Marshalls PLC

Annual Report (ESEF) • Apr 5, 2022

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Socially, environmentally and economically. Annual Report and Accounts 2021 We create better spaces by putting people, communities  Our Group operates quarries and manufac- turing sites throughout the UK and a manu-  We are committed to quality in everything we do, including environmental and ethical best practice. Strategic Report 1 Highlights 2 Our Purpose Roadmap 4 Our Investment Case 8 Marshalls at a Glance 10 Chair’s Statement 12 Chief Executive’s Statement 14 Q&A with the  16 Growth Markets 18 Business Model 20 Our Section 172(1) Statement 22 Stakeholder Engagement 30 Strategy 32 Key Performance Indicators 34 Risk Management and Principal Risks 44 Financial Review 50 What ESG Means  Governance 70 Board of Directors 72 Corporate Governance Statement 84 Nomination Committee Report 88 Audit Committee Report 92 Remuneration Committee Report 96 At a glance 101 Annual Remuneration Report 105 Fairness, diversity and wider workforce considerations 113 Directors’ Report – Other  115 Statement of Directors’ Responsibilities 117 Independent Auditor’s Report Financial Statements 125 Consolidated Income Statement 126 Consolidated Statement of Comprehensive Income 127 Consolidated Balance Sheet 128 Consolidated Cash Flow Statement 129 Consolidated Statement  131 Notes to the Consolidated Financial Statements 166 Company Statement of  167 Company Balance Sheet 168 Notes to the Company  174 Financial History – Consolidated Group 175 Glossary 177 Shareholder Information Stay up to date with the latest investor news at www.marshalls.co.uk Highlights Operational highlights •  •   •   •   •   •   •  Financial highlights •  •   •   •   •   •   •   •  •   Notes        Revenue (£’m)  £589.3m  £76.2m  Adjusted EBITDA (£’m) £107.1m     MarshallsGroup   MarshallsTV   Marshalls   @MarshallsGroup positive trading outlook 2017 430.2 2017 53.4 2018 491.0 2018 64.8 2019 541.8 2019 73.7 2020 469.5 2020 2021 589.3 2021 76.2 2017 67.9 2018 80.8 2019 103.9 2020 57.6 2021 107.1 £72.1m   £69.3m  Basic EPS (p) 28.6p  27.5p  Return on capital employed (%),  20.6%  Full year dividend recommended (p) 14.3p  27.2 1 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our Purpose Roadmap right things right reasons, right way The Marshalls Way Do the right things • We have high standards • We deliver market leading quality  • We strive to meet the needs and  • We are continually developing the  For the right reasons • We consider the long-term impact of  • We are guided by strong principles • We operate in the most ethical and sustainable way • We take responsibility for every action In the right way • We set clear expectations • We anticipate and embrace change • We put people, communities and the  • We work as a team to proactively  Read more about The Marshalls Way on page 22 Our purpose      Read more about our purpose on page 3 Our mission       Read more about our mission on pages 4 to 6 Our strategic goal     Read more about our strategic goal on pages 30 and 31 Marshalls plc | Strategic Report 2 Strategic goal underpinned  Our purpose in action St Ives dual block plant investment Read more on page 28 Investment in new vehicles Read more on page 29 Sustainable new product development –  Read more on page 15 1. Brand preference for  2. Customer centricity 3. Growth in the emerging businesses 4. Logistics excellence 5. Operational excellence 6. Sustainable supply 7. New product development  8. Digital transformation  Read more about our strategic priorities on pages 30 and 31 3 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our Investment Case Proven 1 2 3 Strong track record •    •    Revenue 8.2%    9.4%   Adjusted EPS 8.6%   Pre-supplementary dividends 10.4%   Supportive UK construction market fundamentals •     •     •      •   Total construction 4.3%  Private housing 3.0%   9.7%   market position •    •   •   •    •         Read more about our key performance indicators on pages 32 and 33 Read more about our strong market position on pages 16 and 17 2021 revenue % Read more on our strong market position on page 9        66% 6% 28% Marshalls plc | Strategic Report 4 4 5 6  manufacturing network •    •    •   •  •   •    •   •   c.95%    •    •   16.9%   Logistics excellence and sustainable supply strategy  •   •    •   •   230+     •   •   •    •   60%   ESG market leadership     100%    30%+   Focus on reducing waste and recycling 100%    30%     5,000+  Read more about where we operate on page 8 Read more about our investment in new vehicles on page 29 Read more about our ESG strategy page 50 to 67  Marshalls is a complete external landscaping product business from design, planning and engineering to guidance and delivery. We supply to the domestic and commercial hard landscaping markets and our products include paving, block paving, kerbs and edgings, drainage and water management solutions, protective street furniture, lighting, concrete bricks, masonry, walling and mortar. 5 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our Investment Case 7 8 9 Clear and consistent capital allocation policy   •      •    c.£24m   New product development strategy •   •     142   Mergers and acquisitions strategy •    •   Focused growth strategy Strategic goal •     •  •  •  •  •  •   Strategic goal underpinned  •   •  •  •  •  •  •   •    Policy that dividends will grow in   on pages 44 to 49 Read more about our capital allocation policy on page 7 Read more about our strategy on  Strong balance sheet and cash generation Strong cash generation 80%  Gearing 11.9%  0%   £41.1m  Net positive cash £0.1m   £165m   organic investment and selective acquisitions Marshalls plc | Strategic Report 6 Priorities for capital • Capital investment remains core to strategic growth • Plan c.£35 million in 2022 • Supplementary dividends when appropriate. Discretionary and non-recurring  good organic and acquisition investment opportunities • Continued focus on R&D and NPD • New product ranges • Digital strategy progressing well; e-trading platform now established •  •   • Good pipeline of potential acquisitions • Target selective bolt-on acquisition opportunities in New Build Housing  2017 2018 2019 2020 2021 Selective acquisitions 2017 2018 2019 2020 2021 Ordinary dividends 2017 2018 2019 2020 2021 Supplementary dividends Organic growth R&D and NPD 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 7 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Marshalls at a Glance     Where we operate     St Ives dual block plant Businesses  Landscape Products   Protection Civils and Drainage   Natural Stone    QR code or visit the following: www.marshalls.co.uk/about-us Marshalls plc | Strategic Report 8 Our markets Domestic  customers range from DIY enthusiasts to professional landscapers, driveway installers and garden designers.  in helping homeowners to create beautiful, yet practical, outdoor spaces which families can enjoy for years to come. Domestic revenue Public Sector and Commercial In the Public Sector and Commercial end   a diverse commercial customer base which spans local authorities, commercial architects,  and housebuilders. We have unrivalled technical expertise and manufacturing capability and an enviable product range. International  operations comprise a manufacturing site in Belgium and sales and  the USA and China. International revenue, which also includes exports from the UK,  Group sales. Public Sector and Commercial revenue International revenue 66% 6%    28% 9 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Chair’s Statement    get there Summary •  • Continued focus on health, safety and employee wellbeing • Strong trading recovery despite supply chain challenges • Revenue up 9% compared with 2019 • Final dividend proposed of  • Clear strategy with sustainability embedded • Trading continues to improve and order books remain strong Overview                        Results                    Dividends           Marshalls plc | Strategic Report 10        Marshalls’ strategy                             Environmental  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     Our people           Outlook                  Vanda Murray OBE Chair 11 Marshalls plc | Annual Report and Accounts 2021 Strategic Report      Summary • Strong trading performance with adjusted and statutory operating   • Adjusted EBITDA of £107.1 million, 3% ahead of 2019 •   • Dual block plant investment at St Ives progressing well in line with plan • ESG strategy generating good sustainable commercial opportunities • Trading in 2022 has continued strongly with healthy order books Introduction     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           Marshalls plc | Strategic Report 12      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           Marshalls’ 5 year Strategy and ESG agenda           •  •  •  •     Chief Executive 13 Marshalls plc | Annual Report and Accounts 2021 Strategic Report        1. What are the key challenges that Marshalls has  reduction targets?                  3. Can you highlight any new successes in how         4. What is Marshalls doing to respond to the growing                       Marshalls’ approach to diversity and inclusion within                  7. Does Marshalls see any opportunity in adopting        Marshalls plc | Strategic Report 14 Case study    designed to act as a demarcation tool to safely segregate   provides a soft transition between the carriageway and the cycle lane. This means that cyclists of all abilities can use the cycleway without the fear of colliding with a steep kerb   vehicles mounting the unit and potentially endangering the cyclist. Designed to be installed in new or existing schemes where the highway requires a redesign, the Cycle Segregation Unit ensures that cyclists feel safe and at ease when commuting, and consequently encouraging an increase in this mode  8. How is Marshalls working together with its  in its supply chains?         9. What impact has COVID-19 had on your human rights due diligence activities in higher-risk overseas supply chains?              10. What initiatives does Marshalls have in place to  standards in the workplace?          15 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Construction market overview                               Total construction output 13.3 4.3 2.5                     Growth Markets   strongest CPA total construction output CPA 2021  CPA 2022  % growth on previous year   200,000 180,000   120,000 100,000 80,000 Volume (£’m at 2018 prices) 2015  2017 2018 2019 2020 2021 2022 2023 Years 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0  Strong outlook for commercial contract work                 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  (£’m at 2018 prices)            25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0   60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 -40.0 % growth v. same month previous year               ABI lead indicator     MAT % growth          34% 16% 40% 35% 30% 25% 20% 15% 10% 5% 0%           31% 18% Marshalls plc | Strategic Report 16 Key sector for Marshalls Opportunities and challenges Our strategic priorities Private Housing •  •  •   •   •   •   •   •   •   •   •    •  Private Housing RM&I •  •   •   •     •   •   •   •    •   •   Infrastructure •   •    •      •   •   UK Domestic     – household income £50k+  Recalculated order books with increased spread data      35 30 25 20 15 10 5 0            19.6%  10.2%   24 22 20 18 16 14 12 10 8 6 4            17.4 17 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Business Model  Financial     Business       Intellectual     Natural resources     Human    Technology     Social and relationships       Our capital Our business Read more on page 22      Related risks •  •  •  •  Innovation     Related risks •  •  •  •   I n n o v a t i o n S u s t a i n a  i l i t y D i s t r i  u t i o n M a n u  a c t u r i n g S o u r c i n g Customers D i g i t a l t r a n s  o r m a t i o n D i g i t a l t r a n s  o r m a t i o n Marshalls plc | Strategic Report 18 Our business Outcomes Read more on page 22 Shareholders     Dividend per share 14.3p Suppliers       Suppliers trained  modern slavery 70% Customers     Customer  98% Communities       50% Government and     8 years       Employees    Active apprenticeships in 2021 102     Related risks •  •  •  •  •  •  Sourcing       Related risks •  •   •  •         Related risks •  •  •  •  •  Customers      Related risks •  •  •  •        Related risks •  •  •  •  •  •   Strategic corporate  •  •  •  •  •  •   Stakeholder outcomes Read more about our strategy on pages 30 and 31 Read more about our stakeholder engagement on pages 22 to 29 19 Marshalls plc | Annual Report and Accounts 2021 Strategic Report S172 Relevant disclosure Reference The likely long-term impact of any decisions The Board sets the Group’s purpose, mission and strategy and ensures they are aligned with our culture and look to the future: “to create better spaces and futures for everyone: socially, environmentally and economically”. The annual strategic reviews conducted by the Board (the most recent being in November 2021), and the consideration of at least one of our strategic growth pillars at each Board meeting, focus on the long-term sustainable success of the Group and our impact on key stakeholders. The Board’s risk management procedures identify the potential consequences of decisions in the short, medium and long term so that mitigation plans can be put in place to prevent, reduce or eliminate risks to our business and wider stakeholders. Consideration of risk is integral to, and not separate from, all business decisions. The Board has adopted a clear and consistent capital allocation policy, with good organic and acquisition investment opportunities. This demonstrates its commitment to the development of the business over the medium to longer term. Page 2 Pages 30 and 31 Pages 34 to 43 Page 7 The interests of the Company’s employees Our business is underpinned by people and talent development and is committed to diversity, equity, respect and inclusion. These are central to The Marshalls Way but we acknowledge this as a key area of development for our business. Health, safety and wellbeing within our operations is our top priority, with this being a standing and separate item on the agenda at every scheduled Board meeting. Our goal is continuous improvement with the achievement of annual health and safety targets being linked to the remuneration of our Executive Directors and our senior management team. The Board monitors culture through our engagement mechanisms, namely our Employee Voice Group which, in addition to being attended by our designated Director  senior management team members. Our Group Human Resources Director presents the results of our annual employee engagement survey to the Board, together with details of the actions being taken to address the feedback received. Pages 64 to 67 Pages 68 to 69 Page 67 Page 67 Our Section 172(1) Statement Our Section 172(1) Statement The Board of Directors of the Company consider that they, both individually and collectively, have acted in a way that would be most likely to  31 December 2021. Pages 24 and 29 provide details of who our stakeholders are, and how the Board and the business engage with them, and examples of the  The Board directly engages with our employees and shareholders throughout the year. This is through well-established mechanisms for engagement, details of which are set out on pages 24 and 25. The Board occasionally engages directly with customers on site visits but, in general, its engagement with our other stakeholders is mainly indirect. The Executive Directors ensure the Board is kept fully informed of any material issues with other stakeholders and the Board receives presentations and reports from senior management as part of updates on how the business is progressing with its strategic priorities. Further details of how we engage with our stakeholders are set out on page 22.  making is driven by a balanced consideration of what makes us successful in the short term and sustainable in the long term. Although there are established parameters for decisions that are reserved for the Board, the business engages openly and transparently with the     Marshalls plc | Strategic Report 20 S172 Relevant disclosure Reference The need to foster the Company’s business relationships with suppliers, customers and others Customer centricity and sustainable materials supply are both strategic growth pillars of the business. Our record performance during 2021 was underpinned by regular engagement with our customers and suppliers as we navigated the ongoing supply chain challenges  We are committed to operating sustainably and ethically and, within our sector, seek to show leadership in these areas. Pages 30 and 31 Pages 24 and 25 Pages 50 to 67 The impact of the Company’s operations on the communities in which it operates and the environment Our sustainability journey began more than 20 years ago and is at the heart of how    programme of meetings with shareholder governance teams. We have an established materiality matrix based on stakeholder engagement, the      Pages 52 and 53 Pages 56 and 57 Pages 56 and 57 The regulatory implications of any decisions  established, specialist functional teams and with the guidance of the Group’s General  Where more specialist advice is required, the Board seeks guidance from its professional advisers. Page 82 The importance of the Company maintaining a reputation for high standards of business conduct  achieving this standard. Our prioritisation of the health, safety and wellbeing of our colleagues and our clear   Our strategic growth pillars underpin our purpose, mission and strategy. Page 22 Pages 68 and 69 Pages 30 and 31 The need to act fairly   The Executive Directors engage with shareholders following the publication of our  detailed, real-time, investor and market feedback from the Executive Directors, our brokers and PR advisers. The Chair and the Remuneration Committee Chair meet annually with the governance  decisions, operate our business and evolve our strategy. Although conducted as a hybrid meeting, our AGM provided members the opportunity to ask questions and vote in real time to ensure maximum engagement opportunity. Equality of rights attaching to members’ ensures we meet the obligation to act fairly between them. Pages 26 to 29 Pages 92 to 95 Pages 113 and 114 Pages 113 and 114 21 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our stakeholders: Who they are, what we do and how  Stakeholder Engagement Generate value by sustainable growth Investment, strategic guidance and stewardship We deliver market leading product innovation Customer loyalty, brand preference and  A stretching, exciting, supportive and inclusive working environment Diverse, talented, engaged and productive colleagues We treat suppliers fairly, building long-term relationships High-quality goods and services resulting in products our customers love and specify We act in support of the commitments we make to doing business responsibly We see the business through the lenses of others We share knowledge and  expertise Government policy, regulatory frameworks and recognition Shareholders Communication and dialogue build  strategy from investors Customers Engaging with our customers drives  solutions for the built environment Employees Our two-way dialogue helps Marshalls attract, develop and retain talented people who will help us achieve our purpose and mission Suppliers Dynamic dialogue has built a strong supportive supplier base which supports our purpose and which shares in our success Communities and  We have open and honest dialogue, sharing our goals and progress in creating better futures for everyone      The Marshalls Way We do the right things, for the right reasons, in the right way Key What we do  Our purpose  Marshalls plc | Strategic Report 22 2021 in focus  governance structure at Board level and throughout the Group, supporting the delivery of our longer-term strategy. During 2021, the business operated against the backdrop of the  that were made during 2020 to manage its initial impact and the medium-term threat it presented. The processes and procedures put in place at that time have continued to support the Board and senior management team’s decision making throughout 2021.  each Board agenda and is considered in taking key decisions, the Board, and the business as a whole, have, during 2021, prioritised the health and wellbeing of our colleagues and the safety of our   increasingly important in attracting and retaining talented people, have been an area of real focus for the Board during 2021.   in 2020 has enabled the completion of a more comprehensive strategic review in 2021. This has given us a clear vision for the future and of how we will get there. The record performance of the  decisions that were made during 2020.  alongside its consideration of the Group’s capital structure and capital allocation policy and its resilience to existing and emerging risks (pages 34 to 43), which have all been reviewed in light of the Group’s performance during the year and its future growth aspirations. The Board has continued to engage collaboratively with the senior management team, providing the challenge and support that only comes where there is transparency of information and open   relations and from its increased diversity, with the Non-Executive Directors sharing their experiences with some of our more focused  Janet Ashdown (following her retirement from the Board) as the designated Non-Executive Director for workforce engagement  evolved further during 2021. Recognising the criticality of logistics excellence, as one of our strategic growth pillars, a Drivers’ Working Party was also established during 2021 to enable our drivers to have their say in the decisions we take that impact them in their roles. 23 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our stakeholders: How and why we engaged Stakeholder Engagement continued Marshalls’ purpose, to create better spaces and futures for everyone: socially, environmentally and economically, can only be achieved if we consider and engage with our stakeholders. Marshalls’ stakeholder relationships The way we do business and make decisions in support of  inside and outside the business. They can affect the communities, companies and other organisations we deal with or which are otherwise interested in what we do and how we do it. It is  stakeholders are. The way in which we engage with and consider the interests   relationships with them involve open and transparent two-way communication over a long period of time. This builds trust and  loyalty and generate value for all stakeholders, whether it be by operating in a more sustainable way, reducing our impact on the environment or supporting the business with long-term capital investment that drives our growth and shareholder value. Marshalls engages with stakeholders in many different ways and     Details of who our stakeholders are, how and why we engage  in taking two key strategic decisions during 2021 are set out on  Business engagement • AGM, Annual Report, trading updates and presentations • Regular phone and video calls, face to face meetings, site visits and investor roadshows • Investor relations website – refreshed during 2021 •  Board engagement • The Chair and Remuneration Committee Chair held meetings with shareholders in November 2021 • Through regular feedback to the Board by the CEO, CFO, brokers and PR advisers • Investor site visits and written consultations (e.g. in relation to policy) • At the Company’s AGM Links to strategic corporate objectives Shareholders Business engagement • Centralised procurement for the entire Group enabling optimal buying power and attention from suppliers • Effective, regular and honest communication with suppliers – underpinned by Code of Conduct and other core Marshalls policies • Payment of invoices made consistently in accordance with agreed payment terms • Transparent formal tenders and negotiations •  • Focus on total end-to-end supply chain including inbound and outbound  design, packaging, indirect costs, etc. •  supply risks based on the ETI Base Code •  regulators and charities Board engagement • Board presentations on growth pillars dependent on our engagement and relationships with key suppliers • Board participation in our strategic review • Feedback reports on supply chain compliance • Regular supply chain and business continuity internal audit reviews •  • Reports on ethical sourcing and ETI Base Code Links to strategic corporate objectives Suppliers Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework How we engaged Marshalls plc | Strategic Report 24 Business engagement • Dedicated customer experience team and improvement plan supported  •  • Further development of our websites and digital solutions focused on the customer to aid ease of purchase •  • Customer surveys, customer visits and a commitment to deliver on feedback •  commitments and products • Awards ceremonies for professional installers and design competitions  • Design and engineering support for Domestic and Commercial customers •  • Training sessions for professional installers and resellers • Research sessions and focus groups to help with product development • On-site discovery to watch how our products are used to help us develop new solutions •  Board engagement • Board presentations on customer centricity and brand preference • Participation in our strategic review • Customer visits and meetings with sales teams • Receiving updates on and engaging with our customer experience programme • Installer and site visits seeing practical application of our products Links to strategic corporate objectives Customers Business engagement • Employee Voice Group represents all business areas and levels • Creation of Drivers’ Working Party to engage on decisions and actions impacting these colleagues • Regular communication across channels – supporting those employees working remotely and those without access to Company email •  through our Leadership Connected Group • Development training and succession planning • People and culture strategy to unlock potential Board engagement •   and senior management team members attending regularly • Board site visits • Board attended strategy review • Annual reviews of HR and Group reward strategy • Review of senior management team succession planning and wider talent development initiatives • Monthly health and safety Board reviews • Active engagement in workforce diversity, reward and recruitment Links to strategic corporate objectives Employees Business engagement • Regular dialogue with Government, regulators and industry groups • Active membership of the CPA and Mineral Products Association • Effective and clear policies against bribery and the elimination of  Board engagement •  principles, and policies relating to modern slavery and anti-bribery • Board has been heavily engaged in the Group’s business continuity  Links to strategic corporate objectives Government and regulatory bodies Business engagement •   • Work with the Carbon Trust to analyse our product footprint • Regular dialogue with local community groups • £103,500 raised for charitable and community causes in 2021 Board engagement •  including the setting of science-based targets •   •  with shareholders in November 2021 •  Links to strategic corporate objectives Communities and the environment 25 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Our stakeholders: How and why we engaged Stakeholder Engagement continued  Effect • Engagement with our stakeholders ensures that our strategy  over time. • It ensures our customers understand that a relentless pursuit of achieving the highest possible customer satisfaction is at the core of our “customer centricity” programme, which is one of our eight strategic pillars. •  provide the foundation for long-term sustainable growth and are central to our purpose. Outcome •  not only on the impact of the pandemic but on whether our business is positioned to meet the big societal challenges  • We have achieved record performance during 2021 in spite of the supply chain and people challenges we have faced.  their disappointment at times regarding availability and price rises. •   objectives. We have provided details of how we measure progress but acknowledge that we need to re-evaluate this annually to ensure the measures we choose provide meaningful indications of our commitments and progress. Strategy Effect • The Board made a number of key decisions during 2021 that required a balanced consideration of our strategic growth pillars, the long-term sustainable growth of our business and the interests of stakeholders. • Whilst a number of these decisions have been driven by those matters which are formally reserved for the Board, the Executive Directors, exercising their judgement, and in the spirit of transparency, engage the Board on other business critical decisions. This is consistent with The Marshalls Way and we feel this ensures we are operating with the highest standards of governance at all times. Outcome • The Board approved the recommencement of dividends to   ended 31 December 2021. This decision was taken only after the repayment in full by the Company of the money claimed  and with the Board having assessed the capital requirements of the Group at the time the dividends were declared. • The Board approved the Group’s multi-million-pound  manufacturing site that underpins a number of our strategic growth pillars including our commitment to new product development. The investment secures the long-term future of the site and will predominantly serve our customers in the  which will provide the machinery and raw materials for  • The Board approved the Group’s multi-million-pound  where the key considerations were whether to buy or lease the vehicles and the opportunities to maximise new technology and reduce carbon emissions, where viable. Further details are set out on page 29. Board decision making Marshalls plc | Strategic Report 26 Effect • During 2021, regular engagement with our customers has managed their expectations in the face of strong demand  • The Board and senior management team have listened to colleagues throughout 2021, recognising the challenges they have faced whether as a result of working conditions during the pandemic or market pressures or as a result of the impact on them of the way in which we have managed the business. • Ensuring all colleagues have a voice is critical to the achievement of our purpose and to the preservation of our culture and values. • We reinstated our dividends to shareholders following a period of careful capital management by the Board, ensuring  height of the pandemic, our focus being not only short-term  future growth and development of the business. • Throughout 2021, we have worked hard to ensure we have the best quality and value raw materials and resources we can source. In addressing security of supply, we maintained high supplier standards to ensure that our materials are sustainable and ethically sourced. We continued to undertake robust and effective human rights due diligence and monitoring in the high-risk areas of our supply chain. Outcome • We achieved record performance during the year despite the challenging environment. We have sought additional feedback from customers through targeted pulse surveys  term, we have provided explanations to customers regarding  these challenges impact our long-term objectives under our customer centricity growth pillar. •   • Our Employee Voice Group has contributed to decisions   create fairness and consistency in the terms and conditions of employment. Implementing this programme attracted a great deal of, sometimes negative, attention from both colleagues and trade unions. At each stage, we listened and engaged further, ultimately helping us to navigate this major change programme. • We created a Drivers’ Working Party, responding to the  conditions. We introduced enhanced training, joining and    • We have retained a stable and supportive shareholder base and, unlike many in the sector, we have done so without  • The Board has supported the Group entering into longer- term supply contracts during the year for key materials that support sustainable production in the medium to long term. The availability of materials underpins our ability to meet customer demand and, as a general rule, contracts are with trusted, long-term, suppliers which have a track record   us greater assurance around the viability of the sites and  Dynamic business management 27 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Board decision: Dual block plant investment Stakeholder Engagement continued Background Production expertise, capacity, innovation and sustainability  Throughout our history, we have looked for opportunities to  by our in-house technical expertise. We have evolved our offer  need for innovative solutions.   capital investments in Marshalls’ history. This investment delivers a unit capable of manufacturing twice the volume  Board role The Board considered the proposed investment in April 2021. The Board challenged every key aspect of the project including our approach to health and safety, the environmental impact (including the extent to which allowance had been made for new “green” technology), the supplier risks (given the  being supplied from a number of international suppliers), and our consideration of other key stakeholders, including  the project. Stakeholder considerations and impacts Employees – We consulted with key employees     Communities and the environment  sustainability commitments, the design enables the Company to take advantage of new technologies, including carbon capture, meaning we can offer alternative, lower-carbon, more environmentally responsible and differentiated products. The Company worked with energy specialists in incorporating    renewable power on all major production facilities by 2030. Customers – This investment enables us to improve our  sales and marketing teams ensured the investment addresses current and future customer product requirements. We also worked with product development specialists and customer  allowing us to replicate the aesthetics of a number of globally sourced products, bringing with it the opportunity for us   Suppliers – We engaged at length with each of the suppliers whose machines are integral to the processes incorporated within the dual block plant design (e.g. batching, curing   product innovation that drives our competitive advantage and  Shareholders – With the Board, we considered the scale  returns in order to assess whether it was an effective use of our capital and supported our strategic objectives. In seeking approval from the Board, measurable performance targets and  assessment of whether this investment is good value for our shareholders and supports long-term sustainable growth. Outcomes and decisions The Board unanimously approved the proposed investment in April 2021 with a request that it receives regular updates on progress with the project including on the realisation of the  Links to strategic corporate objectives   Organic expansion  Find our strategy on page 30 and 31 Impact on business model Customers   Manufacturing  Find our business model on pages 18 and 19 Marshalls plc | Strategic Report 28 Board decision: Investment in new vehicles Background Our ability to deliver our own products to our customers is a key part of our service proposition and sits within our logistics  supplemented by third-party logistics contractors as needed.   requires renewal, but also opportunities to increase our owned  requirement was for thirteen replacement and two additional vehicles for delivery in 2022. Within Marshalls’ Landscape Products business, we were seeking an additional ten vehicles. In addition, we wanted to replace four short-term hire vehicles with Marshalls owned equipment. The choice between buying or leasing the vehicles was a key consideration, as were opportunities to maximise new technology and reduce  Board role The Board considered the proposed investment in May 2021, challenging our stakeholder considerations and how  challenged whether these vehicles represented the latest technology, in terms of reduced carbon emissions, and whether our capital allocation policy needed to be reviewed in light of  Stakeholders’ considerations and impacts Employees – We actively engaged with our employees  alternative fuels as well as overall driver comfort, which resulted in the loan of a demonstrator vehicle for a four-week period. Communities and the environment – This investment supports our policy to reduce vehicle carbon emissions within our   the towns and cities in which we operate. Shareholders – We received proposals with a range of  vehicles and repairs and maintenance. Careful consideration was given to whether we should include these within contracts or pay for servicing and maintenance when required. We   against our internal measures and assessing the impact on  ultimately affect shareholder value. Customers – The vehicles we use to make deliveries to our customers, particularly those deployed within our Mortars  available to hire. With new vehicle lead-times being more than twelve months, we had to make decisions during 2021, based on projected customer sales, to ensure that we could meet future customer demand. Outcomes and decisions The Board approved the proposed investment in May 2021 but supported our decision to defer an element of what we proposed, providing us the opportunity to take advantage of any subsequent developments in vehicle technology without compromising our customer offer. Links to strategic corporate objectives  Organic expansion    Find our strategy on pages 30 and 31 Impact on business model Customers  Find our business model on pages 18 and 19 29 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Strategy Focused strategy to deliver sustainable growth Growth pillars Our objectives What we have achieved Future priorities   brand, communicating well with our customer segments and early involvement in any project • To build relationships and increase engagement with consumers, developers, builders and architects. •  pipeline and project conversion. • To build brand preference through NPD, marketing and innovation. • Improved process mapping and measurement. • Improved capability to leverage NPD with additional capability  • Reintroduction of a strong marketing campaign. • To target greater penetration of all market sectors. • To increase our range of innovative and sustainable products. Logistics excellence  and professional deliveries •   •  every delivery requirement. • Highly trained drivers. • Acted swiftly in response to market challenges in driver availability  • Customer order tracking service via online portal. • Flexibility to meet delivery lead-time needs of customers. • To attract and retain talent. • To create a Driver Academy to attract and retain HGV drivers. • To optimise our delivery systems and processes. Sustainable materials supply We source and supply sustainable materials, products and solutions • To create a sustainable and ethical supply chain that enables headroom for changes in demand and operates within our carbon targets. • Continued to source materials, despite the many supply chain  •  • Centralised procurement team to optimise buying power and relationships. • Our ethics, human rights and environmental commitments are  • To prioritise carbon reduction programmes. • To reduce reliance on cement. • To ensure long-term material supply availability. •   Customer centricity We want to have the best customer experience in the buildings material industry • To grow the business by providing an outstanding customer  • To improve customer ease and embed an improvement culture. • Extensive communication to manage the challenges of COVID-19  • Effective project management to measure improvement and deliver results. • Reduction in quality complaints. • To improve our customer service scores across all business areas (target is to achieve a 90 per cent customer recommendation metric). • To embed our “customer centric” culture. Operational excellence We invest in our manufacturing facilities and industrial network and use the best tools, processes and systems • To deliver operational excellence by improving how we work  • To effectively manage our cost base and add value. • To improve competitive advantage whilst providing market leading products and service. • Increased output in response to high demand despite the challenges  • Ongoing network development programme to improve  •  • Quality programme and ongoing reduction in waste. • To continue to standardise our operations and processes across the Group and to improve asset utilisation. • To improve workforce skills and attract and retain the best people. •  • Further wet press development in other sites.   • To create new, innovative products that will drive the market forward. • To develop best-in-class facilities, processes and products. •   •   • To deliver dual block plant project completion by end of 2022. Growth in the emerging businesses We make selective acquisitions to complement our business and help us advance into new and untapped areas • To grow our emerging businesses to help us expand into key growth areas. • To develop clear plans for each business and deliver margin growth. •   • Renewed focus on marketing, and rebranding the businesses and focusing on the solutions they deliver. •  • Development of service offer to improve ease of doing business. Digital transformation We are continuing to invest in digital and forward-thinking technology • To provide an end-to-end digital offering and to pioneer the digital standard for the industry. • To move to B2B digital trading where this is possible with  • To ensure the planned upgrade and move of our ERP system to the cloud. This will bring with it a platform to digitise our processes optimising and transforming our ways of working. •  improvement and optimisation. • E-commerce platform now established – creating a cohesive, frictionless user experience and a new complementary sales channel. • Product augmented reality experience now live on the website. • Developed digital solutions to allow for improved self-service. • To migrate all business units from our on-premise ERP system to the cloud. • To develop automation and AI processes. • To further improve our B2B web offering. • To develop visualisation and QR technologies to enhance customer experience. •  Strategic corporate objectives Strategic goal to become the UK’s leading manufacturer of products for the built environment Strategic corporate objectives Shareholder value    Relationship building To develop relationships with key stakeholders, installers and suppliers.  To maintain a strong market position and  Group’s end markets. Marshalls plc | Strategic Report 30 Growth pillars Our objectives What we have achieved Future priorities   brand, communicating well with our customer segments and early involvement in any project • To build relationships and increase engagement with consumers, developers, builders and architects. •  pipeline and project conversion. • To build brand preference through NPD, marketing and innovation. • Improved process mapping and measurement. • Improved capability to leverage NPD with additional capability  • Reintroduction of a strong marketing campaign. • To target greater penetration of all market sectors. • To increase our range of innovative and sustainable products. Logistics excellence  and professional deliveries •   •  every delivery requirement. • Highly trained drivers. • Acted swiftly in response to market challenges in driver availability  • Customer order tracking service via online portal. • Flexibility to meet delivery lead-time needs of customers. • To attract and retain talent. • To create a Driver Academy to attract and retain HGV drivers. • To optimise our delivery systems and processes. Sustainable materials supply We source and supply sustainable materials, products and solutions • To create a sustainable and ethical supply chain that enables headroom for changes in demand and operates within our carbon targets. • Continued to source materials, despite the many supply chain  •  • Centralised procurement team to optimise buying power and relationships. • Our ethics, human rights and environmental commitments are  • To prioritise carbon reduction programmes. • To reduce reliance on cement. • To ensure long-term material supply availability. •   Customer centricity We want to have the best customer experience in the buildings material industry • To grow the business by providing an outstanding customer  • To improve customer ease and embed an improvement culture. • Extensive communication to manage the challenges of COVID-19  • Effective project management to measure improvement and deliver results. • Reduction in quality complaints. • To improve our customer service scores across all business areas (target is to achieve a 90 per cent customer recommendation metric). • To embed our “customer centric” culture. Operational excellence We invest in our manufacturing facilities and industrial network and use the best tools, processes and systems • To deliver operational excellence by improving how we work  • To effectively manage our cost base and add value. • To improve competitive advantage whilst providing market leading products and service. • Increased output in response to high demand despite the challenges  • Ongoing network development programme to improve  •  • Quality programme and ongoing reduction in waste. • To continue to standardise our operations and processes across the Group and to improve asset utilisation. • To improve workforce skills and attract and retain the best people. •  • Further wet press development in other sites.   • To create new, innovative products that will drive the market forward. • To develop best-in-class facilities, processes and products. •   •   • To deliver dual block plant project completion by end of 2022. Growth in the emerging businesses We make selective acquisitions to complement our business and help us advance into new and untapped areas • To grow our emerging businesses to help us expand into key growth areas. • To develop clear plans for each business and deliver margin growth. •   • Renewed focus on marketing, and rebranding the businesses and focusing on the solutions they deliver. •  • Development of service offer to improve ease of doing business. Digital transformation We are continuing to invest in digital and forward-thinking technology • To provide an end-to-end digital offering and to pioneer the digital standard for the industry. • To move to B2B digital trading where this is possible with  • To ensure the planned upgrade and move of our ERP system to the cloud. This will bring with it a platform to digitise our processes optimising and transforming our ways of working. •  improvement and optimisation. • E-commerce platform now established – creating a cohesive, frictionless user experience and a new complementary sales channel. • Product augmented reality experience now live on the website. • Developed digital solutions to allow for improved self-service. • To migrate all business units from our on-premise ERP system to the cloud. • To develop automation and AI processes. • To further improve our B2B web offering. • To develop visualisation and QR technologies to enhance customer experience. •  Enabled by people and talent management Strategic corporate objectives Organic expansion To invest in organic expansion in existing   Effective capital structure and control framework To ensure that the capital structure   Brand development To strengthen and extend the Marshalls brand by focusing on innovation, service and new product development. 31 Marshalls plc | Annual Report and Accounts 2021 Strategic Report   Key Performance Indicators Measuring our performance £589.3m (up 9% against 2019) 2017 430.2 2018 491.0 2019 541.8 2020 469.5 2021 589.3 Stakeholder linkage • Customers •  • Employees • Communities Revenue (£’m)   £72.1m 2017 52.1 2018 62.9 2019 69.9 2020 2021 72.1  Why is this KPI important? Delivering sustainable growth is key to the Group’s strategy. The aim is to outperform the market and grow market share. Performance  market conditions have remained supportive. We continue to focus on those market areas where demand is expected to be greatest. Links to strategic corporate objectives Principal risks •  impacts demand • Macro-economic and political • Raw material and labour shortages • Increased rate of digital change Risk mitigation • Close monitoring of trends and lead indicators • Diversity of business • Customer centricity • Digital strategy Links to remuneration AIAI LTIPLTIP Why is this KPI important?   Performance  increasingly challenging supply chain pressures. Cost increases have been recovered through sales price increases. Trading in 2022 has started strongly. Links to strategic corporate objectives Principal risks • Cyber security risks •  •  • Climate change Risk mitigation • Innovation and new product development • Focus on cyber security controls • Proactive supply chain management Stakeholder linkage •  • Employees Links to remuneration AIAI LTIPLTIP ROCE (before adjusting items) 20.6% 2017 20.8 2018 20.9 2019 21.4 2020 8.2 2021 20.6 ROCE (%) Why is this KPI important? ROCE is an important indicator of sustainable shareholder value. Performance  cent (2019: 21.4 per cent). ROCE  funds plus net debt. Links to strategic corporate objectives Principal risks • Threat from new technologies and business models • Increased pace of digital change • Capital structure Risk mitigation • Digital transformation • Operational excellence • Flexible capital structure • Capital allocation policy Links to remuneration AIAI LTIPLTIP Stakeholder linkage •  • Employees  £0.1m (net positive cash) Reported basis £41.1m (37.4) 2018 (60.0) 2019 (75.6) 2020 (41.1) 2021 Stakeholder linkage •  • Employees • Customers •  Net debt (£’m) Why is this KPI important? Marshalls continues to support  Performance Net debt was £41.1 million at     Links to strategic corporate objectives Principal risks • Funding strategy • Overpaying for acquisitions •  Risk mitigation • Close monitoring of trends and lead indicators • Diversity of business • Customer centricity • Digital strategy Links to remuneration AIAI LTIPLTIP 2017 22.5 (24.3) Marshalls plc | Strategic Report 32 2017 103 2018 94 2019 96 2020 49 2021 80 Operating cash  Stakeholder linkage •  • Customers •  Why is this KPI important?  