Delivering long-term sustainable growth - …

1 Delivering long-term sustainable growthMarshalls plc Annual Report and Accounts 2017 Delivering long-term sustainable growthOur primary objective is to improve profitability and to deliver long-term sustainable growth for our shareholders whilst taking into account the interests of all report02 Highlights04 At a Glance06 Chairman s Statement08 Chief Executive s Statement10 Business Model12 growth Markets14 Strategy16 growth Opportunities18 Key Performance Indicators20 Risk Management and Principal Risks25 Financial Review30 Sustainability StrategyCorporate governance34 Board of Directors and Secretary36 Corporate Governance Statement42 Nomination Committee Report44 Statement of Directors Responsibilities46 Audit Committee Report50 Remuneration Committee Report 60 Annual Remuneration Report64 Directors Report Other Regulatory Information66 Independent Auditor s ReportFinancial statements72 Consolidated Income Statement73 Consolidated Statement of Comprehensive Income74 Consolidated Balance Sheet75 Consolidated Cash Flow Statement76 Consolidated Statement of Changes in Equity78 Notes to the Consolidated Financial Statements112 Parent Company Statement of Changes in Equity113 Company Balance Sheet114 Notes to the Company Financial Statements120 Financial History Consolidated Group121 Shareholder InformationFollow us on YouTube MarshallsTVFind us on Facebook MarshallsGroupFollow us on Twitter @MarshallsGroupFollow us on LinkedIn MarshallsFind out more online: Cover.

2 Marshalls La Lina Paving at De Montfort UniversityCase studyMarshalls Design Space in Central London Communication facilities in Central London - close to core customer base Continues to showcase the Group s brand leading capabilities Provides customers with new products, access to samples and technical advice Updated regularly focus on Landscape Architect, Architect and Designer Focus on design, technical insights, technology, innovation and sustainabilitySTRATEGIC REPORTThe 2020 Strategy remains on track EBITDA growth continues alongside improved ROCE and a strengthened brand Self help programme well advanced Organic capital investment continues Research and development expenditure increased in the period Focus on innovation, new product development and service to drive sales growth Focus on increasing profitability of the emerging UK businesses continues Wide-ranging digital strategy continues to drive real benefits across the business Continue to target selective bolt-on acquisition opportunities, after the acquisition of CPM Maintain a 2 times dividend cover policy, supported by supplementary dividendsThe progress made on both the 2020 Strategy and the acquisition of CPM has allowed us to improve the level of our sustainable operating margins.

3 Financial highlights Revenue up 8% to million (2016: million) Profit before tax up 13% to million (2016: million), after charging approximately 1million of acquisition costs Return on capital employed ( ROCE ) up 8% to (2016: ) on a like-for-like basis EPS up 14% to pence (2016: pence) CPM has traded strongly since acquisition and its integration is in line with expectations The Group s strong cash generation has continued Net debt of million (2016: million cash) reflects cash outflow relating to the CPM acquisition of million Final ordinary dividend increased by 17% to pence (2016: pence) per share Supplementary dividend of pence per share Strong start to 2018 sales up 18% including CPM (up 4% underlying)The self help programme to support organic growth is progressing well and we continue to outperform our peers and gain market progress has been made in the year to deliver the 2020 Strategy The 2020 Strategy objectives are firmly aligned with Delivering sustainable shareholder value and the Group s longer term strategy set out on pages 14 and Performance Measures are used consistently throughout the Annual Report and Accounts.

4 These relate to like-for-like, EBITA, EBITDA and ROCE. For further details of their purpose, definition and reconciliation to the equivalent statutory measures see Note 1 to the Financial strategy pages 14 and 15 Key performance indicators pages 18 and 19 STRATEGIC REPORTMARSHALLS PLC ANNUAL REPORT AND ACCOUNTS 201702 STRATEGIC REPORTH ighlightsCase studyAcquisition of CPM CPM is a specialist UK manufacturer of underground concrete pipes, conveyance and water management systems, targeting the Public Sector and Commercial end market. CPM has a comprehensive range of technical and innovative water management solutions. Manufacturing takes place at two sites one at Mells (Somerset) and one at Pollington (East Yorkshire). Thereare ancillary offices in the Midlands and Scotland.

