Group’s financial results. The markets and the availability of credit. These increase in demand for imported natural stone factors also affect activity levels in the Public products may also attract new low cost Sector and Commercial end market where activity competitors into the market but the development levels are also affected by the extent and speed of of the Group’s Chinese supply chain for stone delivery of planned Government investment. The products has helped complement the more traditional source of supply from India. This initiative has provided the Group with a broader range of supply options and a wider selection of product solutions across extended International end markets. All these areas are monitored on a constant basis and the Customer Service Index remains one of the Board’s key strategic KPIs. The Group continues to invest in strategies that enhance the Marshalls brand. Increases in the price of oil, utilities and other raw materials Any significant increases in the price of oil, utilities and other raw materials could adversely affect the Group’s performance. Diversity of operations reduces the risk on any single item on supplies and purchasing policies seek to take into account Drivesett Tegula, Priora, Harvest Marshalls plc Annual Report 2011 23

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Business Review (continued) and mitigate such risks, where possible. Where throughout the period under review, that no appropriate, the Group uses hedging instruments speculative trading in financial instruments shall to mitigate the risk of significant forward price be undertaken. rises and fuel hedging procedures have been introduced in 2011. The Group enters into forward foreign currency contract derivative transactions of relatively small Financial Risks value. The purpose of such transactions is to Access to Funding manage the currency risks arising from the Group’s operations. The Group manages its insurance risk The Group requires continued access to debt by continuous review and by maintaining a funding in order to meet its trading obligations balance between capped self insurance and third and to support the growth of the business. party cover against major catastrophes. Uncertainty in financial markets means that there is a potential risk that the Group may be unable to Pensions obtain additional funds when needed or may be The defined benefit section of the Pension Scheme able to do so on unfavourable terms. A breach of was closed to future service accrual on 1 July 2006 bank covenants could result in elements of the and the introduction of a new defined Group’s borrowings becoming immediately contribution section to the Pension Scheme has repayable. The Group renewed its bank facilities in allowed the Group to manage risk better and August 2011 and introduced Barclays Bank plc as reduce volatility in the future. Nevertheless the an additional banking partner. The introduction of Group continues to be subject to various financial a fourth bank creates additional financial risks in relation to the Pension Scheme, principally flexibility. Committed bank facilities of £75.0 the volatility of the discount (AA corporate bond) million were also refinanced in March 2012 and rate relative to gilt yields, any downturn in the the Group has significant committed facilities in performance of equities and increases in the place with a good spread of medium term longevity of members. The sensitivity to the AA maturities. The Group manages its medium term Corporate Bond rate is broadly that, all other bank debt to ensure continuity of funding and the things being equal, a 0.1 per cent movement in the policy continues to be to arrange funding ahead of discount rate is equivalent to a movement of requirements and to maintain sufficient un-drawn approximately £4.2 million in the Scheme committed bank facilities. To mitigate these risks liabilities. the Group constantly reviews its strategic forward plans to reflect changing market conditions with Under the Liability Driven Investment (“LDI”) the aim of maintaining significant headroom strategy adopted by the Scheme this sensitivity against its facilities. Medium term financial would be offset very substantially by a movement forecasts and shorter term budgets are regularly in Scheme assets where the change in AA reviewed to assess financing requirements to corporate bond yield is simply a movement in line ensure sufficient headroom against facilities. with fixed interest securities in general. The sensitivity to inflation is broadly that, all other Financial Instruments things being equal, a 0.1 per cent movement is The main risks arising from the Group’s financial equivalent to a movement in the Scheme liabilities instruments are liquidity risk, interest rate risk, of broadly £1.5 million, although this would also credit risk and foreign currency risk. The Board be offset almost entirely by a movement in reviews and agrees policies for managing each of Scheme assets. As far as mortality is concerned an these risks and these are summarised in Note 18 increase of one year in life expectancy would, all on pages 106 to 110 of the Financial Statements. other things being equal, give rise to an increase in These policies have remained unchanged since Scheme liabilities of approximately £7.5 million. 2010. It is the Group’s policy, and has been Risk management remains a core theme of the 24 Marshalls plc Annual Report 2011

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Business Review (continued) Group’s Pension Scheme strategy and the Key Relationships previous transfer of a proportion of Scheme assets The Group has strong relationships with its from equities to liability driven investments is a business partners while seeking to ensure that it is further example of an action that has reduced not dependent on any single category of volatility and risk. customer, contractor or supplier. Business dealings are governed by a combination of longer Operational Risks term and single transaction written contractual Business integration terms. Marshalls continues to make strategic business acquisitions that might have an impact on the Group Outlook performance and risk profile of the Group. These The CPA’s most recent forecast predicts a small risks are mitigated by extensive due diligence and reduction in UK market volumes in 2012. where practicable, by representations and However, Marshalls would expect the positive indemnities from the vendors. The integration of impact of its targeted growth initiatives to acquisitions also involves a number of further continue to bring positive benefits. Based on the risks including the diversion of management’s Group’s forward indicators, Commercial work is attention and the retention of key personnel expected to continue to improve from historically within the acquired business. In this regard each low levels, although Public Sector demand is acquisition is supported by a detailed integration starting to weaken as current projects are plan covering all key areas of activity and completed. The installer market remains stable dedicated project teams containing employees and the Group’s international growth strategy is from the wider Group with the appropriate skills now in place. required. To support and enable future growth the Group upgraded its IT systems and this ensures a In response to the market downturn, Marshalls common platform across all business units. All IT has simplified and refocused its operations. This is systems development projects are actively and intended to ensure that it will be in a strong carefully planned with defined governance and position when markets improve with increased control procedures in place. They are also operational and financial flexibility. The Group has supported by independent risk and project permanently reduced its cost base and continues management audits to ensure that procedures to have the lowest cost to market across the and policies are in line with leading best practice. widest geographical range. As a result of its An important element is to ensure that the risks of positive actions, Marshalls continues to be well disruption to the business are controlled and placed to outperform the market in the short term minimised. and to benefit more strongly from operational gearing, once market conditions improve. Employees Current economic uncertainty may have increased the possible risk of staff turnover and may potentially de-motivate remaining staff. One of the Group’s key strengths is the quality and experience of its employees and significant resource continues to be directed towards training, personal development and succession planning. Marshalls plc Annual Report 2011 25

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Directors’ Biographical Notes Andrew Allner (58) (2,3) Ian Burrell (54) Non-Executive Chairman Finance Director Term of Office: Appointed to the Board in July Term of Office: Appointed to the Board in June 2003 and appointed as Chairman of the Board on 2001. Last re-elected in May 2011. 12 May 2010. Last re-elected in May 2011. Also Independent: No chairs the Nomination Committee. Skills and experience: Ian Burrell joined the Independent: Yes Group in 2001. He is a Chartered Accountant and Skills and experience: Andrew Allner is a Non- has held a number of senior financial positions in Executive Director, Senior Independent Director industry, including that of Group Finance Director and Chairman of the Audit Committee at AZ at Cornwell Parker plc. He is also Chairman of the Electronic Materials SA and The Go-Ahead Group Trustees of the Company’s Pension Scheme, and is plc and also serves as a Non-Executive Director a Non-Executive Director, Chairman of the Audit and Chairman of the Audit Committee at CSR plc Committee and a Trustee of Leeds Trinity and Northgate plc. He was previously Group University College. Finance Director of RHM plc, taking a lead role in its flotation in July 2005 on the London Stock Exchange. Prior to joining RHM plc, Andrew Allner David Sarti (46) was CEO of Enodis plc, and he has also served in Chief Operating Officer senior executive positions with Dalgety plc, Term of Office: Appointed to the Board in Amersham International plc and Guinness plc. He November 2004. Last re-elected in May 2009. is a former partner of Price Waterhouse and is a Independent: No Fellow of the Institute of Chartered Accountants Skills and experience: Joined the Group in March in England and Wales. He is a graduate of Oxford 2001 as Group Operations Director having University. previously been a business strategy consultant with Accenture. He is a Chartered Director. He is also a Non-Executive Director of a private group of Graham Holden (52) companies in the distribution and retail sector, Chief Executive and serves on the Board of the British Pre-Cast Term of Office: Appointed to the Board in 1992. Concrete Federation Limited. Last re-elected in May 2011. Independent: No Skills and experience: Graham Holden joined the Alan Coppin (61) (1,2,3) Group in 1986. He is a Chartered Accountant and Non-Executive Director graduate of the Harvard Advanced Management Term of Office: Appointed to the Board in May Programme. He was previously Group Finance 2010, and elected in May 2011. He is the Senior Director, and has held other senior executive Independent Non-Executive Director and positions within the Group. He was appointed to Chairman of the Remuneration Committee. his current position on 1 January 2004. He is also Independent: Yes a Non-Executive Director of KCOM Group Plc, Skills and experience: Alan Coppin has extensive appointed in 2007, and chairs its Remuneration cross-sector governance and management Committee. He is Chairman of the Yorkshire and experience. He is currently Chairman of The Retail Humber Regional Advisory Board of Business in People and is a Non-Executive Director of the the Community, and has served as the Prince’s Royal Air Force, and of Berkeley Group Holdings Ambassador to the region since 2010. He also plc, where he chairs the Remuneration serves on the Board of the Mineral Products Committee. His previous roles include Association and is a Visiting Fellow in the School chairmanship of the Prince’s Foundation for the of Management at Cranfield University. Built Environment and Non-Executive directorships at Capital and Regional plc and Carillion plc. 26 Marshalls plc Annual Report 2011