is key to our growth strategy and for delivering increased shareholder value. Performance  cent of EBITDA. This was lower than usual due to increased investment in imported inventory  shipping costs. This action was taken to ensure ongoing availability. Links to strategic  Principal risks •  increased investment in working capital •  Risk mitigation • Excellent customer service and quality • Customer relationships and brand value Links to remuneration AIAI LTIPLTIP 98% customer service index 2017 98 2018 98 2019 98 2020 94 2021 98 Customer service Stakeholder linkage • Customers • Communities • Environment Why is this KPI important? Customer centricity is a key strategic priority. Customer service lies at the heart of the Marshalls brand. Performance The Group’s manufacturing operations are responding to market demand and changing trading patterns. The focus remains on quality, on-time delivery and order accuracy. Links to strategic  Principal risks • Quality, service and reliability • Brand reputation • Further COVID-19 disruption Risk mitigation • Customer centricity strategy • Digital strategy 16% carbon reduction per tonne  2017 10.24 2018 9.92 2019 9.21 2020 7.70 2021 6.46 Climate change Stakeholder linkage •  • Employees • Customers •  • Environment • Regulators Why is this KPI important? The Group’s continued commitment to our sustainability strategy is that our annual carbon reduction targets must be achieved  Performance Although our absolute emissions increased in 2021, due to increased production, our relative (intensity) performance has decreased. Links to strategic  Principal risks • Physical risks from climate change, such as wind and water • Rising energy prices and carbon taxes • Changing product requirements in the built environment Risk mitigation • Climate site risk analysis • Market price increases • Mitigation and adaptation strategy Links to remuneration AIAI LTIPLTIP 16.9% reduction in working days lost (%) compared with the target benchmark 2017 46 2018 17 2019 14 2020 2021 17 Health and safety  Why is this KPI important? Marshalls is committed to   Performance  cent reduction in days lost from workplace incidents compared with the target benchmark. Links to strategic  Principal risks • Consistency of standards • Regulatory controls • Investment in operation network • Extended COVID-19 restrictions • Mental health and employee wellbeing Risk mitigation • Embedded culture – The Marshalls Way • Compliance procedures and policies • Employee training Links to remuneration AIAI LTIPLTIP Stakeholder linkage • Employees • Customers • Communities • Environment Links to remuneration AIAI LTIPLTIP Find our strategy on pages 30 and 31 Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework Links to remuneration Long-term Incentive Plan Annual incentive award AILTIP LTIPAI 80% OCF:EBITDA (rolling annual basis) 12 33 Marshalls plc | Annual Report and Accounts 2021 Strategic Report   Managing risk is a key factor delivery of the Group’s  Risk Management and Principal Risks  The impact of COVID-19 continues to have implications for the business and its underlying risks. This is particularly true in the areas of health and safety, cyber security and the security of raw materials supply. All these areas are considered in more  continue to be reviewed and certain new operating procedures have been developed. Mitigating controls continue to be reviewed as appropriate. The Group’s risk function has placed particular emphasis on the following areas during the year: • Health and safety – the Group has used frequent and consistent messaging with mental and physical health prioritised for all employees and stakeholders. We have maintained our established COVID-19 workplace protocols throughout the last year. • IT and cyber risk – the Group has continued to ensure business continuity during the COVID-19 restrictions. Practical   this has remained a priority as the focus has shifted to a more  • Security of raw materials supply – the Group has continued to ensure that product and distribution can continue to meet the increased levels of demand.  during 2021 covering the following areas: •  •  •  •  •  •  • Cyber risk – ransomware.  result of assessing the Group’s key risks. They also include audits  subject to routine cyclical coverage. Priorities for 2022 The priorities for the Group’s risk function in 2022 include the following areas: • Health and safety remains a major focus area and 2022  • The completion of a number of targeted projects will again be a  general IT controls, project delivery and inventory are planned. • During 2022 the Group will commence a project to review the adequacy, completeness and effectiveness of the underlying control environment to ensure that it continues to be robust and suitably documented. •  and governance and the generation of detailed climate risk assessments and scenario planning continues to be a priority. • We also intend to review our approach to identifying the risk  a structural approach to aligning internal controls and risk mitigation initiatives with our risk appetite. Approach to risk management Risk management is the responsibility of the Board and is a key factor in the delivery of the Group’s strategic objectives. The Board establishes the culture of effective risk management and  The Board sets the risk appetite and determines the policies and procedures that are put in place to mitigate exposure to risks. The Board plays a central role in the Group’s risk review process, which covers emerging risks and incorporates scenario planning and detailed stress testing. Marshalls plc | Strategic Report 34 Risk management framework The Board: • determines the Group’s approach to risk, its policies  exposure to risk. The Audit Committee: •  risk management and internal controls; •  management and internal control procedures; and •   Operational managers: •  strategic risks; •   •  implementation of appropriate action plans; and •  Executive Directors: •   of the Group’s  •  management of risk; • monitor risk mitigation and controls; and •  implementation of action plans. Internal audit: •   of internal control procedures; •  of management actions; and •  the Audit Committee. Process There is a formal ongoing process to identify, assess and analyse   The Group Risk Register is updated by the full Executive Management team at least every six months and the overall process is the subject of regular review by the Board. Risks are recorded with a full analysis, and risk owners are nominated who have authority and responsibility for assessing and managing the   continues to be a robust mechanism for monitoring and controlling the Group’s principal risks, and for challenging the potential impact of new emerging risks. All risks are aligned with the Group’s strategic objectives, each risk is analysed in terms of likelihood and impact to the business and the determination of a “gross risk score” enables risk exposure to be prioritised. The Group seeks to mitigate exposure to all forms of strategic,  effectiveness of key mitigating controls is continually monitored, and such controls are subject to internal audit and periodic testing  appropriate. The effectiveness and impact of key controls are evaluated and this is used to determine a “net risk score“ for each risk. The process is used to develop detailed action plans that are used to manage, or respond to, the risks, and these are monitored and reviewed on a regular basis by the Group’s Audit Committee. 1 Macro-economic and political 2 Cyber risks 3  4 Long-term impacts of climate change 5 Human rights consideration 6  7  increased pace of digital change 8 Corporate, legal and regulatory 9 Competitor activity 10 Project delivery of major strategic business projects and change management 11 Health and safety 12 People risk Risk heatmap (net risk scores) Impact Likelihood Low HighMedium <£2m £2m–£5m >£5m 2 1 3 7 5 4 8 9 10 11 12 3 6 The Group has a formal framework for the ongoing assessment  objective is to gain assurance that the control framework is complete and that the individual controls are operating effectively.   includes key controls over access to, and changing permissions on, base data and metadata. Risk appetite The Group is prepared to accept a certain level of risk to remain competitive, but continues to adopt a conservative approach to risk management. In assessing risk appetite, the aim is to ensure that internal controls and risk mitigation measures are designed to reduce the net risk score to a point that aligns with  to channel resources to those mitigation measures and controls  that lies outside our acceptable risk appetite. The risk framework is robust and provides clarity in determining the risks faced and the level of risk that we are prepared to accept. Marshalls’ strategies are designed to either treat, transfer or terminate the source of  35 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Risk Management and Principal Risks continued Viability Statement  have assessed the prospects of the Group over a longer period than the period of at least twelve months required by the “going concern“ basis of accounting. The Directors consider that the Group’s risk   The Board considers annually, and on a rolling basis, a strategic plan, which is assessed with reference to the Group’s current position and prospects, the strategic objectives and the operation of the procedures and policies to manage the principal risks that might threaten the business model, future performance and target capital structure. In making this assessment the Board considers emerging risks and longer-term risks and opportunities. The aim is to ensure that the business model is continually   underpin the Group’s capital structure objectives. The Group’s funding strategy is to ensure that headroom remains at comfortable levels under all planning scenarios. The objective continues to be to have a range of competitively-priced funding lines in place, at all times, with different maturity dates.  believe that three years is an appropriate period of assessment as   that there is less visibility beyond three years. The Construction Products Association’s forecasts currently go out to 2023. This       threaten the Group’s ability to continue operating as a going concern, and focuses on scenarios that might give rise to sales volume reductions, deteriorating operating margins and increases in interest rates. Alongside the current supply chain challenges that are causing shortages of both materials and labour, the current  medium-term risk. None of the individual sensitivities applied impact the Directors’ assessment of viability.  2021 against the base medium-term forecast. Material and labour  consequently, it is possible that if this continues and leads to increases in interest rates this could lead to a softening in market demand. The impact on demand of external market factors continues to be a key medium-term risk. The stress test assumes a sales revenue sensitivity of 20 per cent over each of the next  current growth rates assumed to apply on the revised base position from 2024. In the wake of COVID-19, the stress testing has used sales volume and margin sensitivities that aim to replicate the impact of the last sustained recession, and are similar to the reductions that took  in revenue of around £350 million over 2022 and 2023 and, over the same two-year period, leads to a reduction in operating margin to  experienced in 2020 as a consequence of COVID-19. Even under the deep stress test, all bank covenants are met and   downturn, and this would create additional contingency. The risk of cyber-attack continues to be one of the Group’s highest rated risks. The Group maintains a comprehensive response and recovery plan to ensure critical business systems can be restored within a designated period in the event of an attack. In respect to cyber protection, we employ a multi-layered approach to ensure we have more than one level of defence. We also employ an independent IT security company to perform regular penetration tests and vulnerability scans on our internal and external facing IT environment. From a detection perspective we employ a tier one IT  response to ensure we react quickly and effectively to any security incidents. A detailed Risk Register is maintained to assess both the likelihood of an incident occurring and its impact on the business. This register is reviewed on a six-monthly basis to ensure it is kept current and we undertake independent annual cyber security audits to ensure we keep abreast of the ever increasing and changing threat landscape. In undertaking its review, the Board has considered the appropriateness of any key assumptions, taking into account the external environments and the Group’s strategy and risks. Based on this assessment, and taking account of the Group’s principal risks  expectation that the Group will be able to continue in operation and meet its liabilities as they fall due for the next three years. Marshalls continues to have strong market positions and a strategy of targeting those market areas where growth prospects are greatest. The potential impact of wider economic and political uncertainties has been considered in the assessment of risk 1   supply chain. The Group has developed a detailed plan to mitigate the risk of raw material shortages. Marshalls plc | Strategic Report 36 Find our strategy on pages 30 and 31 Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework 1. Macro-economic and political Nature of risk and potential impact Key risk indicators Mitigating factors Change The Group is dependent on the level of activity in its end markets. Accordingly, it is susceptible to economic downturn, the impact of Government policy, interest rates, volatility in world markets and any continuing issues associated with COVID-19. Material shortages and labour availability are causing  include the increasing impact of wider geo-political factors (including the  levels of Government borrowings. Potential impact The potential longer-term impact of macro-economic uncertainty and   lead to lower activity levels. This could have an adverse effect on the Group’s  volatility in world markets and global economic uncertainty continues to be a risk. geo-political issues give rise  disrupted markets. Ongoing risk of interest rate increases. • Further COVID-19 uncertainty and the emergence of new virus variants. • Government policy failing to contain  • Reductions in consumer  order pipeline. • The Group closely monitors trends and lead indicators, invests in market research and is an active member of the CPA. •  of its business and end markets. The proactive development of the product range continues to offer protection. • The Group has developed detailed plans to support its supply chain, maintain inventory levels and mitigate the risk of raw material shortages. • The Group undertakes scenario planning to support improved business resilience. • The Group continues to target those market areas where growth prospects are greatest, e.g. New Build Housing, Road, Rail and Water Management. • The Group focuses on its supplier   initiatives. No change in risk  objective is to support  investment support for infrastructure and housing has been planned. Economic slowdown would result in a loss of business and  to delays in investment decisions. However, demand in construction continues to be very strong and the outlook is positive. Priorities • Regular scenario planning to assess various market risks and disruptive events. •  on business resilience. Links to strategic corporate objectives Impact on business model Impact on business model   Manufacturing Distribution Customers Find our business model on pages 18 and 19 Scenario Nature of scenario planning process Outcome of scenario stress testing 1. Macro- economic factors A prolonged downturn in economic conditions leading to reduced consumer and  a consequent reduction in demand. Stress test modelling uses severe downside assumptions. These include: • 20 per cent reduction in sales revenue over two years. • This amounts to around £350 million in lost   than that experienced during the COVID-19 pandemic in 2020. • Interest rates increase to 5 per cent. Outcomes • PBT reduces to around £20 million in year two. •  • Net debt increases to around £100 million – which is well within current facility limits –  • Bank covenants continue to be met. 2. Cyber security breach  leading to an immediate and unexpected disruption to essential IT systems and infrastructure. The main elements of our stress testing are as follows: • Penetration tests and vulnerability scans are performed by independent IT security companies. These are changed on an annual basis. • We run cyber-attack “play-book” exercises against different cyber-attack scenarios. Outcomes • The “play-book” scenarios that we run   security incidents. • All systems are categorised to ensure that the  in the event of an incident occurring. Principal risks and uncertainties The Directors have undertaken a robust, systematic assessment of the Group’s emerging and principal risks. These have been considered  greater focus on emerging risks and risk outlook. The reporting includes more detailed assessments of proximity (how far away in time  37 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Risk Management and Principal Risks continued 3. Security of raw material supply/raw material and labour shortages Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change The post-COVID-19 recovery in market  pressure on raw material and labour availability. There are increasing risks in relation to economic volatility, the security of raw material supply and    stresses for sand, cement and other raw materials and energy supplies. In addition, there continues to be a shortage of HGV drivers causing distribution and logistics challenges. Longer term there is a risk of  Potential impact  create imbalances in the mix of regional activity. The risk of market demand exceeding raw material supply could  could reduce margins. • Temporary shortages and  impacting materials and labour. • Decreases in vehicle availability  shortages. •   • Maintaining adequate, but not excessive, stocks. • Continued development of our own    •  and tier two suppliers to ensure any supply risks are minimised. • The digitisation of the supply chain through the implementation of a best-in-class  • The Group focuses on its supplier  long-term supply agreements, the use of  freight forwarding options. • The Group utilises sales pricing and purchasing policies designed to mitigate the risks. • Consideration of alternative technologies, including the reduction of cement content. Increased risk The impact of raw material  has increased during the last year. The risk of temporary shortages is mitigated by proactive supply chain management and the use  Priorities • Increasing productivity and  • Continue to develop supply chain strategies  2. Cyber security risks Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Fast growing and indiscriminate risk of cyber risk. Inadequate controls and procedures over the protection of intellectual property, sensitive employee information and market  controls against cyber security risk quickly enough, given the rapid pace of change and the continuing threat of ransomware attacks and new cyber threats. Increasingly, all business is becoming more IT. Potential impact Operational disruption and   reputational risk. • Emergence of new cyber security risks. • Increased examples of data loss and security breaches in the wider market. •  • Regular cyber security risk audits undertaken by specialists and the use of mitigation controls and other recommended procedure updates. Annual penetration tests are undertaken, and during 2021 an internal audit was  the Group’s controls in relation to a ransomware attack. The Group’s “cyber maturity assessment” score has continued to increase, and Marshalls is accredited with “Cyber Essentials” approval. • Restriction of sensitive data to selected senior and experienced employees who are used to handling such data. • Appropriate tools and training procedures are in place to protect sensitive data when stored and transmitted between parties (e.g. encryption of hard drives,  transmission mechanisms and third-party security audits). • A continuous programme of awareness campaigns and training for staff. No change in risk Cyber risk has increased during the COVID-19 pandemic and remains a  focus continues to be given to promoting awareness of IT security policies, and we continue to extend mitigation controls. The risk is fast growing and indiscriminate and the perception is that the risk of data loss through new (or as yet unseen) security threats continues to increase. Priorities • Constant review and ongoing challenge to procedures – use of external experts. • Continue to develop cyber risk strategy. Principal risks and uncertainties continued Marshalls plc | Strategic Report 38 4. Long-term impacts of climate change Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change  heightened awareness of the environmental challenge, with increased operational and reporting requirements, hardening targets and greater consideration by investor and stakeholder groups.   Based Targets initiative and other Environmental Protocols.  environmental risks is included in the  Potential impact Risk that investors and customers could reduce support if the Group failed to improve performance against targets or did not report appropriately. Risk of customers switching products away from those with a higher  Cost impact of the “Environmental Protocols” and mitigation programmes could lead to increasingly  • Negative feedback from stakeholders – loss of business and investment due to lack of preparedness. • Failure to meet internal targets. • The Group utilises experienced, specialist staff to support the Group’s focus in this area. •  Carbon Trust and Verisk Maplecroft. • Climate risk analysis. • Agreed carbon reduction plan and a set  •  Based Targets initiative. • Working groups established in all focus areas and controls being progressively embedded across the business. Increased risk  focus from stakeholders, Government, customers  Increased expectation   and transition risk. TCFD disclosure requirements. Priorities • Ongoing assessment of climate change and risks for production, facilities, products and distribution. • Develop comprehensive strategic covering  business processes. 5. Human rights Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Mandatory human rights disclosure from 2022 and increased focus on modern slavery and diversity reporting. The continuing requirement to identify risk across the whole supply chain and the need to maintain reliable and consistent internal systems, processes and procedures.    Potential impact Risk that stakeholders could reduce support if the Group failed to address issues around modern slavery and diversity appropriately. • Negative feedback from stakeholders – loss of business and investment. • Increase in general level of disclosure required and administrative compliance. • The Group utilises experienced, specialist staff to support the Group’s focus in this area and the development of a comprehensive strategy. • Regular internal cross-functional meetings to discuss progress, issues  • Annual analysis of sourcing country risk. •   • Focus on ethical sourcing processes  • Working groups established in all focus areas. Increased risk  focus from stakeholders, Government, customers and investors and increased operational and  Priorities • Develop strategic partnerships. • Increase focus on the development of the Group’s comprehensive strategy. Find our strategy on pages 30 and 31 Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework Impact on business model   Manufacturing Distribution Customers Find our business model on pages 18 and 19 39 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Risk Management and Principal Risks continued 7. Threat from new technologies and business models, and the increased pace of digital change in the market Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Reduction in demand for traditional products. Risk of new competitors,  new substitute products appearing. Failure to react to market developments, including digital and technological advances. Potential impact The increased competition could reduce volumes and margins on traditional products. Increased costs and production capacity tied up   made by the Group in this area in recent years, there remains a risk that a new third party could use emerging digital technology to enter the market and transition more quickly and effectively. • Less demand for traditional products and routes to market. • Emergence of new competitors and new digital business models. • More widespread availability  intelligence technology. • Good market intelligence and ongoing monitoring of competitive threats. • Flexible business strategy able to embrace new technologies. •  development and new products. • Development of the Group’s e-commerce platform and developing digital strategy. No change in risk  the business, the continued development of the Marshalls brand and the focus on new products and greater  continue to mitigate the risk. The pace of digital change in the market continues to increase and the risk  Priorities • Collaboration with universities to develop new products and processes. • Increase pace of digital change and technological solutions. 6. Impact of weather events Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Increasingly unpredictable weather conditions and extreme weather events. The longer-term implications of climate change give rise to the transition risk to address the challenges quickly enough. Potential impact Disruption to supply chain and operations that might reduce short- term activity levels. Financial risk caused by adverse impact on margins and cash  production volumes. • Prolonged periods of bad weather (e.g.  which make ground  impossible. • Changing public perceptions of the longer-term implications of climate change. • Diversity of the business. • The Group utilises centralised specialist functions to support mitigation plans and the management of relationships  • Climate change risk analysis in place. • Commitment to water harvesting and recycling schemes. • The development of resilience strategies for climate change is a key element of the Group’s Climate Change Policy. • The development of the Group’s Water Management business and the continuing focus on new product development. No change in risk Weather conditions continue to be closely monitored but are beyond the Group’s control.  awareness of climate change. Priorities • Continue to develop resilience strategies. • Development of Civils  Principal risks and uncertainties continued Marshalls plc | Strategic Report 40 8. Corporate, legal and regulatory Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Inadvertent failure to comply with  governance, legislative and regulatory business environment. The Group may be adversely affected by an unexpected reputational event, e.g. an issue in its ethical supply chain or due to a health and safety incident. Potential impact  regime across all areas of business (e.g. health and safety, competition law, the Bribery Act and GDPR) could  a breach. A health and safety or environmental incident could lead to a disruption to production and the supply of products  lead to prosecutions and increased costs and have a negative impact on the Group’s reputation. • Increased regulatory and compliance requirements. • Integration requirements for new acquisitions. •  increases in the penalty regime for health and safety and environmental incidents. • Centralised legal and other specialist functions, the use of specialist advisers and ongoing monitoring and mandatory compliance training programmes. • The Group has a formal Group sustainability strategy focusing  • The Group employs compliance  independent audit processes which seek to ensure that local, national and international regulatory and compliance procedures are fully complied with. • The Group uses professional specialists covering carbon reduction, water management and biodiversity. No change in risk  governance and regulation continues to require additional management focus and robust compliance procedures within all areas of the business. Priorities • Continue to renew all compliance processes and controls effectiveness. • Develop stress tests and crisis planning procedures. 9. Competitor activity Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change The Group has a number of existing competitors which compete on range, price, quality and service. Potential new low-cost competitors may be attracted into the market through increased demand for imported natural stone products. Competitive risk increases if we fail to maintain high levels of customer service. Potential impact Increased competition could reduce volumes and margins on manufactured and traded products. Reputational damage if the Group loses competitive advantage. • Threat from new competitors and new technologies. • Less demand for traditional products and the increased emergence of new digital business models and product solutions. • The Group has unique selling points that differentiate the Marshalls branded offer. • The Group focuses on quality, service, reliability and ethical standards that differentiate Marshalls from competitor products. • The Group has a continuing focus on new product development. • The continued development of the Group’s digital strategy and its focus for customers and all stakeholders. No change in risk The more uncertain market environment has not led to  competitive pressure. Priorities • New product development. • Research into green technologies. • Review marketing and communications. • Continue to review all elements of customer service. Find our strategy on pages 30 and 31 Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework Impact on business model   Manufacturing Distribution Customers Find our business model on pages 18 and 19 41 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Risk Management and Principal Risks continued 11. Health and safety Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change  possibly caused by human error or the actions of a subcontractor. Ongoing risks in relation to COVID-19 and the need to maintain safe  Ongoing welfare and mental health  Potential impact Risk of harm to all stakeholders, including on-site employees  Negative impact of working from home for certain employees.   and prosecution. A major incident could lead to a disruption to production and a negative impact on the Group’s reputation. • Integration requirements for new acquisitions. •  increases in the penalty regime. • Centralised specialist functions and clear policies in place. • Regular communication and support for employees, including those working from  •  safety strategy. • Ongoing monitoring, training and health and safety audits. • Introduction of a digital management system for enhanced data collection and analysis. • All senior managers receive the Marshalls  stage 3 training. No change in risk Health and safety continues to  Continuing risks arising from COVID-19, including mental health and employee welfare.  procedures leading to improved root cause analysis. Priorities • Ensure health and safety embedded in the “day-to- day” culture. • Improve reporting structures. 10. Project delivery Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Growth outstrips our ability to manage and stress test all aspects of our business model. Ineffective management of major development projects, from initial  management, due to constraints that might impact the Group’s ability to absorb change. Potential impact The extent and complexity of projects  Potential failure to realise  business projects. Reputational damage, service under- delivery and staff retention risks. • Delays to project delivery. •  in resource utilisation. • Robust and standardised project appraisal process. • Change management framework  • Programmes are continually   No change in risk Although the underlying risk continues, effective control and the ongoing development of an appropriate management framework continue to mitigate the risk. Priorities • Develop strategies  • Ongoing reviews of acquisition strategy and  Principal risks and uncertainties continued Marshalls plc | Strategic Report 42 12. People risks Links to strategic corporate objectives Impact on business model Nature of risk and potential impact Key risk indicators Mitigating factors Change Availability of labour diversity – with risks around core skills, demographics, capability and changing working patterns. Ongoing risks and requirements concerned with training, development and succession planning. Implications of technological change and automation. Welfare and mental health related risks associated with the COVID-19 pandemic. Potential impact Inability to recruit and retain people with required skills, calibre and potential. Risk of reduced skills and inadequate training potentially leading to reduced  Companies are changing their “employment position” and creating  Implications for employee health and wellbeing and overall workforce morale. Potential risk to the Marshalls brand. •  and lack of diversity within  • Increased stress levels within workforce leading to employee absenteeism. • Increased levels  • Focused Human Resources department with experienced staff and specialist skills. • Group People and Organisational Plan. •  relationships. •  employee feedback through the Employee Voice Group and the newly-established Drivers’ Working Party. • Regular feedback questionnaires supported by a third-party provider. •  • Focus on training, apprenticeships and ongoing staff development and leadership potential – “Early Talent Programme”. Increased risk Increasingly competitive labour market. The emergence of challenges for employees with changed working requirements, health and safety regulations and operational working practices. These include issues that could give rise to heightened employee wellbeing issues and risks to mental health. Priorities • Develop retention and recruitment strategies. • Effective marketing and communications. • Focus on succession planning, internal development and  leadership teams. Find our strategy on pages 30 and 31 Links to strategic corporate objectives     Relationship building Organic expansion Brand development Effective capital structure and control framework Impact on business model   Manufacturing Distribution Customers Find our business model on pages 18 and 19 43 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Trading summary Revenue Group revenue for the year ended 31 December 2021 was   increase of 9 per cent compared with the same period in 2019, being the last comparative period which was unaffected by COVID-19. Revenue growth in the second half of the year was increasingly strong,  Revenue analysis   an increase of 30 per cent compared with the prior year, and is up  domestic installers at the end of February 2022 revealed a healthy   The Group has a strong balance sheet and a robust capital structure,  headroom.” Financial Review Trading continues to improve and order books remain strong Summary •   •  •   •  •   •   •   •   Revenue 310.0 290.0 270.0 250.0 230.0 210.0 190.0 170.0 150.0 2018 2019 2020 2021 £’m First half      Marshalls plc | Strategic Report 44 Domestic Our Domestic customers comprise DIY enthusiasts, professional landscapers and driveway installers. Our aim is to generate sales through  installer teams and the Group continues to receive good feedback for its consistently high standard of quality, excellent customer service and marketing support. Private Housing “repair, maintenance and improvement” remains strong with consumers continuing to spend more time at home and    Public Sector and Commercial     contractors and housebuilders. The Group continues to focus on those market areas where future demand is expected to be greatest including New Build Housing, Road, Rail and Water Management. Infrastructure is expected to be a key element of construction growth  remains strong with Private Housing starts forecast to increase by 5 per cent in 2022 and 3 per cent in 2023. Our aim is to generate demand   Change 2021 2020 2019   Analysis of sales by end market £’m £’m £’m % %  167.0  141.2 30%   389.1 309.5   4% International 33.2 31.3   23% 589.3  541.9  9% % % %  28%    66%   International 6%  5%  by digitalisation, including the use of visualisation tools, and to promote and invest in innovation. Building on 15 years of experience in digital visualisation, our new augmented reality app gives architects, garden designers, installers and consumers state-of-the-art solutions.  ranges. Digital tools are a key feature of our new housebuilders website. International   develop its global supply chains to ensure that international operations are sustainable and aligned with market risks and opportunities.  end markets. Those businesses that are not large enough to comprise separate operating segments include Marshalls Landscape Protection and Mineral Products and they continue to be a key strategic focus and a positive driver for growth. Revenue variance analysis 2019–2021 600 550 500 450 400 350 300 2019 revenue Public Sector and Commercial UK Domestic International 2020 revenue Public Sector and Commercial UK Domestic International 2021 revenue 4.4 1.9 64.3 541.8 £’m 469.5 79.6 38.3 589.3 12.4 Revenue analysis: business area (%)        Revenue by area (%)        45 Marshalls plc | Annual Report and Accounts 2021 Strategic Report    Change 2021 2020 2019   Trading results £'m £'m £'m % % EBITDA 107.1   103.9  3%  (30.9) (30.4) (30.2) Operating profit 76.2    3% Adjusting items —  — Operating profit (reported) 76.2 9.4  * Before adjusting items.     summarises the impact of the separately disclosed adjusting item costs, which are disclosed in Note 4 on pages 142 and 143. Disclosed adjusting costs £’m    decided to exit this market. 1.2 The additional consideration payable to the CPM vendors represents a charge relating to the acquisition of CPM following the agreement reached with the vendors to release funds initially set aside in escrow, following the identification of an under-funded     Payment of a special bonus to employees as a thank you for their support during the pandemic. 2.2 Net total of disclosed adjusting costs     commissioned at the end of 2022.         in 2019. This result was adversely impacted by the temporary effect of supply chain issues and by additional manning and increased levels of overtime required as a consequence of labour shortages and absenteeism during the COVID-19 pandemic. Proactive management continues to mitigate the impact of material shortages. Revenue Operating profit Margin impact Margin analysis £’m £’m % 2020    Landscape Products 111.2 45.4  Other   0.4% 2021 589.3 76.2 12.9% 2019    Financial Review continued Marshalls plc | Strategic Report 46       this item. The additional pension liability is a non-cash adjustment but,   On a rolling annual basis interest, before the adjusting items,    interest charge of £0.4 million (2020: £0.2 million) in relation to   Marshalls plc pension scheme, net of the expected return on scheme assets. Taxation   would increase to 25 per cent from 2023, and this rate change was substantively enacted on 10 June 2021. Consequently, the deferred tax liability at 31 December 2021 has been calculated at the rate at which the deferred tax is expected to unwind in the future, using rates enacted at the balance sheet date. This rate change has given rise to an increase in the deferred tax charge of £4.9 million. The impact of this on the tax charge has been partially mitigated by the temporary increases in capital allowances in the year arising from  and machinery and the reversal of certain tax provisions made in prior years which are no longer required.     Comprehensive Income. For the eighth year running, Marshalls has been awarded the Fair Tax Mark, which recognises social responsibility and transparency in a company’s tax affairs. The Group’s tax approach has long been closely aligned with the Fair Tax Mark’s objectives and this is supported by the Group’s tax strategy and fully transparent tax disclosures. Taking into account not only corporation tax but also PAYE and NI paid on our employee wages, aggregate levy, VAT, fuel duty and business rates  Dividends The Group’s stated objective is that “the Group has a progressive dividend policy with the objective of achieving up to 2 times dividend cover over the business cycle. As earnings increase we plan to share the increase between strengthening cover and progressively raising the rate of dividend.” A progressive dividend policy remains a key objective.  paid for 2021. This will be payable on 1 July 2022. When combined  dividend of 14.3 pence per share. Dividend payments will continue  our stated strategy and capital allocation policy. Net debt Reported net debt was £41.1 million at 31 December 2021       to the operating decision to increase investment in imported inventory  availability and maintain the desired high levels of customer service.  The continuing strategy is to ensure that facility and covenant headroom remains at comfortable levels and that we have a range of competitively-priced funding lines in place, with different banks, at all times and with different maturity dates. The Group has total    Adjusted Reported Change 2021 2021 2020 2019  Profit before taxation £'m £'m £'m £'m % Operational profit before adjusting items 76.2 76.2   3% Adjusting items — —   — Operating profit (reported) 76.2 76.2 9.4  3% Net finance costs (4.1) (6.9)   Profit before taxation 72.1 69.3   3% Taxation (15.1) (14.4) (2.1) (11.9) Profit after taxation 57.0 54.9   — Earnings per share – pence 28.6 27.5 1.2 29.4 —     million), which represents an increase of 3 per cent against the 2019 comparative.   47 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Net debt continued The committed bank facilities have a spread of medium-term maturities that now extends to 2025. The ratio of net debt to EBITDA was 0.4 times at 31 December 2021   and well below covenant levels. Cash generation    annual basis. The Group continues to prioritise the close control of inventory and the effective management of working capital. Debtor days remain industry leading due to continued close control of credit management procedures. 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. We do not engage in debt factoring, but do have access to a supplier  of our partner banks. This provides an additional short-term facility that can be utilised to facilitate the management of mid-month cycles. The Group complies with prompt payment guidelines and  has been agreed with all major suppliers. 2021 2020 Group cash flow £’m £’m Net cash from operating activities 68.3 19.3 Net cash from investing activities (7.1) (3.3) Net cash from financing activities (32.2)  Movement in net debt in the year 29.0 (0.5) Adjusting items (2.8)  Foreign exchange 0.6 (1.2)  7.7  Net debt at beginning of year (75.6)  Net debt at end of year (41.1)    capital expenditure for 2021, due to delays to certain capital projects during the year caused by ongoing supply chain issues and material availability. We are now targeting £35 million of capital investment   Last 5 years 2021 2020  basis) Analysis of cash utilisation £’m £’m £’m Net cash from operating activities 68.3 19.3 259.0 Capital expenditure (21.9)  (109.4) Proceeds from the sale of surplus property assets 14.9 11.4 32.3 Lease payments (10.8)  — Acquisition of subsidiary undertakings — —   share issues (3.6)   Dividends (17.9) — (104.4) Movement in net debt in the year 29.0 (0.5)   generation capacity of the Group and how cash has been invested to grow the business and also to show the cash returned to shareholders. Cash generated from operating activities was £259.0 million. The Group has invested £109.4 million back into the business to generate growth, improve productivity and provide industry leading manufacturing  acquisitions of CPM and Edenhall. Dividends to shareholders over     a reported basis, at 31 December 2021. The consistently high ROCE  monetary working capital. Balance sheet Net assets at 31 December 2021 were £344.3 million    2021 2020 Group balance sheet £’m £’m Non-current assets 332.7 324.4 Current assets 263.2 290.0 Current liabilities (150.6)   Non-current liabilities (101.0)  Net assets 344.3   0.1  Net debt (reported) (41.1)   —  Net debt: EBITDA (reported) 0.4 1.3  — 9.3% Gearing (reported) 11.9%  Pension        determined by the scheme actuary using appropriate assumptions which are in line with current market expectations. The surplus  referred to previously. During the last year the AA corporate bond rate has increased from 1.40 per cent to 1.90 per cent and this is the primary driver of the increased surplus. The expected rate of  scheme’s LDI asset portfolio continues to hedge protection against  These changes have resulted in an actuarial gain, net of deferred     surplus of approximately £20 million which was a funding level of  progress, and the expectation is that this will continue to be in surplus and that the scheme continues to require no Company contributions. Financial Review continued Marshalls plc | Strategic Report 48 Capital allocation Marshalls continues to recognise the three guiding principles of  structure. The Group’s optimal capital structure supports the  background and the cyclical nature of the construction sector. The Group’s capital allocation strategy is to maintain a strong   • to prioritise organic capital investment (£35 million investment planned for 2022), supported by an increase in new product  • to continue to target selective strategic acquisition opportunities in New Build Housing, Water Management and Minerals. Bolt-on acquisitions of up to £50 million are considered to be the current strategy, but larger acquisitions would be considered if there was  • to continue the payment of dividends on the basis of a dividend cover of two times earnings in 2022 and beyond. This will see  • to maintain a capital structure that recognises cyclical risk and volatility by continuing to maintain an appropriate level of bank  • to maintain a target net debt:EBITDA ratio of up to 1.5   Clear and consistent capital allocation policy Continued development of the Group’s growth strategy Organic investment remains the priority for capital allocation and  with good paybacks. Capital expenditure of £35 million is planned   the planned investment over the next three years will be around   launch of added-value new products. We are committed to providing sustainable, high-performance product solutions. These include investment in technologies to enhance the development of cement-free product solutions. We    materials. We are committed to reducing the environmental impact of our products, reducing packaging and the recycling of water at our sites. Our plastic consumption has reduced by over 30 per cent since 2013 and 100 per cent of concrete and natural stone products    Investment in research and development covers a number of areas including the development of the Group’s project engineering and manufacturing capabilities, concrete and other materials technology innovations and extending the new product pipeline. New products are driven by sustainability, performance, aesthetics,  three years the Group has developed 142 new product ranges. Further investment continues to be made to develop our wide- ranging digital strategy, encompassing digital trading, digital  Borrowing facilities The total bank borrowing facilities at 31 December 2021 amounted to £155 million, of which £114 million remained unutilised. The bank facilities are unsecured save for inter-company guarantees between the Group and its subsidiary undertakings in favour of the facility banks. The continuing strategy is to ensure that headroom remains at comfortable levels, and that we have a range of competitively- priced funding lines in place (with different banks) at all times and with different maturity dates. The Group’s committed bank facilities have a spread of medium-term maturities that now extend to 2025.  relevant ratios were achieved comfortably and were as follows: • EBITA: interest charge – 54.0 times (covenant test requirement –  • net debt: EBITDA – 0 times (covenant test requirement – to be less than 3.0 times). Facility Cumulative facility Banking facilities £’m £’m Committed facilities Q3 2025 20 20 Q3 2024 35 55 Q1 2024 25  Q3 2023 20 100 Q2 2023 20 120 Q4 2022 20 140 On-demand facilities Available all year 15 155  10  Conclusion Trading continues to improve, and order books remain strong. The Group has a strong balance sheet and a conservative capital  continue to monitor any risk to demand due to the continuing  material and labour shortages. We are well placed to introduce any necessary measures to mitigate any adverse impact. Justin Lockwood  1 Organic growth 2 R&D new product development 3 Ordinary dividends 4 Selective acquisitions 5 Supplementary dividends 49 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls Creating better net positive futures Dear stakeholder When we say sustainability is at the heart of what we do, we mean it. We have been on our sustainability journey for over 20 years, and we are committed to the principles of running a responsible business. That’s why we joined the Ethical Trading Initiative in 2006 and became a signatory of the UN Global Compact in 2009. We knew that the rights of all workers should be respected and that having a values-based approach was key to our future. When carbon wasn’t part of the conversation more than 15 years ago, we started reporting our carbon emissions and labelling our products with carbon footprint information. Four years ago, we listened to the leading climate scientists and started working on setting science- based carbon reduction targets, which were approved by the Science Based Targets initiative. Sustainability is simply part of The Marshalls Way of doing the right things, for the right reasons, in the right way. Here we are in 2022, after a challenging couple of years and with much global focus on how we shape our world and the places around us. The evolution of our purpose is to create better net  society, the environment and the global economy than it takes out. For Marshalls, it’s about better understanding the net impact of our actions and having a net positive mindset in the decisions we take. Environment Last year’s COP26 served as a timely reminder that we need to take climate change seriously and that we need to act now. Business has its part to play and I’m proud to say that Marshalls is well placed to take on the challenge. Last year, we committed to being a net zero business by 2030 as part of our plan and we are well on our way to achieving this. We’re already making changes, with focus on reducing plastic packaging, using lower emission fuels in our manufacturing sites and installing more solar panels. Social The global pandemic reminded us of the value of our public services – and why it’s so important to pay our fair share of tax. It also shone a light on the need to work together in respecting all people and we continue to take the lead in supporting and upholding human rights at home and overseas in our supply chains. In 2021, we were proud to play an active part in the International Year for the Elimination of Child Labour. Our CEO, Martyn Coffey, spoke out against child labour at two global United Nations leadership events. He also engaged with a former child labourer, and now youth advocate, in an open discussion about the role of business in tackling child labour. This is true leadership which  Governance As focus on ESG rightly continues to gain momentum, we ensure we have structures in place so that our environmental, social and governance processes are at the core of our decision making and reporting. In 2021, an ESG internal audit was undertaken by a third party to look at our processes and controls. It also looked at our preparedness for the future and our alignment to reporting frameworks. The feedback was positive and we are in a strong position to embrace the changes in this space. Vanda Murray OBE Chair Our science-based targets “We commit to reduce Scope 1 and 2 greenhouse gas emissions 40 per cent per tonne of production by 2030 from a 2018 base year. We also commit that 73 per cent of suppliers by emissions, covering purchased goods and services and upstream transport and distribution, will have science-based targets by 2024.” Marshalls plc | Strategic Report 50 Sustainability at Marshalls is at the heart of what we do – you can see it in our products, in our commitments and in our actions. The UN Global Compact’s principles continue to guide us and provide our framework for reporting on our activities in the key areas of human rights, labour, the environment and anti-corruption. The Marshalls Way of doing the right things, for the right reasons, in the right way underpins our sustainability model along with the UN Sustainable Development Goals. Our three pillars of Respecting People, Climate Action and Made to Last demonstrate our areas of focus through becoming a Better Workplace, contributing to a Better World and giving our customers a Better Product.   