Half Yearly Report

Interim results for the half year ended 30 June 2012

Marshalls plc, the specialist Landscape Products Group, announces its half year trading results.

Background:

·; Deterioration in economic outlook and forecast for construction output

·; Wettest second quarter on record

·; Prior year results include a net gain on property disposals of £2m (current year: £0.6m)

Current actions:

·; Decisive action to reduce production output, release cash and reduce cost base

·; First half charge for operational restructuring costs and asset impairments of £18.5m (cash element £6.6m)

·; Further one-off cash charge of £2.5m expected in the second half

·; Profit improvement impact of restructuring estimated to be £7m (cash benefit £6m) per annum

·; Capacity reductions are expected to reduce inventory volumes by around £10m over an 18 month period

Priorities:

·; Maintaining national geographic coverage and industry leading customer service

·; Continuing investment in initiatives that deliver sales growth and improve market positions

·; Further development of new markets and new overseas market areas with International approaching 5% of Group sales and showing a 24% growth rate in the first half

Commenting on these results, Graham Holden, Chief Executive, said:

"The operational restructuring initiatives the Group has taken are in direct response to the weaker market outlook. The actions taken set underlying capacity and the cost structure at a sustainable level for the lower volumes forecast and enable Marshalls to create its own operating certainty.

Despite the weakness in the economy Marshalls continues to strengthen its market position and there has been an improvement in underlying trading margins. The Group's growth initiatives are progressing well and sales effort is being reallocated to move these forward more quickly. Marshalls has strong operational flexibility. The cost reduction initiatives, targeted growth plans, strength of the installer order book, resilience of the Commercial end market and the opportunities created by the Group's International growth strategy should continue to mean that Marshalls is well placed to outperform the market and achieve good growth when market conditions improve."

Enquiries:

Group Results

Marshalls' revenue for the six months ended 30 June 2012 was £167.5 million (2011: £177.2 million), a decrease of 5 per cent. Sales to the Public Sector and Commercial end market, which represent approximately 62 per cent of Group sales, were down 2 per cent and sales to the UK Domestic end market, which represent approximately 34 per cent of Group sales were down 14 per cent compared with the prior year period. The record rainfall has resulted in a reduction in sales in the second quarter of approximately £10 million, which is equivalent to six days' installation. Continued progress has been made in developing the International business which is approaching 5 per cent of Group sales and in line with our plans.

Operating profit, before operational restructuring costs and asset impairments, was £9.5 million (2011: £13.7 million). After operational restructuring costs and asset impairments, the reported operating loss was £9.0 million (2011: £13.7 million profit). EBITDA, before operational restructuring costs and asset impairments, was £18.1 million (2011: £22.9 million).

The net effect of one-off operational restructuring costs and asset impairments was £18.5 million (2011: £nil). These have been separately identified on the face of the Income Statement in order to provide a better understanding of the Group results. Operational restructuring costs reflect the implementation of a wide range of measures aimed at reducing costs, reducing inventories and releasing cash.

Net financial expenses were £1.8 million (2011: £1.4 million) and interest was strongly covered 5.2 times (2011: 9.5 times). The effective tax rate, before operational restructuring costs and asset impairments, was 7.4 per cent (2011: 12.4 per cent) and continued to benefit from the reduction in the rate of corporation tax and the utilisation of brought forward capital losses being applied against the capital gain on the disposal of a surplus property.

Basic EPS, before operational restructuring costs and asset impairments, was 3.63 pence (2011: 5.47 pence). EPS on a reported basis was 3.82 pence loss (2011: 2.96 pence profit). The interim dividend will be 1.75 pence (2011: 1.75 pence) per share.

Operating Performance

After a good first quarter, the record rainfall and exceptionally poor working conditions experienced in April 2012 continued through to the end of June. Sales to the Domestic end market were particularly adversely affected by the poor weather and this has been reflected in an increased installer order book at the end of June of 9.0 weeks (2011: 7.0 weeks). This compares with 7.5 weeks at the end of April 2012 (2011: 7.1 weeks).

The economic environment has become increasingly uncertain over the last quarter and the Group has fundamentally reviewed its operations against the changing economic backdrop. As a result, the Group has instigated a programme of cost reduction and cash realisation measures and a wide range of actions to reduce production output, release cash and reduce cost have been undertaken, whilst maintaining operating flexibility.

The operational restructuring initiatives include works closures and other capacity reductions which have impacted those businesses that have been particularly affected by the deterioration in current market conditions and for which the short term outlook remains most challenging. The operational restructuring measures give rise to a one-off cash charge of £6.6 million. Asset impairments of £11.9 million include the write down of plant and machinery and other assets together with the impairment of certain intangible assets and other items of plant that are being temporarily mothballed.

In addition to those undertaken in the half year to 30 June 2012, further measures will be completed in the second half of the year. These will include the closure of the Group's South Yorkshire plant which represents 4 per cent of core landscaping activity and there will be additional capacity reductions in other areas. These further initiatives are likely to give rise to a further one-off charge of £2.5 million in the second half of the year as the Group acts to reduce production output.

The profit improvement from the restructuring actions is estimated to be £7 million per annum, £6 million in cash and £1 million from lower depreciation charges. Inventory volumes are expected to reduce by around £10 million over an 18 month period.