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Directors’ Biographical Notes (continued) Mark Edwards (57) (1,2,3) Tim Pile (59) (1,2,3) Non-Executive Director Non-Executive Director Term of Office: Appointed to the Board in May Term of Office: Appointed to the Board in 2010, and elected in May 2011. Chairman of the October 2010 and elected in May 2011. Audit Committee. Independent: Yes Independent: Yes Skills and experience: Tim Pile is the Chief Skills and experience: Mark Edwards is a Executive of Cogent Elliot, the independent Chartered Accountant with a strong financial marketing agency, and was formerly Chief background and wide UK and international Executive Officer of Sainsbury's Bank. He has held experience, especially in the manufacturing a number of senior roles in the financial services sector. He is Chief Executive Officer of Aim and marketing communications industries and Aviation Limited, and was formerly Chief has wide business experience, particularly in Executive of the Baxi Group. He has also served as marketing. Vice President of the Construction Products Association. Board Committee Membership 1 - Member of the Audit Committee 2 - Member of the Nomination Committee 3 - Member of the Remuneration Committee Cathy Baxandall Group Company Secretary Advisers Stockbrokers Registrars Citigroup Global Markets Limited Computershare Investor Services PLC Numis Securities Limited The Pavilions Bridgwater Road Auditors Bristol BS99 6ZZ KPMG Audit Plc Shareholders’ enquiries should be addressed Legal Advisers to the Registrars at the above address Herbert Smith LLP (Tel: 0870 707 1134) Eversheds LLP Pinsent Masons LLP Registered Office Financial Advisers Birkby Grange N M Rothschild & Sons Limited Birkby Hall Road Huddersfield HD2 2XB Bankers Royal Bank of Scotland plc Telephone: 01484 438900 Lloyds TSB Bank plc Facsimile: 01484 438945 HSBC Bank plc Barclays Bank plc Internet address: http://www.marshalls.co.uk Registered in England and Wales: No. 5100353 Marshalls plc Annual Report 2011 27

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Corporate Responsibility “In 2011 Marshalls continued its Corporate Responsibility journey to align our business values, purpose and strategy with the social, economic and environmental needs of our stakeholders, embedding responsible and ethical business policies and practices in everything we do.” Marshalls is widely regarded as a leader in its field regarding Corporate Responsibility ("CR") and sustainability commitment and activity. The Group continues to find increasingly innovative and meaningful ways to communicate, consult and engage with customers, employees, suppliers, partners and wider stakeholders on sustainable issues. The UNGC provides a framework for businesses that are committed to aligning their operations The Group’s drive to maintain high standards and and strategies with the ten universally accepted operate in a sustainable manner is headed up by principles in the areas of human rights, labour, the Board Director David Sarti who is responsible for environment and anti-corruption. Since our managing the key elements of the Corporate participation in early 2009 Marshalls has positively Responsibility policy. He is supported directly by benefited from UNGC engagement. The Group the Group Marketing Director, the Corporate publishes an annual Communication on Progress Responsibility Manager and the Group Head of Report ("COP") which details its adherence Sustainability. As CR and sustainability become to UNGC principles and its impact in terms of CR increasingly embedded throughout operations and sustainability. COPs can be found at more employees are becoming directly involved www.marshalls.co.uk/sustainability. with the Group’s commitments in this area. The Group also publishes a separate annual Marshalls continues to be a constituent member Corporate Responsibility Report which details of the FTSE4Good UK Index, a member of Business the Group’s approach to CR and sustainability in the Community ("BITC") and a signatory of the and which can be accessed at United Nations Global Compact ("UNGC"). www.marshalls.co.uk/sustainability. The Group is reviewing its approach to CR reporting to bring it BITC membership demonstrates and supports the into line with the standards laid down by the Group’s commitment to responsible business Global Reporting Initiative a globally recognised practice and helps the Group to develop standard for meaningful reporting on continually its integrated approach to sustainability and CR. implementing CR strategy. Graham Holden, Marshalls’ Chief Executive, is the Regional External recognition Advisory Board Chairman for Yorkshire and In 2011, Marshalls was awarded the honour of a Humber. His leadership and commitment to Big Tick as well as being Highly Commended in responsible business were acknowledged when the BITC Awards for Excellence. Marshalls also he was appointed during 2011 for the second year received the regional BITC Coffey International running as the Prince’s Ambassador in Yorkshire Award for companies that contribute to the and Humber. achievement of the United Nations Millennium Development Goals. The UNGC is a key driver of CR and sustainability and is becoming the international standard Marshalls was also recognised with re- against which global corporate citizenship and accreditation as a Big Tick Winner for ‘Skills in the social engagement can be measured. Workplace’, and ‘Sustainable Marketing’. 28 Marshalls plc Annual Report 2011

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Corporate Responsibility (continued) At the 2011 Ethical Corporation Responsible The Market Place Business Awards, Marshalls won the “Best The Group recognises the importance of building Collaboration” Award for its work on responsible and maintaining positive relationships with its sourcing in India. customers, suppliers and contractors and is committed to a process of continuous The Mineral Products Association awarded improvement in meeting customers’ Marshalls a “Special Award” for company requirements. commitment to biodiversity and nature conservation in October 2011. During 2011 Marshalls gained the Certificate of Approval, Responsible Sourcing of Building At the Stone Federation Natural Stone Products having complied with the requirements Sustainability Awards, Marshalls received an identified in BES 6001 – Framework Standard for award for “Sustainability Awareness” for a the Responsible Sourcing of Construction biodiversity project at the Stancliffe Stone site in Products at the ‘Very Good’ performance rating. Matlock in Derbyshire. The Group’s established customer service At the National Payroll Giving Excellence Awards improvement programme again resulted in 2011, Marshalls were Highly Commended its significant and sustained improvement in employees having donated £26,133 (2010: customer order delivery, on time, in full and with £28,422) to charities throughout the UK through increasingly error free product and payroll giving. administration. Performance against the Customer Service KPI is reported monthly to In early 2011 Marshalls Credit Account management and the Board and is a component Management team gained the Quality in Credit of senior management’s performance-related Management (“QiCM”) accreditation. The QiCM incentive scheme. programme is an accreditation of a credit management team through an assessment and The Group Purchasing Policy sets out the measurement process. standards and ethics for dealings with suppliers. It seeks to ensure that there is no bias or conflict of Marshalls once again achieved Business to interest and that all suppliers are treated fairly. Business Superbrand status for 2012. The The policy is regularly reviewed and updated in announcement follows a robust research process the light of changes to regulation and best administered independently by The Centre for practice. The Group negotiates terms and Brand Analysis which analysed the views of a conditions, including payment terms, with all council of experts and 2,000 UK business its principal suppliers. Save in the case of a professionals. dispute, payments are made in accordance with such negotiated arrangements. The Group values and derives considerable competitive advantage from active co-operation with its established suppliers in terms of innovation and product development. In 2011 the Marshalls Brand Manifesto was updated based upon significant customer and consumer research to enable the Brand to more closely match customer needs and expectations. This is set out overleaf. Marshalls plc Annual Report 2011 29