found within this document (or required by Sections 414CA and 414CB of the Companies Act 2006). Reporting requirements Relevant policies Section within Annual Report Environmental matters Environmental Policy Statement Energy and Climate Change Policy Timber and Paper Policy Transport Policy Sustainability strategy (pages 56 and 57) Sustainability commitments relating to the environment (page 54) Social Code of Conduct Social Community Investment Policy Corporate Responsibility Policy Tax Policy Human Rights Policy Modern Slavery and Anti-Human  Children’s Rights Policy Responsible business (page 50) Charitable donations (page 64) Health and safety (pages 68 and 69) Stakeholder engagement (pages 22 to 29) Governance Anti-Bribery Code Tax Policy Trading Policy Schedule of matters reserved for the Board Board Committee Terms of Reference Governance and compliance (pages 72 to 83) Corporate Governance Statement (pages 72 to 83) Corporate Governance Statement (pages 72 to 83) Corporate Governance Statement (pages 72 to 83) Employees Health and Safety Policy Serious Concerns Policy Diversity and Inclusion Policy Drug and Alcohol Policy Mental Health and Wellbeing Policy Headcount (pages 68 and 69) People engagement (pages 64 to 67) Board diversity (pages 70 and 71) Gender diversity (pages 110 and 111) Stakeholder engagement (pages 22 to 29) Principal risks Description of risk process (page 35) Risk framework (page 35) Principal risks and uncertainties (pages 37 to 43) Business model Our business model (pages 18 and 19)  Key performance indicators (pages 32 and 33) Strategy (pages 30 and 31) Full versions of the policies referred to above form part of the Group’s Policy Framework that supports Marshalls’ Code of Conduct. These can be found on the Group’s investor relations website at marshalls.co.uk/about-us/policies * Key policies referred to in this Annual Report. UN Global Compact Purpose: Creating BETTER Net Positive Futures The Marshalls Way: Doing the right things, for the right reasons, in the right way Respecting People Climate Action Made to Last Values: Courageous, Inspiring, Purposeful BETTER Workplace BETTER World BETTER Product 51 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls continued Our sustainability journey How our journey began... First time achievement of BES 6001 for sustainable procurement 2000 Began trading in imported stone Carbon reporting started 2004 2005 Marshalls joined the FTSE4Good index of sustainable shares Joined the Ethical  2006 Product carbon footprint started 2008 Marshalls became UN Global Compact signatory 2009 2010 First disclosure to Carbon Disclosure Project (“CDP”) 2014 First time Living Wage employer 2011 Marshalls plc | Strategic Report 52 Carbon Reduction Plan approved by Science Based Targets initiative Moving into the future, Marshalls aims to create better net positive futures. 2022...  www.marshalls.co.uk/sustainability Superbrand status for ten years running 2019 2017 First to achieve Ethical Labour Standard BES 6002 2015 First Fair Tax Mark accreditation 2016  Slavery Working Group Signatory to Women’s Empowerment Principles (“WEPs”) 2021 2020 53 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls continued Sustainability – materiality matrix Materiality matrix We base our materiality matrix on stakeholder engagement, the SASB Standards for Construction and the UN Sustainable Development Goals. The ESG materiality matrix complements our risk heatmap (on page 35) and whereas the heatmap looks at impact and likelihood, the materiality matrix focuses more  impact on the business. Review process Building on the process we put in place in 2020, we started with a review of materiality topics through desk research, analysis of industry issues, and feedback from stakeholders including customers and colleagues. A quantitative process was then taken to our ESG Committee, a group of 19 senior colleagues from different areas of the business, in order to review the positions   Outcome of review Further to the review, our key material issues still broadly fall into the categories of environment, people and responsible business. However, there have been additions and changes. We have added talent and development, as well as natural capital in order to differentiate from biodiversity. Circular economy now encompasses waste management, and responsible sourcing has become sustainable procurement. With the impact of climate change becoming more prevalent, human rights due diligence has evolved into human rights and environmental due diligence. In 2022, we will revisit and update the ESG materiality assessment  Marshalls and developing a process where each material issue is assessed on a risk basis and appropriately linked and recorded within the risk registers (where appropriate). Impact on business Stakeholder interest Moderate Major Low High Energy management Water management Circular economy Biodiversity impacts Natural capital Health and safety Product innovation Impact of climate change Carbon reduction Employee wellbeing Supply chain resilience Sustainable procurement Community relations Human rights and environmental due diligence Anti-corruption Diversity and equity Talent and development Regulatory environment 1 11 2 12 3 13 4 14 5 15 6 16 7 17 8 18 9 10 Materiality review process Stage 1 Stage 2 Stage 3 Desk research SASB Standards for Construction Analysis of industry issues Feedback from customers Quantitative and qualitative review process with ESG Committee Final review Review process with customer-facing colleagues Presentation to Executive team and Board Publication in Annual ReportConsultation with Employee  ESG audit In 2021, the Audit Committee commissioned KPMG to undertake an audit in order to assess the controls in place in relation to ESG at Marshalls. This also included consideration of our preparedness for the future, particularly in relation to aligning reporting frameworks and meeting the challenges associated with future changes. Following this audit, areas of focus for 2022 include formalising processes, completing skill assessments and aligning ESG metrics and reporting. “Overall, the control environment in relation to ESG processes was found to be working well. With a dedicated sponsor appointed and a steering group in place, the governance, oversight and reporting of ESG matters  4 2 1 8 7 5 9 12 13 16 6 15 11 10 18 17 14 3 Marshalls plc | Strategic Report 54 Sustainable Development Goals (“SDGs”) Materiality Last year, we outlined our engagement with each of the four UN  our strategic objectives – SDG 8 for Decent Work and Economic Growth, SDG 11 for Sustainable Cities and Communities, SDG 12 for Responsible Consumption and Production and SDG 13 for Climate Action. While we understand the SDGs are very much aimed at countries and nations globally, we also know that business has a role to play in contributing to the future of the planet and its people. Contribution to the SDGs In 2021, we undertook a review to further delve into the goals at target level as each of the 17 goals have associated targets and indicators. This process enabled us to see where we contribute, focusing on tangible actions. In our commitment to being  of each SDG we do and don’t contribute to. Reporting Our review also encouraged us to put a process in place for SDG reporting. By the end of 2021, we have further understood the SDGs and their targets, prioritised the SDGs that are material  We look forward to taking our process further in 2022, where we  and starting the process of collecting and analysing relevant data. We will also be joining the UNGC Network UK Global Goals Working Group. Case study Goal 8.4: Improve progressively, through 2030, global resource   Though this is a global goal, our contribution is based on our ongoing move towards circularity. We have waste management strategies and metrics to measure our waste to  removing plastic packaging from some of our kerb and edging products. We continue to monitor our water use by measuring water harvesting and recycling at our manufacturing sites, and we have processes in place for quarry restoration. Link to strategic objective: Sustainable materials supply SDG Targets How we contribute positively Related strategic priorities 8.2, 8.4, 8.5, 8.6, 8.7, 8.8 • Business and human rights roadmap • Code of Conduct and ETI Base Code • Living Wage and Fair Tax employer • UN Target for Gender Equality and signatory to Women’s Empowerment Principles (“WEPs”) • Apprenticeship programme • Safecall independent whistleblowing service • Digital transformation • Logistics excellence • Customer centricity • Operational excellence • Growth in the emerging businesses 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.7a 11.7b • Net zero commitment and climate change mitigation and adaptation strategy • Tactile paving, natural stone and permeable paving products • Product information including carbon footprints and Environmental Product Declarations (“EPDs”) • Focus on placemaking and social value • Landscape protection products and anti-terrorism kerbs • Brand preference for product  • New product development  • Sustainable supply 12.1, 12.2, 12.5, 12.6, 12.7, 12.8 • Renewable energy at sites • Water monitoring programme, including water harvesting and recycling at sites • Focus on biodiversity and natural capital • Waste management and move towards circularity • Active participant of UN Global Compact • Ethical Risk Index for natural stone products • Digital transformation • Logistics excellence • Sustainable supply • Operational excellence 13.1, 13.3 • Net zero commitment and climate change mitigation and adaptation strategy • Science-based targets for carbon reduction • Product carbon footprints for over 5,000 products • Permeable paving products • Brand preference for product  • Sustainable supply • New product development  • Operational excellence 55 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls continued Sustainability progress The Group’s sustainability pillars are aligned with the UN Global Compact principles. They sit alongside the Group’s strategic objectives set out on pages 30 and 31, and ensure that the Group’s priorities and actions take full account of the longer-term sustainability priorities. EnvironmentSocial Theme Achievements in 2021 Stakeholder engagement Targets Progress  membership Climate change and carbon reduction • Mitigation and adaptation strategy • Reporting progress on TCFD reporting recommendations • Recognised as European Climate Leader by Financial Times and Statista • CDP B score • Re-accreditation to Carbon Trust Standard • Working with the Carbon Trust to update product carbon footprints • Climate change awareness education and training with colleagues and customers • Engagement with UNGC Network UK TCFD Working Group • Executive remuneration for carbon reduction targets • Reduce absolute emissions by 15 per cent by 2025 (from a 2018 base year) • Commitment to net zero by 2030 •  Zero Standard • Updated product carbon footprints • Science Based Targets initiative • Carbon Trust Standard • Carbon Trust Route to Net Zero Standard • ISO 50001:2018 Pollution and resources • Solar panels at second manufacturing site • Removal of non-essential packaging on standard  • Launch of virtual sample service • Active membership of Mineral Products Association (“MPA”) and MPA Precast • Collaboration with Cambridgeshire County Council on renewable energy project • 2.7 per cent reduction year on year of kWh/tonne of product • Solar panels at every major manufacturing site •  • Implementation of ISO 9001 Circular Economy • Re-accreditation to ISO 50001 • FORS (Fleet Operators Recognition Scheme) membership • ISO 14001:2015 • ISO 50001:2018 • ISO 8001 Biodiversity • Working towards providing biodiversity net gain • Quarry restoration • Move to FSC ®   • Working with the Royal Society for the Protection of Birds (“RSPB”) on twite project • Community engagement for geodiversity projects • Biodiversity roadmap • Tree planting project •  Protection products • Mineral planning legislation Water use • Focus on water monitoring (including harvesting  • Permeable paving and Sustainable Drainage Systems  • Collaborative working as members of Construction Industry Research & Information Association (“CIRIA”) and susdrain • Water product footprints • Rollout of automatic meter reading for water usage • Re-accreditation to ISO 14001 • Environment Agency • ISO 14001:2015 Supply chain and responsible sourcing • Re-accreditation of BRE BES 6001 and BRE ELS 6002 • Sustainable procurement human rights due diligence system and processes • Gold membership of Supply Chain Sustainability School • Active membership of Supply Chain Sustainability School • Collaboration with UK and overseas suppliers • Engagement forum with solar panel suppliers • ETI Base Code video for overseas suppliers in four languages • Implementation of ISO 20400 Sustainable Procurement • Re-accreditation of BRE ELS 6002 for ethical labour sourcing • BRE BES 6001 • BRE ELS 6002 • ISO 20400 Human rights and modern slavery • Active engagement with the International Year for  • Independent Modern Slavery Threat Assessment programme •  Hub big data • Active engagement with the UN and ILO Child Labour Platform • Engagement with UK Government on aligning overseas aid with private sector modern slavery efforts • Engagement with UNGC Network UK Modern Slavery and Child Labour Working Groups • Continue to deliver pledge in support of the International Year for the Elimination of Child Labour • Launch Everyone’s Business app • Launch Safecall whistleblowing hotline to overseas  • Modern Slavery Act 2015 • Modern Slavery Statement Anti-corruption and anti-bribery • Code of Conduct cumulative training for  • Core programme of compliance training on  • Corporate Criminal Offence (“CCO”)  • Collaboration with internal teams  • Code of Conduct training for 100 per cent of staff • Set up of Compliance Steering Group • Compliance training refresher • Development of CCO training programme • UK Bribery Act 2010 Responsible business • Sustainability materiality review • Review of internal ESG processes • £103,500 donated to Macmillan and Mind • Fair Tax Mark • Disclosure to Workforce Disclosure Initiative • Drug and Alcohol Policy training programme • Charity partnership with Macmillan • Member of Made in Britain • Engagement with UNGC Network UK Global Goals Working Group • Fair Tax Mark re-accreditation • Social value measurement and reporting • Reporting alignment to Global Reporting Initiative (“GRI”) • Reporting to Ethical Trading Initiative (“ETI”) and UNGC Communication on Progress revised frameworks • Re-accreditation to ISO 9001 • Corporate Governance Code • Fair Tax Mark • UN Sustainable Development Goals • UNGC Communication on Progress • Sustainability reporting frameworks • ISO 9001:2015 People • Women’s Empowerment Principles (“WEPs”) signatory • 102 apprenticeships • Over 8,200 training courses completed • Over 72 per cent of colleagues using Marshalls NOW  • Living Wage employer • Engagement with UNGC UK Network on Diversity and Inclusion •  employee survey • Accredited new driver apprenticeship programme •  • Drivers’ Working Party • Living Wage re-accreditation • Strengthen and evolve the Driver Academy • Increase number of apprentices • Rollout of inclusive leadership and diversity awareness programme for Marshalls leaders • Employment and equality legislation • Living Wage • Gender pay gap reporting Health and safety • Over 18,000 hours spent on health, safety and environmental training • 53 new Mental Health First Aiders • 7.8 score for health and wellbeing in employee survey • Highly Commended for the Safer Through Improvements in Health and Wellbeing Award at the MPA and British Precast Health and Safety Awards • Working with Mental Health First Aiders to support our people • Cross-team development of mental health support process • Implementation of SLAM (“Stop, Look, Assess, Manage”) with colleagues • Set up of Steering Committee for Mental Health and Wellbeing • Rollout of Fair & Just Approach framework • Recruit and train more Mental Health First Aiders • Re-accreditation to ISO 45001 • Health and safety legislation • ISO 45001:2018 • RIDDOR • SafeContractor •  Marshalls plc | Strategic Report 56 Governance Theme Achievements in 2021 Stakeholder engagement Targets Progress  membership Climate change and carbon reduction • Mitigation and adaptation strategy • Reporting progress on TCFD reporting recommendations • Recognised as European Climate Leader by Financial Times and Statista • CDP B score • Re-accreditation to Carbon Trust Standard • Working with the Carbon Trust to update product carbon footprints • Climate change awareness education and training with colleagues and customers • Engagement with UNGC Network UK TCFD Working Group • Executive remuneration for carbon reduction targets • Reduce absolute emissions by 15 per cent by 2025 (from a 2018 base year) • Commitment to net zero by 2030 •  Zero Standard • Updated product carbon footprints • Science Based Targets initiative • Carbon Trust Standard • Carbon Trust Route to Net Zero Standard • ISO 50001:2018 Pollution and resources • Solar panels at second manufacturing site • Removal of non-essential packaging on standard  • Launch of virtual sample service • Active membership of Mineral Products Association (“MPA”) and MPA Precast • Collaboration with Cambridgeshire County Council on renewable energy project • 2.7 per cent reduction year on year of kWh/tonne of product • Solar panels at every major manufacturing site •  • Implementation of ISO 9001 Circular Economy • Re-accreditation to ISO 50001 • FORS (Fleet Operators Recognition Scheme) membership • ISO 14001:2015 • ISO 50001:2018 • ISO 8001 Biodiversity • Working towards providing biodiversity net gain • Quarry restoration • Move to FSC ®   • Working with the Royal Society for the Protection of Birds (“RSPB”) on twite project • Community engagement for geodiversity projects • Biodiversity roadmap • Tree planting project •  Protection products • Mineral planning legislation Water use • Focus on water monitoring (including harvesting  • Permeable paving and Sustainable Drainage Systems  • Collaborative working as members of Construction Industry Research & Information Association (“CIRIA”) and susdrain • Water product footprints • Rollout of automatic meter reading for water usage • Re-accreditation to ISO 14001 • Environment Agency • ISO 14001:2015 Supply chain and responsible sourcing • Re-accreditation of BRE BES 6001 and BRE ELS 6002 • Sustainable procurement human rights due diligence system and processes • Gold membership of Supply Chain Sustainability School • Active membership of Supply Chain Sustainability School • Collaboration with UK and overseas suppliers • Engagement forum with solar panel suppliers • ETI Base Code video for overseas suppliers in four languages • Implementation of ISO 20400 Sustainable Procurement • Re-accreditation of BRE ELS 6002 for ethical labour sourcing • BRE BES 6001 • BRE ELS 6002 • ISO 20400 Human rights and modern slavery • Active engagement with the International Year for  • Independent Modern Slavery Threat Assessment programme •  Hub big data • Active engagement with the UN and ILO Child Labour Platform • Engagement with UK Government on aligning overseas aid with private sector modern slavery efforts • Engagement with UNGC Network UK Modern Slavery and Child Labour Working Groups • Continue to deliver pledge in support of the International Year for the Elimination of Child Labour • Launch Everyone’s Business app • Launch Safecall whistleblowing hotline to overseas  • Modern Slavery Act 2015 • Modern Slavery Statement Anti-corruption and anti-bribery • Code of Conduct cumulative training for  • Core programme of compliance training on  • Corporate Criminal Offence (“CCO”)  • Collaboration with internal teams  • Code of Conduct training for 100 per cent of staff • Set up of Compliance Steering Group • Compliance training refresher • Development of CCO training programme • UK Bribery Act 2010 Responsible business • Sustainability materiality review • Review of internal ESG processes • £103,500 donated to Macmillan and Mind • Fair Tax Mark • Disclosure to Workforce Disclosure Initiative • Drug and Alcohol Policy training programme • Charity partnership with Macmillan • Member of Made in Britain • Engagement with UNGC Network UK Global Goals Working Group • Fair Tax Mark re-accreditation • Social value measurement and reporting • Reporting alignment to Global Reporting Initiative (“GRI”) • Reporting to Ethical Trading Initiative (“ETI”) and UNGC Communication on Progress revised frameworks • Re-accreditation to ISO 9001 • Corporate Governance Code • Fair Tax Mark • UN Sustainable Development Goals • UNGC Communication on Progress • Sustainability reporting frameworks • ISO 9001:2015 People • Women’s Empowerment Principles (“WEPs”) signatory • 102 apprenticeships • Over 8,200 training courses completed • Over 72 per cent of colleagues using Marshalls NOW  • Living Wage employer • Engagement with UNGC UK Network on Diversity and Inclusion •  employee survey • Accredited new driver apprenticeship programme •  • Drivers’ Working Party • Living Wage re-accreditation • Strengthen and evolve the Driver Academy • Increase number of apprentices • Rollout of inclusive leadership and diversity awareness programme for Marshalls leaders • Employment and equality legislation • Living Wage • Gender pay gap reporting Health and safety • Over 18,000 hours spent on health, safety and environmental training • 53 new Mental Health First Aiders • 7.8 score for health and wellbeing in employee survey • Highly Commended for the Safer Through Improvements in Health and Wellbeing Award at the MPA and British Precast Health and Safety Awards • Working with Mental Health First Aiders to support our people • Cross-team development of mental health support process • Implementation of SLAM (“Stop, Look, Assess, Manage”) with colleagues • Set up of Steering Committee for Mental Health and Wellbeing • Rollout of Fair & Just Approach framework • Recruit and train more Mental Health First Aiders • Re-accreditation to ISO 45001 • Health and safety legislation • ISO 45001:2018 • RIDDOR • SafeContractor •  On track = meeting regulation and mandatory requirements Exceeding = engaging in activity that goes beyond regulation and mandatory requirements 57 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls continued Recommendation Recommended disclosures Additional information Governance     The Board has ultimate responsibility for climate-related risks and opportunities. The CEO has overall responsibility for climate-related issues and has responsibility to the Board for reporting on climate-related issues. The Sustainability and Energy teams, led by the Group Sustainability Director and the Group Operations Director, work collaboratively with other teams and sites to identify risks and opportunities, monitor performance, report  2021 progress: Appointment of Sustainability Improvement Director to drive implementation of our sustainability strategy, and plans for executive remuneration for carbon reduction. Climate Action Report (pages 4–5) Strategy         Our mitigation and adaptation strategy focuses on the actions we need to take to both reduce our emissions and adapt to climate change. We continue to focus on reducing our carbon emissions and driving manufacturing  aligned to our purpose of creating better net positive futures for everyone. We recognise that customers are interested in low-carbon products and more sustainable solutions, and there are opportunities for our industry to work together to achieve carbon reduction targets. 2021 progress: Mitigation and adaptation strategy and appointment of Head of Product Sustainability to identify opportunities in product portfolio. Climate Action Report (pages 6–9, 10) Risk     Climate change is a principal risk and we have a formal ongoing process to identify, assess and analyse risks. These form part of the Group Risk Register, which is compiled by the Executive team.  risks which could affect our sites. We have also looked at risk in terms of our products and availability of materials, along with risks relating to reputation and the market. There are, however, also opportunities around  management business and our drive to give our customers the information they need to make informed buying decisions.  Climate Action Report. Climate Action Report (pages 5–9) Metrics and targets       Metrics used to assess climate-related risks and opportunities include climate  emissions. These are in line with our strategy and risk management process. We continue to report our greenhouse gas (“GHG”) emissions – see page 60 for Scope 1 and Scope 2 GHG emissions and science-based targets. See pages 56–57 and 60–61 for targets used by Marshalls to manage climate-related risks and opportunities and performance against targets. 2021 progress: SECR reporting and ESG data sheet in Sustainability Report covering carbon emissions data. Climate Action Report (pages 5 and 11) Task Force on Climate-related Financial Disclosures (TCFD)  time. According to TCFD recommendations, we are reporting on climate-related governance, strategy, risks and opportunities, and metrics and targets. We believe our disclosure is consistent with the TCFD’s recommendations. Information on our disclosures can be found in this Annual Report and in our recently published Climate Action Report. In both reports, we provide more detail on our strategy and processes, and the risks and opportunities related to climate change for our business. Next year’s disclosure will include more detail on scenario  consistent with the four recommendations and eleven recommended disclosures. We continue to disclose to the CDP Climate Questionnaire, which is aligned with TCFD, and we scored a B for our 2021 disclosure  Marshalls plc | Strategic Report 58 Net zero by 2030 When we started our sustainability journey over 20 years ago, we understood that sustainability would play a big part in how companies do business. We watched and learned – and we believed the climate science. So in 2018, we gathered our data  These targets were approved by the Science Based Targets initiative in 2020 and we are still the only construction materials listed company in the UK to have approved targets. In 2021, we were proud to announce that Marshalls has committed to being net zero by 2030. Our original science-based target was based on a well-below 2°C scenario. As part of our commitment to net zero, we have updated this to a 1.5°C pathway and alignment with the Paris Agreement. This target is due to be approved by the Science Based Targets initiative in 2022. Mitigation Actions to reduce emissions that cause climate change Adaptation Actions to manage the risks of climate change impacts Disaster and risk management Flood protection Infrastructure upgrades Urban heat island  Mix design Science-based targets Water conservation Renewable energy systems Product choice Placemaking Our Journey to Net Zero We pledge our commitment to become a net zero business by 2030. Set out on becoming a 1.5 o C net zero business 2022 2024 2026 2028 2030 204020202018 Meet our pledge to become a net zero business Removal of packaging ovens CO 2 Bio LPG & electric for all fork lift trucks CO 2 BIO LPG All company cars are electric or hybrid CO 2 All manufacturing sites with solar panels. CO 2 50% reduction in carbon footprint CO 2 Switch to green electricity for all sites CO 2 Removal of all gas oil fork lift trucks CO 2 Mitigation and adaptation As we aim for net zero by 2030, our journey focuses on the twin goals of mitigation – actions needed to reduce emissions that cause climate change – and adaptation – actions we need to take to manage the risks of climate change impacts. In order to mitigate against the effects of climate change, we are  and achieving our science-based targets. Adaptation will look much more at the products and infrastructure required to alleviate  Our journey to net zero by 2030 • Green energy for all forklift trucks • Removal of packaging ovens • All company cars powered by electric or green energy • All major manufacturing sites with solar power • Net zero by 2030 Our journey to net zero We pledge our commitment to become a net zero business by 2030. 59 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Marshalls has used bio LPG rather than condition LPG for heating  2021. While we can declare these using the lower emission factor published via DEFRA, we must also declare the possible outside  2 e) from using this fuel source. Relative Scope 1 and 2 emissions This chart illustrates the Group’s CO 2 e intensity emissions as    12.00 10.00 8.00 6.00 4.00 2.00 0.00 kg CO 2 e per tonne production output 2017 2018 2019 2020 2021 9.92 10.24 9.21 8.65 7.70 7.88 6.46 Though our absolute emissions have increased in 2021, our intensity emissions have reduced. Scope 3 target Our Scope 3 science-based target is that 73 per cent of suppliers by emissions, covering purchased goods and services and upstream transport and distribution, have science-based targets by 2024. What ESG Means to Marshalls continued Carbon reduction    As we reported last year, we reduced our total carbon footprint by 50 per cent between 2008 and 2020. We re-baselined our targets in 2018 and our interim science-based targets are to reduce absolute emissions by 15 per cent by 2025 and 27 per cent by 2030. For relative (intensity) emissions, the targets are 23 per cent by 2025 and 40 per cent by 2030. Next year, we will report on our new targets aligned with our net zero commitment. Marshalls has a mandatory duty to report annual greenhouse gas (“GHG”) emissions under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. We use The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition) and the June 2018 Department for Business, Energy and Industrial Strategy (“BEIS”) published CO 2 e conversion factors to measure GHG emissions. This year, in line with mandatory requirements, we have reported according to recommendations from the Task Force on Climate- related Financial Disclosures (“TCFD”), which can be found on pages 58–60 and in our Climate Action Report.  for all UK and Belgium operations. In 2022, we will work on  Our approach to the Energy Savings Opportunity Scheme (“ESOS”)  with the international standard for energy management, ISO 50001, and we were re-accredited in 2021. Measuring carbon emissions We measure carbon emissions by looking at Scopes 1, 2 and 3. Scope 1 refers to all direct emissions of carbon. For Marshalls, this  petroleum gas (“LPG”), bio LPG, kerosene and natural gas. Scope 2 covers our indirect emissions of carbon, so this would be electricity that we have purchased. In 2021, we reported our Scope 2 emissions in two different ways – location based (using Government emission factors) and market based (using supplier emission factors) – and we continue to do so. Scope 3 refers to supplier emissions including cement, aggregates, shipping and transport.  Absolute Scope 1 and 2 emissions This chart illustrates the Group’s absolute CO 2 e emissions in tonnes (including Belgium). 50,000 40,000 30,000 20,000 10,000 0 Tonnes CO 2 e 2017 2018 2019 2020 2021 41,602 12,582 42,147 10,430 43,559 10,670    35,072 2,897 7,565 37,540 32 8,232 As production has increased in 2021 so have our Scope 1 and 2 absolute emissions; however, they remain within our science- based target. Case study The carbon footprints we provide for all of our concrete and natural stone products are calculated for us by the Carbon Trust according to methodology outlined in PAS 2050. We were the  we revised the numbers in 2011 and 2016. We are in the process of updating the footprints to include all of our new products. We  all emissions across the full lifecycle of the product. This includes material extraction, production, packaging, transportation to site, emissions in installation and use, and even end of life treatment. We believe that this is the most honest and transparent approach,  the carbon impact of the products they buy from us. Link to strategic objective: Brand preference for  Marshalls plc | Strategic Report 60 Streamlined Energy and Carbon Reporting (“SECR”) In accordance with the SECR framework, we are reporting underlying energy use, which includes self-generated energy from renewables.  The chart below shows underlying UK energy use. Belgium’s energy use for 2021 was 1.936 mkWh (2020: 1.717 mkWh). 250 200 150 100 50 0 kWh (millions) 2017 2018 2019 2020 2021 209.167 215.836 178.682 217.868 199.016  This chart shows Marshalls’ energy use in the UK in relation to product. Whilst our energy use has increased in 2021, our relative performance remains strong. 50 40 30 20 10 0 kWh/tonne 2017 2018 2019 2020 2021 40.04 37.82 36.25 42.40 34.24 Note: The intensity ratio for 2021 is 34.24 kWh per tonne of product and this is calculated by dividing our kWh (energy) usage by our production output (tonnes). Self-generated energy from renewables This chart shows self-generated energy from the solar arrays at our Sandy and Sittingbourne manufacturing sites. 500,000 400,000 300,000 200,000 100,000 0 kWh 2017 2018 2019 2020 2021 197,294 199,453 209,551 201,635 413,449 Energy reduction Energy reduction is a big part of our plans to get to net zero. As well as engineering high-emission fuels like gas oil out of the business, we are focusing on operational controls and building management systems to reduce energy. Since 2018, we have installed eleven building management systems saving over 4 GWh and over 1,000 tonnes of CO 2 . We have also ensured that our 18 packaging ovens, which are fuelled by a mixture of LPG and natural gas, switch off automatically when not in use. We continue to work on reducing plastic packaging and in 2021, we announced plastic reduction for our kerb and edging products, which reduces gas consumption. We also installed solar panels   with Euro 6 standards and in 2022, we are updating our product carbon footprints. Case study For some years, we have investigated different types of energy for our business operations, including wind and solar. Our solar energy project is now well underway and in 2021, we installed solar panels at our Sittingbourne site in Kent. All our major manufacturing sites have had solar energy assessments in order to evaluate potential for solar panel installation and we have a target of one major solar panel project every year. Our new dual block plant project in St Ives has been designed to be compatible with solar energy supply with the aim of using solar power for all forklift trucks and electric car charging points. Link to strategic objective: Operational excellence Sites with solar panels Sites without solar panels   10% 90% 61 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Business and human rights What ESG Means to Marshalls continued We have been an active member of the International Labour Organisation (“ILO”) Child Labour Platform since 2015. This dynamic platform gives us the opportunity to join other global brands and organisations committed to eliminating child labour in supply chains. We convene to share experience, knowledge and challenges in order to gain new perspective and recommit to doing all that we can as businesses to accelerate progress and take action. UN Global Compact Leaders Summit Our CEO, Martyn Coffey, stood together with leaders from Coca Cola, Ferrero and Louis Dreyfus to speak out in support of children’s rights. The session marked the tenth anniversary of the UN Guiding Principles on Business and Human Rights and spoke to the imperative of businesses to respect human rights and the requirement for human rights due diligence. Children’s Rights and Business Principles Report As part of our work on promoting children’s rights, we commissioned an independent agency to undertake an audit of the impact of our business operations on children in India, China,  Principles Framework. This is the third such report that we have  The World Day Against Child Labour As members of the ILO Child Labour Platform and an Alliance 8.7 partner – the global partnership for eradicating forced labour,  world – we made a public International Year for the Elimination  As part of the World Day Against Child Labour, a series of connections were made between high-level speakers and youth advocates on highlighting efforts made to implement International Year pledges. Our CEO, Martyn Coffey, addressed a question from Amar Lal, a youth advocate and former child labourer in  The focus of the conversation was on sharing perspectives and   BRE Ethical Labour Sourcing 6002 Marshalls has achieved BRE Ethical Labour Sourcing Standard  the accreditation to drive our continual improvement and to deliver back on our Modern Slavery Statement KPIs and commitments. Against the trajectory of business and human rights milestones,  linked to “hot goods” with high risk of child and forced labour, the  for business and human rights. For us, independent third-party assurances are an integral part of our journey. Advanced supply chain mapping   partner global big data platform, initially funded by IBM but now   which can then be analysed in multiple ways.  chain tool which allows organisations to view their own supply chain data in the global, national, regional and local contexts. This in turn can be harnessed to help inform business and human rights strategy, as well as human rights due diligence approaches. It also makes plain the context in which an organisation’s supply chain, and the wider sector, operates. Offering job opportunities to victims of modern  Marshalls has been a member of Bright Future, now a co-operative of which we are a founding member, since 2018. We continue to make available work placements, with the opportunity of full time employment. We are also looking at the possibility of ring-fencing  Marshalls plc | Strategic Report 62 Human rights due diligence Our human rights due diligence approach is thorough and   our own country risk analysis using the best available global data. This information is supplemented with knowledge gained from our extensive networks and partners in the UK and overseas. We work continuously with higher risk suppliers to embed and implement the Ethical Trading Initiative Base Code. We recently  as English, which is currently being rolled out, together with further supplier training on our Code of Conduct.   Risk Template (“STRT”). This has allowed us to further understand and manage our risks. We also utilise the full STRT within our audit process, and in tender processes. A revised and enhanced ten-stage ethical audit process has been put in place and our business & human rights team is being strengthened in the UK and the EU. We have committed to further  our human rights due diligence work and support suppliers. We continue to look at all of our activities through a child rights lens and have made good strides in delivering against our International Year for the Elimination of Child Labour Action Pledge. Live monitoring will become increasingly important alongside our Safecall grievance mechanism for supply chain workers. We continue to make our annual Modern Slavery Statement in accordance with the spirit of the act, which for us is a platform to further the human rights agenda. H U M A N R I G H T S D U E D I L I G E N C E 3 L I N E S O F D E F E N C E : 1 s t L i n e - O p e r a t i o n a l M a n a g e m e n t 2 n d L i n e - O v e r s e e R i s k 3 r d L i n e - I n d e p e n d e n t A s s u r a n c e Verisk Maplecroft Analysis Traffik Analysis Hub Mapping Country/Sector/ Product Risk Profiles ETI Base Code Implementation Oversight Ethical Audit Programme Goods for Resale ‘Know & Show’ HRDD Operational Systems and Procedures Children’s Rights & Business Principles Framework Everyone’s Business Live Monitoring Safecall Whistle Blowing/Grievance Mechanisms Bespoke Programmes with UN Agencies S U P P L Y C H A I N S U P P L Y C H A I N S U P P L Y C H A I N S U P P L Y C H A I N S U P P L Y C H A I N S U P P L Y C H A I N 63 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Underpinned by people and talent development What ESG Means to Marshalls continued 102 8,287 7.6 colleagues in apprenticeship programmes (2020: 99) training courses completed  eNPS score – 0.3 above  (2020: 7.6) 2,700 employees (2020: 2,500) 7 years of Living Wage accreditation £103,500 raised for Macmillan and  35%  761 new people in 2021 A message from our EVG Board sponsor I’m really pleased to have taken over as the Board sponsor of  business further its focus on employee engagement and the Marshalls people agenda. This focus continues to be an important topic for the Board, which is essential while businesses continue to   witnessed this elected group represent its colleagues in a meaningful and constructive way. This team has grown to be a valuable asset to Marshalls, providing a sounding board and feedback on the key topics outlined in this section of the report. In other areas, work continues to enhance our position as an employer of choice through the development and growth of the people strategy. We’ve made further strides in 2021, and we’re   Non-Executive Director COVID-19 As the COVID-19 pandemic continues to pose challenges to everyday life and to businesses, we maintained our support  Our health and safety protocols at all sites exceeded the minimum UK Government requirements – for example, maintaining two-metre social distancing and mask wearing  Our communications gave clear information on working safely and staying safe outside of work, and received positive feedback from employees. We recognised not everyone  create a more modern and hybrid-working environment, so we also introduced an Agile Working Policy and issued hybrid working guidance. To succeed in our new hybrid-working world, we supported managers and leaders to empower and enable their teams to work effectively through utilising technology and providing relevant guidance and advice. Marshalls plc | Strategic Report 64 Diversity, equity, respect and inclusion (“DERI”) We are focused on developing our DERI agenda and formulating our ambitions in this area. While we have started measurement activities, we have not yet set measurable targets. In 2021, we collected diversity data from our existing employees and new starters. Around 40 per cent of our employee base voluntarily shared details about their gender identity, sexual orientation, ethnicity, religious beliefs, generation, caring responsibilities and disabilities. In 2022, we plan to increase measurement activity with the introduction of new HR technology. Although the majority of our workforce is white, cis and male,  • colleagues who identify as non-binary and trans; • 13 different beliefs; • 24 different countries of origin/nationality; • colleagues who identify as asexual, bisexual, gay, lesbian,  • 2 per cent of our colleagues have shared that they have a disability. Generations at Marshalls (%)   18% Baby Boomer Generation (1946–1964) 8% Gen Z (1995–2012) 40% Generation X (1965–1979) 34% Millennials/Gen Y (1980–1994) 0% The Silent Generation (1925–1945)  the culture, behaviour and awareness of our employees and leaders. This change programme started in 2020 with a tactical plan to open the conversation, involve and educate our people and address what we discover. The initial focus was on developing gender equality and social mobility, and engaging people from ethnic backgrounds without excluding the need to recognise intersectionality. We have continued working with the United Nations Global Compact (“UNGC”) on our Target for Gender Equality, taking action  their direct reports) and representation in our business. We put in place an action plan to further our commitment to supporting and promoting the rights of women and girls by becoming a Women’s Empowerment Principles (“WEPs”) signatory. With this public commitment, we are working towards upholding and implementing the principles across our own business and our supply chain. Our Talent Director also sits on the UNGC Network UK Diversity and Inclusion Working Group. Our DERI agenda is sponsored by Shiv Sibal, Marshalls’ General Counsel and Company Secretary. In our most recent employee engagement survey, we included a  scored this at 8.5 out of 10, which is 0.8 above the industry benchmark. In 2022, we plan to grow our DERI agenda through the rollout of a comprehensive education and cultural change programme for all Marshalls leaders focusing on inclusive leadership and diversity awareness. We are also working to create additional Employee Resource Groups to represent the different diverse groups within our business and within the communities we serve. Early careers Attracting and developing early talent  Marshalls through our various apprenticeship and development programmes. We know that workforce sustainability is essential to our long-term success, and we have an ambitious plan to focus on early talent and promote our industry as a destination of choice for younger people. Marshalls took part in the summer 2021 issue of Jobs & Careers magazine to showcase the diverse career opportunities in manufacturing. The magazine aims to appeal to young people and gives a great insight to those starting out on their career path. A study of 520 young people who had read the magazine placed Marshalls in eighth place out of  All of our job advertisements now include our very clear equal opportunities statement:            65 Marshalls plc | Annual Report and Accounts 2021 Strategic Report What ESG Means to Marshalls continued Leading the Marshalls Way Throughout 2021, 202 leaders have attended our “Leading The Marshalls Way” development course. This development programme focuses on equipping leaders with the skills they need to manage  Working with best in class external training providers, we delivered a bespoke learning and development plan that gave leaders an immersive training opportunity to understand how to excel at leading and managing. Leaders who attended this training said that they saw a 46 per cent increase in their knowledge and ability, and  Addressing industry challenges through our new Driver Academy In response to industry challenges, and as part of our apprenticeship and workforce sustainability strategies, towards the end of 2021  driver population through growing the skillset of existing employees. This development programme is a collaboration between Logistics, Operations, HR and Health and Safety. Despite a tough and   training, the apprentice drivers are learning how to operate key  valuable assets by covering a variety of roles within the Logistics team.   Our 2022 goal will be to strengthen and evolve the Driver Academy in line with our strategic objectives and with input from the  Leadership development apprenticeship We launched our leadership development apprenticeship programme last year with 62 aspiring, frontline and departmental leaders undertaking an apprenticeship  behaviours around being a great leader. Each programme not only focuses on the models and tools required to be a great leader and manager, but also tailors that content to The Marshalls Way. In 2021, we have seen 16 people graduate with more to come in 2022. Of those graduating, 94 per cent felt that the programme had really helped them improve their leadership skills within The Marshalls Way framework. Some of the comments from the graduates’ line managers  thoughtful approach to handling problems, which has  Growing talent through apprenticeships 2021 has been another successful year for apprenticeships at Marshalls, with 102 employees engaged in apprenticeship programmes (Levels 3 to 7), and 19 employees successfully graduating from their apprenticeship programme. These graduates have excelled in their learning, not just compared to the Marshalls standard, but also when compared to their peers nationally. Our Apprenticeship Development Programme has focused on engineering, digital and technology solutions, digital marketing,  administration. This proactive development strategy has enabled us to build career development pathways that are underpinned by apprenticeships. This has helped us to bring new talent into the business while growing existing talent and creating internal mobility. Our ambition for 2022 is to continue growing our own talent through increasing the number of apprentices. We are working to ensure apprenticeships are a recognised and valued development option for all employees, regardless of age, tenure or skillset. Future apprenticeship programmes will further align to our business strategy and workforce sustainability strategy, and will continue to be a commercially funded initiative to ensure equal access to development for all employees. Marshalls plc | Strategic Report 66 Employee engagement and experience  In 2021, we expanded our focus on employee wellbeing to create a more holistic strategy that caters for the diverse needs of our workforce. We know the pandemic and other wellbeing issues have affected our people in different ways, and so our wellbeing strategy aims to provide support that meets our people where they are. This strategy has been formulated with input, needs and wants from our colleagues via a number of feedback channels. In May 2021, we further enhanced our regular employee wellbeing communications through the introduction of Marshalls NOW, a  resources available through Marshalls NOW cover four key topics of move, munch, money and mind. The resources available have been accessed more than 3,000 times by employees and have received excellent feedback.  