In the Public Sector and Commercial end market Marshalls' strategy continues to be to build on its position as a market leading landscape products specialist. The Group has experienced technical and sales teams who continue to focus on markets where future demand is greatest across a full range of integrated products and sustainable solutions to customers, architects and contractors.

In the Domestic end market Marshalls' strategy continues to be to drive more sales through quality installers. The Group remains committed to increasing the marketing support of the installer base and the Marshalls Register through increased training, marketing materials and sales support. The Group has also continued to focus on innovation in order to develop areas with particular sales opportunity and to strengthen further the Marshalls' brand.

In 2011 Marshalls established a new subsidiary in Belgium called Marshalls NV. This business has now reached the end of its "start-up" phase, the management team has been fully established and investment has been made in systems and procedures. The business provides a physical stock location in mainland Europe from which to supply the wider Group specialist product portfolio. In addition, technology developed by the Belgium subsidiary has led to new products being launched in the UK such as the new cobble effect driveway product, "Cobbletech". Marshalls continues to expand its geographical reach and to extend its global supply chains and routes to market.

Balance Sheet and Cash Flow

Net assets at 30 June 2012 were £179.5 million (June 2011: £199.0 million).

At 30 June 2012 net debt was £83.8 million (June 2011: £70.4 million) resulting in gearing of 46.7 per cent (June 2011: 35.4 per cent). This increase largely reflects the investment of around £8 million of working capital that the Group has made in its Belgium operations.

In view of market uncertainty the Group has set a target of achieving a net debt to EBITDA ratio of 2 times by the end of 2013. The Group continues to focus on inventory reduction, capital expenditure management, tight credit control and maintains credit insurance for trade receivables. Appropriate cash management continues to be an area of focus, including realising value from the sale of surplus properties. The estimated cash saving resulting from the profit improvement and the associated inventory reduction is expected to be around £17 million over an 18 month period with £3 million of this benefit arising in the second half of 2012 from actions already taken. The one-off operational restructuring costs announced in the first half and the further actions taken in the second half are expected to give rise to a cash charge of £9.1 million, of which £7.1 million will be incurred in 2012.

The Group continues its policy of having significant committed bank facilities in place with a positive spread of medium term maturities. In March 2012 bank debt facilities, which were to mature in December 2012 and January 2013 totalling £75 million in aggregate, were re-financed with extended maturity dates to 2015 and 2016. In addition, in August 2012, the Group renewed its short term working capital facilities with RBS.

The fair value of the Pension Scheme assets at 30 June 2012 was £249.6 million (December 2011: £250.6 million) and the present value of the Scheme obligations was £247.5 million (December 2011: £237.6 million). This has given rise to an accounting surplus of £2.1 million (December 2011: £13.0 million; June 2011: deficit £3.6 million). The surplus has been determined by the Scheme Actuary using assumptions that are considered to be prudent and in line with current market levels. The assumptions that have changed in the last six months are a reduction in the AA corporate bond rate from 4.8 per cent to 4.6 per cent, in line with market movements, and a reduction in the expected rate of CPI inflation from 2.0 per cent to 1.8 per cent. The movement in the period is mainly attributable to the fall in the AA corporate bond rate.

Dividend

The Board has declared an unchanged interim dividend of 1.75 pence (June 2011: 1.75 pence) per share. This dividend will be paid on 7 December 2012 to shareholders on the register at the close of business on 26 October 2012. The ex-dividend date will be 24 October 2012.

The Group has a policy of 2 times dividend cover over the business cycle. Future dividend payments will take into account the Group's underlying earnings, cash flows and capital investment plans and the desire to maintain an appropriate level of dividend cover.

Outlook

The Construction Products Association's latest forecasts for total production output have been further downgraded and predict a decline in construction activity of 4.5 per cent in 2012 and a decline of 1.3 per cent in 2013. Within this overall decline, market demand for heavyside products is forecast to be lower by a greater amount than previously expected. This reflects a weakening in outlook as a slow recovery in Private Sector demand fails to offset the contraction in demand from the Public Sector.

The operational restructuring initiatives the Group has taken are in direct response to the weaker market outlook. The actions taken set underlying capacity and the cost structure at a sustainable level for the lower volumes forecast and enable Marshalls to create its own operating certainty.

Despite the weakness in the economy Marshalls continues to strengthen its market position and there has been an improvement in underlying trading margins. The Group's growth initiatives are progressing well and sales effort is being reallocated to move these forward more quickly. Marshalls has strong operational flexibility. The cost reduction initiatives, targeted growth plans, strength of the installer order book, resilience of the Commercial end market and the opportunities created by the Group's International growth strategy should continue to mean that Marshalls is well placed to outperform the market and achieve good growth when market conditions improve.

Graham Holden

Chief Executive

Condensed Consolidated Half-yearly Income Statement

for the half year ended 30 June 2012

Condensed Consolidated Half-yearly Statement of Comprehensive Income

for the half year ended 30 June 2012

Condensed Consolidated Half-yearly Balance Sheet

as at 30 June 2012

Condensed Consolidated Half-yearly Cash Flow Statement

for the half year ended 30 June 2012

Condensed Consolidated Half-yearly Statement of Changes in Equity

for the half year ended 30 June 2012