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Corporate Responsibility (continued) The Marshalls Brand Manifesto We are all influenced by our environments and the better our environment the better we can be. Marshalls believe that we all need places that make us feel safer, happier and more sociable. Places to be ourselves, where we can live, play, create and grow. That belief drives us to be the best we can be. To design and produce new products which are better than anything else available. To make them from the best materials we can source and to care about the impact that our Company and its products have on our society. Above all, our belief fuels the passion on which Marshalls is built. To architects, town planners, civil engineers, builders merchants, paving installers and home owners, we pledge a passion to bring to life all that you can imagine. A passion that will enable you to breathe new life into those corners of the landscape where potential lies unfulfilled and unchallenged. Our passion pervades everything we do. We use our expertise to create integrated landscapes which promote wellbeing to the benefit of everyone. So, whether it’s through fairly traded stone, providing products which alleviate flood risks, enabling our business partners to share in our success or creating innovative street furniture that protects us from attack we proudly strive to make our world a better place. One stone, patio, pavement, town square or car park at a time. Marshalls, Creating Better Landscapes Ethical Responsibilities UK and overseas. Full time social auditors work on The Group remains wholly committed to ethical a daily basis to verify working practices and business practice. It takes those ethical ensure that the Base Code is applied within the responsibilities very seriously and acknowledges supply chain overseas. that its responsibilities extend to ethical issues in relation to labour, environment, human rights and The Group is two years into an initial four year anti-corruption. programme of Human Rights Impact Assessments ("HRIA") in India, China, Vietnam and the UK. The The Group was the first in its Sector to join the first year focused upon assessments in the Ethical Trading Initiative ("ETI") and to adopt the quarries in Kota, Rajasthan and the second upon ETI Base Code on a progressive basis throughout the manufacturing process in China. Both HRIAs its supply chains, with specific focus on China and have been reviewed annually. 2012 will focus India. This code is based on International Labour upon Vietnam. The HRIA process, inspired by Organisation conventions and is widely UNGC engagement, has allowed the Group to acknowledged as a model code of labour practice. begin to understand fully, engage and develop its The Code can be found on the ETI website human rights approach. The Group adopted a www.ethicaltrade.org. ‘Human Rights Policy’ during 2011, developed Human Rights Guidance Documentation and The Group is committed to monitoring and together with the UNGC undertook a supplier improving ethical standards in its supply chain education event which focused upon human and assessing the impact of its core business rights and the influence of business in this area. activities on labour standards. Annual progress reports are provided to the ETI. In addition annual The Group adopted an Anti-Bribery Code in independent audits are carried out. The Group October 2011 as part of its response to the UK continues to work hard with suppliers both in the Bribery Act 2010. The Group’s approach, policies 30 Marshalls plc Annual Report 2011

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Corporate Responsibility (continued) and procedures in relation to the prevention of empowering employees to engage in bribery and corruption have been developed volunteering and community projects as a way of further during the year and there is an ongoing positively interacting with the communities in monitoring and training programme associated which they operate. In particular during 2011, with these measures. This is underpinned by the manufacturing sites held events involving their development of a Sustainable Procurement local communities as part of the Group’s Strategy. The Group’s systems and procedures will engagement with the local community. During be regularly monitored and audited to ensure that the year the Group made charitable donations of the Group remains fully compliant with the £58,034 (2010: £49,096). Marshalls also had a very requirements of the Act. successful 2011 with its first Charity of the Year, ‘Thrive’, whose aim is to enable positive change in The Group’s ethical standards are fast becoming the lives of disabled and disadvantaged people synonymous with its brands. The Group’s ability through the use of gardening and made a to compete in both the domestic and public area significant contribution to the creation of their is strengthened by its ethical stance. new ‘Garden Gallery’. The Environment In the Business in the Community Corporate Responsibility Index 2011 Marshalls are extremely Marshalls is committed to assessing and proud to have been placed in the Gold Band. The managing the environmental impacts of all its index is the UK’s leading voluntary benchmark of operations. Further details are set out in the CR, a framework to help companies to integrate Environmental Report on pages 36 to 44. and improve CR (Community, Environment, Marketplace and Workplace) throughout their The Community operations by providing a systematic approach to The Group continues to be actively involved in managing, measuring and reporting on business programmes which promote good community impact in society and on the environment. relations, for example, by encouraging and Mining Laborer’s Children’s School in India Marshalls plc Annual Report 2011 31

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Corporate Responsibility (continued) Employees needs and aspirations of its employees. The importance of the engagement agenda has been The people at Marshalls are key to the success of further underlined with the decision to add new the organisation. Marshalls’ employees are resource to the Human Resources team focusing encouraged and expected to adhere to the specifically on co-ordinating and framing our Group’s Statement of Values and Principles. The engagement activities. statement includes guidance on business practice, employee relations and equality of The financial results of the Group, and reports on opportunity and is subject to regular review to the Company’s performance, are communicated ensure that it continues to set stretching to employees through an internal intranet, notice standards in terms of trust, honesty and integrity, boards and regular briefings. There is also an leadership, ownership and excellence. There is employee share purchase plan that allows also a published process (the Serious Concerns Policy) through which employees can raise, in confidence, serious concerns about possible improprieties. Marshalls recognises and appreciates diversity within its workforce and the wider community. Marshalls is committed to promoting and maintaining a working environment where people are treated with respect and where individual talent is recognised and valued and to providing training designed to raise levels of awareness and sensitivity to matters of equality and dignity at work. Marshalls’ aim is to implement fair and merit-based employment policies and to adhere to relevant legislation as the minimum acceptable standard. This includes compliance with the provisions of the Equality Act 2010 which harmonises and strengthens previous discrimination-based legislation to provide a simpler and more consistent framework for the effective prevention of discrimination against individuals with protected characteristics. In particular, the Group welcomes and gives full and fair consideration to applications from individuals with recognised disabilities and will ensure they are provided with equal opportunity for employment and career development. Wherever reasonably practicable, training is offered and adjustments are made to ensure that disabled employees or those who become disabled, are not disadvantaged in the workplace. Marshalls operates an increasingly broad framework of engagement initiatives introduced to develop the Group’s ability to respond to the Geo Cycle Stands 32 Marshalls plc Annual Report 2011