5 The business has approximately 350 employees, with the majority based at the Somerset head office site. CPM is a growing business with a strong track record of quality and service. The business will trade initially as Marshalls CPM, within the wider Marshalls dividend recommended (p) +17%20132014 on capital employed (%) +8%EPS (p) +14% 2017 ROCE has been calculated on a like-for-like the basis (excluding the impact of CPM).2013 ( m) +8%Operating profit ( m) +12%20132014 before tax ( m) +13%STRATEGIC REPORTMARSHALLS PLC ANNUAL REPORT AND ACCOUNTS 201703 The UK s leading hard landscaping manufacturerMarshalls is a leading brand with a significant market position. Our cornerstone themes of customer service, quality and sustainability put the customer at the very heart of our business model and investment proposition.

6 What we doPublic Sector and CommercialLandscapes, gardens and seatingMarshalls is the leading innovator of hard landscaping solutions for the commercial construction sector, placing a focus on developing new and innovative focuses on developing products which help architects, local authorities and contractors to create better spaces, whether it is street furniture, natural stone paving for the internal or external environment, concrete block paving, water management or protective street furniture authorities, commercial architects, specifiers, contractors, housebuilders and builders merchants. ProductsPaving, block paving, kerb, water management, natural stone cladding, street furniture, lighting, protective street furniture, walling and and drivewaysMarshalls Domestic customers range from DIY enthusiasts to professional landscapers, driveway installers and garden designers.

7 Sales continue to be driven through the Marshalls Register of Accredited Landscapers and Driveway Installers. For homeowners, Marshalls offers the inspiration they need for their garden and driveway projects. CustomersNational and independent builders merchants, DIY groups, professional landscapers, garden designer and patio, driveway installers and , block paving, paths, edgings, walling, drainage and decorative model pages 10 and 11 growth agendaProven record of sustained growth with 5 year CAGR growth in PBT of 41 per market positionUnique national network of manufacturing sites ensures proximity to customers and an efficient logistics footprint. Wide-ranging mineral reserves with the Marshalls Stone Standard quality mark. Diversified groupServing Public Sector, Commercial and Domestic markets.

8 These have historically proved to offer security due to their counter cyclical asset base and resourcesWell invested manufacturing plants with continuing emphasis on high quality maintenance, technology improvements and re-investment. Capital investment of million in investment caseSTRATEGIC REPORTMARSHALLS PLC ANNUAL REPORT AND ACCOUNTS 201704 STRATEGIC REPORTAt a GlanceAcquisition of CPMCPM is a pre-cast concrete manufacturer specialising in underground water management solutions. The acquisition will enable the Group to offer a broader product choice that complements our existing water management offering and is a significant step to providing a full water management capability. Innovation and new productsThe continued focus on innovation and new product development ensures the development of the Group s project engineering and manufacturing capabilities, concrete and other materials technology innovations and extending the new product Group has a sustainable business plan and has set KPIs for the key areas of this plan.

9 Sustainability and corporate responsibility are key elements of the Marshalls Group s core values of leadership, excellence, trust and sustainability underpin our culture along with our key objective of doing business responsibly. Case studyInnovation and NPD frameworkThere is a critical relationship between product, process and materials for development of new products. The Group s innovation cycle combines intelligence, innovation and delivery, and is a driver of growth ; Dedicated and focused resources; High level of technical competence in materials, automation, engineering and product design; Delivering a high degree of product complexity; and Excellent trial and development PLC ANNUAL REPORT AND ACCOUNTS 201705 STRATEGIC REPORTnew improved defined contribution pension scheme for employees during the year with a larger pension contribution made by the Company.

10 We encourage share ownership and sharing in success, and we place a high priority on employee engagement, training and development, building successful careers for our people, and health and safety. Many of our businesses and our people play a strong role in their local communities. In 2017 over 50,000 was raised by employees for MIND which was the Group s chosen national charity and the Company has matched this contribution. As you will see from this report the Board is committed to the highest standards of environmental, sustainability and governance practice. The Group has maintained its Fair Tax Mark status in 2017. Taking account not only of corporation tax but also of PAYE and NI paid on our employee wages, aggregates levy, VAT, fuel duty and business rates Marshalls has funded total taxation to the UK economy of 96 million, some 22 per cent of Group and dividendsGroup revenue for the year was million, an increase of 8 per cent on 2016.