the implementation of Marshalls NOW and we have been able to  wellbeing. Our Cycle to Work scheme and Healthcare Cash Plan have seen record uptake numbers, and our focus on pensions  in the colleague comments we receive through our numerous feedback channels. Employee engagement measurement Our programme of measuring employee engagement continued throughout 2021, with surveys conducted in April and October. We continued to ensure a broad depth of questions within the surveys to help us measure and understand employee engagement across key topics such as wellbeing and Company strategy. We are  74 per cent of colleagues now giving us their feedback. The most recent survey gave us an employee net promoter score (“eNPS”)  Employee Voice Group (“EVG”) Throughout the year, we have continued to engage with our elected   (taking over from Janet Ashdown) sponsor this activity to ensure   invited to steer the business on a number of areas including our ESG activity, our employee engagement strategy, and our HR and people activity.  people change at Marshalls, most notably the “standardisation programme”, which aims to create fairness and consistency  Drivers’ Working Party (“DWP”)  advantage. While Marshalls has been affected by the nationwide  ensure this impact was minimal. We formed a Drivers’ Working Party where we invited Marshalls drivers to input into decisions and give their feedback on what it means to be a driver in our business and industry. Through this group, we were able to put steps in place to improve the driving role and set a new standard of what it means to be a Marshalls driver. These steps included retention bonuses for  changes to improve driver wellbeing, engagement and development. Marshalls was shortlisted for an Engagement Excellence Award under the category of “Most impactful business transformation to support their workforce”. This is in recognition of the work we have done to improve engagement for all Marshalls employees and to develop   Marshalls HR team and the wider business have focused on delivering changes and developments that really make a difference for employees. While we continued to work through the impact of COVID-19, we were also able to make  Talent attraction is a top priority, and winning the battle to attract and retain employees in a volatile job market has been a constant focus for us. Our people strategy sets the foundations for developing Marshalls into an employer of choice, so that  diversity, equity, respect, inclusion (“DERI”) activity to create a more modern and diverse place to work. 2021 also saw us introduce new technology and people resource to increase the focus on our wellbeing, communications and  recent years. We recognise the part we play in supporting employees to have all-round healthier lifestyles. We’ve continued to make progress on modernising the way we engage and reward colleagues. Towards the end of 2021,  contracts of employment. The employee experience was a leading priority for this programme of change. The developments in how we engage employees have been crucial in helping us accelerate change and build trust in everything we do. The ways in which we support agility and change will accelerate in 2022 to help us drive innovation and improvements for our colleagues, customers and key stakeholders.  of purpose across the Group in everything we do to grow our Marshalls culture. Our ongoing investment  further. This investment into learning and development, as well as in other career growth areas, sets us  We’re well placed for another successful year of people strategy development and delivery in 2022.” Louise Furness Group HR Director 67 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Health, safety and wellbeing What ESG Means to Marshalls continued Health and safety performance Marshalls’ CEO, Martyn Coffey, is the Board Director responsible  Our Health and Safety Policy is approved by the Board and reviewed  aligned with the business strategy with set objectives, and clearly demonstrates the commitment of the business to take the safety and wellbeing of its people to the highest level. The Board is fully committed to the continuous development and improvement of the business’ safety processes and the importance of engaging and developing a competent workforce. The achievement of annual health and safety improvement targets is directly linked to the remuneration of the Executive Directors and senior management, as explained in the Remuneration Report on pages 92 to 112. The headline target for 2021 was to maintain days lost resulting  three years (2018–2020). This excludes the impact of acquisitions within a period of three years from purchase, therefore our Bricks  23.31 lost days injury frequency rate per million hours worked (target: 28.05) Managing risk and wellbeing through the pandemic 2021 presented all industries with risk management challenges   operations and people safety, with our absolute priority being the welfare of all people involved in our activities.  2020 and 2021, and homeworking became the norm. We provided  equipment as well as ensuring they had the right support from peers and managers to continue to work effectively in a very different environment. The majority of our factories and logistical operations have  including the use of Government testing schemes. We continue to regularly monitor our controls and track infection rates so that we can act swiftly on any hotspots. 2021 achievements • Trained 16 new Mental Health First Aiders (“MHFAs”) • Wellbeing section on our intranet with a dedicated area for MHFAs • Implementation of SLAM in Logistics division • 7.8 score for health and wellbeing on employee survey  2022 targets • Recruiting and training more MHFAs • Set up Steering Committee for mental health and wellbeing • Rollout of Fair & Just Approach Framework 2019 2020 2021 Lost days injury frequency rate  32.8 28.8 23.3 Fatalities 0 0 0 Note: the above data covers employees and contractors. Marshalls plc | Strategic Report 68 Mental health and wellbeing We recognise the mental and physical challenges to homeworkers who may at times feel isolated and lonely or struggle to juggle their working time with family responsibilities, home life distractions and working longer hours. In 2021, we launched our Health and Employee Wellbeing Strategy with a vision to provide and deliver a holistic approach to wellbeing, which creates an employee experience that enables people to be at their best. In 2022, we will be introducing a new mental health and wellbeing programme. This includes setting up a new Steering Committee represented by a member of the Executive team to help steer the strategic direction of employee wellbeing, as well as collaborating with our HR team to review how we best manage the mental health support and resources for our colleagues. Our goal is to ensure that we work together to identify early recognition of employee ill health and provide the best support   Highly commended  Wellbeing Award at the MPA and British Precast Health and Safety Awards 2021 Behavioural safety Our work on behavioural safety continued throughout 2021 with a clearer understanding of human behaviours and root cause analysis. We have been working on a new Fair & Just Approach Framework that sets out how to deal with acceptable and unacceptable behaviour which is key to developing and sustaining a positive  SLAM (“Stop, Look, Assess, Manage”) programme In early 2021, we rolled out a new safety programme called SLAM  and was developed by the construction industry’s Leadership and Worker Engagement Forum, hosted by the Health and Safety Executive. The technique acts as a reminder to workers to stop  Case study 2021 has been a challenging year for our logistics operation, with driver shortages and supply chain disruption. We continue to focus efforts on the many different elements of the logistics  Driver Academy has demonstrated our support for drivers joining the business, and our attention to safety through our SLAM programme has resulted in raising awareness with our colleagues, who are much more likely to stop work if a task appears unsafe. Environmentally, we are close to achieving our  reduces harmful emissions. Link to strategic objective: Logistics excellence Accreditation The Group has maintained accreditation to the Health and Safety Management System Standard ISO 45001:2018 and Environmental Management Systems Standard ISO 14001:2015. In 2022, we will be starting the implementation of these standards to our Bricks and Masonry division, formerly known as Edenhall. This was scheduled for completion in 2021 but the global pandemic meant this fell behind schedule and will now commence in 2022. 53 Mental Health First Aiders (2020: 42) 69 Marshalls plc | Annual Report and Accounts 2021 Strategic Report Board of Directors A diverse, experienced  Board Date of appointment 9 May 2018. Re-elected in May 2021. Experience Fellow of the Chartered Institute of Marketing with extensive experience of corporate leadership in both executive and non-executive roles with a wide range  roles include Chief Executive of Blick plc from 2001 until its successful sale to Stanley Works Inc in 2004   Key skills Leadership, manufacturing, construction, marketing  Alignment with strategic corporate objectives External appointments Senior Independent Non-Executive Director and Chair of  Director and Chair of the Remuneration and CSR Committees of Manchester Airports Group and Non- Executive Director and Chair of Yorkshire Water. Vanda Murray OBE Chair The Board is diverse, well- balanced, experienced, committed, forward thinking and agile. It has great depth of experience and skill covering leadership,  product development, technology, marketing, business change and retail. The Board acts boldly, decisively and collectively, applying its skill, knowledge and experience in ensuring the long-term  of the Group whilst bringing constructive challenge and debate to the table. Driving the strategic plan in The Marshalls Way, doing the right things, for the right reasons, in the right way, enables the Board to continually improve operational effectiveness, drive culture change, invest in new sites to deliver long-term sustainable shareholder value and maintain the Group’s market leading position. Committee membership Audit Committee Nomination Committee Remuneration Committee Chair of the Committee Independent Director Date of appointment 9 September 2013. Re-elected in May 2021. Experience  Group BV, a leading manufacturer and distributor of domestic and industrial heating and hot water systems operating in 70 countries with a turnover of €1.8 billion, formed in 2009 from the merger of Baxi and De Dietrich  of the private equity-owned Baxi Group. He also held the   Holds a BSc in Mathematics. Key skills   Alignment with strategic corporate objectives External appointments  Non-Executive Director and Chair of the Remuneration Committee of Eurocell plc. Martyn Coffey Chief Executive Date of appointment 5 October 2010. Re-elected in May 2021. Experience Leadership roles in a number of different industries such as banking, retail, marketing and consumer goods, as well as in the charity and public sectors – for organisations big and small. Formerly Chair of Cogent (the leading  Birmingham Chambers of Commerce, CEO of Sainsbury’s Bank and a member of the operating board and Non-  Key skills Leadership, banking, retail, FMCG, charities and  Alignment with strategic corporate objectives External appointments Chair of the Royal Orthopaedic Hospital. Tim Pile Non-Executive Director Date of appointment 1 October 2019. Re-elected in May 2021. Designated Non-Executive Director for  Experience Broad-based international career in manufacturing, distribution and construction and extensive commercial strategy, marketing and communications executive experience. Formerly Strategic Marketing and Communications Director at Morgan Sindall plc until 2013 and prior to that held senior roles at the Tarmac Group,  Key skills  Alignment with strategic corporate objectives External appointments Non-Executive Director and Chair of the Remuneration  and Chair of the Remuneration and ESG Committees of   Non-Executive Director * The Nomination Committee considered  judgement in spite of his length of service. Strategic corporate objectives Shareholder value  Relationship building Organic expansion Brand development Effective capital structure and control framework Marshalls plc | Governance 70 Gender composition Female (3) Male (4) Ethnic diversity  Mixed Asian and white (1) Date of appointment  Experience         Key skills  Alignment with strategic corporate objectives External appointments None. Justin Lockwood  Date of appointment 10 May 2017. Re-elected in May 2021. Experience   Chief Executive of Galliford Try plc. Also on the board  management experience in the sector, including with leading property developer Development Securities  developer, and Blue Circle Industries plc. Spent seven years as a partner in the Real Estate, Hospitality and  Key skills  professional and charities Alignment with strategic corporate objectives External appointments  Graham Prothero Senior Independent Non-Executive Director Date of appointment  Experience A management consultant with expertise in retail business change, digital channel expansions and transformation. Formerly a partner at Accenture focusing on the retail and  growth engagements with many well-known national and  Business Transformation at Sky in addition to leadership roles at Arcadia, BHS, Mothercare and Littlewoods. Most recently served as a Non-Executive Director at Moss Bros  Key skills Leadership, retail, business transformation, change management, digital and management Alignment with strategic corporate objectives External appointments Non-Executive Director of Grafton Group plc. Co-chair  Independent Trustee and Trustee Board Member of Barnardo’s. Director of Avis Business Consulting, a provider of industry leading technological solutions. Date of appointment  Experience  20 years’ experience, the last eight of which have been in industry at FTSE businesses. Extensive leadership and legal experience. Responsible for transforming the legal team’s role in the business. Formerly a corporate partner  focused on supporting public companies. Also spent more   Key skills  governance, legal, leadership and retail Alignment with strategic corporate objectives External appointments None. Avis Darzins Non-Executive Director Shiv Sibal  * Female Chair and Remuneration Committee Chair.    43% 57% Length of service 0–2 years (3) 3–4 years (2)   43% 28.5% 28.5%  14% 71 Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement Dynamically navigating change    Dear shareholder 2021 has been another challenging year but one in which, I’m proud to say, the business has shown great resilience and delivered a record performance. Our culture and our people have successfully steered the Group through the challenges the COVID-19 pandemic continues to present, whilst keeping a close eye on the longer-term sustainability of the Group, particularly its ESG commitments. Dynamic decision making at both Board and senior management team level has been critical to our success  of COVID-19 is now embedded into Board and day-to-day business processes. The Board has continued to support the strategic ambitions  investment in the new dual block plant at our St Ives factory supports the Group’s priority of driving innovation in our product ranges. As we’ve set out on page 28, the Board’s consideration of this investment was measured and thoughtful, ensuring the business considered the interests of all relevant stakeholders. In addition to supporting evolution and investment in  the retirement of our former Group Finance Director,    during a period of strong performance and growth. These retirements have provided us with the opportunity to introduce further diversity and new skills to the Board through the   our Nomination Committee Report on pages 84 to 87, but these appointments mean the composition of our Board complies with  companies to disclose on a “comply or explain” basis against set diversity targets.  is what “good governance” means to Marshalls. This is central  commitment to The Marshalls Way – to do the right things, for  This Corporate Governance Statement explains how Marshalls’ governance framework supports the principles of integrity, strong ethical values and professionalism which are integral to our business. The Board recognises that we are accountable to shareholders for good corporate governance. This report, together with the Reports of the Audit, Nomination and Remuneration Committees on pages 84 to 112, seeks to demonstrate our commitment to high standards of governance that are recognised and understood by all. The Board’s approval of a multi-million-pound investment in the new dual block plant at our St Ives factory supports the Group’s priority of driving innovation in our product ranges.” Marshalls plc | Governance 72 Board • Board meetings • AGM • Annual strategy day • Regular business engagement • Designate NED for EVG • Investor engagement Audit Committee Read more on  Nomination Committee Read more on  Executive Committee • Committee meetings • Monthly meetings • Weekly update calls • Monthly business reviews • Bi-monthly ESG Committee meetings • Regular EVG meetings Our governance framework Remuneration Committee Read more on  Programme of activities Diversity and Equity Taskforce ESG Committee Business Unit Management Teams Employee Voice Group Read more on  M i s s i o n S t r a t e g y P u r p o s e Culture S t a k e h o l d e r s D  n a m i c D e c i s i o n M a k i n  Governance at Marshalls Our Culture is at the heart of everything we do. Our Purpose drives our Mission, which in turn drives our Strategy. These operate as a virtuous circle  and the business. The operation of our business and the decisions we make have regard to the interests of our Stakeholders. This approach to governance enables Dynamic Decision Making but ensures we never lose sight of the elements within that drive our long-term sustainability. D  n a m i c D e c i s i o n M a k i n  73 Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement continued  •   • In November, we comprehensively reviewed the Group’s 5 year Strategy, ensuring it positions us to capitalise on high-growth sectors, having considered the contextual, societal and macro-economic trends that may be risks or opportunities to the business. • We’ve successfully managed the succession of our CFO and Senior Independent Non-Executive Director (“SINED”). Whilst the Board  acted on the opportunity to further strengthen our Board by introducing new skills, experience and diversity through the appointments  • Having reported extensively in 2020 on our ESG commitments and having made disclosure against the TCFD recommendations  and disclosures to show how the programme will drive competitive advantage and the measures we’ll use to monitor our progress. Annual targets supporting our commitment to being net zero by 2030 are now incorporated in the measures in our incentive schemes. • When Government guidance permitted, we combined virtual engagement with the business with the recommencement of “in person” engagement predominantly through site visits. These provide the Board with very valuable insight into the opportunities and challenges presenting themselves to the Group. They also enable the Board to listen to the thoughts and views of those colleagues working at our manufacturing sites, which are the “beating heart” of our business. •  and supportive during the last year, dynamically navigating change whilst not losing sight of our longer-term strategy. In addition, we have addressed the objectives we set ourselves last year, with further objectives in place for the current year based on the responses we received during the evaluation. See page 82 for further details. •   day-to-day challenges it faces, whilst continuing to ensure the Board has appropriate oversight to give assurances over the Group’s internal control and risk management frameworks. •    • We’ve invested in our people, making a number of senior hires, to drive the change agenda the business faces. In addition to our new  team and investment in our legal and company secretarial team. These investments support the evolution of our environmental, social and governance agendas. Priorities in 2022 • To support the execution of our strategic plan as the impact of the pandemic hopefully subsides. Measuring progress will be critical to the long-term sustainability of the Group. • To challenge the business to be relentless in its customer focus given the criticality of maintaining our strong brand preference, which is a key differentiator. • To ensure that our ESG programme and commitments drive not only commercial and competitive advantage but also our ability to attract and retain the best talent. How we communicate these and measure performance against our targets, and link these to our incentive schemes, will be areas of focus. • To give additional focus and time to succession planning. The “war” for talent means recruiting and retaining the best people will be extremely challenging, particularly when trying to build a more representative and diverse business. • To carefully monitor the implementation and impact of the fundamental audit and corporate governance reforms proposed by the Government, which will have implications for the operation and expectations of the Board. • To continue to ensure we do everything in The Marshalls Way: the right things, for the right reasons, in the right way, and at all times with our stakeholders in mind. Ensuring we promote diversity, equity, respect and inclusion and maintaining a zero-tolerance approach to discrimination through the application of our policies is key as well as ensuring there is equality of opportunity for every role we recruit. Our commitment is supported by our Code of Conduct and central to our Group HR strategy.” Marshalls plc | Governance 74 ESG priorities The Board views our approach to ESG as central to the achievement of our strategic objectives and the long-term sustainability of the business. The Marshalls Way guides everything we do and our ESG commitments and credentials demonstrate this clearly. • Environmental — we take our environmental impact seriously and, in 2021, we published our roadmap to net zero by 2030. • Social — we respect and value the dignity, wellbeing and rights of employees, their families and the wider community, as well as their safety. • Governance — strong governance supported by effective leadership helps nurture our healthy corporate culture and our processes and controls enable us to operate ethically   The Group’s response to COVID-19 during 2020 has enabled both the Board and senior management team to manage its considerable continuing impact within our existing governance framework. The Board has been committed and made itself available throughout the year to support the business and to act decisively where needed. Safety has remained our number one priority, with a number of the measures put in place during 2020 retained during 2021 even though Government guidance had been relaxed. The Health and Safety Executive has conducted a number of unannounced COVID-19 audits at our sites with the business being commended for its management of COVID-19 related risks and for  has meant that we’ve not been immune to the challenges, which include increased absence and self-isolation in the workforce, particularly during spikes in case numbers and transmission. Although these have impacted our operations, the Board has given the senior management team its full backing in implementing measures to ensure we can continue to serve our customers safely, including the temporary recommencement of operations at our factory in Falkirk (which has been earmarked for closure) and additional investment in short-term labour to manage peaks  These steps clearly demonstrate how dynamic decision making is central to the way the Board and senior management team have managed the ongoing impact of the pandemic, alongside ensuring the Group is well positioned for future growth. The Board sets the culture for effective risk management and, together with the senior management team, ensures that we’re having regard to our key stakeholders when making decisions. As part of our initial response to the pandemic during 2020, the consideration of our people, performance, capital structure and controls was central to the Board’s decision making. This structured approach has been   The Board recognises the opportunity greater diversity in the business represents but acknowledges the challenge this presents in our sector. Ensuring we promote diversity, equity, respect and inclusion and maintaining a zero-tolerance approach to discrimination through the application of our policies is key, as is ensuring there is equality of opportunity for every role we recruit. Our commitment is supported by our Code of Conduct and central to our Group HR strategy. At Board level, we have achieved greater gender and ethnic diversity during 2021 and, in addition to myself, a female Chair, we have 43 per cent female representation on our Board overall and one Director from an ethnic minority background. Whilst we have acted upon the opportunity that greater Board diversity presents, we recognise there is much more work to do at senior management  greater diversity brings. This will take time, particularly given the challenges in our sector, but the Board has approved the Group-  CEO and Group HR Director as we begin to implement our longer- term strategy. This will be supported by our newly created Diversity and Equity Taskforce, which has broad colleague representation from across the Group, including our Group Trading Director and General Counsel and Company Secretary, who are both members of our senior management team. Following our agreement during 2020 to participate in Target Gender Equality (which is a gender equality accelerator programme that involves setting and reaching ambitious corporate targets for women’s representation and leadership, starting with the Board and Executive Management levels) our General Counsel, Shiv  we gave an open and transparent account of our progress and the challenges we face. Challenging ourselves in this way is at the heart of The Marshalls Way.  I conducted, with the support of the Company Secretary, an internal evaluation of the Board and its Committees using a tailored online questionnaire that considered both performance during the year and future priorities for the Board. It measured both Board behaviours and process. Having redesigned the internal evaluation in 2020 with the Company Secretary’s support, I conducted this  on its year-on-year performance and on the achievement against  Corporate Governance Code, the Board will conduct an externally  detail on the most recent evaluation and the extent to which the objectives from 2020 were achieved.  In the opinion of the Directors, these Annual Financial Statements present a fair, balanced and understandable assessment of the Group’s position and prospects and provide the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. The respective responsibilities of the Directors and the auditor in connection with the Financial Statements are explained in the Statement of Directors’ Responsibilities and the Auditor’s Report on pages 115   Chair 17 March 2022 75 Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement continued This Corporate Governance Statement has been prepared in   2021. We have complied with the principles and provisions of the  Our Governance sections over the following pages explain how the Group has applied the principles throughout the year and up to the date of this Annual Report. 1.  • Led by an experienced female Chair who drives collaboration and challenge • Experienced, diverse and multi-skilled Board with clear focus  • 2021 focus on our culture, ESG, strategy and succession • Our culture, “The Marshalls Way”, and purpose, “creating better spaces for everyone”, are at the heart of all decision making  • Effective, transparent communication and information supporting dynamic decision making • Collaborative and constructive relationship between Board  • Robust challenge and support provided and well received  • Clear, proportionate decision-making parameters balance    Read more on  Read more on  • More diverse Board with greater breadth of experience, knowledge and skills • Majority of independent Directors • Further term extension providing stability, strongly supported  • Renewed and more consistent approach to internal effectiveness review enabling measurement of progress  • Engagement with shareholders ensuring the Board evolves  Read more on   • Clear oversight of external and internal audit functions and planning • Strong focus on effectiveness of internal control environment, with prospective governance reforms in mind •  addressing new regulatory requirements • Oversight and participation in Risk Register reviews and determination of risk appetite • Ensuring clear accountability for actions with outcomes monitored to preserve continuous improvement culture Read more on   •  • Incorporated annual target, forming part of our 2030 net zero roadmap, into our incentive schemes • Engaged with shareholders to understand their views on our  • Remuneration outcomes aligned with interests  • Committee discretion to override formulaic outcomes Read more on  Marshalls plc | Governance 76 Group operations and management and control structure Terms of Reference and key policies Approving  internal control and risk management Group strategy  Approving major transactions Board composition and succession Changes to capital or corporate structure or constitution  and remuneration Delegation to Board Committees  Remuneration and Nomination Committees. The Audit Committee Report on pages 88 to 91 provides details of   controls. The Nomination Committee Report on pages 84 to 87 reports how Board and senior management composition (including diversity), succession and development are  Report on pages 92 to 112 explains how the Group’s  Directors’ remuneration for 2021. The Remuneration Report also provides gender pay and balance information. Ad hoc Board Committees are established for particular purposes: for example, during 2021, Board Committees were established to approve preliminary and half year results. Delegation to the Executive and management The day-to-day management of the business and the execution of the Group’s strategy are delegated to the Executive Directors. The Group’s reporting and governance structure (see page 73) and controls below Board level are designed so that decisions are made by the most appropriate people in an effective and timely manner. In deciding what is “appropriate” for these purposes, we consider the scale  grown over time. Management teams report to members of the Executive Committee which is comprised of the senior management team, including the two Executive Directors.   to business issues, developments and, most importantly, progress against our strategic priorities. Clear and measurable   information and communication enable the Board to make informed decisions on key issues including our strategy, capital structure, internal control and risk frameworks and   Role of the Board The Board currently comprises an Independent Non-Executive Chair, four independent Non-Executive Directors and two Executive Directors. Their biographical details are on pages 70 and 71. Our Schedule of Matters Reserved for the Board, reviewed annually and available on our website, includes: 77 Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement continued 1   Our resilient corporate culture and strong leadership, both at Board and senior management team level, are the driving forces behind our approach to governance at Marshalls and underpinned the Group’s record performance during the year. The Board is committed to building its understanding of how our business model creates value and how our strategy must evolve to ensure the long-term success and viability of the business. This understanding comes from working collaboratively with the senior management team, engaging with the business and applying the Board’s skills and experience to provide the robust challenge that helps shape that strategic evolution. The Board has continued to regularly engage with shareholders and employees, not allowing the practical challenges of COVID-19 to be an obstacle. Technology has supported and enhanced Board engagement, particularly when combined with in-person meetings that took place during 2021, when Government   our purpose, how this is supported by our policies and procedures and how we identify and manage our key risks. Transparency and openness between management and the Board have built trust  basis, enabling the Board to steer our strategy and business model towards a sustainable future. The reports of our Board Committees give further detail on how  Governance Code, have been applied during the year in particular areas and how this relates to our culture and strategy. Dynamic decision making in volatile market conditions has enabled us to respond to the challenges we’ve faced whilst ensuring we have a stable platform for the execution of our long-term strategy. We’ve given renewed focus to our long-established sustainability programme, with our commitment to a 2030 net zero target epitomising our sector leadership in ensuring our business minimises its environmental impact.   our operations and our people. Most notably, we approved a multi- million-investment in the installation of a dual block plant at our St Ives site, further details of which are set out on page 28. Having completed a review of the Group’s strategy in November,  principles during 2021 will drive its long-term sustainable success by providing a platform to execute the strategic plan the Board approved in 2019. That strategic plan remains well balanced and considers the interests of all of our key stakeholders. The Board and senior management team do recognise, however, the importance of ensuring our ESG and commercial objectives operate in harmony to drive competitive advantage and differentiation. This will, in turn, drive brand preference. Our environmental and social reports on  commitments in this respect. The Board receives regular updates from the Executive Directors  determine whether the Group’s objectives are being met and to provide additional challenge and support where necessary. Our people strategy is core to our long-term sustainability and we’ve continued with its implementation in spite of the challenges during the last year. Our Group HR Director engages regularly with the Board on our progress with improving recruitment, retention, development and progression. This is supported by an aligned reward strategy centred around diversity and inclusion. During the year, we undertook a Group-wide project to standardise employment terms and introduced more user-friendly employment documentation. Fairness and transparency were at the heart of this exercise, the goal being to provide certainty as to terms and how these progress as careers develop in the business. We undertook a full consultation exercise as part of this. This project epitomises our commitment to The Marshalls Way.  and a Cycle to Work scheme in addition to awarding a grant under  in December 2021 to all employees (with the exception of the Executive Directors) with colleagues able to take the award as cash, shares or a contribution to their pensions. Facilitating all of these developments and awards has been our Group reward platform   Our internal communications team has worked tirelessly to develop this channel and our social media channels to ensure we create forums in which colleagues feel empowered to speak up and share their views about any aspect of the business. The team has helped colleagues navigate the ever-changing COVID-19 guidance throughout the year, ensuring we operate safely and legally. The development of our Employee Voice Group as an effective and representative colleague engagement forum, the outcome of our annual employee engagement survey and the Board’s engagement  and strategy remain aligned with our culture. Further details of how we engage with employees are set out in the ESG section on pages  area of focus in 2022. We’ve consolidated our work on culture and begun to implement our diversity and inclusion strategy; the creation of our Diversity and Equity Taskforce is a major step. Greater diversity and becoming representative of the communities in which we operate are important components of our long-term success. Good governance is supported at Marshalls by robust systems and processes and a good understanding of risk and risk appetite. The Group’s control and risk management frameworks are reviewed annually and have been critically reviewed during the year in light of the additional challenges we’ve experienced during the last  and logistics. Occupying the ground around all of our risks is the existential threat climate change presents, not only to Marshalls but to all of society. We review our Risk Register at least twice a year and our internal audit plan factors in the results of these reviews. The Board and the Audit Committee receive periodic reports from the internal auditor on a range of topics each year that are approved by the Audit Committee.  management are set out in the Strategic Report on pages 34 to 43. Marshalls plc | Governance 78     be excluded from participating in relevant Board meetings or voting on decisions. There is no shareholder with a holding of   Concerns about the running of the Company or proposed action would be recorded in the Board minutes. On resignation, if a Non-Executive Director did have any such concerns, the Chair      is supported by an independent whistleblowing telephone and online reporting service, through which concerns may be reported anonymously if preferred. The Audit Committee receives reports on matters raised under this policy and the outcome of investigations. Any concerns raised are investigated appropriately by individuals whose judgement is independent and who are not directly involved with the matters raised. Read more about diversity on  Read more about sustainability, ethics and climate change from  2   There is a clear division between Executive leadership and leadership of the Board expressed in the written Terms of Reference of the Chair and Chief Executive.                    Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement continued   more than eleven years as a Non-Executive Director. Tim originally intended to step down during 2021 but agreed to continue in light of the challenges presented by the pandemic, with the Board recognising the value of his skills and extensive knowledge and experience of the Group. Further details of these are set out in his biography on page 70.  for health reasons shortly after his appointment in September 2021, Tim has agreed to extend his appointment by a further   is likely to impair or could appear to impair his judgement, but we strongly believe this not to be the case given Tim’s track record  Tim continues to bring invaluable support and experience to the business whilst, together with the Chair and the other Non-Executive Directors, effectively holding the Executive Directors and senior management team to account on behalf of shareholders. He remains independent in thought and judgement and provides unique insight and challenge given his experience of how the business has evolved over a number of years. As we  his knowledge and experience will act a bridge to the Group’s development in the short to medium term and this continuity will  feedback, with Tim stepping down as a member of the Audit Committee in March 2021. Aside from his length of service, there are no other relevant  his independence. He has no associations with management or otherwise that might compromise his ability to exercise independent judgement or act in the best interests of the Group. The Chair has conducted an individual performance evaluation of all the Directors, including Tim, and has concluded that Tim’s contribution remains extremely valuable, particularly given that his independence has been maintained. The Nomination Committee will again, during 2022, plan for Tim’s succession.  There is an established format and programme for Board meetings, which, for the most part, were held virtually during the last year. This programme is supported by a forward-looking planner that focuses on Board business for the year ahead and ensures an appropriate balance between the Board’s consideration of strategy,  enabling dynamic consideration of any urgent matters. The Board’s consideration of the continuing impact of the COVID-19 pandemic has been within its existing schedule of meetings but the Board remains committed to ensuring it is always available to convene if urgent matters need to be addressed.   meeting. The Chief Executive also updates the Board, at each meeting, on wider industry, sector and competitor considerations that are relevant to ensuring that decision making has regard to all  2 continued    Absent Board Audit Committee Remuneration Committee Nomination Committee Vanda Murray OBE (Non-Executive Chair) – Martyn Coffey – – –  – – –  – – –    Angela Bromfield (Non-Executive) Avis Darzins (Non-Executive)  – – * The Board held eight meetings during the year, with the management of the ongoing impact of the COVID-19 pandemic, and any decision in connection with it, forming part of the Board’s scheduled meetings.    the auditor in private. The Chief Executive attends Remuneration and Nomination Committee meetings by invitation. The Company Secretary attends Board and Committee meetings as Secretary. Board members also participate in the Group’s annual strategy day with the senior management team, which during 2021 was held over two days in November. In addition, the Board participates in site visits, training sessions, the Employee Voice Group and other activities with operational teams where they have relevant expertise and experience. Historically, the Board has attended events like the Group’s annual management conference but COVID-19 guidance at the time meant this was cancelled in 2021.     Marshalls plc | Governance 80 Health and safety remains a top priority and is reported on and considered on a standalone basis at every scheduled Board meeting. The safe operation of our sites and our safety culture are constantly monitored to ensure they are aligned with The Marshalls Way, i.e. we are doing the right things, for the right reasons, in the right way. The Board participated fully in the Group’s strategy day which was held across two days in November 2021. This involved engagement with key members of the senior management team and other senior leaders in the business in considering the continuing relevance and appropriateness of the Group’s strategy particularly in light of the existential climate change challenges that affect all of society. In addition to the standing items on the Board’s agenda, the principal areas of focus discussed by the Board in 2021 were: Strategy • Group strategy including culture and purpose • ESG: embedding good practice and measuring performance • 2022 budget • Major investments including our dual block plant • Capital structure and dividends •  •  development review • Operations strategy including a full manufacturing network review • IT strategy including digital • Emerging businesses strategy • Market, sector and competitor updates and outlook Operations • Supply chain planning including procurement and logistics • Manufacturing capacity •  • Health and safety • COVID-19 maintaining operational safety and monitoring impact • Management of major customer projects • Employee engagement and morale Governance and risk • COVID-19 oversight of monitoring and management of risk • Risk and internal control • Board composition including diversity, skills and succession • Board and Committee performance • Annual shareholder governance meetings • Employee Voice Group feedback • Whistleblowing • Ethical sourcing and modern slavery • Cyber security and data protection • Stakeholder engagement • AGM voting and guidance 3  There is a transparent and formal process for appointments led by the Nomination Committee and supported by external specialist recruiters. Board succession planning is reviewed at least annually by the Nomination Committee, while succession planning at Executive level is reviewed by the Board. The Board also reviews succession planning for senior management and is able to consider and challenge, as appropriate, the Group’s recruitment policies and how they promote diversity and inclusion. During 2021, the Board considered the Group’s wider talent pipeline and the initiatives supporting their development. The policies and process are commented on further in the Nomination Committee Report. Organic development of future leaders is an important element of our Group-wide people strategy and something we see as critical  We believe our Board is diverse and has a good combination of skills, experience and knowledge. The Board reviews its own composition each year and assesses whether the current skills, experience and knowledge are aligned with the Group’s strategy and expected future leadership needs. Further details of the Board and their skills are set out on pages 70 and 71. In the same way the business recognises the importance of change, the Board acknowledges the importance of continually evolving and has a succession plan designed to ensure that Board members’  not exceeding nine years. We’ve explained the circumstances  Tim brings, particularly given that his successor had to step down suddenly, far outweighs the fact he has served more than nine years. During 2021, we conducted an internal Board effectiveness review led by the Chair and the Company Secretary (as referenced in the Chair’s introduction). We will carry out an externally facilitated effectiveness review during 2022. All Directors stand for election or re-election (as appropriate) at every Annual General Meeting, and all current Directors will stand for re-election or election at the 2022 Annual General Meeting. The Directors’ biographical details on pages 70 and 71 show their roles, date of appointment and length of service on the Board. Directors have access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures are complied with and, through the Chair, advises the Board on governance matters. The appointment or removal of the Company Secretary are matters for the whole Board. 81 Marshalls plc | Annual Report and Accounts 2021 Governance Corporate Governance Statement continued 3 continued  Chair and Company Secretary using a comprehensive tailored       Having redesigned the internal evaluation in 2020 with the   on its year-on-year performance and on the achievement        the momentum in ESG and effective execution of our strategic    need to reassess the longer-term strategic priorities of the       2021 has also seen a welcome return to “in person” Board      Executing our strategic plan • Executing our plan and measuring progress are critical  •   ESG •  will drive not only commercial and competitive advantage  •   •  the Board will consider whether a separate ESG Board  Customers •   •   Succession planning •    • Comprehensive succession planning for our senior  Board and Executive succession planning • We have successfully managed the succession of our Group Finance Director with the appointment of  •    •   that he remains independent even though he had served    ESG • We have clearly and cohesively articulated our ESG    • The importance of commercialising our ESG credentials      •   the performance measures in our management incentive  Market-facing strategy •     •    •  resilient in the face of these challenges and has undertaken   • The strategic review considered all investment and growth   How Board priorities were addressed during the year Focus areas and actions to enhance effectiveness in 2022 (from 2021 review) Marshalls plc | Governance 82 4  The Board has established written policies and procedures for external and internal audit functions designed to ensure that they remain independent and effective and these are regularly reviewed. Annual questionnaire-based evaluations are conducted of both our internal and external audit partners with the Board and members of the senior management team participating. The Board scrutinises  supported by the advice of the auditor. The Board has a well-established procedure to identify, monitor and manage risk, and has carried out reviews of the Group’s risk management and internal control systems and the effectiveness of:  controls; and the mitigation of material risks. The Strategic Report comments in detail (pages 34 to 43) on the principal risks facing the Group, in particular those that would threaten our business model, future performance, solvency or liquidity, and the controls in place to mitigate them. The Board conducts a rigorous assessment of these risks, particularly operational risks that might affect the Group’s viability in the short term and emerging risks that might impact the medium to longer term. The Board’s risk and viability review incorporates stress testing,   modelling where appropriate, the likely effect on the business and its prospects. Additionally, the outcomes of our risk reviews drive our internal audit planning ensuring our resources are being directed at the most appropriate areas. The Audit Committee reviews the effectiveness of the Group’s risk management system and the system of internal control annually. The Risk Register was reviewed by the Audit Committee in March 2021 and the Non-Executive Directors carried out a standalone risk review in December 2021, the outcome of which has been incorporated into the Risk Register. In addition, our internal and external auditors participated in our most recent risk review meeting in November 2021. Our approach underpins our commitment to transparency in managing risk and internal controls  In addition to our scheduled reviews, our risks and controls have all been carefully assessed to take into account the continuing impact of the COVID-19 pandemic. Internal audits carried out during the year have also challenged whether the adjustments we made to the controls in the areas being reviewed (to address the pandemic’s impact) remain effective. The Audit Committee Report on pages 88 to 91 describes the Group’s internal control system, how the Board assures itself of the independence and effectiveness of internal and external audit functions and how they are managed and monitored. The Board is also considering the requirements set out in proposed changes to  make to ensure our control environment supports the assurances the Board needs to provide. The Board acknowledges that such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Read the Audit Committee Report on  5   2020 and is set out in the Directors’ Remuneration Report on pages   consultation with the Company’s top 20 shareholders and external voting agencies. The Remuneration Committee Report describes how the  the outcomes achieved. It also describes how the Remuneration Committee has carried out its responsibilities during the year. The Remuneration Committee continues to effectively discharge the duties delegated to it by the Board under the leadership of the  taking a holistic view of remuneration across the Group, having consulted employees appropriately, the importance of which is recognised by the Board. Read the Remuneration Committee Report on   Chair 17 March 2022 83 Marshalls plc | Annual Report and Accounts 2021 Governance Nomination Committee Report Managing succession and change and   commitment  I am pleased to report to shareholders on the main activities of the Committee and how it has performed its duties during 2021. I chair Nomination Committee meetings, but would not do so where the Committee was dealing with my own reappointment or replacement as Chair.  •  Board, the Committee conducted a comprehensive search for   no other connection to the Company), and with diversity as a core search objective. Following a thorough selection and assessment process, and interviews with members of the Board and Executive   • With our Senior Independent Director and Remuneration    Remuneration Committee. Graham is an extremely experienced Director, having served four years on the Board, and is also Chair of our Audit Committee. Angela is an experienced Remuneration Committee Chair and was also appointed as our designated Director for employee engagement. • The Committee recommended the appointment of Avis Darzins to the Board and to each of our Board Committees. Avis is an experienced executive and brings valuable new skills to the Board. These include business transformation and change management skills that are relevant to our longer-term strategic goals. Avis was appointed following a comprehensive, and very focused, search process conducted by Norman Broadbent. Enhancing the Board’s cognitive diversity was a critical component of the search mandate. Avis was interviewed by all of the continuing Board members. • In the knowledge that the Company’s longest-serving, and     Meetings Vanda Murray OBE – Chair   Angela Bromfield Avis Darzins       in May 2021.    2021 has seen a number of changes to the Board which have broadened its experience  Board diversity. These changes have supported the Board’s re-evaluation of the Group’s long-term strategy in light of the dynamic and challenging environment in which  Marshalls plc | Governance 84 the Board in September 2021 and brought extensive listed company and cross-sector leadership and strategic experience,  acumen, which were key attributes in our search mandate.      contribution and wish him well for the future. • In light of the challenges of our current operating environment and the macro-economic and strategic challenges we face, and   Tim’s experience and knowledge, which are great assets to the Board and the Group, is of great value to the Group, particularly as we continue to pursue and develop our longer-term strategy. •  which includes our desire to introduce even greater diversity, at both a Board and senior management team level, by thinking differently given the sector-wide challenge this presents. • We reviewed individual Director performance identifying areas for development. • We reviewed succession planning, both for the Board and senior management team. Over the course of the last two years, a number of new appointments have been made to the senior management  planning and thought in advance to ensure we took the opportunity to not only acquire the skills we needed to achieve our strategic priorities but also to enhance the diversity of the team. • We supported the establishment of the Group’s Diversity and Equity Taskforce, whose mission is to make Marshalls an inclusive employer where everyone can thrive and belong.  diversity and inclusion and will ensure there is a broad representation of views and ideas from across the Group. 2022 priorities • Supporting the people strategy which underpins and acts as an enabler to the Group’s long-term strategy and includes the development of colleagues in our high-performing category, as well as our approach to recruitment for new, strategically  from within. • Management of Board succession, including a further search  appointed to succeed Tim, having stood down from the Board for health reasons in December 2021). • Continuing to support the Group’s diversity and inclusion strategy and the initiatives underpinning this which will include setting meaningful targets for greater gender diversity at the senior management team level and in key roles that report into this team. Greater gender, cultural and cognitive diversity are seen as key areas of opportunity for the Board and the Group, particularly as it looks to tackle its considerable change agenda. The Board currently comprises 43 per cent women and 57 per cent men, with a female Chair and one Board member from a non-white ethnic minority background. Although not yet implemented, we currently comply with the anticipated amendment to the Listing Rules that will require us to publish an annual “comply or explain” statement regarding the achievement of the proposed targets on Board diversity. • Focus on succession, development and progression below Board level, particularly given a number of anticipated senior management team retirements in the next couple of years.   Policy principle Supporting measures How implemented in 2021 • Recruitment and succession  strategic needs of the business. • Recruitment contributes to desired values and culture. • Nomination Committee carries out an annual skills review aligned  strategic plans. • New Directors agree commitment to strategic direction and Group policies. • Appointment of Avis Darzins to the Board as a Non-Executive Director bringing additional business transformation, change management and technology skills to the Board, these being critical to our strategic agenda. •  bringing extensive cross-sector leadership and strategic experience to the   •  time when experience and stability are critical and also the unexpected and  • Recruitment to achieve diversity in widest sense. •  gives leadership. • Brief for search consultants for new Board and senior management appointments. •  succession plans at Executive level reviewed and targets monitored. • Reviewed progress with the initial phase of the execution of the Group’s diversity and inclusion strategy including our approach to recruitment and  signatory to a sector-wide diversity initiative. •  importance of diversity. •  data on a voluntary basis. • Number of new appointments to the senior management team over the  appointed during 2021. • Carefully monitoring senior management team succession given number of potential retirements in the next couple of years. Carefully assessing any internal candidates and ensuring that, in the longer term, development opportunities  85 Marshalls plc | Annual Report and Accounts 2021 Governance Policy principle Supporting measures How implemented in 2021 • There should be a clear formal Board succession plan based on objective criteria. • Annual review of terms  • Annual individual evaluation. •  external search advisers. • Succession under continuous review. There were a number of Board changes during 2021. •  • We select external search advisers for Board appointments based on relevant expertise and usually having asked them to participate in a competitive tender process for each role. Norman Broadbent is retained for senior management team recruitment and was appointed following a formal tender process. • Directors must  time to perform effectively and familiarise themselves with the business. • Limit on other Board appointments. • Detailed induction, site visits, training and employee engagement programme. • Recruitment process addresses existing commitments and risk  • Included in letters of appointment. • Director induction process comprehensively reviewed and revised by the Company Secretary and well received by incoming Directors. See page 87. • Board training is included as part of Director induction together with site visits which recommenced during the year. • The Directors continued to engage: on risk; through attendance at Employee  through attendance at Lunch and Learn sessions; and by participating in our annual strategy day. Engagement has been through a combination of in person and virtual meetings having assessed the circumstances and Government guidance at the relevant time. •  governance. •  register reviewed no less than six-monthly. • Annual re-election of Directors. •  •   The performance of the Committee was evaluated as part of the Board evaluation process in 2021 described on page 82. The Committee Terms of Reference were reviewed in December 2021. No material changes were made, and the terms continue    During the year the Nomination Committee held four scheduled meetings, and there were additional meetings and discussions in connection with succession planning and recruitment held by telephone.  Each Non-Executive Director was, on joining, provided with a detailed description of their role and responsibilities, and received a detailed business induction (which was comprehensively reviewed and revised by our Company Secretary during the year). All Directors have an annual one-to-one development review meeting with the Chair to appraise performance, set personal objectives and discuss any development and training needs to enable them to continue to add value to the Board. Before any Director is proposed for re-election, or has their appointment renewed, the Committee considers the outcome of the reviews to ensure that the Director continues to be effective and demonstrates commitment to the role. The Chair provides an explanation to shareholders as to why the Director should be  has taken place when the resolution to re-elect is circulated. It is the Company’s policy that Executive Directors can only hold one external listed company non-executive directorship. Voluntary service on the governing board of a social, trade or charitable organisation is also permitted. Details of the external appointments held by the Executive Directors are included in the biographical notes on pages 70 and 71. Governance The Committee has acted throughout 2021 in accordance with the   annual Board evaluation process. The evaluation concluded that the Committee has been successful in securing a diverse range of skills and experience in the current Board. The framework for the refreshment of skills, experience and diversity to support the needs of the business and its stakeholders in the future is transparent and well understood.  Chair of the Nomination Committee 17 March 2022 Nomination Committee Report continued  continued Marshalls plc | Governance 86  Our induction process was comprehensively reviewed by our Company Secretary during 2021 and focuses on informing, engaging and supporting new Directors when they join the business to ensure they understand the Group’s culture, business, strategy and stakeholders. We feel this knowledge, combined with their skills and experience, provides the right foundation for them to make an effective   Marshalls has a well-constructed and thorough induction programme that gave me the business insight needed to be effective in my role and to contribute to the sustainable long-term success of the business.” Avis Darzins Non-Executive Director The Marshalls Way We do the right thingsright reasonsright way  • Summary of the  • Introduction to the 5 year Strategy • Biographies of the Executive team • Employee Engagement Survey •  • ESG update •  • Access to key corporate documents • Market Indicators and Drivers Report • Core compliance training • Appointment documentation support • Company Secretary support • Organograms • Key contacts • Details of key advisers • Payroll and administration support • Board one-to-ones • Executive Management one-to-ones • Site Visit programme customer visits • Introduction to our markets • Introduction to investor relations • Introduction to Remuneration Policy • Employee Voice Group attendance    87 Marshalls plc | Annual Report and Accounts 2021 Governance  Delivering a robust control environment,     improvement Marshalls continues to maintain a strong focus on control, risk management and governance.”  In this report I set out the Audit Committee’s objectives and responsibilities and also explain the activities undertaken during 2021 and  is part of the Directors’ Report, explains how the Audit Committee has discharged its responsibilities during 2021 and provided focus and governance in    •  Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable. In addition, assessed    •  • Reviewed the measures taken to ensure the maintenance  •  and sensitivity analyses, including the scenario planning and assumptions used, to conclude on the Group’s going  • Reviewed and assessed the Group’s risk management process and provided assurance to the Board in relation to  procedures. This included the continued assessment of the adequacy of additional procedures introduced as a consequence  the year. • Continued to monitor progress with the implementation of key projects for the Group, including the new dual block plant at St   surrounding these projects remains appropriate.  Meetings   Angela Bromfield Avis Darzins         Group’s AGM in May 2021.   Marshalls plc | Governance 88 • Carried out a detailed review of the outcomes of cyber  cyber security controls and to ensure that IT controls remain appropriate and robust. • Commissioned a number of other internal audit reviews   accounts receivable, digitalisation and ESG maturity. •   a review of the Group’s operations, considering both areas of  and reporting. This has included a review of inventory accounting  the Board to review and improve the quality of management information and reporting to the Board. The Committee is  Executive team and the Board. 2022 priorities • To focus on transparency, the clarity of reporting and the consistency of messaging across all communication and regulatory channels and over all areas of the business. • To review the delivery of the external and internal audit, to monitor progress and to monitor changes in external regulatory environment and best practice. The Committee will continue to  by management. • To assess and improve cyber security controls and ensure  further cyber security audits. •    actions from previous reviews. There are additional internal  security, general IT controls, project delivery and inventory. • The Committee will continue to monitor progress of the   • The Committee is supportive of the objectives of the BEIS White  controls framework. To this end the Committee will oversee a project to review the adequacy, completeness and effectiveness of the Group’s control environment to ensure that it continues to be robust and suitably documented and any gaps have been  ongoing best practice and assurance and the Committee will monitor progress during the year.  During the year, the Audit Committee held four formal meetings   The Committee meets both the external and internal auditor independently of management, ensuring it has full visibility of matters that have been the subject of particular discussions. The Committee also reports to the Board in relation to the going concern statement and the Viability Statement and whether the accounts are fair, balanced and understandable. The Group has   Despite the disruption to normal working practices, Marshalls maintained a strong focus on control, risk management and governance throughout the year.  During the year, an external evaluation of the Committee’s performance was undertaken as part of the Board evaluation process. This is explained in detail in the Corporate Governance Statement on pages 72 to 83. The review found the Committee to be well composed, effective and well run. No areas of concern were highlighted during this review although a number of agreed actions have been taken forward. The Chair of the Committee is a Chartered Accountant and the    biographical details are on pages 70 and 71.   following a tender process. The Committee has adopted policies to safeguard the independence of its external auditor,  auditor should not provide non-audit services, other than those that are “de minimis“ in value, of less than £5,000 in aggregate   perceives that the independence of the auditor could be compromised, the work will not be awarded to the external auditor. Details of amounts paid to the external auditor, and its entire network, for audit and non-audit services in 2020 are analysed in Note 3 on page 142. Other than the half- yearly review of Marshalls plc, for which a fee of £25,000 was charged (2020: £30,000), no amounts were paid for non-audit  of accountants for non-audit services in the same period was   An annual review of external audit effectiveness was undertaken by the Committee in 2021. The conclusion of the review was that the external auditor had conducted a comprehensive, appropriate and effective audit. Communication, at all levels, had been open and constructive and areas where the external auditor could work more    annual internal audit programme uses a risk-based assessment that takes into account the Risk Register and management  on a regular basis. This risk-based assessment is reviewed and approved by the Audit Committee, and the process is overseen  the Company’s external auditor and has no other connection with the Group.  process to support the internal audit process throughout the year. The internal audit programme includes both regular audit checks and assignments to look at areas of critical importance. These assignments form part of a much wider programme of independently audited aspects of the Group’s operations.  prompt a detailed action plan and a follow-up audit check to establish that actions have been completed. Instances of fraud or attempted fraud (if any) and preventative action plans are also reported to the Committee and recorded in a fraud register. During the year, in addition to the regular internal control   systems and controls, accounts receivable, digitalisation and ESG maturity.  Marshalls plc | Annual Report and Accounts 2021 Governance  continued  continued The Committee is pleased to report that, although the wider    systems have enhanced its maturity in this area. There were no  during 2021. A rolling programme of cyber security awareness training is undertaken, and external presentations are made periodically to selected groups of employees by specialists from  Responsibility area Primary responsibilities Activities undertaken during 2021  • To review, with both management and  judgements made and the quality and appropriateness of the Group’s accounting policies. • To review the assumptions and disclosures made in the Financial Statements. • To assess the clarity of disclosures and compliance with stock exchange and regulatory requirements. • To provide assurance to support the long-term Viability Statement and the procedures for evaluating the Group’s going concern assessment. • To review the integrity of formal announcements relating to the Group’s  year and full year Financial Statements. • Monitored the integrity of the full year and half year Financial Statements and assessed critical accounting policies and practices, and compliance with accounting standards. •   • disclosure of alternative performance measures, including the separate disclosure of adjusting items, in the Financial Statements; and • judgements made in assessing the carrying value of inventory.   • Reviewed the trading updates issued during the year which provided  performance and the Group’s response to COVID-19. • Approved the Viability Statement – and reviewed the assumptions  adequacy of scenario planning. • Reviewed the going concern statement – and made a recommendation to the Board that the Group is able to continue in operation and meet  • Reviewed ESG disclosures, including the Group’s climate change strategy and objectives, commitment to science-based targets and   • To assess and review the effectiveness of the Group’s risk management framework and procedures. • To advise the Board on current and emerging risks. • Reviewed the operation of the Group’s Risk Committee, which comprises the Executive Directors and members of senior management. The Risk Register process is set out in more detail on pages 34 to 43. • The Audit Committee reviewed and challenged management’s assessment of the key risks during 2021. •   compliance and governance.  • To review the internal control framework to ensure that the checks and balances in the processes effectively reduce risk and the likelihood of material error or fraud. • To review the effectiveness of the Group’s internal control systems,  compliance controls. • Reviewed the underlying policies and procedures. • Assessed the risk of management override of controls including authorisation controls and segregation of duties. The Committee considered those areas where management applies judgement in determining the appropriate accounting and discussed this with the  data analytics. • Reviewed the Group’s processes for the ongoing assessment of  of independent checking is undertaken focusing on key controls, reconciliations and access to, and changing permissions on, base data. • Inventory valuation continues to be a key focus area and internal controls have been reviewed during the year. This has included a review of stock counting procedures which has resulted in improvements to internal controls in certain areas.  • To make recommendations to the Board on the appointment, reappointment and removal of the External Auditor. • To consider the independence and objectivity of the External Auditor – and to approve the External Auditor’s fees. • To agree the nature and scope of the  •  and its key focus areas. •  designed to maintain independence, including regular rotation of the audit partner. The Company has complied with the Competition and  •   appropriateness of audit evidence. • The Group’s policy on the independence, selection and rotation of auditors was approved during the year. The policy is in line with current legal requirements.   issues and other accounting judgements relating to the Group’s Financial Statements. The Committee also provided oversight over the external and internal audit functions as well as reviewing the Group’s risk management and internal control systems and procedures. An overview of the Committee’s activities over the year is set out in the table below. Marshalls plc | Governance  Responsibility area Primary responsibilities Activities undertaken during 2021  • To review the effectiveness of the internal audit function and the   • To review the recommendations of  plans of management. • Reported on actions and detailed plans that have been formulated to    • To oversee and review the effectiveness of the following policies: •   •  •  • Reviewed the Committee’s Terms of Reference. • Ensured that the procedures in place in relation to each of these policies are appropriate. • Reviewed the effectiveness of procedures underlying the Serious Concerns Helpline and for handling allegations from whistleblowers.  An annual review of internal audit effectiveness and of the  undertaken by the Committee in 2021. The conclusion was very positive and was that the current internal  of managing the internal audit function. The Committee has   2022 plan.   The proposed reforms set out how the Government plans to  include a range of new proposals in relation to directors, auditors   the Audit Committee is supportive of the objectives of the White  framework. To this end the Committee will oversee a project to review the adequacy, completeness and effectiveness of the Group’s control environment to ensure that it continues to be   practice and assurance and the Committee will monitor progress during the year. The aim will be to ensure that the Group has a better understanding of its control risks and will be well placed to simplify, improve and automate controls and to align effectiveness   The Committee has considered whether, in its opinion, the 2021 Annual Report and Financial Statements is, taken as a whole, fair, balanced and understandable, and whether it provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy. As part of its review the Committee considered: (i) the disclosures in the Strategic Report together with the enhanced disclosures relating to the Group’s ESG objectives, sustainability and climate change risks and opportunities and targets; (ii) the disclosures relating to the   and necessary to aid the reader’s understanding of performance without distorting the regulatory reporting; (iii) the adequacy of the disclosures made in relation to the measures undertaken by the Group to mitigate risk; (iv) the appropriate reporting of disclosed estimates and judgements. In making this assessment, the Committee has advised the  Governance Code. The Committee has concluded that the disclosures, and the process and controls underlying their production, were appropriate to enable it to determine that the 2021 Annual Report and Financial Statements is fair, balanced and understandable.  The Audit Committee monitors, on behalf of the Board, any reported   organisation, Safecall, has been appointed by the Group to provide an  all concerns. This process for reporting serious concerns and our policy are embedded into the Code of Conduct and are relevant to all stakeholders including suppliers, partners and employees. The policy and the Safecall process are displayed on operating site noticeboards and on the Company’s intranet. We clearly set out the procedure for employees to raise legitimate concerns about any wrongdoing and emphasise that they can do this without fear of criticism, discrimination or reprisal. The Committee receive bi- annual updates on matters reported under the Serious Concerns  claims received during the year and details of how they have been  2021, eight reports were received. This represented one report for every 325 employees compared with a construction industry average of one for every 379 employees and demonstrates the success we have had in raising awareness of Safecall. The reports cover a broad range of concerns but all are investigated thoroughly, involving subject matter experts where appropriate. If a material matter were reported and substantiated, the Board would be made aware of this as soon as possible rather than waiting for the next Committee  for the proportionate and independent investigation of such matters  The Company is committed to a zero-tolerance position with regard to bribery, made explicit through its Anti-Bribery Code and supporting guidance on hospitality and gifts. The policy and procedures are published on the Company website and displayed on operating site noticeboards. Online training is available to all employees to reinforce the Anti-Bribery Code and procedures, and (when circumstances permit) classroom-based training sessions are also held periodically. There is a maintained register  I would like to thank our shareholders for their continued support during the year. I will be available at the Company’s 2021 AGM to answer any questions in relation to this report. The Audit Committee Report has been approved by the Board   Chair of the Audit Committee 17 March 2022  Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report Rewarding strong performance that supports our vision for the future Our Remuneration Policy rewards strong performance with a balanced set of measures  create better futures for everyone: socially, environmentally and economically.” 2021 highlights •   objectives and stakeholder interests. These measures take into account current expectations and the continuing market uncertainty, and include meaningful ESG measures. • Undertook a comprehensive review of Executive and Non-Executive Director remuneration, taking into account the growth in size and complexity of the business, the pay  comparator groups. • Committee Chair consulted with the governance teams of key shareholders on remuneration matters as part of the Board Chair’s annual programme of shareholder meetings. • Oversight of a review of the wider Group remuneration and reward strategy looking at the alignment of pay policies and terms and conditions. • Oversight of a targeted review of pay and conditions for HGV drivers across the Group in light of prevailing market conditions and to ensure the Group has the ability to attract and retain the drivers we need. • Continued with the Employee Voice Group (“EVG”), holding eight virtual meetings in the year. EVG also now operates as a forum for feedback and consultation on wider business change. Board and Executive team members rotate attendance during the year to  the Company’s designated Non-Executive Director for employee engagement, having taken over from Janet Ashdown when she retired. 2022 priorities • Communicate change in measures for the 2022  • Commence Remuneration Policy review (in readiness for this to  •  • Assess whether our engagement plan with employees and other stakeholders on remuneration remains effective. • Continue to monitor alignment of Executive remuneration with pay policies and incentives for colleagues across the Group. • Continue to monitor and support the development of reward strategy across the Group ensuring it is competitive and fair. • Continue to use EVG to gauge organisational climate and engagement levels as well as how change programmes  Members and attendance  Angela Bromfield – Chair  Tim Pile Graham Prothero Avis Darzins Janet Ashdown** Philip Rogerson * Avis Darzins joined the Committee in June 2021. ** Janet Ashdown retired from the Board and as Chair of the Committee  *** Philip Rogerson joined the Committee in September 2021 and stepped down in December 2021 for health reasons. The CEO attends the Committee meetings by invitation but may not participate in discussions about his own remuneration. The Company Secretary acts as Secretary to the Committee and attends Committee meetings, along with the Group Human Resources Director. Find our Terms of Reference at marshalls.co.uk/about-us/ corporate-governance Marshalls plc | Governance 92 Dear Shareholder  Remuneration Committee, I am pleased to set out in this report how the Committee has carried out its objectives and responsibilities during 2021. I also want to thank my predecessor, Janet Ashdown, for her contribution in leading the oversight of the remuneration and engagement agendas in a professional way, and welcome Avis Darzins to the Remuneration Committee. We have updated our Annual Remuneration Report to make accessing the key points of information as straightforward as possible. The content consists of: • this Annual Statement from me as the Committee Chair; • an “at a glance” summary setting out key remuneration information for our shareholders; and • the Annual Report on Remuneration setting out additional detail on the remuneration for the Executive Directors, disclosures required by the remuneration reporting regulations, and considerations in respect of pay for colleagues across the Group. The Remuneration Committee continues to believe that the  strong alignment with shareholders’ interests and therefore is not planning any changes to its operation during 2022, with the  incentive schemes. Business performance and outcomes for 2021 The Group’s KPIs monitor progress towards the achievement of the Group’s objectives. The Group’s key strategic KPIs are    on aligning the reward of Executive Directors and senior management with delivery of these KPIs. EPS, net debt, customer service and health and safety are the measures currently used to  The Group has delivered a strong trading performance in 2021   chain challenges, and the continuing impact of the pandemic, is a  million (2020: £469.5 million; 2019: £541.8 million), adjusted EPS was 28.6 pence (2020: 8.6 pence; 2019: 29.4 pence), and adjusted return on capital employed was 20.6 per cent (2020: 8.2 per cent; 2019: 21.4 per cent). MIP A outcomes for 2021 As a result of Company performance during the year the   equivalent to 100 per cent of maximum. Full details of the performance conditions, targets set, and level of achievement are set out in the “at a glance” section on page 96. MIP B awards allocated in respect of 2021     equivalent to 100 per cent of maximum. 2021 MIP performance conditions The table below shows how the Group performed against targets     maximum) was awarded to the CEO, CFO and former Group FD.  maximum) was awarded to the CEO and CFO. The former Group  in line with his leaver arrangements. Weighting Former Threshold  Actual outcome CEO CFO Group FD (0% payable) (100% payable) (2021) (% total award) £’000 £’000 £’000 EPS (75% of maximum) 20.26p  28.6p 100% £996,724 max   Operating cash flow (“OCF”) to EBITDA ratio (25% of maximum) £59.6m £76.1m £85.4m 100%   £29,465 max Non-financial targets (customer service/health and safety) 100% No deduction No deduction No deduction Performance conditions were set at the beginning of 2021 and the Committee took account of both internal budgets and external factors such as the market consensus of investors for the full year 2021. No discretion was exercised in determining incentive outcomes.  O ther than in respect of IFRS 16, the EPS and OCF ratio for 2021 were measured using IFRSs based on the audited results of the Group and subject to the discretion of the Committee with regard to adjusting items. The Committee determined that pre-IFRS 16 targets were to be used in 2020. EPS  OCF/EBITDA  items paid was £85.4 million in 2021. 93 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued  Our customers are at the heart of our business model, and our measurement of customer service has, in prior years, included factors such as product availability, on-time delivery performance and administrative and delivery accuracy, to assess performance. The supply chain and people challenges the Group (and others throughout the sector) faced during 2021, when combined with strong demand, meant that the Group moved from being a  availability was therefore not a meaningful or relevant factor in measuring customer service as a whole. The Committee accordingly approved the inclusion of a quality factor in the customer service measurement in substitution for the stock availability factor. As with stock availability, the quality measure  of the customer service measure. The Group’s average customer service performance is assessed monthly. Taking into account the new quality factor, the Group’s average customer service score was 98 per cent during 2021. This compared with the target score of 95 per cent. The Group continued to make good progress against its stated health and safety objective of keeping days lost to accidents to a minimum, by reference to the 2017 rate. Days lost to accidents year on year actually reduced by a further 21 per cent. Given this performance, no adjustment was necessary. COVID-19 remuneration decisions The COVID-19 pandemic continues to have implications for the business and how we operate, albeit, as set out in more detail in the Strategic Report on pages 1 to 69, our performance has now returned to, and indeed exceeded, pre-pandemic levels. Despite the impact that COVID-19 had on performance in 2020, the Committee  have remained in operation without the need for any adjustments,   that the outcomes for the 2021 awards are appropriate in light   Executive Director changes As announced earlier in the year, the Group Finance Director,  Group Finance Director with effect from 1 April 2021. As previously announced, and in accordance with his service agreement, Jack   summary of Jack’s leaving remuneration arrangements is set out on page 100. Justin Lockwood was appointed to the Board as Chief Financial  remuneration arrangements on appointment, which are in line with our Remuneration Policy: Element of remuneration Details Base salary  Benefits and pension  share plans. Employer pension contribution was set at 5% of salary on appointment, in line with that of the majority  MIP Element A  2021 award was pro-rated for time in role. MIP Element B   Buy-out awards  (his start date) of £7.67. This bespoke award, made to Justin in lieu of incentives forfeited on cessation of previous employment, is subject  information to calculate the value of awards being forfeited at the previous employment. Therefore, to provide   worked at his previous employer). The amount is no more generous than what he was expected to receive. Shareholding requirement  shares from the Company incentive plans until the minimum shareholding requirement is met and maintained.  Executive Director salary increases for 2021/22 Given the continuing uncertainty caused by the pandemic, the October 2020 Group-wide salary review was delayed until early 2021.  responsibilities of the CEO, operating in a growing and increasingly complex business, a base salary increase would ensure his remuneration remains competitive and is commensurate with his role and determined on a basis consistent with the remuneration of the Group’s new CFO. The Remuneration Committee considered awarding the entire increase in 2021 but felt it appropriate to apply the increase in two stages, with a 6 per cent increase effective from January 2021, and a further 8 per cent increase effective from January 2022. The CFO’s salary was set on appointment, and has not increased since. The Committee determined that the CFO’s remuneration remains competitive and appropriate, and is therefore implementing an increase of 5 per cent, effective from January 2022, in line with the pay award for the majority of colleagues throughout the Group. Marshalls plc | Governance 94 Chair and Non-Executive fees Following the decision to delay the January 2021 pay awards to later in the year, the Board, on the basis of a recommendation from the Remuneration Committee, approved a 1.4 per cent increase in the fees of the Non-Executive Directors, backdated to January 2021. The Committee approved the same increase in the Board Chair’s fee. For 2022, the Remuneration Committee has approved an adjustment to the Board Chair’s annual fee from £177,500 to £210,000, effective from January 2022. The Chair has historically been positioned below the lower quartile of the market, which the Committee does not consider to be appropriate given the growth in size and increasing complexity of the business and her experience. During her tenure, the Chair has successfully navigated the Group through the challenges it has faced, overseen record growth and  The Committee has provided the Chair with increases aligned to those of the colleagues across the Group since her appointment, but feels that, at this time, it is appropriate to align her fee with the market to ensure that her strong leadership and performance  uncomfortable, given the Company’s gender pay policies, that the Company’s female Chair’s fee is below the market of her predominantly male peers. The Board has approved an increase of 5 per cent in the Non- Executive Director fees for 2022, which is in line with the increase applicable to the vast majority of the colleagues across the Group. Group-wide considerations  and to rewarding its employees in a fair way. In making decisions on Executive pay, the Remuneration Committee considers remuneration and terms and conditions for colleagues across the Group. This report includes information on our pay conditions, our CEO to employee pay ratio, our gender pay statistics and our diversity initiatives. The Committee’s role in monitoring and reporting on these matters is key  During the year, the Committee has conducted a review of reward and talent development across the Group. Progress has been made in a number of areas, including the introduction, for the  of guaranteed earnings (away from a productivity-based bonus with relatively low base pay levels). We have also created parity   our total reward offering much more visible and accessible to all  Sharesave, Healthcare Cash Plan and Cycle to Work. In addition, we are pleased to report that the Group gave a £600 thank you award to employees in December 2021, in recognition of their hard work and commitment throughout the pandemic. Shareholders We are pleased by the continued support shown by our shareholders through the vote on the Annual Remuneration Report   Remuneration Policy   Against – 7.0% Withheld – n/a   Remuneration Report For – 97.8% Against – 2.2% Withheld – n/a Votes cast: 151,569,081 Shareholder engagement As part of our annual shareholder engagement programme, the Chair and I met with key shareholders in November and  apply our Remuneration Policy, as well as remuneration matters  Those meetings were constructive and supportive with   and has regard to pay across our Group. Having consulted with shareholders and undertaken a strategic review in November 2021,  incentive schemes. For 2022, we have included a carbon reduction target, which links to our net zero carbon pathway, in addition to the existing health and safety measure. This has replaced our historic customer service measure. In conclusion 2021 has been a year of record performance for the Group against the backdrop of a continuing pandemic, supply chain and labour  customers and operational focus to meet demand. We’ve achieved this whilst prioritising the health, safety and wellbeing of the employees. Having considered these achievements, the Committee feels the remuneration outcomes for 2021 are proportionate and well-deserved and we congratulate the business for this. I would like to thank our shareholders for their continued support  answer any questions in relation to this Remuneration Report.  Chair of the Remuneration Committee  Our Remuneration Report has been prepared in accordance with the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. It meets the requirements of the 2018 UK Corporate Governance Code (the “UK Code”) and is also prepared in accordance with the UK Listing Authority’s Listing Rules and Disclosure and Transparency Rules. 95 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued At a glance Link to Company strategy  Strategic KPI Revenue Profit ROCE Net debt Carbon reduction Health and safety  EPS/OCF EPS/OCF EPS/OCF OCF Target KPI Target KPI   quality and sustainability. The customer metric and health and safety performance conditions are one way we incorporate environmental,   promotes short-term, high-risk behaviour. For 2022, we have substituted the customer service metric for a carbon reduction target which   2021 remuneration outcomes Long-term performance  OCF over the same period. The EPS and OCF for 2021 have been disclosed on a pre-IFRS 16 basis in order to be consistent with prior periods. The chart demonstrates the correlation between Company performance demonstrated by these measures and the remuneration paid to the CEO. 250 200 150 100 50 0 2015 2016 2017 2018 2019 2020 2021 ——— OCF (£’m)    remuneration. For those elements of remuneration provided in shares in 2020 and 2021, we have separated out their original value on grant and the additional value generated due to share price growth over the vesting period. It is the Committee’s view that one of the key          Notes:    contractual employer pension contributions.          2020 2021 Jack Clarke (Former Group FD) 2020 2021 2020 2021 Justin Lockwood (CFO) Martyn Coffey (CEO) 304 792 1,207 244 -76 -115 85518 0 500 1,000 1,500 2,000 1,080 0 1,695 1,685 84 59 405 80 171 565 266 124 399 373 386 16 8 2 2 60 83 £’000 Marshalls plc | Governance 96 2021 remuneration outcomes continued Comparison to peers The following chart shows the relative position of base salary and total compensation for our Executive Directors compared to our peers.     incentives appropriately rewarding good performance. The variable element assumes an “on-target” performance under relevant incentive schemes. Paying at a median level is also consistent with the pay policy for the rest of the organisation.  the CFO’s remuneration package on recruitment and the adjustment we have made to the CEO’s remuneration, further details of which are set out on page 94. Shareholding requirement The minimum shareholding requirement for Executive Directors and their actual holding are set out below. It must be built up over a  Martyn Coffey (CEO) Justin Lockwood (CFO) 200% 200% 47% 0% 100% 200%  400% 500% 600% 700% 389%   Under the 2020 Policy, the full shareholding requirement of 200 per cent of salary will continue to apply for one year post-cessation   Impact of share price change  view of the Directors’ total reward linked to the performance of the Company. In the Committee’s opinion, the impact on the total reward  sustainable performance of the Company, which is critical in a cyclical business. The ability for the Directors to gain and lose, dependent on the share price performance of the Company, at a level which is material to their total remuneration, is a key facet of the Company’s Remuneration Policy. The Committee has discretion to adjust remuneration as a result of share price appreciation or depreciation, but this      £’000   2,500 2,000 1,500 1,000 500 0 Base salary Total compensation Base salary Total compensation 1,400 1,200 1,000 800 600 400 200 0 Martyn Coffey (CEO) £’000 Jack Clarke (Group FD) £’000 Jack Clarke (Former Group FD) Justin Lockwood (CFO) 0 500 1,000 1,500 2,000 0 2,000 4,000 6,000 8,000 1,683 5,234 403 2,515 2,350405 386 1,685 4,891 Martyn Coffey (CEO) 364 389 386 97 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued At a glance continued Implementation of the Policy in 2021 and 2022 for Executive Directors The table below sets out the following information: •  Annual Report and Accounts (www.marshalls.co.uk/investor/results-reports-and-presentations); • how the Company implemented the 2020 Remuneration Policy in 2021; and • how the Company proposes to implement the 2020 Remuneration Policy in 2022. Element of pay Summary of Policy How we implemented the Policy in 2021 How we will implement the Policy in 2022 Salary An Executive Director’s base salary is set on appointment and reviewed annually or when there is a change in position or responsibility. When determining an appropriate level of salary, the Committee considers: • general salary rises for employees; • remuneration practices within the Group; • any change in scope, role and responsibilities; • the general performance of the Group; • the experience of the relevant Director; • the economic environment; and • whether a benchmarking exercise is appropriate (using salaries within the ranges paid by the companies in the comparator groups for remuneration benchmarking). Executive Director salaries for 2021 were as follows: •  •  Due to the pandemic, the October 2020 salary review was delayed until early 2021.  Director base salaries effective, in the case of the CEO, January 2021 and, in the case of the CFO, on appointment. The CEO’s salary was increased by  Jan 2021). Executive Director salaries for 2022 are as follows: •  increase); and •  As referenced in the Chair’s letter, the Committee conducted a review of the CEO and CFO’s packages in October 2021. The Committee determined that the CFO’s package remains competitive and appropriate, and therefore proposes an increase in line with the pay award for the majority of colleagues throughout the Group. Benefits and pension  insurance, life assurance and membership of     percentage of basic salary. Executive Directors may take a pension allowance in place of the Company’s contribution to the scheme. Pension allowances are excluded for the purposes of calculating any other element of remuneration based on a percentage of salary. The maximum Company contribution is 20% of salary; however, this will be reduced to align with the majority of employees (currently 5%) by the end of 2022. For any new Executive Director appointments, the maximum employer pension contribution or allowance will be in line with the majority contribution to UK employees. The CEO’s employer pension contribution was reduced by  The CFO’s employer pension contribution was set at 5% of salary on appointment, in line with that of the majority  In line with our Policy commitment, the CEO’s employer pension contribution will be reduced to align with the contribution for the majority of colleagues across the Group (currently 5%) by the end of 2022. The CFO’s pension contribution will remain at 5% of salary. Marshalls plc | Governance 98 Element of pay Summary of Policy How we implemented the Policy in 2021 How we will implement the Policy in 2022 MIP Element A Annual performance conditions and targets are set at the beginning of the Plan year by reference  by the Remuneration Committee. Upon assessment of performance by the Committee, a contribution will be made by the Company into the participant’s Plan Account and 50% of the cumulative balance will be paid in cash. Any remaining balance will be converted into shares or share-linked units. 100% of the  be settled in the form of shares transferred or allotted to the participant. During the Plan period, 50% of the retained balance is at risk of forfeiture based on a minimum performance measure determined annually by the Committee. The Committee may award dividend equivalents on shares or share-linked units held under the Plan to Plan participants to the extent that they vest.  of salary. Outcome level in 2021 was as follows: • CEO – 150% of base salary; and • CFO – 150% of base salary, pro-rated for time in role. The performance measures were: • EPS (75%); and • ratio of OCF to EBITDA (25%).   on brand, customers and employees: • customer service (must remain at or above 95%); and • health and safety incidence: the rate of accidents must not fall below an agreed threshold, benchmarked by reference to the “base” year (2018). If they are not met, there is a reduction of award value earned by the satisfaction of the  by 10% in relation to each of these additional conditions.  targets, their level of satisfaction and the corresponding bonus earned.  