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Corporate Responsibility (continued) employees to purchase the Company’s shares range of issues. The Group has worked on through monthly contributions from salary. identifying and articulating its organisational competencies, which provide a valuable source of Marshalls’ ‘Options’ platform, which serves to sustainable competitive advantage and will improve engagement through the offer of a wide support development of our people and teams range of employee-focused benefits, offers a across our UK and non-UK operations. Childcare Voucher Scheme and a ‘Cycle to Work’ Scheme to employees, both of which have been The Group continues to encourage greater welcomed and embraced enthusiastically by flexibility of working practices amongst participating employees. This has recently been employees by inviting applications from expanded to include discounted gym individuals who wish to discuss alternative membership and emphasises the growing working patterns. Such applications are given importance of employee well-being as an proper consideration and implemented wherever organisational agenda item. practicable. Since its launch in 2010, the Group has continued The negotiation of a two-year pay deal for both to develop its internal Pulse! employee survey 2011 and 2012 has provided the foundation for a during 2011, with a view to establishing a base period of stable employee relations at Group and line of employee opinions, ideas and suggestion, individual site level, underpinned by the Group’s which can be measured and developed over time. Joint National Forum negotiating arrangements A specific objective has been established that and the renewal of the joint lay–off agreement every employee within the Group will be provided originally agreed in 2009. The ‘Dignity at Work’ with the opportunity to discuss their work programme designed to raise awareness of the objectives, performance, personal development dangers of bullying and harassment in the and career aspirations, supported by an workplace has been proactively communicated appropriate programme of training and and well-received across numerous Group sites. awareness-building. This has been a joint collaboration between the Company, recognised trades unions and ACAS Significantly, during the last quarter of 2011, the and will continue throughout 2012. Group participated in the Best Companies Workplace Engagement Survey for the first time Training and personal development also and in so doing, attained accreditation as ‘One to continues across the Group with initiatives in Watch’ in 2012. This participation helps us to place designed to identify and nurture potential, benchmark the Group’s activities against other reinforce the application of consistently good companies focused on organisational excellence. management practices and provide opportunities for succession into more senior roles. There is a continuous programme across Group sites to support the development of Marshalls’ employees through NVQ accreditation. Beyond the UK, the Group’s European and Chinese operations have now been successfully integrated and stabilised. The Belgian-based The emphasis on greater engagement with manufacturing operations are being further employees is further supported by employee supported and developed through the ‘Ambassadors’ from across the business, each recruitment of additional sales resource to providing a touch point for the communication facilitate further development into the and interchange of views and ideas on a wide Netherlands, France and Germany. Marshalls plc Annual Report 2010 33

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Corporate Responsibility (continued) Health and Safety quarry operatives have achieved a Level 2 NVQ qualification in their respective roles. The The improvement of both the Health and Safety Company has also signed up to the Institute of Management System and annual Health and Quarrying’s Continuous Professional Safety Performance remain key priorities that are Development scheme to enable managers and fundamental to the success of the business. The supervisors to follow a recognised competency Group’s Chief Operating Officer, David Sarti, is the programme. Director with primary Board-level responsibility for the Health and Safety performance of the The Group’s principles regarding the health and Group. The Group has a written Health and Safety safety of employees, and their application policy, which is approved by the Board, and is throughout the business, are set out in the reviewed at least annually. Health and Safety Policy. The Group’s Health The Safety, Health and Incident Prevention and Safety performance is monitored by the ("SHIP") teams, consisting of both employee Board on a monthly basis using a number of representatives and managers, are the KPIs. These measure the number and type of cornerstone of the safety management systems at workplace accidents. The statistics recorded for site level, and have continued to operate 2011 take account of the accident figures for throughout the year. Over recent years, the Marshalls NV. Group’s operating sites have been encouraged to implement Integrated Management Registration The total number of accidents recorded in 2011 systems accredited by the British Standards were 14 per cent lower than in 2010 and the Institution (“BSI”) incorporating accreditation to number of lost time accidents ("LTAs") recorded OHSAS (Occupational Health and Safety were 5 per cent lower during the same period. The Accreditation Standard) 18001:2007. At the end rate of accidents reportable to the HSE under the of 2011 the Group held a total of 40 BS OHSAS Reporting of Injuries, Diseases and Dangerous 18001:2007 registrations, 5 of these being Occurrence Regulations ("RIDDOR") fell by 18 per achieved throughout the year. This equates to a cent in 2011 (Table 1), but it was disappointing production tonnage manufactured under a that among these the proportion of “major registered safety management system of 93 per injuries” as measured under RIDDOR increased cent. slightly. Training throughout the year focused on developing the competencies of managers and supervisors to proactively manage health and safety in the workplace. A total of 56 managers attended the four day IOSH “Managing Safely” course, whilst 37 supervisors attended the three day IOSH “Safe to Supervise” course. In addition a further 105 managers and supervisors attended refresher training courses. Marshalls has made significant progress towards satisfying the Mineral Products Association’s ("MPA") Policy of having a demonstrable competency programme in place for the quarrying sector. All employees appointed in a capacity of direct responsibility have achieved at least a Level 4 NVQ, whilst 70 per cent of those appointed in a supervisory capacity have achieved at least a Level 3 NVQ and 62 per cent of Two Millstones, Grey Green on Atlantic Pebbles 34 Marshalls plc Annual Report 2011

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Corporate Responsibility (continued) the KPIs for 2012, and the future as applied Table 1 Accidents and incidents retrospectively, are shown in Table 2. (rate per 1,000 employees) 2007 2008 2009 2010 2011 Table 2 Major injury 4.2 1.1 0.8 2.1 3.7 Accident frequency and Injury resulting in over severity rates 3 days absence (per 100,000 hrs from work 13.5 18.0 20.6 16.3 11.4 worked) 2007 2008 2009 2010 2011 All accidents 9.94 9.74 10.43 9.49 8.32 All RIDDORS 17.7 19.1 21.4 18.4 15.1 All lost time accidents (“LTA”) 1.79 1.69 2.16 1.60 1.55 Average UK headcount 2,804 2,774 2,464 2,391 2,456 All days lost 25.89 27.14 25.18 14.76 20.44 Average UK The Group has previously measured its Health and headcount 2,804 2,774 2,464 2,391 2,456 Safety performance against a reduction in the number of reportable and lost time accidents with Due to fewer hours being worked in 2011 when a target of 10 per cent reduction year on year. Due compared to 2010, the improvements in accident to forthcoming changes in legislation relating to and severity trends based on rates as opposed to the reporting of accidents to the HSE, and in actual numbers are slightly lower. During 2011, all response to the increase in the severity rate of accidents were reduced by 12 per cent, with LTAs workplace accidents, the focus of attention will reducing by 3 per cent, but the number of days change in 2012. The new target for 2012 will be a lost increased by 38 per cent. 10 per cent reduction in days lost resulting from workplace accidents. All measured KPIs will now The Group continues to strive to improve the be referenced against hours worked to produce quality and safety of the working environment for accident frequency and severity rates which will employees. Marshalls remains committed to bring the Group’s reporting strategy into line with meeting the highest safety standards for all its that of its industry peers. To ensure transparency, employees, to reinforce and develop its safety the results for 2011 have been recorded in the processes and to develop a competent workforce same format as in previous years (Table 1), whilst with a view to achieving long term improvement gains. Natural Vintage Stone Paving Marshalls plc Annual Report 2011 35

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Environmental Report “As a business, we aim to set ourselves apart in all that we do, and this includes leading the way on social, environmental and economic management. Sound environmental management and behaviours are increasingly important for customers and end users of our products. By reducing the environmental impact of our activities, managing our operations in a sustainable way, and seeking innovation in our use of energy and materials, we aim to improve overall business efficiency, build on positive customer and supplier relationships and reinforce the core values connected with ‘creating better landscapes’. “ In compiling this Environmental Report it is minimising the impact of its operations. evident that some of the current measures are • All operations should meet or exceed the sensitive to changes in external climatic or requirements of legislation and applicable best economic conditions, the Company’s general practice. Where no legislation exists, best activity level and the product mix demanded by practice will remain an integral part of our customers. To minimise the effect of these Marshalls’ business strategy. factors which are to a greater or lesser degree • The Group is committed to considering the outside the Company’s control we plan to review environmental impacts associated with its and refine the measures used. Originally planned products throughout their life cycle. for 2011, we have postponed the review until Spring 2012, so as to incorporate any measures • Policy is supported by monitoring and required to report against targets from the measuring environmental performance using Sustainable Concrete Forum. Part-year data from appropriate external guidelines wherever Marshalls NV’s operations in Belgium have been practicable. Operating sites have assessed the excluded from the 2011 data. 2012 data will environmental aspects of their activities, and include Marshalls NV on a full-year basis. objectives and targets aimed at improving the overall environmental impact of those As well as reporting excellent progress with our activities have been set. These are reviewed on ongoing programme of certification to at least an annual basis. internationally recognised standards we are • Marshalls will continue to raise environmental pleased to report our certification at “Very Good” awareness within the Group through the for Responsible Sourcing against BRE BES6001. development and training of its employees and will communicate openly and consult with Board Responsibility customers, suppliers and other stakeholders on The Group’s Chief Operating Officer, David Sarti, is relevant environmental matters. the Director responsible for the Environmental • Marshalls strives to conserve natural habitats Performance of the Group. The Group’s and create additional areas of biodiversity Environmental Policy is approved by the Board value, participates in benchmarking and is reviewed at least annually. The full text of biodiversity at suitable operational sites and the Policy can be found on the Group’s website has implemented a Group-level biodiversity www.marshalls.co.uk/sustainability. action plan. The Group also recognises the need for sympathetic restoration and after-use Environmental Policy - Key Features of quarry and other operational sites. Target – To operate within the relevant legal • Marshalls considers the character of the local frameworks and comply with appropriate environment and the concerns of the local legislation. community and other stakeholders in relation • The Group has a commitment to achieving the to its activities. highest standards of environmental performance, preventing pollution and 36 Marshalls plc Annual Report 2011

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Environmental Report (continued) Environmental Management February 2012. The Group will review its own targets in line with its commitment as a signatory. Target – 90 per cent of Group production manufactured at sites operating an integrated Carbon management system in accordance with Publicly Available Specification 99:2006 (“PAS Target – to reduce our absolute CO2 99”) by 2012. consumption in line with government targets (34 per cent by 2020 and 80 per cent by 2050). Marshalls has met its target, as during the year 32 (2010: 24) sites were operated to the PAS 99 Marshalls’ Energy and Climate Change Policy specification, representing 90 per cent of the approved by the Board during the year confirms Group’s manufacturing output. the Group’s commitment to reducing the CO2 impact of its business activities. By the end of 2011 the Group had 54 operational* sites (2010: 52). The net increase of 2 sites includes The Group has complied with its legal obligation a new Premier Mortars site and an additional in the Government’s Carbon Reduction dimensional stone quarry. Of these sites: Commitment Energy Efficiency Scheme (“CRC”) • 46 (2010: 42) had ISO 9001:2000 Quality and submitted both its footprint and annual Management Systems in place representing 96 reports for the period April 2010-March 2011 per cent of the Group’s manufacturing output; within the time limits imposed by the legislation. • 39 (2010: 30) had ISO 14001:2004 for As part of its carbon management programme Environmental Management Systems in place the Group also gained re-certification during the representing 92 per cent of the Group’s year to the Carbon Trust Standard which certifies manufacturing output; and its continued carbon reduction and future • 40 (2010: 31) had OHSAS 18001:1999 for Health commitment to reduce emissions. As part of this and Safety Management Systems in place re-certification process it reported emissions of representing 93 per cent of the Group’s less than half of one per cent for fugitive and manufacturing output. Scope 3 (including business travel such as flights) emissions. In addition to these, the Group also had PAS 99- compliant management systems in place at its During 2011, the Group also invested in Group Laboratory and Marketing Support Automated Meter Reading ("AMR") of its gas Department. supplies to provide half hourly data, which aims to improve the data management of this resource. * Operational is defined as a site in the UK with production output. Environmental Impact The business redefined its Key Performance Indicators in 2010, to increase the accuracy and measurability of its environmental initiatives while improving performance. These are referred to in the relevant section of this Report. Explanatory notes have been included with the The business energy KPIs are aligned to CRC charts. through the measurement of energy at both absolute and relative intensity levels and the Marshalls is a signatory to the Sustainable business remains committed to reducing energy Concrete Forum which published a new road use on both these measures. The Group reports map, with time-bound targets to 2020, in on CO2 emissions from its energy use which Marshalls plc Annual Report 2011 37

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Environmental Report (continued) represents the vast majority of its greenhouse gas and in 2011 it is estimated that this resulted in a emissions. The factors used to convert fossil fuel total of 750 tonnes of carbon reduction. Other usage to CO2 emissions in this report are the latest Group work and staff commitment, including an available from DEFRA. awareness campaign, is leading to ongoing improvements in energy savings as each site has The Group recognises that renewable energy will an energy champion or team that is responsible be required to achieve the absolute reduction for the implementation of their local energy plans. target and is currently investigating the use of The Group invested in a project to improve the wind, photovoltaic and biomass options. Such efficiency of its lighting across the majority of its options will be used if found to be economically sites and it is estimated that this investment will viable. reduce our carbon emissions by 1,050 tonnes per year. The chart below illustrates the Group’s absolute CO2 emissions in tonnes, excluding transport The mix of products manufactured will impact on activities, between 2007 and 2011. the Group’s absolute carbon footprint. The Group recognises that if production of low carbon Absolute CO2 emissions from operations products increases its footprint will be reduced. excluding transport (tonnes CO2) 52.2 52.9 52.1 52.2 The weather in 2011 was milder than 2010 based 43.0 40.5 43.6 41.1 on heating degree days in many areas of the 40.8 country and therefore the energy required for Tonnes k-CO2 comfort and processing heating was reduced. The energy required for comfort heating may be considered as base energy so with the increase in production output this results in a reduction in energy intensity. 2007 2008 2009 2010 2011 Previously Reported (DEFRA conversion factors) The business is continually improving the Revised Data (latest DEFRA conversion factors) reliability of its energy data to enable better forecasting and management of its carbon The business has revised its previously reported footprint in the future. emissions using the latest DEFRA electricity conversion factors in line with DEFRA guidelines. The relative energy intensity of production, The chart illustrates both previously reported excluding transport, has fallen to 7.3 kg CO2 per figures and the recalculated emissions as a tonne produced, using the revised DEFRA comparison. conversion factors. Carbon reduction measures, product mix and less heating have all assisted in In 2011 the absolute carbon emissions dropped the improvements in the Group’s relative energy by just over 300 tonnes from 2010, representing a intensity. Another important issue is that, as 0.8 per cent fall. This is significant, as the production output increases, site efficiencies production output of the Group increased by 8.5 improve due to the dilution of non-productive per cent. and base load energy. The net reduction in absolute emissions is the The chart below illustrates the Group’s CO2 result of energy savings which are within the intensity emissions as a proportion of production control of the business and other factors, such as output, excluding transport activities, between product mix and weather, which are not. 2007 and 2011. Each major production site has an energy plan 38 Marshalls plc Annual Report 2011

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Environmental Report (continued) Relative CO2 intensity per production tonnage Mains & licensed water used per tonne excluding transport (kg CO2 per tonne) of production output M3 Water used per tonne 10.3 10.4 9.9 0.067 9.7 0.063 9.2 9.3 0.055 0.053 0.052 KG CO2 per Tonne of production output 7.6 7.7 7.3 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Previously Reported (DEFRA conversion factors) harvesting, as in 2011 the average annual rainfall Revised Data (latest DEFRA conversion factors) was 38.2 per cent higher than the ten year average, as reported by the Department of Energy The production tonnage in this chart refers to the and Climate Change (“DECC”) and 84 per cent cumulative carbon intensity by process. higher than in 2010. The higher average rainfall also reduced the amount of water extracted from While the Group must report its carbon footprint boreholes in the aggregates business, as quarry as part of CRC legislation, which excludes water is used in priority to borehole water. transport, it will continue to report voluntarily to the “Carbon Disclosure Project”, which includes a Management, awareness and product mix have wider carbon management performance over also contributed to the reduction in water time and also provides an insight for shareholders intensity. regarding the Group’s carbon and climate change impact management programme. The Group During the year the business partnered with one reported 66,037 tonnes of CO2 for the year 2010 of its customers to evaluate a methodology to (2009: 65,119 tonnes). This data includes scope 1 calculate the water footprint of construction and 2 emissions as defined in the Greenhouse Gas products. The results are due to be presented to Protocol ("GHG Protocol"). The proportion of the wider stakeholders (DEFRA, Highways Agency, CO2 emissions from transport remained constant Environmental Agency, the Waste and Resources at 34 per cent. Action Programme (“WRAP”), World Wide Fund for Nature (“WWF”)) in 2012. Water Target – reduce use of water from mains and licensed boreholes to 0.05m3 per tonne of production by 2015. The Group understands the future value of water. The business has demonstrated a commitment to water harvesting and recycling on numerous sites and utilises quarry water where appropriate in its operations. The chart below illustrates the Group’s water performance between 2007 and 2011. The reduction in water intensity has been helped by Marshalls’ previous investment in water management projects, particularly water Biodiversity at work at Maltby Marshalls plc Annual Report 2011 39