of salary with target set at 50% of opportunity and threshold at 0% of opportunity. The performance measures are: • EPS (75%); and • ratio of OCF to EBITDA (25%).   on brand, sustainability and our colleagues will apply as follows: • annual carbon reduction targets must be achieved  The 2022 target is that carbon consumption be below 48,150 tonnes in the year; and • health and safety incidence: the rate of accidents must not fall below an agreed threshold, benchmarked by reference to the “base” year. If they are not met, there is a reduction of award value earned by 10% in relation to each of these additional conditions. Implementation of the Policy in 2021 and 2022 for Executive Directors continued 99 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Element of pay Summary of Policy How we implemented the Policy in 2021 How we will implement the Policy in 2022 MIP Element B Annual performance conditions and targets are set  objectives by the Remuneration Committee. Awards are granted retrospectively in shares based on the achievement of performance targets for the relevant year. Awards vest (subject to continued employment) three years from grant. Sale restrictions apply to awards that have vested: normally vested awards may not be sold for a further two years after vesting or post-cessation   over the three-year vesting period, results in the loss of up to 50% of unvested awards.  of salary. Contribution level for 2021 was as follows: • CEO – 100% of base salary; and • CFO – 100% of base salary pro-rated for time in role. The performance measures were the same as for Element A.  of salary with target set at 50%   The performance measures are the same as for Element A. Minimum shareholding requirement  number of vested shares from the Company incentive plans until the minimum shareholding requirement is met and maintained. Adherence to these guidelines is a condition of continued participation in the incentive arrangements. Post-cessation holding period of 200% of salary for the first year and 100% of salary for a further year. Where their actual shareholding at departure is below the minimum shareholding requirement, the Executive Director’s actual shareholding is required to be retained on the same terms and for the same periods. Group Finance Director leaver arrangements As described in the Chair’s letter, the Group Finance Director, Jack Clarke, stepped down and retired from the Board and as Group Finance Director with effect from 1 April 2021. As previously announced, and in accordance with his service agreement, Jack will remain with the  summary of Jack’s leaving remuneration arrangements.    are satisfied, subject to the two-year holding requirement.   financial years ending 2021    years ending 2021 and 2022     Save As You Earn Scheme Treated as a good leaver. Legal fees The Company will pay up to £4,500 in legal fees incurred by, and other payments due to, Jack. Shareholding requirement Jack is required to maintain a shareholding equivalent to 200% of his leaving salary for the first year following retirement and 100% of leaving salary for the second year following retirement.  Implementation of Non-Executive Directors’ fees in 2021 and 2022 Following the decision to delay the January 2021 pay awards to later in the year, the Board, on the basis of a recommendation from   For 2022, the Remuneration Committee has approved an adjustment to the Board Chair’s annual fee from £177,500 to £210,000, effective from January 2022. The Chair has historically been positioned below the lower quartile of the market, which the Committee does not   from the Chair as she executes her duties. During her tenure, the Chair has successfully navigated the Group through the challenges it has faced, overseen record growth and led a comprehensive strategic review of the business. The Committee has provided the Chair with increases aligned to those given to the majority of colleagues across the Group since her appointment, but feels that, at this time, it is appropriate to align her fee with the market to ensure that her strong leadership and  Company’s female Chair is below the market of her predominantly male peers. At a glance continued Implementation of the Policy in 2021 and 2022 for Executive Directors continued Marshalls plc | Governance 100 Implementation of Non-Executive Directors’ fees in 2021 and 2022 continued The Board has approved an increase of 5 per cent in the Non-Executive Director fees for 2022, which is in line with the increase applicable to the vast majority of colleagues across the Group. 1 January 2022 1 January 2021 Percentage Director £’000 £’000 increase  209.5 177.5 18% Graham Prothero (SID, Chair of Audit Committee) – Note a 64.9 58.4 5% Angela Bromfield (Chair of Remuneration Committee) – Note b 61.0 49.8 5% Tim Pile 52.3 49.8 5% Philip Rogerson – Note c — 49.8 n/a Avis Darzins – Note d 52.3 49.8 5% Janet Ashdown – Note e — 65.7 n/a Notes:      c) Philip Rogerson became a Director of the Company effective 1 September 2021 and stepped down as a Director of the Company for health reasons effective  d) Avis Darzins became a Director of the Company effective 1 June 2021.   Annual Remuneration Report    Fixed £’000 Performance related £’000 Salary supplement in lieu of pension Annual bonus Long-term incentives Salary Other benefits MIP Element A MIP Element B MIP Element A and B Total Total fixed Total variable 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000  Coffey 532 485 33 33 80 85 399 — 266 — 375 1,092 1,685 1,695 645 603 1,040 1,092 Justin Lockwood (Note e) 166 — 5 — 8 — 124 — 83 — — — 386 — 179 — 207 — Jack Clarke (Note f) 83 300 1 4 16 60 59 — — — 246 716 405 1,080 100 364 305 716 Total 781 785 39 37 104 145 582 — 349 — 621 1,808 2,476 2,775 924 967 1,552 1,808 Note a Note b Note c Note c Note d Notes:   b) The Executive Directors each received a salary supplement in lieu of contributions into the Group’s pension scheme throughout the year. No Director had any    of the total value of Element B shares awarded which are deferred but are not subject to further performance conditions (other than continued employment).  forfeiture for a further holding period. The remaining 50 per cent of 2021 Element B shares is subject to underpins and employment-based forfeiture for a three-         2021 (his start date) of £7.67. This was a bespoke award made to Justin in lieu of incentives forfeited on cessation of employment only, and is subject to    101 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Annual Remuneration Report continued Setting pay in context  past three years.  shareholder distributions, capital investment and taxation are shown for the following reasons: • investment – the Company’s strategy is to increase capital investment to take advantage of market demand and in order to ensure that  •     2019 2019 2019 22.9 2019 93.6 2020 105.4 2020 2020 14.7 2020 69.2 Staff pay (£’m) +2.1% Distributions to shareholders (£’m) £17.9m Capital investment (£’m) +59.9% Tax (£’m) +39.5% 2021 106.9 0.0 2021 23.5 2021 96.5 2021 33.2109.1 17.9   MIP awards 2021  Element A Plan accounts  Justin Lockwood Jack Clarke Opening balance (number of shares) (Note a) — — — 2021 contribution (% of salary earned) 150% 150% 150% Value  £248,462  2021 element released (Note b)    Closing balance (deferred into shares)    Number of shares represented by closing balance (Note c) 57,188 17,819  Element B (2019 award in respect of 2018 performance)    Justin Lockwood Jack Clarke Number of shares awarded 97,745 — 64,118 Value of shares vesting  — 458,418 Value of dividends accrued over vesting period 25,140 — 16,479 Value included in single figure table (Note e)  — 245,688 Marshalls plc | Governance 102 MIP awards 2021 continued Element B (2022 award in respect of 2021 performance) Plan accounts  Justin Lockwood Jack Clarke (Note f) Number of shares awarded 76,251  n/a Percentage of salary 100% 100% n/a Value  £165,641 n/a EPS forfeiture threshold (Note d) n/a n/a n/a Notes:   account and converted into shares. The table above shows the resulting closing balance value calculated by reference to the mid-market average value for  b) The earned Element A award for 2021 is added to the individual’s plan account, and 50 per cent of the resulting balance is released to the participant as an     (697.15 pence). d) If the actual EPS falls below the forfeiture threshold over the three years before vesting, 50 per cent of the balance of the award is forfeited. Once Element B shares have vested, they must normally be held for a further two years. Element B shares lapse on cessation of employment except in “good leaver” circumstances, in which case they vest on leaving and must be held for two years from the date of leaving.   are included on vesting.   2021 and 2022.  Non-Executive Directors do not participate in any of the Company’s incentive arrangements. Their fees are reviewed periodically and were last reviewed in October 2021. The Chair’s fees are set by the Committee; other Non-Executive Directors’ fees are set by the Board as a whole. The Non-Executive Directors reclaim travel and accommodation expenses incurred in the performance of their duties, and where this  Board fee Committee fees Expenses Total £’000 £’000 £’000 £’000 2021 2020 2021 2020 2021 2020 2021 2020 Vanda Murray Chair, Chair of Nomination Committee and member  177 169 — — 2 8 179 177 Graham Prothero  Audit Committee and member of Remuneration and Nomination Committees 50 47 13 8 1 — 64 55 Tim Pile  Committees 50 47 — — 1 1 51 48 Angela Bromfield  and member of Audit and Nomination Committees 50 47 5 — 1 — 56 47 Avis Darzins  Committees (from 1 June 2021) 29 — — — 1 — 30 — Philip Rogerson  (from 1 September 2021 to 14 December 2021) 17 — — — 1 — 18 — Janet Ashdown Previously Senior Independent Director, Chair of Remuneration Committee and member of Audit and Nomination Committees 18 49 6 17 — — 24 66 Total 391  24 25 7 9 422  Notes:   103 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Annual Remuneration Report continued Directors’ shareholdings and share interests The following table sets out, in respect of each of the Directors: • the number of shares the Director holds unconditionally; and •  Beneficially owned (Note b) Shares that will vest following 2021 results (Note c) Deferred shares (Note d) Deferred and contingent share interests (Note e) Total interests in shares (including contingent interests) Shareholding requirement (Note a) Director % of salary Number of shares required Number of shares Number of shares Number of shares Number of shares Number of shares Executive  200      597, 899 Justin Lockwood 200 109,747 5,000 — — 46,979 51,979 Jack Clarke 200 90,771  66,480 18,524   Non-Executive  — — 22,000 — — — 22,000 Tim Pile — — 40,840 — — — 40,840 Graham Prothero — — 2,417 — — — 2,417 Avis Darzins — —  — — —  Angela Bromfield — —  — — —  Notes:        of any tax and NIC. This must be held for a minimum of two further years.   conditional shares that may be exercised after the three-year deferral period but where vesting is only dependent on continuing employment throughout the three-year deferral period with no other performance conditions. No awards were made under Element B in 2021.   performance condition as well as to continued employment over the relevant deferral period. 50 per cent of Element A awards and 100 per cent of Element B  shares. In addition, he received 29,160 nil-cost options on 20 August 2021. Further details of this award are set out on page 101.      Regulations 2016.  Shares representing 47% of his salary. Justin only joined the Group in July 2021.  See pages 98 to 100.  As described in the Chair’s letter, the Group Finance Director, Jack Clarke, stepped down and retired from the Board and as Group Finance Director with effect from 1 April 2021. As previously announced, and in accordance with his service agreement, Jack will remain with the  of Jack’s full leaver arrangements can be found on page 100.  Marshalls plc | Governance 104 Annual Remuneration Report The following table sets out the part of the report where the relevant information can be found: Element Reference Payment for loss of office or payments to past Directors Page 100 Performance graph and table Page 96 Percentage change in remuneration of the Director undertaking the role of CEO Page 107 Relative importance of pay Page 107 Statement of implementation of the Policy in the following financial year Pages 98 to 100 Consideration by the Directors of matters relating to Directors’ remuneration   Page 95 Fairness, diversity and wider workforce considerations Introduction This section of the Remuneration Report deals with the following: • the Committee’s approach to the review of wider workforce pay policies and how it has taken these into consideration in setting remuneration; • the alignment of the incentives operated by the Company with its culture and strategy; • general pay and conditions in the Company; • gender and diversity; and • comparison metrics relating to Executive and employee remuneration. Process  process. Reporting is prepared on an annual basis to show details of all elements of remuneration for all members of the workforce (excluding temporary and agency staff and consultants). The reports include data on: • salary and salary increases; • general positioning of remuneration packages (benchmarking); • bonus (total eligible population, target and maximum range, performance conditions, payment method, and scope for discretion/recovery under malus and clawback provisions); • sales and commission plans; • long-term incentive plans (total eligible population, target and maximum range, performance conditions, payment method, scope for discretion/recovery under malus and clawback provisions, and vesting and holding periods); and •  This information is used to inform the overall reward strategy and action plans for the wider UK workforce.  Employee Voice Group (“EVG”). The EVG meets six times a year and, amongst other things, provides valuable input into new policy development  as well as benchmarking and understanding the role of reward in attraction and retention (including Executive Director and senior leader pay). The meetings are chaired by the Group Human Resources Director and attended by a mixed group of employees from across the different parts  The attendees of the meeting are now elected by their colleagues to be their representatives. A summary of the EVG’s activities is set out in the Strategic Report on page 67. The Committee also receives feedback from regular employee surveys and from site visits made by the Executive Directors and  The Committee has the authority to ask for additional information from the Company in order to carry out its responsibilities. The levels of remuneration and the packages offered vary across the Company depending on the employee’s level of seniority and role.  • whether the element of remuneration is consistent with the Company’s remuneration principles; • whether incentive structures are designed in a way that promotes the Company’s strategy, values and culture; •  • whether the approach seems fair and equitable in the context of other employee packages. The Committee uses its annual review of the wider workforce remuneration and incentives to inform the approach applied to the remuneration of the Executive Directors and senior management. In particular, the Committee is focused on whether, within the framework set out above, the approach to the remuneration of the Executive Directors and senior management is consistent with that applied to the wider workforce. Progress during 2021 The annual audit of wider workforce pay and conditions was completed. The Group has a clear strategy in place to develop this process and rectify any disparities revealed as a result of the review over the coming years. 105 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Fairness, diversity and wider workforce considerations continued   • there was support for the £600 thank you award the Group made to employees in recognition of their hard work and commitment throughout the pandemic. The award, made in December 2021, could be taken in the form of cash, shares or an additional employer  • there was support for the planned extension of the Company’s wellbeing strategy and support services to employees; • the development of competency-driven pay models was recognised as a fair and transparent way of managing pay for skills and capability – these are being rolled out across various parts of the business; •   our pension provider Aviva. We will continue to drive communication through an “annual calendar” to build greater awareness across the employee populations of exactly what is open to them; and •  There was support for the exercise to standardise terms and conditions of employment thus ensuring consistency and full transparency across the workforce. This exercise has now largely been completed with the vast majority of consultations complete and new contracts of  the Group with clarity on remuneration packages in each job role. The Committee provided oversight in connection with the Group’s comprehensive review of HGV driver pay during the year, which resulted    Remuneration Policy and the wider principles of fairness and sustainability that are fundamental to the Group’s culture. Further, in the Committee’s opinion the approach to Executive remuneration aligns with wider Company pay policy. The Company expects to continue with the EVG as a mechanism for fully engaging with the workforce on key matters and topics which relate to their employment and engagement in the business. • Dependent on role and level of seniority, employees are able to share in the success of the Company through incentive compensation. In line with market practice, the level of incentive compensation and whether it is paid solely in cash or in a mixture of cash and deferred shares depends on the level of seniority of the employee. The incentive approach applied to the Executive Directors aligns with the wider Company policy on incentives, which is to associate a higher percentage of at-risk performance pay with the seniority of the role, and to increase the amount of incentive deferred, provided in equity and/or measured over the longer term for roles with greater seniority. • The following table shows the cascade of incentives throughout the Company: Participation Participation Participation in in Element A in Element B Participation in all-employee   other bonus or equity plans Level (number) (percentage range) (percentage range) commission plans (Sharesave/SPP) Executive Directors (2) 150% of salary 100% of salary No Yes Executive Committee (8) 55% to 85% of salary  No Yes Senior management (10) 45% of salary 45% of salary No Yes Employees in BSP (74) 15% to 45% of salary +5% bonus shares Yes Employees in other job related bonus  Sales bonuses Yes  of remuneration. Further, in the Committee’s opinion, the approach to Executive remuneration aligns with wider Company pay policy and  Widening employee share ownership Equity participation is offered to all employees of the Company through the Share Purchase Plan and SAYE schemes and to managers and  allow employees to share in Company success by means of equity participation. Employees can become shareholders through employee share plans including: Bonus Share Plan (“BSP”) The BSP approved in 2015 provides the opportunity for participants to earn “free” bonus shares of up to 5 per cent of salary, which vest after  Sharesave Scheme/Share Purchase Plan  workforce, so that the employees are able to participate in the Group’s success in a way that aligns their interests with those of shareholders. The Share Purchase Plan is an “evergreen” scheme under which employees may purchase shares in the market on a monthly basis out of gross salary. Marshalls plc | Governance 106 Widening employee share ownership continued 2021 thank you award As disclosed earlier in this report, in December 2021, the Group awarded a £600 thank you award to employees in recognition of their hard work and commitment through an incredibly challenging year. The award could be taken in the form of shares (or cash, or an additional   Real Living Wage employer  accreditation in 2018 and has maintained its status throughout 2021. Pay comparisons CEO ratio    CEO pay ratio Employee salary Employee total pay and benefits Financial year 25th percentile 50th percentile 75th percentile CEO salary £’000 25th percentile £’000 50th percentile £’000 75th percentile £’000 CEO total pay and benefits £’000 25th percentile £’000 50th percentile £’000 75th percentile £’000 2021 55.0:1 42.6:1 35.5:1 532 29 40 45 1,685 31 40 45 2020 70.6:1   485   42 1,695 24  44 2019 7 7.6:1 60.6:1 51.0:1 460 22    28   2018 58.1:1 44.1:1  445 27  42 1,602 28    appropriate to give full time equivalent remuneration for part time workers or those working only part of the year.      picture does not show a divergence trend between the CEO remuneration and employees generally, i.e. excluding share price volatility, the relationship with employee pay is consistent. This is supported by the percentage change in CEO remuneration table in the next section. 2014 2015 2016 2017 2018 2019 2020 2021 Ratio of single figure total remuneration to  25.2x 50.1x  48.9x  41.2x  34.5x • Our CEO pay is made up of a higher proportion of performance related incentives than that of our employees, in line with the expectations of our shareholders. This introduces a higher degree of variability in CEO pay each year which affects the ratio. • The value of long-term incentives which measure performance over three years is disclosed in pay in the year it vests; this affects historical years up to 2017. This increases the CEO pay in that year, again impacting the ratio for that year. •  impact of a long-term incentive award in the year in which it vests. • We recognise that the ratio is driven by the different structure of the pay of our CEO versus that of our employees, as well as the make-up of our workforce. This ratio varies between businesses even in the same sector. What is important from our perspective is that this ratio  • Where the base structure of remuneration is similar, for example on comparison between the Executive Committee pay and that of the CEO, the ratio is much more stable over time. 107 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Fairness, diversity and wider workforce considerations continued CEO/average pay against TSR 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0 2014 2015 2016 2017 2018 2019 2020 2021 ——— Total shareholder return Percentage change in Directors’ remuneration In accordance with The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, the table below shows the percentage change in Executive Director and Non-Executive Director total remuneration compared to the change for the average of UK-based employees of the Group excluding Executive Directors and Non-Executive Directors. Salary/fees Taxable benefits Short-term variable pay 2021 2020 2019 2021 2020 2019 2021 2020 2019  6.0% 5.4%  n/a 0%  n/a n/a n/a Justin Lockwood (CFO) n/a n/a n/a n/a n/a n/a n/a n/a n/a Jack Clarke (Former Group FD) 1.4% -0.7%  n/a n/a n/a n/a n/a n/a  1.4% -0.7%  n/a n/a n/a n/a n/a n/a Angela Bromfield (NED) 1.4% -0.7% n/a n/a n/a n/a n/a n/a n/a Tim Pile (NED) 1.4% -0.7%  n/a n/a n/a n/a n/a n/a Graham Prothero (NED) 1.4% -0.7%  n/a n/a n/a n/a n/a n/a Avis Darzins (NED) 1.4% n/a n/a n/a n/a n/a n/a n/a n/a Philip Rogerson (Non-Executive Director) n/a n/a n/a n/a n/a n/a n/a n/a n/a Janet Ashdown (NED) 1.4% -0.7%  n/a n/a n/a n/a n/a n/a Employees 0.3% 5.4%  7.3% -8.8%  81.0% -85.1% 22.2% Notes:     c) A 1.4 per cent increase was awarded to the workforce on 1 January 2021.   and Dubai) are different from those prevailing in the UK. e) Jack Clarke stepped down from the Board and as Group Finance Director with effect from 1 April 2021. Justin Lockwood was appointed to the Board as Chief    g) Philip Rogerson became a Director of the Company effective 1 September 2021 and stepped down as a Director of the Company effective 14 December 2021. h) Avis Darzins became a Director of the Company effective 1 June 2021. CEO pay in the last ten years This table shows how pay for the CEO role has changed in the last ten years:  a  a, b 2014 2015 2016 2017 2018 2019 2020 2021 Year £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Single figure remuneration   1,101 2,064   1,602  1,695 1,685 % of maximum annual bonus earned    100.0% 96.9% 100.0% 98.0% 99.6% — 100.0%  —  — 100.0% 100.0% 100.0% 98.0% 99.6% — 100.0% Notes:       Marshalls plc | Governance 108 Total shareholder return 1,400 1,200 1,000 800 600 400 200 0 Dec 2011 Dec 2012 Dec  Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 ——— FTSE Small Cap Index This chart shows the Group’s total shareholder return (“TSR”) performance compared to: (i) the FTSE Small Cap Index; and (ii) the     Gender pay versus equal pay    It is important to highlight that gender pay and equal pay are not the same: • Gender pay is the difference between the gross hourly earnings for all men and the gross hourly earnings for all women, irrespective   • Equal pay is ensuring that men and women are not paid differently for doing the same or like-for-like work. While both measures share the same broad objective of eliminating sex discrimination in relation to pay, the two are frequently confused. The intention behind equal pay is to ensure that men and women are not paid differently for doing the same or similar work, but this on  majority of women are in lower paid roles. Gender balance and pay On the snapshot date of 5 April 2021 the Group’s total UK workforce comprised 2,526 employees with the following gender balance:  Female Total workforce 2,124 402 Senior managers 6 1 Directors 4  * Senior managers comprises the Executive Committee and Company Secretary. ** Directors includes the NEDs, CEO and CFO. Our gender pay gap disclosure is based on amounts paid in the April 2021 payroll for UK employees. The gender bonus gap includes    We believe in transparency. Therefore, we publish pay analysis results for all colleagues employed in the Group. This is particularly relevant  109 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Fairness, diversity and wider workforce considerations continued Gender balance and pay continued  pay gap  pay gap  gender pay gap  gender pay gap 2021 results  8.8% 12.9% 60.7% 40.7%    90.7%   -5.8% 12.2% 78.9% 29.8% 2020 results  15.9% 22.7% 65.2% 25.1%   17.4%   Edenhall Holdings Limited -4.5%   8.2%   20.1% 54.0% 21.8% 2019 results  14.6% 18.7%  48.6%   14.1% 52.4% 54.8%   17.0% 71.4% 67.0% 2018 results  15.2% 21.2% 85.0% 20.0%  20.6%   69.7%  15.7% 21.8% 79.1%  At a Group level the overall percentage split of male and female employees has stayed broadly the same: 86 per cent male and 14 per cent  median measures of gender pay. The mean average has reduced to -5.8 per cent and the median average has reduced to 12.2 per cent.  • The progression of women to the higher pay bands: 4 per cent more women are positioned in the upper quartile pay band and 4 per cent more women now sit in the upper middle quartile when compared to the previous year (see table below). • Ultimately, gender pay gaps improve when the number of women in higher paid roles increases, a trend seen in 2021. Our data shows that not only has the number of women in higher paid jobs increased, but the average rate of pay for female workers has progressed   Marshalls Group Limited  Female 12.4% Marshalls plc     Female 16.7% Upper quartile    Marshalls Group Limited   Marshalls plc      Upper middle quartile    Marshalls Group Limited  Female 10.5% Marshalls plc     Female 12.2% Lower middle quartile    Marshalls Group Limited  Female 24.5% Marshalls plc  Female 76.2%   Female 27.2% Lower quartile   Marshalls plc | Governance 110 Bonus gender pay gap Both the mean and median bonus gender pay gaps have widened in 2021, in part due to the COVID-19 pandemic adversely impacting   meeting relevant targets. The table below shows that overall mean bonus pay gap increased from 54.0 per cent in 2020 to 78.9 per cent in 2021 and the median bonus pay gap increased from 21.8 per cent to 29.8 per cent.  Female Percentage receiving bonus Consolidated 20.9% 26.4%     gender pay gap  gender pay gap Consolidated 78.9% 29.8%  65.2% 25.1%   workforce was placed on furlough. To support furloughed employees the Government introduced the Coronavirus Job Retention Scheme (“CJRS”) wage support measure, designed to protect jobs in the wake of the pandemic. The scheme allowed employers to reclaim up to 80  to ‘“top up” furloughed employees’ pay to 100 per cent of their normal pay. For variable paid workers (who are predominantly male workers in production, engineering and logistics) this was based on their average earnings from the previous year, which were invariably higher than they would have been in April 2021. These exceptional circumstances taking place on and around the gender pay snapshot date will no  Equity and diversity initiatives The Group has policies that promote equality and diversity in the workforce as well as prohibiting discrimination in any form. We are committed to promoting equality and preventing discrimination at work. We recognise that everyone is different, and we are passionate about creating an inclusive environment, where everyone can contribute their best work and develop to their full potential. The Group’s Code of Conduct clearly states its commitment to these principles and requires a similar commitment from its business partners. •  Board member from an ethnically diverse background. • The Group’s Diversity and Inclusion Policy is embedded within our recruitment processes supporting our goal of attracting a diverse range   per cent higher. • Our Diversity and Equity Taskforce, sponsored by a member of the Executive Committee, is challenged with taking actions to continue  • In 2021 we proactively started to collate diversity data so we can set our baseline and then measure progress in subsequent years. • Our Female Talent and Learning group has grown as women within the business have heard about the positive experience. We have  directed but supported by specialists from the Human Resources function. 111 Marshalls plc | Annual Report and Accounts 2021 Governance Remuneration Committee Report continued Fairness, diversity and wider workforce considerations continued Directors’ service contracts Executive Directors Non-Executive Directors Element  Coffey Justin Lockwood Jack Clarke Vanda  Tim Pile Graham Prothero Angela Bromfield Avis Darzins Date of contract/appointment September  July 2021 October 2014  October 2010 (renewed  2016 and   October 2019 June 2021  Company 12 12 12 6 6 6 6 6 Director 6 12 6 6 6 6 6 6 Notes: a) Philip Rogerson was appointed as a Non-Executive Director with effect from 1 September 2021. Philip stepped down as a Director of the Company effective  In accordance with Policy, Executive Directors’ service contracts do not contain liquidated damages clauses, nor any contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement or providing for compensation  months. Executive Directors are permitted to hold one external plc board appointment and may retain any remuneration received in that  Non-Executive Directors, including the Chair, are appointed under letters of appointment, usually for a term of three years. Either the Company or the Non-Executive Director may terminate the appointment before the end of the current term on six months’ notice. If the unexpired term is less than six months, notice does not need to be served. No compensation is payable if a Non-Executive Director is required to stand down. All Directors are subject to annual re-election. External advisers The Remuneration Committee was advised during the year by external remuneration adviser PricewaterhouseCoopers LLP (“PwC”).  PwC’s fees are agreed by the Remuneration Committee according to the work performed. PwC was appointed after a tender process by the Committee in 2017, and its terms of engagement are available on request from the Company Secretary. PwC also provided general  is objective and independent based on the separation of the team advising the Committee from any other work undertaken by PwC for the Group and the fact that PwC is a signatory to the Remuneration Consultants Group’s Code of Conduct. PwC’s work relating to Executive remuneration during 2021 included assistance with the preparation of the Remuneration Committee Report; advice on the operation of the    Chair of the Remuneration Committee  Marshalls plc | Governance 112    The Directors of the Company are listed on pages 70 and 71. Political donations: The Group made no donations during the year to any political party or political organisation or to any independent election candidate, whether in the European Union or elsewhere (2020: £nil). Risk management:    Greenhouse gas emissions: The Group’s disclosure in respect of the Streamlined Energy and Carbon Reporting requirements can be found in the Strategic Report on page 61. Employees: Details of how the Directors have engaged with employees are set out on page 67. Further information is provided in relation to the engagement channels used and the outcomes from the engagement. The Company’s policies in relation to diversity and inclusion and employee involvement and communication are explained in the Strategic Report on pages 64 to 67. Stakeholders: Details of how the senior management team and the Directors have engaged with shareholders, customers, suppliers and other stakeholder groups are set out on pages 22 and 27, along with engagement channels used. Details of the Group’s stakeholder engagement strategy are explained on pages 22 and 27. The statement by the Directors in relation to their statutory duties under S172(1) Companies Act 2006 is found on pages 20 and 21. Corporate governance: Post-balance sheet events of importance since 31 December 2021: There have been no important events affecting the Group since the  Research and development: Activity and likely future developments for the business are described in the Strategic Report on pages 1 to 69. Dividends    dividend date will be 9 June 2022.    Share capital and authority to purchase shares The Company’s share capital at 1 January 2022 was 200,052,157 Ordinary Shares of 25 pence each. No new Ordinary Shares were issued  The Ordinary Shares of the Company carry equal rights to dividends, voting and return of capital on the winding up of the Company,  are no restrictions on any voting rights or deadlines, other than those prescribed by law, nor is the Company aware of any arrangement between holders of its shares which may result in restrictions on the transfer of securities or voting rights, nor any arrangement whereby   Company’s share-based incentive schemes. The EBT may purchase shares in the Company from time to time to satisfy awards granted to Directors and senior Executives subject to the achievement of performance targets under the Company’s incentive schemes. Where shares    under the Company’s employee share schemes. Details of outstanding awards are set out in Note 20 on page 160. The EBT has waived its  on such shares in accordance with the Directors’ recommendations.  any offer period. Employees purchase Ordinary Shares in the Company with their pre-tax salary. The shares are purchased in the market and then held in trust by Yorkshire Building Society. Employees receive dividends on these shares and may give voting instructions to the Trustee.  approximately 14.99 per cent of the Company’s issued share capital in the Company, in the market during the period expiring at the next   Directors will seek to renew the authority at that meeting. 113 Marshalls plc | Annual Report and Accounts 2021 Governance  continued   interest, or (b) a controlling shareholder (other than between members of the Group). There have been no related party transactions between any member of the Group and a related party since the publication of the last Annual Report. There are a number of agreements that take effect, alter or terminate upon a change of control of the Group. None of these are considered  Articles of Association The Company’s Articles of Association give powers to the Board to appoint Directors. Newly appointed Directors are required to retire  The Board of Directors may exercise all the powers of the Company, subject to the provisions of relevant laws and the Company’s  money. Powers relating to the issuing and buying back of shares are included in the Articles of Association and such authorities are  The Articles of Association may be amended by Special Resolution of the shareholders. The Group has granted indemnities to its Directors to the extent permitted by law (which are qualifying indemnity provisions under Section  may incur to third parties in the course of action as Directors or employees of the Company, any subsidiary or associated company, or a Director of the pension scheme trustee board. Neither the liability insurance nor the indemnities provide cover in the event of proven  Directors’ interests Details of Directors’ remuneration, their interests in the share capital of the Company and the share-based payment awards are contained  Listing Rule requirements   Substantial shareholdings   As at As at 28 February  2022 2021 % % abrdn 16.23 16.19 BlackRock 6.15 6.15  5.19 5.21 Vanguard Group 4.34   4.29 4.24  4.26 4.25  4.22 4.26 Lansdowne Partners 4.00 4.01 Redwheel 3.41   3.33  The Directors’ Report, comprising the Strategic Report, the Corporate Governance Statement and the Reports of the Audit, Remuneration and Nomination Committees, has been approved by the Board and signed on its behalf by: Shiv Sibal Group Company Secretary  Marshalls plc | Governance 114 Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with applicable law and regulations.  they are required to prepare the Group Financial Statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and have elected to prepare the Parent Company Financial Statements in accordance with UK Accounting Standards, including FRS 101 “Reduced Disclosure Framework”.    • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • for the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; • for the Parent Company Financial Statements, state whether applicable UK Accounting Standards have been followed, subject  • prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. In preparing the Group Financial Statements, IAS 1 requires that Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; •   • make an assessment of the Company’s ability to continue as a going concern.   that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.   Responsibility statement of the Directors on the Annual Report and Accounts   • the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,  • the Strategic Report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face; and • the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Disclosure of information to the auditor  relevant audit information of which the Company’s auditor is unaware, and each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. 115 Marshalls plc | Annual Report and Accounts 2021 Governance Statement of Directors’ Responsibilities continued in respect of the Annual Report and the Financial Statements Going concern The Directors have adopted the going concern basis in preparing these Financial Statements in accordance with the Financial Reporting  Directors considered that it was appropriate to do so, having reviewed any uncertainties that may affect the Company’s ability to continue as a going concern for at least the next twelve months from the date these Financial Statements were approved. Cautionary statement and Directors’ liability This Annual Report 2021 has been prepared for, and only for, the members of the Company, as a body, and no other persons. Neither the Company nor the Directors accept or assume any liability to any person to whom this Annual Report is shown or into whose hands it may come except to the extent that such liability arises and may not be excluded under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A of the   objectives. These statements are not forecasts or guarantees of future performance and involve risk and uncertainty because they relate  There are a number of factors that could cause actual results or developments to differ materially from those expressed, implied or forecast by these forward-looking statements. All forward-looking statements in this Annual Report are based on information known to the Group   Annual General Meeting  LS1 4DL, together with explanatory notes on the resolutions to be proposed, is contained in a circular to be sent to shareholders with this Annual Report. By Order of the Board: Shiv Sibal Group Company Secretary  Marshalls plc | Governance 116 Independent Auditor’s Report to the members of Marshalls plc Report on the audit of the Financial Statements 1. Opinion In our opinion: •   • the Group Financial Statements have been properly prepared in accordance with United Kingdom adopted International Accounting Standards and International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”); • the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and • the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the Financial Statements which comprise: • the Consolidated Income Statement; • the Consolidated Statement of Comprehensive Income; • the Consolidated and Parent Company Balance Sheets; • the Consolidated and Parent Company Statements of Changes in Equity; • the Consolidated Cash Flow Statement; and •    applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (“United Kingdom Generally Accepted Accounting Practice”). 2. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the Financial Statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the Financial Reporting Council’s (“FRC’s”) Ethical Standard as applied to listed public interest entities, and   by the FRC’s Ethical Standard to the Group or the Parent Company.  3. Summary of our audit approach Key audit matter  • Valuation of the inventory provision    Increased level of risk Similar level of risk Decreased level of risk Materiality   Scoping Full scope audits were performed on all UK components. This accounts for 95 per cent of Group revenue, 100 per     associated with this balance has not increased, on consideration of our overall audit strategy, the relative share of audit effort associated with this balance has increased resulting in its inclusion as a key audit matter within our report. We no longer have a key audit matter in relation to the presentation of restructuring costs as exceptional  Our approach to determining materiality has changed from using a number of metrics with focus on net assets,  normal trading following the initial impact of COVID-19 during 2020.  117 Marshalls plc | Annual Report and Accounts 2021 Governance Independent Auditor’s Report continued to the members of Marshalls plc Report on the audit of the Financial Statements continued 4. Conclusions relating to going concern In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the Financial Statements is appropriate. Our evaluation of the Directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern basis  • evaluating the level of borrowing including consideration of undrawn facilities and compliance with covenants; • considering the existence and future periods of availability for borrowings and the extent of headroom available to the Group; • assessing the assumptions used in the forecasts, including performing sensitivity analysis and considering the ongoing impact  • assessing the historical accuracy of forecasts prepared by management against actuals achieved; • testing of clerical accuracy of the model used to prepare the forecasts; and • assessing the disclosures in the Financial Statements for consistency with our knowledge of the business.   twelve months from when the Financial Statements are authorised for issue. In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. 5. Key audit matters    and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,  5.1. Valuation of the inventory provision Key audit matter description The Group is primarily involved in the manufacture and sale of landscape and natural stone products, selling to the Public Sector, Commercial and Domestic end users. Inventory is recorded at the lower of cost and net realisable value and the Group carries a large amount of inventory in order to meet customer needs on demand. The Group offers a wide range of non-perishable products that are manufactured and subsequently stored in large quantities at various locations, and therefore carries a high level of inventories at any given point.  customer requirements, may need to be discounted before they can be sold. The risk of discounting, combined with potential costs to move the inventory to a location where demand exists, may result in the inventories being sold at below cost. The Directors are responsible for making judgements surrounding the future recoverability of inventory values based on inventory ageing and the quantities of inventory held compared to the future sales potential.  audit and has represented one of the key areas of focus in directing the efforts of the engagement team. It  the stock valuation utilising management judgement. It has therefore been included as a key audit matter.  Statements, and this is noted as an area considered by the Audit Committee in its report on page 90. How the scope of our audit responded to the key audit matter We have performed the following procedures: • Obtained an understanding of the relevant controls relating to management’s process to record inventory provisions. • Tested the relevant general IT controls relating to the stock database. • Attended inventory counts at key locations and considered any signs of damage or obsolescence which would indicate a requirement for a provision. • Used data analytics to compare product lines’ recoverable value to their cost value. • Assessed the adequacy of provisions recorded, including where relevant the potential impact on inventory carrying values arising from climate change factors. Key observations Based on our procedures the results of our testing were satisfactory. We concur with the basis of valuation  Marshalls plc | Governance 118 Report on the audit of the Financial Statements continued 6. Our application of materiality 6.1. Materiality    Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Group Financial Statements Parent Company Financial Statements Materiality  £1.7 million (2020: £1.8 million) Basis for determining materiality  was determined by considering a range of possible benchmarks with a particular focus on net assets,    Parent Company materiality equates to 0.5 per cent  Rationale for the benchmark applied    when assessing performance of the Group. As a holding company, net assets are considered to  Group materiality £3.5m Component materiality £3.3m Audit Committee reporting threshold £0.18m PBT Group materiality  PBT £69.3m 119 Marshalls plc | Annual Report and Accounts 2021 Governance Independent Auditor’s Report continued to the members of Marshalls plc Report on the audit of the Financial Statements continued 6. Our application of materiality continued 6.2. Performance materiality We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the Financial Statements as a whole. Group Financial Statements Parent Company Financial Statements Performance materiality 70 per cent (2020: 70 per cent) of Group materiality 70 per cent of Parent Company materiality  Basis and rationale for determining performance materiality In determining performance materiality, we considered the following factors: a. our risk assessment, including our assessment of the quality of the control environment and whether we were able to rely on controls; b. the continued impact of COVID-19 and climate change on the business and its operating environment; and   misstatements in prior periods. 6.3. Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £175,000 (2020: £145,000),   7. An overview of the scope of our audit  Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement both at the Group and component level.      components not subject to audit.  Full audit scope 95% Review at Group level 5% Revenue  Full audit scope 94% Review at Group level 6%   Full audit scope 100% Review at Group level 0% Net assets Marshalls plc | Governance 120 Report on the audit of the Financial Statements continued 7. An overview of the scope of our audit continued 7.2. Our consideration of the control environment IT systems To support the audit testing performed we have involved our IT specialists to consider the relevant IT systems used by the Group to generate information which supports the amounts recognised in the Financial Statements. In order to evaluate the IT environment of the Group we have obtained an understanding of relevant IT systems and the automated controls within these systems. In evaluating the IT environment, we have: •   •    •   • taken reliance on all IT controls associated with these systems. Controls reliance During our audit we obtained an understanding and tested the relevant controls within key business cycles. We have taken controls reliance  7.3. Our consideration of climate-related risks In planning our audit, we have considered the potential impact of climate change on the Group’s business and its Financial Statements.  transition and physical risks when factoring in climate change as part of their risk assessment process when considering the principal risks   carbon products. Furthermore they have acknowledged the increasing risk of climate change and as such have put more focus into climate risk assessment and developing appropriate strategies to respond to those risks. We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes of transaction and did not identify any reasonably possible risks of material misstatement. Our procedures were performed with the involvement of climate change and sustainability specialists and included reading disclosures included in the Strategic Report to consider whether they are materially consistent with the Financial Statements and our knowledge obtained in the audit. 8. Other information The other information comprises the information included in the Annual Report, other than the Financial Statements and our Auditor’s Report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the Financial Statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 9. Responsibilities of Directors As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the Financial  enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. 121 Marshalls plc | Annual Report and Accounts 2021 Governance Independent Auditor’s Report continued to the members of Marshalls plc Report on the audit of the Financial Statements continued 10. Auditor’s responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.   