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Environmental Report (continued) Transport where it generates waste it investigates the opportunity for recycling this within the business. Target – to meet the challenge of reducing emissions whilst striving to maintain and The chart below illustrates the Group’s off-site improve upon customer service. waste performance between 2007 and 2011. Marshalls’ LGV transport fleet is changing from Waste taken off site as a percentage of articulated to drawbar vehicles in response to total production output Waste taken off site (tonnes) customer demand for a more flexible delivery as % of production output 2.35% 2.23% 2.18% service. The result of this is a reduction in miles 1.97% per gallon achieved per vehicle. As fuel usage has 1.49% a significant business impact, Marshalls undertakes one-on-one “green” driver training which has the added advantage of gaining a broader understanding of the problems being faced by the drivers, allowing management to address the issues. The Group continues to review 2007 2008 2009 2010 2011 the options available to improve vehicle efficiency; however, an engine remapping trial This chart does not differentiate between waste carried out during 2011 proved inconclusive. leaving site for reuse/recycling and waste leaving site for landfill. The absolute waste total for the The Group uses rail for stock movement to reduce year has reduced by 46,000 tonnes between 2011 carbon emissions and will continue to look at and 2010. A large proportion of this reduction is different modes of transport whenever explained by the retention of quarry materials on practicable. As an example, during 2011 rail was site for restoration purposes. Product mix has an used as the dominant mode of transport (73.5 per impact on waste generation across the Group, cent of the tonnage) between our Sandy and with certain product lines being associated with Falkirk operations. higher levels of waste generation than others. The introduction of a waste protocol during the year Over the last twelve months a trial on raising has allowed greater traceability and awareness of the impacts of the company car fleet accountability in the area of waste management has been implemented. This uses a combination and, with increased focus on communicating best of total mileage travelled and the achieved practice, the Group has managed to increase its efficiency (miles per gallon), providing each driver reuse/recycling rate to 91.8 per cent (2010: 91.3 with a ‘green’ driving score. This is presented in a per cent) and reduce its waste to landfill to 8.2 per traffic light system – green, amber and red – cent (2010: 8.7 per cent). depending on performance. In 2012 it is hoped to improve and automate this system. Packaging Target - reduce by 2 per cent per annum, over a Waste Reduction 3 year cycle, while ensuring that the pack and Target – to reduce by 3 per cent the total waste product safety is not compromised. to landfill per tonne of production output per annum over a three year rolling average. The Group is now reporting the packaging used rather than packaging bought. This aligns with The Group has continued to measure the amount the duty to report under the Producer of waste, including material for recycling, leaving Responsibility Obligations (Packaging Waste) sites as a percentage of total production output. Regulations. The business is focused on waste reduction and 40 Marshalls plc Annual Report 2011

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Environmental Report (continued) The chart below illustrates the Group’s packaging The difference in the figure reported for performance between 2007 and 2011. packaging used rather than bought is explained by the inclusion of packaging imported with Packaging bought/used as a percentage product from overseas, where the Group does not Packaging bought/used (tonnes) of production output buy the packaging directly but must still include it as % production output 0.27% 0.23% in the “used” data for compliance with the 0.21% 0.21% 0.22% 0.22% 0.22% Packaging Waste Regulations. This gives the most accurate reflection of the environmental impact. This measure is affected by product mix, so a reduction can be achieved by selling a higher volume of those products that have less packaging. The Group uses packaging only to the 2007 2008 2009 2010 2011 extent appropriate, for example, to ensure safe Packaging bought handling, storage and transport of its products Packaging used and to minimise damage to the product and hence waste. In addition, packaging may be used to provide health and safety information to prospective users of the products and instructions on installation. Packaging principally comprises timber pallets and polythene. The Group has continued to work with suppliers to control polythene orders centrally. The aim is to avoid ordering excess material if the requirement can be fulfilled with stock already existing in the Group. Work has also been completed to reduce the weight of polythene used on Wet Press products. The introduction of a new polythene film during 2011 means the weight of polythene used per pack on these products has been reduced by 14 per cent. Work in this area will continue in 2012. The Group’s Timber and Paper policy continues to support our commitment to obtain pallets from FSC accredited suppliers where available. Suppliers and Contractors The Group has an effective Procurement Policy in place. The policy provides a framework which all employees engaged in procurement activities are expected to operate. It contains a clear statement with regard to Marshalls’ commitment to responsible sourcing. The Group will continue to work with our key suppliers to ensure they have appropriate management systems to minimise risk and environmental impacts in place. Biodiverse Paving System, Limestone Marshalls plc Annual Report 2011 41

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Environmental Report (continued) Where significant risk is identified with a supplier, for the assessment of the life cycle greenhouse a rigorous audit will be carried out. gas emissions of goods and services’), all of which have been verified by the Carbon Trust. It is During the year, Marshalls hosted a supplier expected that the data obtained through this communication event in collaboration with the process will enable the business to focus on United Nations Global Compact ("UNGC"). The energy savings throughout its supply chain. The event brought together a number of key suppliers results are available online for our customers to from both the UK and overseas, enabling them to use in their selection of most suitable product for gain a greater understanding of the UNGC and its their project. principles in the areas of human rights, labour standards, environment and anti-corruption. During 2011 the Group completed its project to gain the Responsible Sourcing Certification to the Marshalls’ Anti-Bribery Code reinforces policies Building Research Establishment Standard BES6001 and procedures already in place and is for its concrete paving and walling products. The communicated to external suppliers and products have been rated as ‘Very Good’. contractors as well as within the organisation. The Group’s products are considered to have low Environmental Impact of Products environmental risk and in the majority of cases are readily reusable and recyclable at the end of their The Group maintains its policy of producing life. products intended for a long life with low maintenance. Marshalls now leads the world with the number of its products (over 2,000) having a Sustainability measured carbon footprint (using the Publicly The Group has a sustainable business plan and Available Specification 2050:2008, ‘Specification has set KPIs for the key areas of this plan. Gwrhyd Welsh Blue Pennant Sandstone 42 Marshalls plc Annual Report 2011

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Environmental Report (continued) It addresses economic, social and environmental briefings were delivered to all senior aspects of Marshalls’ operations underpinned management during 2011. by development of management systems recognised by an independent third party (“BSI”). Institute of Environmental Management and Assessment ("IEMA") Foundation Certificate in Environmental Management courses are planned for 2012 in order to ensure those with environmental responsibilities are competent to carry out their roles effectively. The Contractor Handbook has been updated to include more detailed environmental information and has been delivered to those working on behalf of the Group during 2011. Operational employees received Toolbox Talk training on a range of environmental topics including waste, environmental permits and biodiversity. Biodiversity Target – to have biodiversity action plans in The Group publishes targets, progress place at all appropriate sites by the end of and data on its website at 2012. www.marshalls.co.uk/sustainability to communicate its agenda on the triple bottom line of environmental, Marshalls has adopted a biodiversity strategy, in social and economic issues. The aim is to have a consultation with external stakeholders, platform which allows interested stakeholders access documenting a systematic approach to our legal, to the latest information on our activities. protection and enhancement commitment to the biodiversity on our sites. This strategy includes a Marshalls is an active member of the British priority approach to defining appropriate sites Precast Concrete Federation Sustainability together with evaluation of the biodiversity Committee and a signatory of the Precast ecosystem services delivered. Sector Sustainability Charter. The business is also a signatory to, and an active member of, Marshalls is on plan to deliver our biodiversity the Concrete Sustainable Forum. action plan ("BAP") target by the end of 2012. We continue to maintain our accreditation to the Wildlife Trusts' Biodiversity Benchmark at three Land Management sites. At the benchmark site in North Wales the During 2011 all development projects were either business is planning an open day during 2012 to located on brownfield land, within Marshalls’ sites, demonstrate its monitoring of European or acquired on-going operations. protected species such as great crested newts and dormice and to showcase the bat barn Environmental Awareness and constructed in 2011. Training The Group recognises the need to raise the Marshalls was awarded the ‘Commitment to environmental awareness and competencies of its Biodiversity and Nature Conservation’ and employees and has targeted energy management ‘Commended for Biodiversity Achievements’ at its with a poster campaign aimed at improving the Stainton site by the Mineral Products Association, energy culture across the Group. In addition, CRC and was also awarded ‘Sustainability Awareness’ Marshalls plc Annual Report 2011 43

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Environmental Report (continued) for its biodiversity success at Stoke Hall Quarry in the Peak District National Park by the Stone Federation. Legal compliance There were no environmental prosecutions at any of Marshalls’ operating sites during 2011. Verification This section of the Annual Report has been audited by a qualified verifier on behalf of BSI. On the basis of the work undertaken, the Environmental Report is considered to be a fair reflection of the environmental performance of the organisation during 2011 and contains no misleading information. Heritage Stepping Stones, Calder Brown 44 Marshalls plc Annual Report 2011

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Directors’ Report - Other Regulatory Information The Directors’ Report incorporates the on charitable donations. The Group has made no management report for the purpose of the Listing donations during the year to any political party or Rules (DTR 4.1.8R). Marshalls plc is registered with political organisation or to any independent company number 5100353. election candidate, whether in the European Union or elsewhere (2010: nil). Principal Activities and Business Review Environment and Community: Information about environmental matters and the impact of The principal activities of the Group are described the Group’s business on the environment is given in the Business Review. The Business Review, in the Environmental Report on pages 36 to 44. Corporate Responsibility and Environmental The Group’s approach to social and community Reports, Corporate Governance Statement and matters is described in the Corporate Directors’ Remuneration Report are each a part of Responsibility Report on pages 28 to 35. the Directors’ Report. Those matters required to be included in the Directors’ Report, including the Employees: The Company’s policies in relation to information and analysis required by Section 417 disabled employees and employee involvement of the Companies Act 2006 to be included in a are explained in the Corporate Responsibility Business Review, appear in those sections of the Report, pages 32 and 33. Report. In particular: Corporate Governance: Details of the Group’s Business Performance during 2011: A detailed policies in relation to Corporate Governance and review of the principal activities of the Group is how they are applied are set out on pages 48 to contained in the Chairman’s Statement on pages 4 55. and 5 and the Business Review on pages 6 to 25. Key Financial and other Performance Key Relationships: The Business Review on page Indicators: The strategic KPIs used by the 14 includes information about persons with business are set out on page 8. Performance whom the Group has contractual or other against these indicators is commented on in the arrangements that are essential to the Group's Chairman’s Statement, Business Review, business. Corporate Responsibility, and Environmental sections of this Report. Group Results and Group Events since 31 December 2011: The Consolidated Income Principal Risks and Uncertainties: An indication Statement for the year ended 31 December 2011 of the main risks and uncertainties faced by the is shown on page 78. Details of any important Group and its objectives and policies for the Group events and developments since the management of financial and general risk, financial year end 31 December 2011 are included including its use of, and policies in respect of, in the Business Review on pages 6 to 25. financial instruments and its exposure to price, credit, liquidity and cash flow risk, are set out in Dividends the Business Review on pages 22 to 25. The The Board is recommending a final dividend of process for identifying significant risks and 3.50 pence (2010: 3.50 pence) per share which, uncertainties and managing risk is in accordance together with the interim dividend of 1.75 pence with the Revised Guidance for Directors on the (2010: 1.75 pence) per share, makes a combined Combined Code issued by the Financial Reporting dividend of 5.25 pence (2010: 5.25 pence) per Council in October 2005. share. Payment of the final dividend, if approved at the Annual General Meeting, will be made on 6 Charitable and Political Donations: The July 2012 to shareholders registered at the close Corporate Responsibility Report on page 28 to 35 of business on 8 June 2012. gives details of the Group’s policy and information Marshalls plc Annual Report 2011 45

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Directors’ Report - Other Regulatory Information (continued) The dividend paid in the year to 31 December 669,087 represented Investment Shares 2011 and disclosed in the Consolidated Income beneficially owned by LTIP participants, with the Statement is 5.25 pence (2010: 5.25 pence) per balance held in respect of future Matching and share being the previous year's final dividend of Performance Share Awards. Details of 3.50 pence (2010: 3.50 pence) per share and the outstanding awards under the LTIP are set out in interim dividend of 1.75 pence (2010: 1.75 pence) Note 19 on pages 113 and 114. The EBT has per share in respect of the year ended 31 waived its right to receive dividends on shares December 2010 and paid on 2 December 2011. that it holds beneficially in respect of future awards. The Trustee of the EBT exercises any Share Capital and Authority to voting rights on such shares in accordance with Purchase Shares the Directors’ recommendations. The Company’s share capital at 1 January 2011 UK based employees of the Group with more than was 199,378,755 Ordinary Shares of 25 pence. six months service may participate in the There has been no change between 31 December Marshalls plc Share Purchase Plan. Employees 2011 and 9 March 2012. Details of the share purchase Ordinary Shares in the Company with capital are set out in Note 21 on page 116. pre-tax salary. The shares are purchased in the market and then held in Trust by Yorkshire The Company held 2,425,000 Treasury Shares on Building Society. Employees receive dividends on 31 December 2011, and made no sales or these shares and may give voting instructions to purchases of Treasury Shares during the year or in the Trustee. the period up to 9 March 2012. Save for the Treasury Shares and some of the shares held by At the Annual General Meeting in May 2011 the Marshalls plc Employee Benefit Trust (the shareholders gave authority to the Directors to "EBT") as set out below, the Ordinary Shares of the purchase up to 29,523,367 shares representing Company carry equal rights to dividends, voting approximately 14.99 per cent of the Company’s and return of capital on the winding up of the issued share capital in the Company in the market Company, as set out in the Company’s Articles of during the period expiring at the next Annual Association. There are no restrictions on the General Meeting at a price to be determined transfer of securities in the Company and there within certain limits. No Ordinary Shares in the are no restrictions on any voting rights or Company were purchased during the year or deadlines, other than those prescribed by law, nor between 31 December 2011 and 9 March 2012 is the Company aware of any arrangement under this authority, which will expire at the between holders of its shares which may result in Annual General Meeting in May 2012. The restrictions on the transfer of securities or voting Directors will seek to renew the authority at that rights, nor any arrangement whereby a meeting. shareholder has waived or agreed to waive dividends (other than the EBT). Contracts of Significance and The EBT holds shares in the Company on trust for Related Parties employees (Investment Shares) and also There were no contracts of significance between purchases shares from time to time to satisfy any member of the Group and (a) any undertaking awards granted to Directors and Senior Executives in which a Director has a material interest, or (b) a (Matching Shares and Performance Shares) controlling shareholder (other than between subject to the achievement of performance members of the Group). There have been no targets under the Marshalls plc Long Term related party transactions between any member Incentive Plan (the “LTIP”). At 31 December 2011 of the Group and a related party since the the EBT held 1,584,441 Ordinary Shares in the publication of the last Annual Report. Company (2010:1,548,380 shares) of which 46 Marshalls plc Annual Report 2011