A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report. 11. Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. 11.1. Identifying and assessing potential risks related to irregularities In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: • the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets; •  risks of irregularities; •  • identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance; • detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and • the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and • the matters discussed among the audit engagement team and relevant internal specialists, including tax, pensions, IT and climate and sustainability specialists regarding how and where fraud might occur in the Financial Statements and any potential indicators of fraud.  We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the Financial Statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation, tax legislation and health and safety regulations. In addition, we considered provisions of other laws and regulations that do not have a direct effect on the Financial Statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty.  As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance with laws and regulations.  • reviewing the Financial Statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the Financial Statements; • enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence  • in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating   internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Marshalls plc | Governance 122 Report on other legal and regulatory requirements 12. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: •  prepared is consistent with the Financial Statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit,  13. Corporate Governance Statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the   Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the Financial Statements and our knowledge obtained during the audit: • the Directors’ statement with regard to the appropriateness of adopting the going concern basis of accounting and any material  • the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set out on page 116; • the Directors’ statement on fair, balanced and understandable set out on page 91; •  • the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out  • the section describing the work of the Audit Committee set out on page 88 onwards. 14. Matters on which we are required to report by exception 14.1. Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company Financial Statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 14.2. Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 123 Marshalls plc | Annual Report and Accounts 2021 Governance Independent Auditor’s Report continued to the members of Marshalls plc Report on other legal and regulatory requirements continued 15. Other matters which we are required to address 15.1. Auditor tenure    December 2021. 15.2. Consistency of the audit report with the additional report to the Audit Committee Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK). 16. Use of our report  audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. As required by the Financial Conduct Authority (“FCA”) Disclosure Guidance and Transparency Rule (“DTR”) 4.1.14R, these Financial     for and on behalf of Deloitte LLP Statutory Auditor Leeds, United Kingdom  Marshalls plc | Governance 124 Consolidated Income Statement for the year ended 31 December 2021 2021 2020 Notes £’000 £’000 Revenue 2 589,264 469,454 Net operating costs 3 (513,041) (460,081) Operating profit 2 76,223 9,373 Financial expenses 6 (6,903) (4,730) Financial income 6 2 10 Profit before tax 2 69,322 4,653 Income tax expense 7 (14,424) (2,095) Profit for the financial year 54,898 2,558 Profit for the year Attributable to: Equity shareholders of the Parent 54,806 2,370 Non-controlling interests 92 188 54,898 2,558 Earnings per share Basic 8 27.5p 1.2p Diluted 8 27.4p 1.2p Dividend Pence per share 9 14.3p 4.3p Dividends declared 9 28,484 8,562 All results relate to continuing operations. 2021 2020 Notes £’000 £’000 Profit before adjusting items Profit before tax (reported) 69,322 4,653 Adjusting items 4 2,748 17,809 Profit before tax (before adjusting items) 72,070 22,462 Profit for the financial year (reported) 54,898 2,558 Adjusting items (net of tax) 4 2,142 14,708 Profit after tax (before adjusting items) 57,040 17,266 Earnings per share before adjusting items Basic 8 28.6p 8.6p Diluted 8 28.4p 8.5p 125 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Consolidated Statement of Comprehensive Income for the year ended 31 December 2021 2021 2020 Notes £’000 £’000 Profit for the financial year before adjusting items 57,040 17,266 Adjusting items 4 (2,142) (14,708) Profit for the financial year 54,898 2,558 Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement: Remeasurements of the net defined benefit surplus/(loss) 20 26,383 (12,741) Deferred tax arising 22 (6,600) 2,421 Impact of the change in rate of deferred tax on defined benefit plan actuarial gain/(loss) 17 (314) Total items that will not be reclassified to the Income Statement 19,800 (10,634) Items that are or may in the future be reclassified to the Income Statement: Effective portion of changes in fair value of cash flow hedges 1,403 (1,526) Fair value of cash flow hedges transferred to the Income Statement (922) 1,238 Deferred tax arising 22 36 42 Exchange difference on retranslation of foreign currency net investment (232) 922 Exchange movements associated with borrowings designated as a hedge against  640 (1,117) Foreign currency translation differences – non-controlling interests (55) 39 Total items that are or may be reclassified to the Income Statement 870 (402) Other comprehensive income/(expense) for the year, net of income tax 20,670 (11,036) Total comprehensive income/(expense) for the year 75,568 (8,478) Attributable to: Equity shareholders of the Parent 75,531 (8,705) Non-controlling interests 24 37 227 75,568 (8,478) Marshalls plc | Financial Statements 126 Consolidated Balance Sheet at 31 December 2021 2021 2020 Notes £’000 £’000 Assets Non-current assets Property, plant and equipment 10 173,931 179,401 Right-of-use assets 11 36,445 44,990 Intangible assets 12 95,004 94,679 Employee benefits 20 25,757 2,726 Deferred taxation assets 22 1,605 2,620 332,742 324,416 Current assets Inventories 13 107,436 89,782 Trade and other receivables 14 111,909 95,742 Cash and cash equivalents 15 41,212 103,707 Assets classified as held for sale 10 1,860 450 Derivative financial instruments 19 813 332 263,230 290,013 Total assets 595,972 614,429 Liabilities Current liabilities Trade and other payables 16 138,218 119,816 Corporation tax 2,198 7,277 Lease liabilities 18 8,545 10,065 Interest-bearing loans and borrowings 17 1,673 20,000 150,634 157,158 Non-current liabilities Lease liabilities 18 32,776 38,926 Interest-bearing loans and borrowings 17 39,341 110,282 Provisions 21 839 3,149 Deferred taxation liabilities 22 28,065 17,066 101,021 169,423 Total liabilities 251,655 326,581 Net assets 344,317 287,848 Equity Capital and reserves attributable to equity shareholders of the Parent Called-up share capital 23 50,013 50,013 Share premium account 24,482 24,482 Own shares (646) (806) Capital redemption reserve 75,394 75,394 Consolidation reserve (213,067) (213,067) Hedging reserve 830 313 Foreign exchange reserve 47 (361) Retained earnings 406,277 350,930 Equity attributable to equity shareholders of the Parent 343,330 286,898 Non-controlling interests 24 987 950 Total equity 344,317 287,848 Approved at a Directors’ meeting on 17 March 2022. On behalf of the Board: Martyn Coffey Justin Lockwood     The Notes on pages 131 to 165 form part of these Consolidated Financial Statements. 127 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Consolidated Cash Flow Statement for the year ended 31 December 2021 2021 2020 Notes £’000 £’000 Cash flows from operating activities Profit before adjusting items 57,040 17,266 Adjusting items (2,142) (14,708) Profit for the financial year 54,898 2,558 Income tax expense on continuing operations 7 15,030 5,196 Income tax credit on adjusting items 7 (606) (3,101) Profit before tax 69,322 4,653 Adjustments for: Depreciation of property, plant and equipment 10 16,423 15,657 Asset impairments 10 233 5,489 Depreciation of right-of-use assets 11 11,315 12,060 Amortisation 12 3,178 2,719 Gain on sale of property, plant and equipment (9,194) (1,103) Equity settled share-based payments 2,303 2,998 Financial income and expenses (net) 6 6,901 4,720 Operating cash flow before changes in working capital 100,481 47,193 Increase in trade and other receivables (16,696) (26,031) Increase in inventories (18,108) (180) Increase in trade and other payables 19,740 7,442 Adjusting items (2,820) (6,946) Cash generated from operations 82,597 21,478 Financial expenses paid (3,534) (4,475) Income tax paid (13,527) (4,631) Net cash flow from operating activities 65,536 12,372 Cash flows from investing activities Proceeds from sale of property, plant and equipment 14,892 11,450 Financial income received 2 10 Acquisition of property, plant and equipment (19,037) (13,158) Acquisition of intangible assets (2,885) (1,599) Net cash flow from investing activities (7,028) (3,297) Cash flows from financing activities Payments to acquire own shares (3,567) (2,705) Repayment of borrowings (121,286) (10,009) New loans 32,658 67,900 Cash payment for the principal portion of lease liabilities (10,828) (13,780) Equity dividends paid (17,924) — Net cash flow from financing activities (120,947) 41,406 Net (decrease)/increase in cash and cash equivalents (62,439) 50,481 Cash and cash equivalents at the beginning of the year 103,707 53,258 Effect of exchange rate fluctuations (56) (32) Cash and cash equivalents at the end of the year 41,212 103,707 Marshalls plc | Financial Statements 128 Consolidated Statement of Changes in Equity for the year ended 31 December 2021 Attributable to equity holders of the Company Share Capital Foreign Non- Share premium Own redemption Consolidation Hedging exchange Retained controlling Total capital account shares reserve reserve reserve reserve earnings Total interests equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Current year At 1 January 2021 5 0 , 0 13 24 ,482 (8 0 6) 75, 39 4 (21 3,067) 313 (3 61) 350,930 286, 898 950 287 ,848 Total comprehensive income/(expense) for the year Profit for the financial year attributable to equity shareholders of the Parent — — — — — — — 5 4,806 5 4,806 92 54, 898 Other comprehensive income/(expense) Foreign currency translation differences — — — — — — 408 — 408 (55) 353 Effective portion of changes in fair value of cash flow hedges — — — — — 1 ,403 — — 1 ,403 — 1,403 Net change in fair value of cash flow hedges transferred to the Income Statement — — — — — (92 2) — — (92 2) — (9 2 2) Deferred tax arising — — — — — 36 — — 36 — 36 Defined benefit plan actuarial gain — — — — — — — 26,383 26,383 — 26,383 Deferred tax arising — — — — — — — (6 , 6 0 0) (6, 6 0 0) — (6 , 6 0 0) Impact of the change in rate of deferred tax on defined benefit plan actuarial gain — — — — — — — 17 17 — 17 Total other comprehensive income/ (expense) — — — — — 517 408 19 , 8 0 0 2 0,72 5 (55) 2 0 ,67 0 Total comprehensive income/(expense) for the year — — — — — 517 408 74 , 6 0 6 75 ,5 31 37 75 , 56 8 Share-based payments — — — — — — — 2, 303 2 ,303 — 2,303 Deferred tax on share-based payments — — — — — — — (2 5 6) (2 5 6) — (25 6) Corporation tax on share-based payments — — — — — — — 345 345 — 345 Dividends to equity shareholders — — — — — — — (1 7, 9 2 4) (1 7, 9 2 4) — (1 7, 9 2 4) Purchase of own shares — — (3 , 5 67) — — — — — (3 , 5 67) — (3 , 5 67) Disposal of own shares — — 3 ,72 7 — — — — (3 ,72 7) — — — Total contributions by and distributions to owners — — 16 0 — — — — (19 , 2 5 9) (1 9 ,099) — (1 9 ,099) Total transactions with owners of the Company — — 16 0 — — 517 408 5 5, 3 47 56,4 32 37 56, 469 At 31 December 2021 5 0 , 0 13 24, 482 (6 4 6) 75, 39 4 (21 3,067) 8 30 47 4 06, 277 34 3,330 987 3 4 4 , 317 129 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Consolidated Statement of Changes in Equity continued for the year ended 31 December 2021 Share Capital Foreign Non- Share premium Own redemption Consolidation Hedging exchange Retained controlling Total capital account shares reserve reserve reserve reserve earnings Total interests equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Prior year At 1 January 2020 5 0 , 0 13 24,482 (1, 3 9 1) 75 , 39 4 (2 13 , 0 6 7) 5 59 (16 6) 3 5 9 , 2 19 2 95, 0 4 3 723 2 9 5 , 76 6 Total comprehensive (expense)/income  Profit for the financial year attributable to equity shareholders of the Parent — — — — — — — 2 , 370 2, 370 18 8 2,55 8 Other comprehensive (expense)/income Foreign currency translation differences — — — — — — (19 5) — (19 5) 39 (15 6) Effective portion of changes in fair value of cash flow hedges — — — — — (1, 5 2 6) — — (1, 5 2 6) — (1, 5 2 6) Net change in fair value of cash flow hedges transferred to the Income Statement — — — — — 1, 2 3 8 — — 1, 2 3 8 — 1, 2 3 8 Deferred tax arising — — — — — 42 — — 42 — 42 Defined benefit plan actuarial loss — — — — — — — (1 2 , 74 1) (1 2 , 74 1) — (12 , 74 1) Deferred tax arising — — — — — — — 2 ,42 1 2 , 421 — 2, 421 Impact of the change in rate of deferred tax on defined benefit plan actuarial loss — — — — — — — (3 14) (3 14) — (3 14) Total other comprehensive (expense)/income — — — — — (2 4 6) (19 5) (10 , 6 3 4) (11 , 0 7 5) 39 (11, 0 3 6) Total comprehensive (expense)/income for the year — — — — — (24 6) (19 5) (8 , 26 4) (8 ,70 5) 227 (8 , 47 8) Share-based payments — — — — — — — 2,99 8 2, 998 — 2, 998 Deferred tax on share-based payments — — — — — — — (10 4) (10 4) — (10 4) Corporation tax on share-based payments — — — — — — — 371 371 — 371 Purchase of own shares — — (2 ,70 5) — — — — — (2 ,7 05) — (2 ,7 05) Disposal of own shares — — 3,29 0 — — — — (3, 2 9 0) — — — Total contributions by and distributions to owners — — 585 — — — — (25) 560 — 560 Total transactions with owners of the Company — — 585 — — (24 6) (19 5) (8 , 2 8 9) (8 ,1 4 5) 227 (7, 9 1 8) At 31 December 2020 5 0 , 0 13 24,482 (8 0 6) 75 , 3 9 4 (2 13 , 0 6 7) 3 13 (3 6 1) 3 5 0 ,9 3 0 286, 898 95 0 2 8 7, 8 4 8 Marshalls plc | Financial Statements 130 Notes to the Consolidated Financial Statements 1 Accounting policies  Marshalls plc (the “Company”) is a Public company limited by shares, incorporated in the United Kingdom under the Companies Act, and is registered in England and Wales. The Consolidated Financial Statements of the Company for the year ended 31 December 2021 comprise the Company and its subsidiaries (together referred to as the “Group”). The Consolidated Financial Statements were authorised for issue by the Directors on 17 March 2022. Landscape House, Premier Way, Lowfields Business Park, Elland HX5 9HT.  are considered material in relation to the Group’s Consolidated Financial Statements. The Group has applied all accounting standards and interpretations issued by the IASB and International Financial Reporting Committee relevant to its operations and which are effective in respect of these Financial Statements. Adoption of new standards in 2021 Financial Instruments”, IFRS 16 “Leases” and other IFRSs with effect from 1 January 2021. The Group has also followed the IFRIC Interpretations Committee’s guidance published in April  Other than these items, and in relation to additional disclosure in relation to adjusting items, including in respect of the year ended 31 December 2020, “operational restructuring costs and asset impairments”, the accounting policies have been applied consistently throughout the Group for the purposes of these Consolidated Financial Statements and are also set out on the Company’s website    Financial Statements. The following other standards, interpretations and amendments to existing standards have been issued but were not mandatory for accounting periods beginning 1 January 2021 and are not expected to have a material impact on the Group. These standards have not been applied in these Financial Statements, and were pending endorsement by the UK Educational Board: • IFRS 10 (amended) “Consolidated Financial Statements” and IAS 28 (amended) “Investments in Associates and Joint Ventures (2011)”,  • IFRS 17 “Insurance Contracts • IAS 1(amended) – “ • IAS 1(amended) – “Disclosure of Accounting Policies • IAS 8 (amended) – “ • IFRS 16 (amended) – “ • IFRS 37 – “ • IFRS 3 – “Reference to the Conceptual Framework •  • IAS 12 (amended) – “”, effective from 1 January 2023. The Directors do not expect that the adoption of the standards listed above will have a material impact on the Financial Statements  (a) Statement of compliance The Group Consolidated Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards as issued by the International Accounting Standards Board. The Parent Company has elected to prepare its Financial Statements in accordance with FRS 101 and these are presented on pages 166 to 173. (b) Basis of preparation      2020 were not utilised and have now reached maturity. In addition, the COVID Corporate Financing Facility (“CCFF”) that was put in place  which £140 million are committed. On 13 August 2021, the Group entered into a new £20 million revolving credit facility with HSBC and the    facilities continue to be aligned with the current strategy to ensure that headroom against available facilities remains at appropriate levels.   In assessing the appropriateness of adopting the going concern basis in the Consolidated Financial Statements, the Board  131 Marshalls plc | Annual Report and Accounts 2021 Financial Statements 1 Accounting policies continued  continued (b) Basis of preparation continued The latest stress tests reviewed by the Board in relation to the completion of these Consolidated Financial Statements assumed a further sales revenue sensitivity of 20 per cent over each of the next two years, cumulatively 60 per cent against 2021 revenue. None of the stress   potential impact of wider political and economic uncertainties has been considered, including issues or delays as a consequence of      • EBITA: interest charge – 54.4 times (covenant test requirement – to be greater than 2.5 times). • Net debt: EBITDA – 0 times (covenant test requirement – to be less than 3.0 times). In performing an assessment of the Group’s going concern, the Directors have considered the Group’s capital allocation policy and priorities for capital as set out on page 7 and the possible future cash requirements arising from each of these priorities for capital.       The Consolidated Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated  The Consolidated Financial Statements are presented in Sterling, rounded to the nearest thousand. Sterling is the currency of the primary economic environment in which the Group operates.  assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These are set out in Note 29 on page 165. The estimates and associated assumptions are based on historical experience and various other factors that are   The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.   (c) Basis of consolidation (i) Subsidiaries Subsidiaries (which are set out in detail in Note 33 on pages 170 and 171) are entities controlled by the Company. Control is achieved when the Company: •  •  • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it considers  investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights  •  •  •  • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control  Statement from the date the Company gains control until the date when the Company ceases to control the subsidiary. (ii) Transactions eliminated on consolidation Intra-Group balances, and any unrealised gains and losses or income and expenses arising from intra-Group transactions, are eliminated  Notes to the Consolidated Financial Statements continued Marshalls plc | Financial Statements 132 1 Accounting policies continued  continued (c) Basis of consolidation continued   shareholders that are present ownership interests, entitling their holders to a proportionate share of the acquiree’s net assets, are initially  to acquisition, the carrying amount of non-controlling interests is the amount of those interests at the initial recognition plus the non- controlling interests’ proportionate share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling  (d) Foreign currency transactions Transactions in foreign currencies are translated to Sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Income Statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction and are not retranslated. For the purposes of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the  are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a foreign exchange translation reserve (attributed to non- controlling interests as appropriate). (e) Financial instruments   for speculative purposes.  or loss on remeasurement to fair value is recognised immediately in the Consolidated Income Statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy (f)).          Impairment Credit losses and expected credit losses are recognised in accordance with IFRS 9. The amount of expected credit losses is updated   or FVTOCI.  (f) Hedging  management policies.          hedged forecast transaction is still expected to occur, it no longer meets the criteria for hedge accounting. The cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is     liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the Consolidated Income Statement. 133 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 1 Accounting policies continued  continued (g) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see (iii) below) and impairment losses (see accounting policy (m)). The cost of self-constructed assets includes the cost of materials and direct labour and an appropriate proportion  Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 January 2004, the date of transition  Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.  The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when  item can be measured reliably. All other costs are recognised in the Consolidated Income Statement as an expense as incurred. (iii) Depreciation Depreciation is charged to the Consolidated Income Statement on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. Depreciation on quarries is based on estimated rates of extraction. This is based on a comparison between the volume of relevant material extracted in any given period and the volume of relevant material available for extraction. Depreciation on leased assets is charged over the shorter of the lease term and their useful economic life. Freehold land is not depreciated. The rates are as follows: Freehold buildings – 2.5 per cent to 5 per cent per annum Fixed plant and equipment – 3.3 per cent to 25 per cent per annum Mobile plant and vehicles – 14 per cent to 30 per cent per annum Quarries – based on rates of extraction The residual values, useful economic lives and depreciation methods are reassessed annually. Assets under construction are not depreciated until they are ready for use. Site preparation costs associated with the development of new stone reserves are capitalised. These costs would include: •  •  •  • costs of testing whether the extraction process is functioning properly (net of any sales of test products). Depreciation commences when commercial extraction commences and is based on the rate of extraction. In accordance with IAS 37, provision is made for quarry restoration where a legal or constructive obligation exists, it is probable that an    characteristics of the Group’s quarries, the IAS 37 criteria have not been met to date based on the assets so far acquired and, therefore,  (h) Intangible assets (i) Goodwill All business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control  For acquisitions on or after 1 January 2004, the Group measures goodwill at the acquisition date as: •  •  •  •  When the excess is negative, a bargain purchase gain is recognised immediately in the Consolidated Income Statement. Costs relating to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.  equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent   this can be measured reliably. Marshalls plc | Financial Statements 134 1 Accounting policies continued  continued (h) Intangible assets continued (i) Goodwill continued On a transaction-by-transaction basis, the Group measures non-controlling interests either at their fair value or at their proportionate interest  In respect of acquisitions prior to 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the amount  occurred prior to 1 January 2004 were not adjusted in preparing the Group’s opening IFRS balance sheet at 1 January 2004. Goodwill is subsequently stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and   (ii) Research and development    improved products and processes, is capitalised if the product or process meets the recognition criteria for development expenditure as set out in IAS 38 “Intangible Assets”. The expenditure capitalised includes all directly attributable costs, from the date which the intangible asset meets the recognition criteria, necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Other development expenditure is recognised in the Consolidated Income Statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see (v) and impairment losses (see accounting policy (m)). (iii) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see (v) and impairment losses  Expenditure on internally generated goodwill and brands is recognised in the Consolidated Income Statement as an expense as incurred.    (v) Amortisation Amortisation is charged to the Consolidated Income Statement on a straight line basis over the estimated useful lives of intangible assets  amortised from the date they are available for use. The rates applied are as follows: Customer and supplier relationships – 5 to 20 years     Development costs – 10 to 20 years Software – 5 to 10 years  Software-as-a service (“SaaS”) arrangements are service contracts providing the Company with access to the cloud provider’s application software  software, are recognised as operating expenses when the services are received. Some of the costs incurred relate to the development of software  The Company has changed its accounting policy related to the capitalisation of certain software assets. This change follows the IFRIC  application software under Software-as-a-Service (“SaaS”) arrangements. The impact of this change in policy has not been measured.   assessed to determine if the Company has control of the software. For those arrangements where control does not exist, the Company derecognised the intangible asset previously capitalised. (i) Trade and other receivables   paragraph 63 of IFRS 15). Subsequent to initial recognition they are accounted for at amortised cost. (j) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and of selling expenses.   of overheads based on normal operating capacity, which were incurred in bringing the inventories to their present location and condition. 135 Marshalls plc | Annual Report and Accounts 2021 Financial Statements 1 Accounting policies continued  continued (k) Cash and cash equivalents  part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Cash Flow Statement.   for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded  available for immediate sale in its present condition. (m) Impairment (i) Impairment review The carrying amounts of the Group’s assets, other than inventories (see accounting policy (j)), are reviewed at each balance sheet date   estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Income Statement.  to cash generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash generating unit is   The recoverable amount of assets or cash generating units is the greater of their fair value less costs to sell and value in use. In assessing    (ii) Reversals of impairments An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been  An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (n) Share capital (i) Share capital     (ii) Dividends Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity dividends are recognised as  (o) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis. (p) Leases  corresponding liability are recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low-value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as for the  interest which the Group would have been able to borrow for a similar term with a similar security of funds necessary to obtain a similar   Short-term leases, with a duration of less than twelve months, are accounted for in accordance with the recognition exemption in IFRS 16 and hence related payments are expensed as incurred. The Group also utilises the option to apply the recognition exemption for low-value assets (with a value of less than the equivalent of $5,000), which means that related payments have been expensed as incurred.  with any gain or loss arising on disposal recognised in the Income Statement. The fair value of rights that have been retained are included in the carrying amount of any right-of-use asset and recognised at the commencement of the lease. Notes to the Consolidated Financial Statements continued Marshalls plc | Financial Statements 136 1 Accounting policies continued  continued (q) Pension schemes    and the fair value of any scheme assets is deducted. The discount rate is the yield at the balance sheet date on AA credit-rated corporate        Actuarial gains and losses that arise in calculating the Group’s obligation in respect of a plan are recognised immediately within the Consolidated Statement of Comprehensive Income.   (r) Share-based payment transactions The Group enters into equity settled share-based payment transactions with its employees. In particular, annual awards are made  The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. Where appropriate, the     Current tax relief is available as shares vest based on the value at the date of vesting. A deferred tax asset is recognised at grant date based on the number of shares expected to be issued, at the value at which they are expected to be issued, proportioned in line with the vesting period.    (t) Provisions A provision is recognised in the Consolidated Balance Sheet when the Group has a present legal or constructive obligation as a result of    A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. (u) Trade and other payables Trade and other payables are stated at initial recognition, at their fair value and subsequently at amortised cost. (v) Revenue Revenue from the sale of goods is recognised in the Consolidated Income Statement upon the despatch of goods, when the performance  and value added tax.      installation contract.   (w) Financial expenses   on non-equity shares, interest receivable on funds invested, dividend income, foreign exchange gains and losses and gains and losses on hedging instruments that are recognised in the Consolidated Income Statement (see accounting policy (f)). 137 Marshalls plc | Annual Report and Accounts 2021 Financial Statements 1 Accounting policies continued  continued (x) Income tax  Statement except to the extent that it relates to items recognised directly in other comprehensive income or in equity, in which case it is recognised accordingly. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred taxation is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts  are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable  reverse in the foreseeable future. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply when the temporary difference reverses, based on rates that have been enacted or substantively enacted at the balance sheet date.   Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. (y) Segment reporting IFRS 8 “Operating Segments  and to assess their trading performance. As far as Marshalls is concerned, the CODM is regarded as being the Board. The Directors have concluded that the Group’s Landscape Products business is a single reportable segment, which includes the UK operations of the Marshalls   to facilitate resource allocation. (z) Alternative performance measures  APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide additional comparative information. Adjusting items  separately to enable a full understanding of the Group’s underlying results.   recognition of their contributions during the COVID-19 pandemic. Adjusting items in 2021 also included an accounting charge relating to  relation to certain historic pension issues. Further details have been disclosed in Note 4. For the year ended 31 December 2020, adjusting items comprise items previously disclosed separately under the heading of “operational restructuring costs and asset impairments”. Further details have been included in Note 4. Notes to the Consolidated Financial Statements continued Marshalls plc | Financial Statements 138 1 Accounting policies continued  continued (z) Alternative performance measures continued  2021 2020 £’000 £’000 Profit before tax (reported) 69,322 4,653 Adjusting items (Note 4) 2,748 17,809 Profit before tax (before adjusting items) 72,070 22,462 Profit for the financial year (reported) 54,898 2,558 Adjusting items (net of tax) (Note 4) 2,142 14,708 Profit after tax (before adjusting items) 57,040 17,266 Earnings per share before adjusting items Basic (pence) 28.6p 8.6p Diluted (pence) 28.4p 8.5p  Disclosures required under IFRS are referred to as either on a post-IFRS 16 basis or on a reported basis. Disclosures referred to on a pre- IFRS 16 basis are restated to those that applied before the adoption of IFRS 16 and are used to provide additional information and a more  Both are disclosed before adjusting items. Pre-IFRS 16 December 2021 Impact of IFRS 16 Post-IFRS 16 December 2021 Pre-IFRS 16 December 2020 Impact of IFRS 16 Post-IFRS 16 December 2020 EBITDA (£’000) 96,246 10,828 107,074 43,838 13,780 57,618 EPS (pence) 29.8 (1.2) 28.6 8.5 0.1 8.6 Net (cash)/debt (£’000) (75) 41,198 41,123 26,945 48,621 75,566 ROCE (%) 22.9 (2.3) 20.6 8.9 (0.7) 8.2 Net debt: EBITDA — 0.4 0.4 0.6 0.7 1.3 Gearing (%) — 11.9 11.9 9.3 17.0 26.3  EBITA represents earnings before interest, tax and the amortisation of intangibles. This is a component of the ROCE calculation. EBITDA  Pre-IFRS 16 Post-IFRS 16 Pre-IFRS 16 Post-IFRS 16 2021 2021 2020 2020 £’000 £’000 £’000 £’000 EBITDA 96,246 107,074 43,838 57,618 Depreciation (16,423) (27,738) (15,657) (27,717) EBITA 79,823 79,336 28,181 29,901 Amortisation of intangible assets (3,178) (3,178) (2,719) (2,719) Operating profit 76,645 76,158 25,462 27,182 139 Marshalls plc | Annual Report and Accounts 2021 Financial Statements 1 Accounting policies continued  continued (z) Alternative performance measures continued   Pre-IFRS 16 Post-IFRS 16 Pre-IFRS 16 Post-IFRS 16 2021 2021 2020 2020 £’000 £’000 £’000 £’000 EBITA 79,823 79,336 28,181 29,901 Shareholders’ funds 348,788 344,317 289,816 287,848 Net (cash)/debt (75) 41,123 26,945 75,566 348,713 385,440 316,761 363,414 Reported ROCE 22.9% 20.6% 8.9% 8.2%     2021 £’000 2020 £’000 Net cash flows from operating activities 65,536 12,372 Adjusting items paid 2,820 6,946 Net financial expenses paid 3,534 4,475 Taxation paid 13,527 4,631 Adjusted operating cash flow 85,417 28,424 EBITDA 107,074 57,618 Ratio of adjusted operating cash flow to EBITDA 79.8% 49.3% 2 Segmental analysis Segment revenues and results 2021 2020 Landscape Landscape Products Other Total Products Other Total £’000 £’000 £’000 £’000 £’000 £’000 Total revenue 499,561 94,092 593,653 381,304 90,903 472,207 Inter-segment revenue (226) (4,163) (4,389) (314) (2,439) (2,753) External revenue 499,335 89,929 589,264 380,990 88,464 469,454 Segment operating profit 76,221 4,618 80,839 32,413 1,517 33,930 Adjusting items (Note 4) 65 (17,809) Unallocated administration costs (4,681) (6,748) Operating profit 76,223 9,373 Finance charges (net) (Note 6) (6,901) (4,720) Profit before tax 69,322 4,653 Taxation (Note 7) (14,424) (2,095) Profit after tax 54,898 2,558 The Group has two customers which each contributed more than 10 per cent of total revenue in the current and prior year. The Landscape Products reportable segment operates a national manufacturing plan that is structured around a series of production units throughout the UK, in conjunction with a single logistics and distribution operation. A national planning process supports sales to both of the    Notes to the Consolidated Financial Statements continued Marshalls plc | Financial Statements 140 2 Segmental analysis continued Segment revenues and results continued Included in “Other” are the Group’s Landscape Protection, Mineral Products, Mortars and Screeds and International operations, which do not currently meet the IFRS 8 reporting requirements. The accounting policies of the Landscape Products operating segment are the same as the Group’s accounting policies. Segment  administered overhead costs that relate directly to the reportable segment are included within the segment’s results. Segment assets 2021 2020 £’000 £’000 Property, plant and equipment, right-of-use assets, assets held for sale and inventory: Landscape Products 260,198 248,245 Other 57,614 65,928 Total segment property, plant and equipment, right-of-use assets and inventory 317,812 314,173 Unallocated assets 278,160 300,256 Consolidated total assets 595,972 614,429 For the purpose of monitoring segment performance and allocating resources between segments, the Group’s CODM monitors the property, plant and equipment, right-of-use assets and inventory. Assets used jointly by reportable segments are not allocated to individual reportable segments. Other segment information Depreciation and amortisation Property, plant and equipment, right-of-use asset and intangible asset additions 2021 2020 2021 2020 £’000 £’000 £’000 £’000 Landscape Products 24,588 23,707 22,423 24,723 Other 6,328 6,729 5,246 6,528 30,916 30,436 27,669 31,251 Geographical destination of revenue 2021 2020 £’000 £’000 United Kingdom 556,110 438,173 Rest of the world 33,154 31,281 589,264 469,454   141 Marshalls plc | Annual Report and Accounts 2021 Financial Statements 3 Net operating costs 2021 2020 £’000 £’000 Raw materials and consumables 246,478 182,605  (15,762) 378 Personnel costs (Note 5) 130,903 122,260 Depreciation of property, plant and equipment 16,423 15,657 Depreciation of right-of-use assets 11,315 12,060 Amortisation of intangible assets 3,178 2,719  (2,758) (2,991) Other operating costs 124,665 112,603 Redundancy and other costs 398 356 Operating costs 514,840 445,647 Other operating income (1,687) (2,272) Net gain on asset and property disposals (47) (1,103) Net operating costs before adjusting items 513,106 442,272 Adjusting items (Note 4) (65) 17,809 Total net operating costs 513,041 460,081 2021 2020 £’000 £’000 Net operating costs include: Auditor’s remuneration (see below) 340 286 Short-term and low-value lease costs 5,671 4,551 Research and development costs 3,098 3,109  2021 2020 £’000 £’000 Audit of Financial Statements of Marshalls plc 50 45 Audit of Financial Statements of subsidiaries of the Company 265 211 Half-yearly review of Marshalls plc 25 30 340 286 4 Adjusting items 2021 2020 £’000 £’000 Additional special COVID-19 bonus paid to all colleagues (Note 5) 2,216 — Redundancy and other closure costs 1,175 12,320 Write-off of property, plant and equipment 1,666 5,489 Additional consideration to the CPM vendors (Note 14) 3,750 — Net gain on sale of significant surplus site (8,872) — Total adjusting items within operating costs (Note 3) (65) 17,809 Adjusting interest expense on defined benefit pension scheme (Note 6) 2,813 — Total adjusting items before taxation 2,748 17,809 Current tax on adjusting items (Note 7) 97 (2,341) Deferred tax on adjusting items (Note 7) (703) (760) Total adjusting items after taxation 2,142 14,708 Notes to the Consolidated Financial Statements continued Marshalls plc | Financial Statements 142 4 Adjusting items continued Notes:      (iii) Write-off of property, plant and equipment relates to assets at our St Ives site that are being dismantled to allow construction of the dual  (iv) The additional consideration to the CPM vendors represents an accounting charge relating to the acquisition of CPM following the   and paid to the vendors as additional consideration. This results in a charge to the Income Statement because it falls outside the hindsight period of twelve months as set out under IAS.      5 Personnel costs 2021 2020 £’000 £’000 Personnel costs (including amounts charged in the year in relation to Directors): Wages and salaries 105,692 99,082 Social security costs 12,309 10,650 Share-based payments 2,303 2,630 Contributions to defined contribution pension scheme 10,599 9,898 Included in net operating costs (Note 3) 130,903 122,260 Personnel costs relating to the special COVID-19 bonus awarded to all colleagues (Note 4) 2,216 — Personnel costs relating to redundancy and other costs (Note 3) 398 52 Personnel costs relating to adjusting items (Note 4) 159 7,818 Total personnel costs 133,676 130,130 * Personnel costs relating to adjusting items of £159,000 (2020: £7,818,000) includes £nil (2020: £368,000) in relation to share-based payments. 2021 2020 £’000 £’000 Remuneration of Directors: Salary 781 785 Other benefits 39 37 MIP Element A bonus 582 — MIP Element B bonus 349 — Amounts receivable under the MIP at the end of the first cycle 621 1,808 Salary supplement in lieu of pension 104 145 Non-Executive Directors’ fees and fixed allowances 422 393 2,898 3,168 The aggregate of emoluments and amounts receivable under the MIP of the highest paid Director was £1,685,000 (2020: £1,695,000), including a salary supplement in lieu of pension of £80,000 (2020: £85,000).  Report on page 101, the Executive Directors receive a salary supplement in lieu of pension equal to their contractual entitlements. Further details of Directors’ remuneration, share options, long-term incentive plans and Directors’ pension entitlements are disclosed in the Remuneration Committee Report on pages 92 to 112. The average monthly number of persons employed by the Group during the year was: 2021 2020 Number Number Continuing operations 2,643 2,579 143 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 6 Financial expenses and income 2021 2020 £’000 £’000 (a) Financial expenses Net interest expense on defined benefit pension scheme 439 154  1,762 2,972 Interest expense on lease liabilities 1,889 1,604 4,090 4,730 (b) Adjusting items Adjusting interest expense on defined benefit pension scheme (Note 4) 2,813 — 6,903 4,730 (c) Financial income Interest receivable and similar income 2 10  7 Income tax expense 2021 2020 £’000 £’000 Current tax expense Current year 11,360 2,731 Adjustments for prior years (2,147) (1,768) 9,213 963 Deferred taxation expense Origination and reversal of temporary differences: Current year 6,519 158 Adjustments for prior years (1,308) 974 Total tax expense 14,424 2,095 Current tax on adjusting items (Note 4) (97) 2,341 Deferred tax on adjusting items (Note 4) 703 760 Total tax expenses before adjusting items 15,030 5,196 2021 2021 2020 2020 % £’000 % £’000 Reconciliation of effective tax rate Profit before tax 100.0 69,322 100.0 4,653 Tax using domestic corporation tax rate 19.0 13,171 19.0 884 Impact of capital allowances in excess of depreciation (3.3) (2,260) 3.7 173 Short-term timing differences (0.1) (74) 13.9 645 Adjustment to tax charge in prior year (3.1) (2,147) (38.0) (1,768) Expenses not deductible for tax purposes 0.8 523 22.1 1,029 Corporation tax charge for the year 13.3 9,213 20.7 963 Impact of capital allowances in excess of depreciation 2.3 1,610 (34.1) (1,585) Short-term timing differences — (22) 1.1 52 Pension scheme movements 0.9 659 (2.7) (124) Other items (0.9) (633) 0.4 18 Adjustment to tax charge in prior year (1.9) (1,308) 20.9 974 Impact of the change in the rate of corporation tax on deferred taxation 7.1 4,905 38.7 1,797 Total tax charge for the year 20.8 14,424 45.0 2,095 Marshalls plc | Financial Statements 144 7 Income tax expense continued The net amount of deferred taxation debited to the Consolidated Statement of Comprehensive Income in the year was £6,547,000   December 2021. The 2021 Budget announced that the UK corporation tax rate would increase to 25 per cent from 2023. This change was substantively enacted on 10 June 2021 and consequently, the deferred taxation liability at 31 December 2021 has been calculated at 25 per cent, which is the rate at which the deferred tax is expected to unwind in the future using rates enacted at the balance sheet date. The rate change has given rise to an increase to the deferred tax charge of £4.9 million which in turn has given rise to an increase in the effective tax rate.  Parliament annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending,  asset, and/or impaired if the value of such assets is considered to have reduced materially.   depreciation charge for the year.  items is different for tax and accounting purposes. These differences usually reverse in the years following those in which they arise,  Adjustments to tax charges arising in earlier years arise because the tax charge to be included in a set of accounts has to be estimated   Some expenses incurred may be entirely appropriate charges for inclusion in the Financial Statements but are not allowed as a deduction against taxable income when calculating the Group’s tax liability for the same accounting period. Examples of such disallowable expenditure include business entertainment costs and some legal expenses. The prior year adjustment in corporation tax includes the reversal of tax provisions made in prior years which are no longer required, including provisions made on acquisition of subsidiaries. As can be seen from the tax reconciliation, the process of adjustment that can give rise to current year adjustments to tax charges arising  year charge for capital allowances and short-term timing differences are not exactly replicated in the deferred taxation charge for the year.  China. The sales of these units, in total, were approximately 5 per cent of the Group’s turnover in the year ended 31 December 2021. In total,  8 Earnings per share   average number of shares in issue during the period of 199,094,964 (2020: 198,642,224).   average number of shares in issue during the period of 199,094,964 (2020: 198,642,224).  2021 2020 £’000 £’000 Profit before adjusting items 57,040 17,266 Adjusting items (2,142) (14,708) Profit for the financial year 54,898 2,558 Profit attributable to non-controlling interests (92) (188) Profit attributable to Ordinary Shareholders 54,806 2,370 145 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 8 Earnings per share continued  2021 2020 Number Number Number of issued Ordinary Shares 200,052,157 200,052,157 Effect of shares transferred into Employee Benefit Trust (957,193) (1,409,933) Weighted average number of Ordinary Shares at the end of the year 199,094,964 198,642,224   in issue during the period of 199,094,964 (2020: 198,642,224) plus potentially dilutive shares of 1,222,847 (2020: 1,614,132), which totals 200,317,811 (2020: 200,256,356).   in issue during the period of 199,094,964 (2020: 198,642,224) plus potentially dilutive shares of 1,222,847 (2020: 1,614,132), which totals 200,317,811 (2020: 200,256,356).  2021 2020 Number Number Weighted average number of Ordinary Shares 199,094,964 198,642,224 Potentially dilutive shares 1,222,847 1,614,132 Weighted average number of Ordinary Shares (diluted) 200,317,811 200,256,356 9 Dividends  are no income tax consequences. Pence per 2021 2020 qualifying share £’000 £’000 2021 final 9.6 19,122 2021 interim 4.7 9,362 14.3 28,484 2020 final 4.3 8,562 2020 interim — — 4.3 8,562 The following dividends were approved by the shareholders and recognised in the Financial Statements: Pence per 2021 2020 qualifying share £’000 £’000 2021 interim 4.7 9,362 — 2020 final 4.3 8,562 — 9.0 17,924 —  1 July 2022 to shareholders registered at the close of business on 10 June 2022. The Board did not propose an interim dividend during 2020. Marshalls plc | Financial Statements 146 10 Property, plant and equipment Land and Plant, machinery buildings Quarries and vehicles Total £’000 £’000 £’000 £’000 Cost At 1 January 2020 105,425 28,677 382,231 516,333 Exchange differences 414 — 351 765 Additions 407 327 12,424 13,158 Reclassified as held for sale (1,114) — — (1,114) Reclassifications (523) 523 — — Disposals (8,117) (53) (6,327) (14,497) At 31 December 2020 96,492 29,474 388,679 514,645 At 1 January 2021 96,492 29,474 388,679 514,645 Exchange differences (12) — (420) (432) Additions 1,327 — 19,231 20,558 Reclassified as held for sale (1,536) — (1,566) (3,102) Reclassified to intangibles — — (837) (837) Reclassifications 2,305 (2,305) — — Disposals (7,175) (73) (17,567) (24,815) At 31 December 2021 91,401 27,096 387,520 506,017 Depreciation and impairment losses At 1 January 2020 42,318 8,983 269,478 320,779 Depreciation charge for the year 1,822 350 13,485 15,657 Exchange differences 17 — 296 313 Impairments 597 — 4,892 5,489 Reclassified as held for sale (664) — — (664) Reclassifications 819 5 (824) — Disposals (408) (53) (5,869) (6,330) At 31 December 2020 44,501 9,285 281,458 335,244 At 1 January 2021 44,501 9,285 281,458 335,244 Depreciation charge for the year 2,660 368 13,395 16,423 Exchange differences (2) — (368) (370) Impairments 188 — 45 233 Reclassified as held for sale (413) — (829) (1,242) Reclassified to intangibles — — (219) (219) Reclassifications 28 (28) — — Disposals (3,038) (23) (14,922) (17,983) At 31 December 2021 43,924 9,602 278,560 332,086 Net book value At 1 January 2020 63,107 19,694 112,753 195,554 At 31 December 2020 51,991 20,189 107,221 179,401 At 31 December 2021 47,477 17,494 108,960 173,931 Mineral reserves and associated land have been separately disclosed under the heading of “Quarries”.    The impairment represents the assets being written down to fair value less cost to sell.  ”. Group cost of land and buildings and plant and machinery includes £318,000 (2020: £73,000) and £8,534,000 (2020: £4,495,000) respectively for assets in the course of construction. 