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Directors’ Report - Other Regulatory Information (continued) Articles of Association Graham Holden and David Sarti in respect of their participation in and/or membership of the The Company’s Articles of Association give powers governing bodies of certain third party trade to the Board to appoint Directors. Newly appointed representative organisations on behalf of the Directors are required to retire and submit Company. The indemnities are limited to what is themselves for re-election by shareholders at the permitted by law and the Company’s Articles of first Annual General Meeting following their Association and copies are available for inspection appointment. Specific rules regarding the re- at the Registered Office of the Company. There were election of the Directors are set out in the Corporate no other such indemnities in force during the year. Governance Statement on pages 48 to 55. Directors’ Interests The Board of Directors may exercise all the powers of the Company subject to the provisions of Details of Directors’ remuneration, interests in the relevant laws and the Company’s Memorandum share capital (or derivatives or other financial and Articles of Association. These include specific instruments relating to those shares) of the provisions and restrictions regarding the Company and of their share based payment Company’s power to borrow money. Powers awards are contained in the Directors’ relating to the issuing and buying back of shares Remuneration Report on pages 56 to 72. are included in the Articles of Association and such authorities are renewed by shareholders Value of Land and Buildings each year at the Annual General Meeting. In the opinion of the Directors, the market value of the Group’s interests in land and buildings at 31 The Articles of Association may be amended by December 2011 remains in excess of the book Special Resolution of the shareholders. value. Directors Payments to Creditors The names and biographical details of each of the The Group follows the CBI’s Prompt Payment Code Directors who served during the year are set out and operates and abides by a clearly defined on pages 26 and 27. The rules on appointment, payment policy which has been agreed with all major retirement and removal of directors under the suppliers. The Group’s creditor payment period at 31 Company’s Articles of Association, and the powers December 2011 was 55 days (2010: 53 days). of the Board, are set out in the Corporate Governance Statement on pages 48 to 55. All Substantial Shareholdings currently serving Directors will offer themselves As at 9 March 2012, the Company had been for election or re-election at the next Annual notified, in accordance with Rule 5 of the General Meeting of the Company. Disclosure and Transparency Rules, of the following disclosable interests of 3 per cent or The information required by the Combined Code more in its voting rights. in relation to Directors’ service contracts, compensation, Board performance and As at As at attendance is contained in the Corporate 9 March 31 December Governance Statement on pages 48 to 55. 2012 2011 % % Directors’ Indemnities JO Hambro 9.96 10.15 Majedie Asset Management 9.55 9.50 A qualifying indemnity provision is in force for the Aviva Investors 9.32 9.40 benefit of the Company’s Directors in respect of Schroder Investment Management 6.37 6.35 their performance of their duties as a Director of any M&G Investment Management 5.68 6.27 member of the Marshalls Group of companies. In L & G Investment Management 4.25 4.17 addition, the Company has granted indemnities to AXA Investment Managers 3.72 2.64 Marshalls plc Annual Report 2011 47

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Corporate Governance Statement and three Non-Executive Directors who are Chairman’s introduction equally responsible for the proper stewardship Marshalls is committed to business integrity, and leadership of the Company. Biographical high ethical values and professionalism in all details of the Directors are on pages 26 and 27. its activities. As an essential part of this commitment, the Board supports the highest There is a written Schedule of Matters Reserved standards in corporate governance, which it for the Board, which includes approval of the regards as fundamental to the effective Company’s risk management processes, and its performance of the business. The Board policies in relation to health and safety, social acknowledges that it is accountable to and community matters, the environment and shareholders for corporate governance matters, ethical trading. and seeks to promote consistently high standards of governance throughout the Group which are The Board reviews the monthly financial results recognised and understood by all. of the Group at each regular Board meeting, with reference to the detailed annual business plan This statement, which is part of the Directors’ and budget. The Board also considers forward Report, has been prepared in accordance with the trends and performance against other key principles of the UK Corporate Governance Code indicators. Executive Directors comment on published in June 2010 (the “Code”), which the areas where performance departs from forecasts Board fully supports. In this statement, we have and on contingency plans. The Board regularly sought to explain how the Board has applied the reviews and discusses medium and long-term principles of the Code, in particular in relation to strategy, and meetings with members of senior the role and effectiveness of the Board in Sections management are included within the Board A and B. An explanation of the Company’s programme to update the Board on business approach to value creation and strategy is and strategic issues. contained in the Business Review on pages 6 to 25. The Board has delegated specific responsibilities to the Audit, Remuneration and Nomination Andrew Allner Committees. Other Board Committees are Chairman established periodically for particular purposes. For example, during the year, Board Committees Statement of Compliance with were established to approve dividend payments the Code and Preliminary and Half-yearly announcements. Throughout the year ended 31 December 2011 the Company has complied with the relevant The Group’s reporting structure below Board provisions of the Code in all material respects. level is designed so that all decisions are made by the most appropriate people in a timely The paragraphs below, together with the Reports manner. The Directors and senior management of the Audit, Nomination and Remuneration are tasked with the delivery of targets approved Committees on pages 56 to 75, describe how by the Board and for the implementation of these principles are applied within the Company. Group strategy and policy across the Group. Management teams report to members of the Senior Executive Committee. This committee Board Leadership and Effectiveness currently consists of seven senior managers, Code Provision A.1: The Role of the Board including the three Executive Directors. Business issues considered by the Senior Executive The Board comprises an independent Non- Committee are reported by the Executive Executive Chairman, three Executive Directors Directors to the Board. These policies and 48 Marshalls plc Annual Report 2011

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Corporate Governance Statement (continued) Details of Board and principal Board Committee meetings in 2011, with Directors attending, are shown below. Other meetings were held during the year for specific purposes, including reviewing strategy and Board effectiveness, and in addition to these, all the Non-Executive Directors made visits to operational sites. Audit Remuneration Nomination Board Committee Committee Committee (8 meetings) (4 meetings) (5 meetings) (1 meeting) Andrew Allner 8 4 5 1 Ian Burrell 8 - - - Alan Coppin 8 4 5 1 Mark Edwards 7 4 5 1 Graham Holden 8 - - - Tim Pile 7 4 5 - David Sarti 8 - - - procedures collectively enable the Board to The Board has authorised a number of situations make informed decisions on a range of key advised to it by the Directors, all of which are the issues including those relating to strategy and holding of directorships or similar offices with risk management. companies or organisations not connected with the Company. The Board has not, in relation to any Eight full Board meetings are scheduled during of those situations, identified any actual conflict of 2012. There will be additional meetings of the interest, and has authorised such situations in Board in 2012 to review strategy, Board accordance with its powers. These authorisations performance and the Company’s longer term are recorded in the Conflicts Register of the objectives. Company maintained by the Secretary. The Board has delegated general authority to the The Company maintains Directors’ and Officers’ Nomination Committee to carry out a review of Insurance in respect of legal action against the such authorisations no less than annually and to Directors. make recommendations to the Board on particular situations notified to it in future. Conflicts of Interest The Board has powers to authorise and has Code provision A.2: Division of adopted procedures for the authorisation of responsibilities existing situations and for considering (and Code provisions A.3, A.4: Chairman and authorising where appropriate) new situations Non-Executive Directors which may give rise to a conflict of interest on the The positions of Chairman and Chief Executive are part of any Director. held by separate individuals with a clear division of responsibilities. The Chairman leads the Board The procedures give guidance to Directors as to and sets its agenda, ensuring that all Directors, what situations may be affected and of their particularly the Non-Executive Directors, are able obligations to notify the Company, through the to make an effective contribution. He ensures Chairman of the Nomination Committee, of any that there is a constructive relationship between such situations. The Company maintains a Section the Executive and the Non-Executive Directors. 175 Conflicts Register showing those situations The Chief Executive has responsibility for all which have been authorised and the relevant date operational matters which include the of such authorisation. implementation of the Group Strategy and Marshalls plc Annual Report 2011 49

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