147 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 10 Property, plant and equipment continued Capital commitments 2021 2020 £’000 £’000 Capital expenditure that has been contracted for but for which no provision has been made in the Consolidated Financial Statements 14,480 3,496 Depreciation charge The depreciation charge is recognised in the following line items in the Consolidated Income Statement: 2021 2020 £’000 £’000 Net operating costs (Note 3) 16,423 15,657 11 Right-of-use assets Land and buildings Plant and equipment Total £’000 £’000 £’000 Cost At 1 January 2020 20,984 31,898 52,882 Additions 4,135 12,359 16,494 Disposals (188) (3,428) (3,616) Modifications — 542 542 At 31 December 2020 24,931 41,371 66,302 At 1 January 2021 24,931 41,371 66,302 Additions 625 3,601 4,226 Disposals (2,679) (4,198) (6,877) Modifications (1,338) (118) (1,456) At 31 December 2021 21,539 40,656 62,195 Depreciation and impairment losses At 1 January 2020 2,057 10,811 12,868 Depreciation change for the year 2,176 9,884 12,060 Disposals (188) (3,428) (3,616) At 31 December 2020 4,045 17,267 21,312 At 1 January 2021 4,045 17,267 21,312 Depreciation change for the year 2,212 9,103 11,315 Disposals (2,679) (4,198) (6,877) At 31 December 2021 3,578 22,172 25,750 Net book value At 1 January 2020 18,927 21,087 40,014 At 31 December 2020 20,886 24,104 44,990 At 31 December 2021 17,961 18,484 36,445 Depreciation charge The depreciation charge is recognised in the following line items in the Consolidated Income Statement: 2021 2020 £’000 £’000 Net operating costs (Note 3) 11,315 12,060 Lease commitments 2021 2020 £’000 £’000 Lease commitments that have been contracted for but have not yet commenced 1,513 2,963 Marshalls plc | Financial Statements 148 12 Intangible assets Patents,  Customer Supplier and Development Goodwill relationships relationships  costs Software Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2020 87,426 12,811 1,629 1,760 159 18,775 122,560 Additions — — — — — 1,599 1,599 At 31 December 2020 87,426 12,811 1,629 1,760 159 20,374 124,159 At 1 January 2021 87,426 12,811 1,629 1,760 159 20,374 124,159 Additions — — — — 139 2,746 2,885 Reclassified from property, plant and equipment — — — — 342 495 837 At 31 December 2021 87,426 12,811 1,629 1,760 640 23,615 127,881 Amortisation and impairment losses At 1 January 2020 8,912 4,061 1,063 1,516 125 11,084 26,761 Amortisation for the year — 1,060 103 42 8 1,506 2,719 At 31 December 2020 8,912 5,121 1,166 1,558 133 12,590 29,480 At 1 January 2021 8,912 5,121 1,166 1,558 133 12,590 29,480 Amortisation for the year — 1,060 103 42 88 1,885 3,178 Reclassified from property, plant and equipment — — — — 144 75 219 At 31 December 2021 8,912 6,181 1,269 1,600 365 14,550 32,877 Carrying amounts At 1 January 2020 78,514 8,750 566 244 34 7,691 95,799 At 31 December 2020 78,514 7,69 0 463 202 26 7,78 4 94,679 At 31 December 2021 78,514 6,630 360 160 275 9,065 95,004 All goodwill has arisen from business combinations. The carrying amount of goodwill is allocated across cash generating units (“CGUs”) and these CGUs are independent sources of income streams and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value-in-use calculations and at both 31 December 2021 and 31 December 2020 the full amount of goodwill in the Group Balance Sheet related to the Landscape Products CGU.  for revenue growth and operational gearing, and appropriate long-term growth rates of 2.4 per cent. The long-term growth rate assumption   14.0 per cent (2020: 10.5 per cent). The Directors have reviewed the recoverable amounts of the CGUs, and considered possible impacts    in technology. The Directors do not consider that any reasonable change in the assumptions would give rise to the need for further impairment.  Amortisation charge The amortisation charge is recognised in the following line items in the Consolidated Income Statement: 2021 2020 £’000 £’000 Net operating costs (Note 3) 3,178 2,719 149 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 13 Inventories 2021 2020 £’000 £’000 Raw materials and consumables 22,805 21,335 Finished goods and goods for resale 84,631 68,447 107,436 89,782 Inventories stated at a net realisable value less than cost at 31 December 2021 amounted to £4,656,000 (2020: £4,506,000). The write down of inventories made during the year amounted to £1,534,000 (2020: £1,150,000). There were £520,000 of reversals of inventory write downs made in previous years in 2021 (2020: £201,000). 14 Trade and other receivables 2021 2020 £’000 £’000 Trade receivables 84,313 73,290 Other receivables 15,989 13,408 Prepayments and accrued income 11,607 9,044 111,909 95,742 A reimbursement asset of £4,149,000 (2020: £4,149,000) is included in other receivables. This relates to monies held in escrow in relation to the acquisition of CPM in 2017 as a consequence of an under-funded pension scheme of a related company. The risk of a liability arising from this matter is now considered to be remote and in December 2021 agreement was reached to release £3,750,000 from escrow in order to be paid to the vendors as additional consideration for the purchase of CPM. An amount has been recorded in other payables for  consideration now payable to the CPM vendors (Note 4). Ageing of trade receivables 2021 2020 £’000 £’000 Neither impaired nor past due 46,142 37,604 Not impaired but overdue by less than 30 days 32,927 29,295 Not impaired but overdue by between 30 and 60 days 2,700 2,634 Not impaired but overdue by more than 60 days 2,544 3,757 84,313 73,290 There were no receivables due after more than one year (2020: £nil). All amounts disclosed above are considered recoverable and are disclosed net of a provision for expected credit losses of £732,000 (2020: £899,000). This provision has been determined using a lifetime expected credit loss calculation. Assumptions made regarding the recoverability of balances have been determined with reference to past default experiences in line with our policies and understanding. Balances are only written off if deemed irrecoverable after all credit control procedures have been exhausted. 15 Cash and cash equivalents 2021 2020 £’000 £’000 Bank balances 41,207 103,690 Cash in hand 5 17 Cash and cash equivalents in the Consolidated Cash Flow Statement 41,212 103,707 16 Trade and other payables 2021 2020 £’000 £’000 Current liabilities Trade payables 67,261 59,282 Taxation and social security 13,718 10,998 Other payables 31,278 20,786 Accruals 25,961 28,750 138,218 119,816 All trade payables are due in six months or less. Marshalls plc | Financial statements 150 16 Trade and other payables continued Included in other payables are deferred amounts payable to former shareholders and employees, in relation to the acquisition of Edenhall Holdings Limited in previous accounting periods. These were dependent on the achievement of performance targets in the three-year post- acquisition period to 31 December. The performance targets were achieved and were settled in cash or shares after the balance sheet date. 17 Loans 2021 2020 £’000 £’000 Analysed as: Current liabilities 1,673 20,000 Non-current liabilities 39,341 110,282 41,014 130,282 Bank loans The bank loans are secured by intra-group guarantees with certain subsidiary undertakings. 18 Lease liabilities 2021 2020 £’000 £’000 Analysed as: Amounts due for settlement within 12 months (shown under current liabilities) 8,545 10,065 Amounts due for settlement after 12 months 32,776 38,926 41,321 48,991 2021 2020 Minimum Minimum lease lease payments Interest Principal payments Interest Principal £’000 £’000 £’000 £’000 £’000 £’000 Less than 1 year 9,828 1,283 8,545 11,579 1,514 10,065 1 to 2 years 7,316 1,110 6,206 8,605 1,287 7,318 2 to 5 years 13,149 2,434 10,715 12,350 2,036 10,314 In more than 5 years 21,915 6,060 15,855 28,598 7,304 21,294 52,208 10,887 41,321 61,132 12,141 48,991 As at 31 December 2021, the total minimum lease payments (above) comprised property of £33,272,000 (2020: £32,122,000) and plant, machinery and vehicles of £18,936,000 (2020: £29,010,000). On 10 September 2020, the Group completed a sale and leaseback transaction in relation to its site in Rumst, Belgium. The net cash proceeds of €12,481,000 have been used to pay down the inter-company indebtedness between Marshalls NV and Marshalls Mono Limited.   Directors do not believe that this is reasonably certain. Certain leased properties have been sublet by the Group. Sublease payments of £285,254 (2020: £239,003) are expected to be received  Statement within net operating costs in respect of subleases.  expense on lease liabilities amounted to £1,889,000 (2020: £1,604,000). Lease liabilities are calculated at the present value of the lease payments that are not paid at the commencement date.   The vast majority of lease obligations are denominated in Sterling.   151 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 19 Financial instruments   instruments, further details of which are set out on page 155.  held centrally to take advantage of the most rewarding short-term investment opportunities. Forward foreign currency contracts are used in the management of currency risk.  Board reviews and agrees the policies for managing each of these risks and they have remained unchanged since 2020. Capital management  current economic conditions and its strategic objectives to ensure that it is able to continue as a going concern whilst maximising the return to stakeholders through the optimisation of debt and equity balances. The Group manages its medium-term bank debt to ensure continuity of funding and the policy is to arrange funding ahead of requirements  bank facility agreements. From time to time the Group purchases its own shares on the market; the timing of these purchases depends on market prices. Primarily  transaction basis by the Board. There has been no change in the objectives, policies or processes with regard to capital management during the years ended 31 December 2021 and 31 December 2020. Financial risks     the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings. For instance, a weakening of Pound Sterling on the foreign currency market would increase the cost of certain raw materials, whereas a strengthening would have the opposite effect. (a) Liquidity risk     maturities on its borrowings. Details of the Group borrowing facilities are provided on page 155. (b) Interest rate risk The Group’s policy is to review regularly the terms of its available short-term borrowing facilities and to assess individually and manage   Sensitivity analysis  The sensitivity analysis has been undertaken before the effect of tax. The sensitivity analysis of the Group’s exposure to interest rate risk has     2021 2020 £’000 £’000 Increase of 100 basis points (372) (652) Decrease of 100 basis points 372 652 (c) Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount and, where appropriate, credit insurance cover is obtained. This provides excellent intelligence to minimise the number and value of bad debts and ultimately provides compensation if bad debts are incurred. An ageing of trade receivables is shown in Note 14 on page 150. Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or better than the Group.  as sound credit ratings. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations.   Marshalls plc | Financial statements 152 19 Financial instruments continued Financial risks continued (d) Foreign currency risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than Sterling. The currencies giving rise to this risk are primarily Euros and US Dollars.  forward foreign currency contracts. All the forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity.  contracts is a £159,000 asset (2020: £28,000 asset) and is adjusted against the hedging reserve on an ongoing basis. During the year  from equity to the Income Statement. At 31 December 2021 all outstanding forward exchange contracts had a maturity date within twelve months.  2021 2020 Sterling Euro US Dollar AED Total Sterling Euro US Dollar AED Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cash and cash equivalents 38,534 808 1,834 36 41,212 101,177 1,185 1,316 29 103,707 Trade receivables 82,712 1,529 192 (120) 84,313 71,501 1,549 360 (120) 73,290 Secured bank loans (34,500) (6,514) — — (41,014) (122,400) ( 7,882) — — (130,282) Lease liabilities (35,598) (5,723) — — (41,321) (42,742) (6,249) — — (48,991) Trade payables (61,634) (5,114) (513) — (67,261) (50,294) (8,509) (477) (2) (59,282) Derivative financial instruments 654 158 1 — 813 304 18 10 — 332 Balance sheet exposure (9,832) (14,856) 1,514 (84) (23,258) (42,454) (19,888) 1,209 (93) (61,226) A 10 per cent strengthening and weakening of the following currencies against the Pound Sterling at 31 December 2021 would have  balance sheet date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis was performed on the same basis for 2020: 2021 2020 £’000 £’000 10% strengthening of £ against € 1,321 1,768 10% weakening of £ against € (1,080) (1,446) 10% strengthening of £ against $ (135) (107) 10% weakening of £ against $ 110 88 10% strengthening of £ against AED 7 8 10% weakening of £ against AED (6) (7) (e) Pricing risks   states them at fair value. The fair value of the fuel hedges is a £654,000 asset (2020: £304,000 asset) and is adjusted against the hedging  on the Income Statement. During the year £1,272,000 (2020: £1,455,000) has been recognised in other comprehensive income, with  When combining fuel hedges and forward contracts this gives a total of £1,403,000 credit (2020: £1,526,000 debit) recognised in other  153 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 19 Financial instruments continued Financial risks continued (f) Other risks  Effective interest rates and maturity of liabilities   Fixed or Effective 6 months 6 – 12 1 – 2 2 – 5 More than variable interest rate Total or less months years years 5 years rate % £’000 £’000 £’000 £’000 £’000 £’000 31 December 2021 Cash and cash equivalents (Note 15) Variable 1.80 (41,212) (41,212) — — — — Bank loans (Note 17) Variable 1.80 41,014 — 1,673 39,341 — — Lease liabilities (Note 18) Fixed 3.41 41,321 5,396 3,149 6,206 10,715 15,855 41,123 (35,816) 4,822 45,547 10,715 15,855 Fixed or Effective 6 months 6 – 12 1 – 2 2 – 5 More than variable interest rate Total or less months years years 5 years rate % £’000 £’000 £’000 £’000 £’000 £’000 31 December 2020 Cash and cash equivalents (Note 15) Variable 2.30 (103,707) (103,707) — — — — Bank loans (Note 17) Variable 2.30 130,282 — 20,000 10,591 99,691 — Lease liabilities (Note 18) Fixed 2.82 48,991 5,422 4,643 7,318 10,314 21,294 75,566 (98,285) 24,643 17,90 9 110,005 21,294  Fixed or Carrying 6 months 6 – 12 1 – 2 2 – 5 More than variable value Total or less months years years 5 years rate £’000 £’000 £’000 £’000 £’000 £’000 £’000 31 December 2021 Bank loans Variable 41,014 41,700 237 1,907 39,556 — — Trade and other payables Variable 118,888 118,888 118,888 — — — — Lease liabilities Fixed 41,321 52,208 6,175 3,653 7, 316 13,149 21,915 Derivative financial assets Fixed (813) (813) (547) (266) — — — 200,410 211,983 124,753 5,294 46,872 13,149 21,915 Fixed or Carrying 6 months 6 – 12 1 – 2 2 – 5 More than variable value Total or less months years years 5 years rate £’000 £’000 £’000 £’000 £’000 £’000 £’000 31 December 2020 Bank loans Variable 130,282 134,044 710 20,637 11,809 100,888 — Trade and other payables Variable 110,039 110,039 110,039 — — — — Lease liabilities Fixed 48,991 61,132 6,169 5,410 8,605 12,350 28,598 Derivative financial assets Fixed (332) (332) (166) (166) — — — 288,980 304,883 116,752 25,881 20,414 113,238 28,598 Marshalls plc | Financial statements 154 19 Financial instruments continued Borrowing facilities The total bank borrowing facilities at 31 December 2021 amounted to £155.0 million (2020: £255.0 million), of which £114.0 million (2020: £124.7 million) remained unutilised. The undrawn facilities available at 31 December 2021, in respect of which all conditions precedent had been met, were as follows: 2021 2020 £’000 £’000 Committed: Expiring in more than 5 years — — Expiring in more than 2 years but not more than 5 years 80,659 9,718 Expiring in 1 year or less 18,327 90,000 Uncommitted: Expiring in 1 year or less 15,000 25,000 113,986 124,718 The additional short-term bank facilities of £90 million established in May 2020 were not utilised and have now reached maturity. In addition, the COVID Corporate Financing Facility (“CCFF”) that was put in place at the same time was also not required. Bank facilities have returned to pre-COVID-19 levels and total £165 million, of which £140 million are committed. On 13 August 2021, the Group entered into a new £20 million revolving credit facility with HSBC and the Group has also renewed its short- term working capital facilities of £25 million with NatWest. Amendment agreements have also been entered into with all our partner banks following the announcement that LIBOR will cease at the end of 2021. The Group’s committed bank facilities are all revolving credit facilities with interest now charged at variable rates based on SONIA. The Group’s bank facilities continue to be aligned with the current strategy to ensure that headroom against available facilities  medium-term debt. The current facilities are set out as follows: Cumulative Facility facility £’000 £’000 Committed facilities Q3: 2025 20,000 20,000 Q3: 2024 35,000 55,000 Q1: 2024 25,000 80,000 Q3: 2023 20,000 100,000 Q2: 2023 20,000 120,000 Q4: 2022 20,000 140,000 On-demand facilities Available all year 15,000 155,000 Seasonal (February to August inclusive) 10,000 165,000   against approved invoices and, in practice, this provides facilities of between £5 million and £15 million which the Group utilises periodically in order to help manage its short-term, mid-month funding requirements. The credit risk is retained by the customer and Marshalls pays a  155 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 19 Financial instruments continued Borrowing facilities continued   shown below: 2021 2020 Book amount Fair value Book amount Fair value £’000 £’000 £’000 £’000 Trade and other receivables 95,032 95,032 86,699 86,699 Cash and cash equivalents 41,212 41,212 103,707 103,707 Bank loans (41,014) (40,023) (130,282) (126,010) Trade payables, other payables and provisions (118,888) (118,888) (110,039) (110,039) Interest rate swaps, forward contracts and fuel hedges 813 813 332 332 Contingent consideration (1,563) (1,563) (1,800) (1,800) Financial instrument assets and liabilities – net (24,408) (51,383) Non-financial instrument assets and liabilities – net 368,725 339,231 344,317 287,848 Estimation of fair values  table. Other than contingent consideration, which uses a level 3 basis, all use level 2 valuation techniques. (a) Derivatives Derivative contracts are either marked to market using listed market prices or by discounting the contractual forward price at the relevant rate and deducting the current spot rate. For interest rate swaps, broker quotes are used. (b) Interest-bearing loans and borrowings  balance sheet date. (c) Trade and other receivables/payables  receivables/payables are discounted to determine the fair value. (d) Contingent consideration The basis of calculating contingent consideration is set out in Note 16 on page 151. (e) Fair value hierarchy  determine fair value. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000 31 December 2021 Derivative financial assets/(liabilities) — 813 (1,563) (750) 31 December 2020 Derivative financial assets/(liabilities) — 332 (1,800) (1,468) Marshalls plc | Financial statements 156   which is legally separate from the Company. The Trustee Board is appointed by both the Company and the Scheme’s membership and acts in the interest of the Scheme and all relevant stakeholders, including the members and the Company. The Trustee is also responsible for the investment of the Scheme’s assets.     actuarial valuations. The Trustee is required to use prudent assumptions to value the liabilities and costs of the Scheme whereas the accounting assumptions must be best estimates.   a number of internal control policies, including a Risk Register, which are in place to manage and monitor the various risks it faces. The Trustee’s investment strategy incorporates the use of liability-driven investments (“LDIs”) to minimise sensitivity of the actuarial funding   next actuarial valuation is being carried out with an effective date of 5 April 2021. These actuarial valuations are carried out in accordance with the requirements of the Pensions Act 2004 and so include deliberate margins for prudence. This contrasts with these accounting disclosures which are determined using best estimate assumptions. A formal actuarial valuation was carried out as at 5 April 2018. The results of that valuation have been projected to 31 December 2021 by a  The amounts recognised in the Consolidated Balance Sheet were as follows: 2021 2020 2019 £’000 £’000 £’000 Present value of Scheme liabilities (366,359) (399,938) (353,136) Fair value of Scheme assets 392,116 402,664 368,857 Net amount recognised at the year end (before any adjustments for deferred tax) 25,757 2,726 15,721 The current and past service costs, settlements and curtailments, together with the net interest expense for the year, are included in the  are included in other comprehensive income. 2021 2020 £’000 £’000 Net interest expense before adjusting items 539 254 Adjusting interest expense (Note 4) 2,813 — Net interest expense recognised in the Consolidated Income Statement 3,352 254 Remeasurements of the net liability: Return on Scheme assets (excluding amount included in interest expense) 3,786 (40,151) (Gain)/loss arising from changes in financial assumptions (20,383) 52,491 (Gain)/loss arising from changes in demographic assumptions (6,317) 1,209 Experience gain (3,469) (808) (Credit)/debit recorded in other comprehensive income (26,383) 12,741 Total defined benefit (credit)/debit (23,031) 12,995 157 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued  continued The principal actuarial assumptions used were: 2021 2020 £’000 £’000 Liability discount rate 1.90% 1.40% Inflation assumption – RPI 3.30% 2.85% Inflation assumption – CPI 2.70% 2.20% Rate of increase in salaries n/a n/a Revaluation of deferred pensions 2.70% 2.20% Increases for pensions in payment: CPI pension increases (maximum 5% p.a.) 2.70% 2.20% CPI pension increases (maximum 5% p.a., minimum 3% p.a.) 3.35% 3.25% CPI pension increases (maximum 3% p.a.) 2.35% 1.95% Proportion of employees opting for early retirement 0% 0% Proportion of employees commuting pension for cash 80% 80% Mortality assumption – before retirement Same as post- retirement Same as post- retirement Mortality assumption – after retirement (males) S2PXA tables S2PXA tables Loading 110% 110% Projection basis Year of birth CMI_2020 Year of birth CMI_2019 1.0% 1.0% Mortality assumption – after retirement (females) S2PXA tables S2PXA tables Loading 110% 110% Projection basis Year of birth CMI_2020 Year of birth CMI_2019 1.0% 1.0% Future expected lifetime of current pensioner at age 65: Male aged 65 at year end 85.4 85.7 Female aged 65 at year end 87.5 87.7 Future expected lifetime of future pensioner at age 65: Male aged 45 at year end 86.3 86.7 Female aged 45 at year end 88.7 88.9 Changes in the present value of assets over the year 2021 2020 £’000 £’000 Fair value of assets at the start of the year 402,664 368,857 Interest income 5,551 7,600 Return on assets (excluding amount included in net interest expense) (3,786) 40,151 Benefits paid (11,740) (13,366) Administration expenses (573) (578) Fair value of assets at the end of the year 392,116 402,664 Actual return on assets over the year 1,765 47,751 Marshalls plc | Financial statements 158  continued Changes in the present value of liabilities over the year 2021 2020 £’000 £’000 Liabilities at the start of the year 399,938 353,136 Past service cost 2,813 — Interest cost 5,517 7,276 Remeasurement (gains)/losses: Actuarial (gains)/losses arising from changes in financial assumptions (20,383) 52,491 Actuarial (gains)/losses arising from changes in demographic assumptions (6,317) 1,209 Experience (gain) (3,469) (808) Benefits paid (11,740) (13,366) Liabilities at the end of the year 366,359 399,938 The split of the Scheme’s liabilities by category of membership is as follows: 2021 2020 £’000 £’000 Deferred pensioners 204,739 222,830 Pensioners in payment 161,620 177,108 366,359 399,938 Average duration of the Scheme’s liabilities at the end of the year (in years) 18 18 The major categories of Scheme assets are as follows: 2021 2020 £’000 £’000 Return-seeking assets  1,864 1,850 Overseas equities 41,492 40,199 Other equity type investments 34,119 34,038 Total return-seeking assets 77,475 76,087 Other Insured pensioners 591 769 Cash 6,117 4,384 Property 36,941 34,110 Liability-driven investments and bonds 270,992 287,314 Total matching assets 314,641 326,577 Total market value of assets 392,116 402,664 The return-seeking assets and LDI assets have quoted prices in active markets. The valuation of the insured pensions has been taken as the value of the corresponding liabilities assessed using the assumptions set out above. The Scheme has no investments in the Company or in property occupied by the Company.  Sensitivity of the liability value to changes in the principal assumptions  million (increase by £31.9 million) if all the other assumptions remained unchanged.   and pension in payment increases. The other assumptions remain unchanged. If life expectancies were to increase/(decrease) by one year, the Scheme liabilities would increase by £18.0 million (decrease by £18.0 million) if all the other assumptions remained unchanged. 159 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued  continued Sensitivity of the liability value to changes in the principal assumptions continued Management Incentive Plan (“MIP”) Share-based payment awards have been made during the year in accordance with the rules of the MIP. Full details of the performance criteria and the basis of operation of the MIP are set out in the Remuneration Committee Report on pages 92 to 112. Equity settled awards are settled by physical delivery of shares. The following equity settled awards have been granted: Number of instruments £’000 Plan year Vesting date Equity settled awards granted to Directors of Marshalls plc 161,863 723 2018 March 2022 Equity settled awards granted to other employees 151,321 676 2018 March 2022 Equity settled awards granted to Directors of Marshalls plc 92,335 758 2019 March 2023 Equity settled awards granted to other employees 94,144 773 2019 March 2023 Equity settled awards granted to Directors of Marshalls plc — — 2020 March 2024 Equity settled awards granted to other employees — — 2020 March 2024 Equity settled awards granted to Directors of Marshalls plc 208,829 1,458 2021 March 2025 Equity settled awards granted to other employees 289,427 2,018 2021 March 2025 997,919 6,406 Analysis of closing balance (deferred into shares): 2021 2020 £’000 Shares £’000 Shares Equity settled awards granted to Directors of Marshalls plc 2,939 463,027 3,378 579,320 Equity settled awards granted to other employees 3,467 534,892 3,883 649,117 6,406 997,919 7,261 1,228,437 2021 2020 Value Number of Value Number of £’000 options £’000 options  7,261 1,228,437 9,361 1,767,118 Granted 3,474 498,256 — — Change in value of notional shares — — (361) — Lapsed (252) (43,204) (249) (39,469) Element released (4,077) (685,570) (1,490) (499,212) Outstanding at 31 December 6,406 997,919 7,261 1,228,437 The total expenses recognised for the period arising from share-based payments were as follows: 2021 2020 £’000 £’000 Awards granted and total expense recognised as employee costs 2,545 3,679 Further details in relation to the Directors are set out in the Remuneration Committee Report on pages 92 to 112. Included in the total expense of £2,545,000 (2020: £3,679,000) is an amount of £1,490,000 (2020: £1,980,000) settled as interim cash payments under the terms of the Scheme and which has been included within wages and salaries in Note 5. Employee Bonus Share Plan A Bonus Share Plan was approved by shareholders in May 2015 under which a number of senior management employees were granted performance related bonuses with an element of this bonus being in the form of shares. The bonus performance criteria are the same as those applicable to the MIP awards. The bonus shares take the form of nil-cost options to acquire shares at the end of a three-year vesting period from the date of grant, and vesting is conditional on continued employment at the end of the vesting period. Awards are made to participants following publication of the Group’s year-end results. In addition, special Bonus Share Awards were granted to qualifying Edenhall employees following its acquisition on 11 December 2018. These took the form of nil-cost options to acquire Ordinary Shares in   his previous employment. Further details of this award are set out on page 101. The total awards outstanding at 31 December 2021 were over 358,217 shares (31 December 2020: 420,633). The total expenses recognised for the year arising from share-based payments were £1,117,000 (2020: £931,000).  At 31 December 2021 the scheme held 42,287 (2020: 42,287) Ordinary Shares in the Company. Marshalls plc | Financial statements 160 21 Provisions Legal and regulatory provisions £’000  2,649 Additional provisions made in the period 500 At 31 December 2020 3,149  3,149 Unused amounts reversed during the period (2,310) At 31 December 2021 839 Provisions comprise the estimated cost of settlement of certain legal and regulatory matters relating to the CPM business acquired on  settlement of these matters. 22 Deferred taxation Recognised deferred taxation assets and liabilities Assets Liabilities 2021 2020 2021 2020 £’000 £’000 £’000 £’000 Property, plant and equipment — — (17,089) (12,506) Intangible assets — — (1,547) (1,594) Inventories — — (477) (499) Employee benefits — — (6,439) (519) Equity settled share-based payments 1,249 2,241 — — IFRS 16 transition adjustment 356 379 — — Other items — — (2,513) (1,948) Tax assets/(liabilities) 1,605 2,620 (28,065) (17,066) The deferred taxation liability at 31 December 2021 has been calculated at 25 per cent based on the rate at which the deferred tax is expected to unwind in the future using rates enacted at the balance sheet date.   Deferred tax assets on capital losses and overseas trading losses have not been recognised due to uncertainty around the future use of the losses. Deferred taxation liabilities represent sums that might become payable as tax in future years as a result of transactions that have occurred in the current year. The explanation as to why such liabilities may arise is included in the notes to the tax reconciliation (Note 7). The deferred tax liabilities disclosed in the year ended 31 December 2021 include the deferred tax relating to the Group’s pension scheme assets. Deferred tax assets on capital losses and overseas trading losses have not been recognised due to uncertainty around the future use of the losses. Movement in temporary differences Year ended 31 December 2021 Recognised Recognised in other in statement  Recognised comprehensive of changes 31 December 2021 in income income in equity 2021 £’000 £’000 £’000 £’000 £’000 Property, plant and equipment (12,506) (4,583) — — (17,089) Intangible assets (1,594) 47 — — (1,547) Inventories (499) 22 — — (477) Employee benefits (519) 663 (6,583) — (6,439) Equity settled share-based payments 2,241 (736) — (256) 1,249 IFRS 16 transition adjustment 379 (23) — — 356 Other items (1,948) (601) 36 — (2,513) (14,446) (5,211) (6,547) (256) (26,460) 161 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Consolidated Financial Statements continued 22 Deferred taxation continued Movement in temporary differences continued Year ended 31 December 2020 Recognised Recognised in other in statement  Recognised comprehensive of changes 31 December 2020 in income income in equity 2020 £’000 £’000 £’000 £’000 £’000 Property, plant and equipment (11,321) (1,185) — — (12,506) Intangible assets (1,909) 315 — — (1,594) Inventories (337) (162) — — (499) Employee benefits (2,674) 48 2,107 — (519) Equity settled share-based payments 2,550 (205) — (104) 2,241 IFRS 16 transition adjustment 397 (18) — — 379 Other items (2,066) 76 42 — (1,948) (15,360) (1,131) 2,149 (104) (14,446) The deferred tax balances on short-term timing differences are expected to reverse within one to three years.   over the next three years. It is not realistic to make any projection after a three-year period.  deferred tax charge in the year of £4,900,000. 23 Capital and reserves Called-up share capital As at 31 December 2021, the authorised, issued and fully paid up Ordinary Share Capital was as follows: Authorised 2021 and 2020 Issued and paid up 2021 and 2020 Value Value Ordinary Shares Number £’000 Number £’000  300,000,000 75,000 200,052,157 50,013 Share premium account The share premium account represents all proceeds received above the share capital cost. Own shares reserve    Capital redemption reserve The capital redemption reserve records the nominal value of shares repurchased by the Company. Consolidation reserve  under Section 425 of the Companies Act 1985. The restructuring was accounted for as a capital reorganisation and accounting principles were applied as if the Company had always been the holding company of the Group. The difference between the aggregate nominal value of the new shares issued by the Company and the called-up share capital, capital redemption reserve and share premium account of Marshalls Group plc (the previous holding company) was transferred to a consolidation reserve. Hedging reserve  energy price contracts and forward exchange contracts. Dividends After the balance sheet date, the following dividends were proposed by the Directors. The dividends have not been provided for and there were no income tax consequences. 2021 2020 £’000 £’000 9.6 pence final dividend (2020: 4.3 pence) per Ordinary Share 19,122 8,562 Marshalls plc | Financial statements 162 24 Non-controlling interests 2021 2020 £’000 £’000  950 723 Share of profit for the year 92 188 Foreign currency transaction differences (55) 39 At 31 December 987 950 25 Analysis of net debt  Other 31 December 2021 Cash flow New leases  2021 £’000 £’000 £’000 £’000 £’000 Cash at bank and in hand 103,707 (62,439) — (56) 41,212 Debt due within 1 year (20,000) 20,000 — (1,673) (1,673) Debt due after 1 year (110,282) 68,628 — 2,313 (39,341) Lease liabilities (48,991) 10,828 (3,158) — (41,321) (75,566) 37,017 (3,158) 584 (41,123)    2021 2020 £’000 £’000 Net (decrease)/increase in cash equivalents (62,439) 50,481 Cash outflow/(inflow) from decrease/(increase) in bank borrowings 88,628 (57,891) Cash outflow from lease repayments 10,828 13,780 New leases entered into (3,158) (20,811) Effect of exchange rate fluctuations 584 (1,149) Movement in net debt in the year 34,443 (15,590) Net debt at 1 January (75,566) (59,976) Net debt at 31 December (41,123) (75,566) 163 Marshalls plc | Annual Report and Accounts 2021 Financial Statements      Financing Other non-cash 31 December 2021   2021 £’000 £’000 £’000 £’000 Bank loans (Note 17) (130,282) 88,628 1,640 (40,014) Lease liabilities (Note 18) (48,991) 10,828 (3,158) (41,321) Total liabilities from financing activities (179,273) 99,456 (1,518) (81,335)  Financing Other non-cash 31 December 2020   2020 £’000 £’000 £’000 £’000 Bank loans (Note 17) (71,274) (57,891) (1,117) (130,282) Lease liabilities (Note 18) (41,960) 13,780 (20,811) (48,991) Total liabilities from financing activities (113,234) (44,111) (21,928) (179,273)       27 Contingent liabilities Royal Bank of Scotland plc has issued, on behalf of Marshalls plc, the following irrevocable letters of credit relating to the Group’s cap on self-insurance for employer’s liability and vehicle insurance: Beneficiary Amount Period Purpose M S Amlin Limited £430,000 23 Dec 2011 to 30 Oct 2022 Employer’s liability  £500,000 8 Dec 2020 to 30 Oct 2022 Employer’s liability  £575,000 8 Dec 2020 to 30 Oct 2022 Vehicle insurance Aviva Insurance Limited £100,000 19 Mar 2014 to 29 Oct 2022 Vehicle insurance M S Amlin Limited £180,000 30 Oct 2016 to 30 Oct 2022 Vehicle insurance 28 Related parties Identity of related parties The Group has a related party relationship with its Directors. Transactions with key management personnel Other than the Directors, there are no senior managers in the Group who are relevant for establishing that Marshalls plc has the appropriate expertise and experience for the management of its business. The Directors of the Company and their immediate relatives control 0.3072 per cent (2020: 0.2915 per cent) of the voting shares of the Company.  Directors are disclosed in the Remuneration Committee Report on pages 92 to 112. Notes to the Consolidated Financial Statements continued Marshalls plc | Financial statements 164 29 Accounting estimates and judgements Management discussed with the Audit Committee the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these policies and estimates. The accounting policies are set out in Note 1 on pages 131 to 140. As stated in the accounting policies, revenue is disclosed net of rebates. Whilst the Directors do not regard the determination of accruals for rebates as a key area of estimation uncertainty, the estimation of appropriate accruals for rebates requires commercial assessment. Note 13 contains details of the Group’s inventory. Whilst not considered by the Directors to be a key source of estimation uncertainty, the  appropriate level of provisioning against inventory obsolescence and for net realisable value. The Directors consider the following to be the only key source of estimation uncertainty: •    The Directors have concluded that critical accounting judgements, apart from those involving estimations, have been made in relation to the following issue during the preparation of the Financial Statements: • Adjusting items have been disclosed separately as alternative performance measures due to their size, nature and incidence to provide a better understanding of the Group’s results. The determination of whether items merit treatment as an adjusting item is a matter of judgement. Note 4 contains details of adjusting items. 165 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Company Statement of Changes in Equity for the year ended 31 December 2021 Share Capital Share premium Own redemption Equity Retained Total capital account shares reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 Current year  50,013 24,482 (806) 75,394 13,010 195,034 357,127 Total comprehensive expense for the year Loss for the financial year — — — — — (6,362) (6,362) Total comprehensive expense for the year — — — — — (6,362) (6,362) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Share-based payments — — — — 1,622 681 2,303 Deferred tax on share-based payments — — — — (72) — (72) Dividends to equity shareholders — — — — — (17,924) (17,924) Purchase of own shares — — (3,567) — — — (3,567) Disposal of own shares — — 3,727 — — (3,727) — Total contributions by and distributions to owners — — 160 — 1,550 (20,970) (19,260) Total transactions with owners of the Company — — 160 — 1,550 (27,332) (25,622) At 31 December 2021 50,013 24,482 (646) 75,394 14,560 167,702 331,505  Share Capital Share premium Own redemption Equity Retained Total capital account shares reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 Prior year  50,013 24,482 (1,391) 75,394 10,780 202,285 361,563 Total comprehensive expense for the year Loss for the financial year — — — — — (4,760) (4,760) Total comprehensive expense for the year — — — — — (4,760) (4,760) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Share-based payments — — — — 2,199 799 2,998 Deferred tax on share-based payments — — — — 31 — 31 Purchase of own shares — — (2,705) — — — (2,705) Disposal of own shares — — 3,290 — — (3,290) — Total contributions by and distributions to owners — — 585 — 2,230 (2,491) 324 Total transactions with owners of the Company — — 585 — 2,230 ( 7,251) (4,436) At 31 December 2020 50,013 24,482 (806) 75,394 13,010 195,034 35 7,127  Marshalls plc | Financial statements 166 2021 2020 Notes £’000 £’000 Fixed assets Investments 33 352,974 351,352 Deferred taxation assets 34 673 1,058 353,647 352,410 Current assets Debtors 35 964 4,717 Net current assets 964 4,717 Total assets 354,611 357,127 Current liabilities Creditors (23,106) — Net current liabilities 36 (23,106) — Net assets 331,505 357,127 Capital and reserves Called-up share capital 37 50,013 50,013 Share premium account 24,482 24,482 Own shares (646) (806) Capital redemption reserve 75,394 75,394 Equity reserve 14,560 13,010 Profit and loss account 167,702 195,034 Equity shareholders’ funds 331,505 357,127  Approved at a Directors’ meeting on 17 March 2022. On behalf of the Board: Martyn Coffey Justin Lockwood    The Notes on pages 168 to 173 form part of these Company Financial Statements. Company Balance Sheet at 31 December 2021 167 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Company Financial Statements 30 Accounting policies The following paragraphs summarise the main accounting policies of the Company, which have been applied consistently in dealing with items which are considered material in relation to the Company’s Financial Statements. The Company is exempt from the requirement to give its own disclosures as the entity forms part of the Consolidated Financial Statements of Marshalls plc, which has included disclosures under IFRS 7 “Financial Instruments: Disclosures”. (a) Authorisation of Financial Statements and Statement of Compliance with FRS 101 The Parent Company Financial Statements of Marshalls plc for the year ended 31 December 2021 were authorised for issue by the Board  England and Wales. The Company’s Ordinary Shares are publicly traded on the London Stock Exchange and the Company is not under the control of any single shareholder. These Financial Statements were prepared in accordance with the historical cost basis of accounting and Financial Reporting Standard 101 “Reduced Disclosure Framework” (“FRS 101”).  (b) Basis of preparation  The accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 31 December 2021. In these Financial Statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures: • the requirements of paragraphs 45(b) and 46 – 52 of IFRS 2 “Share-based Payments”; • the requirements of IFRS 7 “Financial Instruments: Disclosures”; • the requirements of paragraphs 91 – 99 of IFRS 13 “Fair Value Measurement”; • the requirement in paragraph 38 of IAS 1 “Presentation of Financial Statements” to present comparative information in respect of paragraph 79(a)(iv) of IAS 1; • the requirements of paragraphs 10(d), 10(f), 16, 39(c), 40A, 40B, 40C, 40D, 111 and 134 – 136 of IAS 1 “Presentation of Financial Statements”; • the requirements of IAS 7 “Statement of Cash Flows”; • the requirements of paragraphs 30 and 31 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”; • the requirements of paragraph 17 of IAS 24 “Related Party Disclosures”; • the requirements in IAS 24 “Related Party Disclosures” to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and • the requirements of paragraphs 134(d) – 134(f) and 135(c) – 135(e) of IAS 36 “Impairment of Assets”. The Company also intends to take advantage of these exemptions in the Financial Statements to be issued in the following year. Objections may be served in the Company by shareholders holding in aggregate 5 per cent or more of the total allocated shares in the Company. Where required, additional disclosures are given in the Consolidated Financial Statements. (c) Investments Fixed asset investments in subsidiaries and associates are shown at cost less provision for impairment. The Directors consider annually whether a provision against the value of investments on an individual basis is required. (d) Share capital (i) Share capital     (ii) Dividends Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity dividends are recognised as a liability in the period in which they are declared (appropriately authorised and no longer at the discretion of the Company). (e) Pension schemes      in Note 20 on pages 157 to 159.   Marshalls plc | Financial statements 168 30 Accounting policies continued (f) Share-based payment transactions The Company enters into equity settled share-based payment transactions with its employees. In particular, annual awards are made to employees under the Company’s Management Incentive Plan (“MIP”) and the Employee Bonus Share Plan (“BSP”). These schemes allow employees to acquire shares in Marshalls plc. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. Where appropriate, the fair value of the options granted is measured using the Black-Scholes option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an  be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. Current tax relief is available as shares vest based on the value at the date of vesting. A deferred tax asset is recognised at grant date based on the number of shares expected to be issued, at the value at which they are expected to be issued, proportioned in line with the vesting period.   purchases of shares in the Company are debited directly to equity and disclosed separately in the balance sheet as “own shares”. (h) Trade and other payables Trade and other payables are stated at nominal amount (discounted if material). (i) Income tax  except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred taxation is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts  are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable  reverse in the foreseeable future. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply when the temporary difference reverses, based on rates that have been enacted or substantively enacted at the balance sheet date.   Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. 31 Operating costs The audit fee for the Company was £50,000 (2020: £45,000). This is in respect of the audit of the Financial Statements. Fees paid to the Company’s auditor for services other than the statutory audit of the Company are not disclosed in the Notes to the Company Financial Statements since the consolidated accounts of the Group are required to disclose non-audit fees on a consolidated basis. Details of Directors’ remuneration, share options, long-term incentive plans and Directors’ pension entitlements are disclosed on pages 101 to 105 of the Remuneration Committee Report. The average monthly number of employees of Marshalls plc (including Executive Directors) in the year ended 31 December 2021 was 183 (2020: 175). The personnel costs for the majority of these employees are borne by Marshalls Group Limited. The personnel costs charged to Marshalls plc in the year were £4,524,000 (2020: £4,261,000) in relation to 21 employees (2020: 16), including the Directors. 32 Ordinary dividends: equity shares 2021 2020 Pence per share £’000 Pence per share £’000 2021 interim: paid 1 December 2021 4.7 9,362 — —  4.3 8,562 — — 9.0 17,924 — — Due to the impact of COVID-19, the Board did not propose an interim dividend during 2020. After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided and there were no income tax consequences. 2021 2020 £’000 £’000 2021 final: 9.6 pence (2020: 4.3 pence) per Ordinary Share 19,122 8,562 169 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Company Financial Statements continued 33 Investments £’000  351,352 Additions 1,622 At 31 December 2021 352,974 Investments comprise shares in the subsidiary undertaking, Marshalls Group Limited. The Directors have considered the carrying value of  The increase in the year of £1,622,000 represents adjustments to the number of shares expected to vest in respect of share-based payment awards granted to employees of Marshalls Group Limited. Pursuant to Sections 409 and 410(2) of the Companies Act 2006, the subsidiary undertakings of Marshalls plc at 31 December 2021 are set out below. Subsidiaries Principal activities Class of share % ownership Acraman (418) Limited Non-trading Ordinary/ preference 100 Alton Glasshouses Limited Non-trading Ordinary 100 Bollards Direct Limited Non-trading Ordinary 100 Capability Brown Garden Centres Limited Non-trading Ordinary 100 Capability Brown Landscaping Limited Non-trading Ordinary 100 Classical Flagstones Limited Non-trading Ordinary 100 CPM Group Limited Non-trading Ordinary 100 Dalestone Concrete Products Limited Non-trading Ordinary 100 Edenhall Limited Non-trading Ordinary 100 Edenhall Building Products Limited Non-trading Ordinary 100 Edenhall Concrete Limited Non-trading Ordinary 100 Edenhall Concrete Products Limited Non-trading Ordinary 100 Edenhall Holdings Limited Non-trading Ordinary/ preference 100 Edenhall Technologies Limited Non-trading Ordinary 100 Locharbriggs Sandstone Limited Non-trading Ordinary 100 Lloyds Quarries Limited Non-trading Ordinary 100 Marshalls Building Materials Limited Non-trading Ordinary 100 Marshalls Building Products Limited Property management Ordinary 100 Marshalls Concrete Products Limited Non-trading Ordinary 100 Marshalls Directors Limited Non-trading Ordinary 100 Marshalls Dormant No. 30 Limited Non-trading Ordinary 100 Marshalls Dormant No. 31 Limited Non-trading Ordinary 100 Marshalls EBT Limited Non-trading Ordinary 100 Marshalls Estates Limited Non-trading Ordinary 100 Marshalls Group Limited Intermediate holding company Ordinary 100 Marshalls Landscape Products Limited Non-trading Ordinary 100 Marshalls Landscape Products (North America) Inc. Landscape Products supplier Ordinary 100 Marshalls Mono Limited Landscape Products manufacturer and supplier and quarry owner supplying a wide variety of paving, street furniture and natural stone products Ordinary 100 Marshalls Natural Stone Limited Non-trading Ordinary 100 Marshalls NV Landscape Products manufacturer and supplier Ordinary 66.7 Marshalls Profit Sharing Scheme Limited Non-trading Ordinary 100 Marshalls Properties Limited Property management Ordinary 100 Marshalls Register Limited Non-trading Ordinary 100 Marshalls Stone Products Limited Non-trading Ordinary 100 Marshalls Street Furniture Limited Non-trading Ordinary 100 Ollerton Limited Non-trading Ordinary 100 Marshalls plc | Financial statements 170 Subsidiaries Principal activities Class of share % ownership  Non-trading Ordinary 100 Paver Systems (Carluke) Limited Non-trading Ordinary 100 Paver Systems Limited Non-trading Ordinary 100 PD Edenhall Holdings Limited Intermediate holding company Ordinary 100 PD Edenhall Limited Non-trading Ordinary 100 Premier Mortars Limited Non-trading Ordinary 100 Quarryfill Limited Non-trading Ordinary 100 Rhino Protec Limited Non-trading Ordinary 100 Robinson Associates Stone Consultants Limited Non-trading Ordinary 100 Robinsons Greenhouses Limited Non-trading Ordinary 100 Rockrite Limited Non-trading Ordinary 100 S Marshall & Sons Limited Non-trading Ordinary 100 Scenic Blue Limited Non-trading Ordinary 100 Scenic Blue Landscape Franchise Limited Non-trading Ordinary 100  Non-trading Ordinary 100 Stancliffe Stone Company Limited Non-trading Ordinary 100 Stoke Hall Quarry Limited Non-trading Ordinary 100 Stone Shippers Limited Non-trading Ordinary 100 Stonemarket (Concrete) Limited Non-trading Ordinary 100 Stonemarket Limited Non-trading Ordinary 100 The Great British Bollard Company Limited Non-trading Ordinary 100 The Stancliffe Group Limited Non-trading Ordinary 100 The Yorkshire Brick Co. Limited Non-trading Ordinary 100 Town & Country Paving Limited Non-trading Ordinary 100 Urban Engineering Limited Non-trading Ordinary 100 Woodhouse Group Limited Non-trading Ordinary 100  Non-trading Ordinary 100 Xiamen Marshalls Import Export Company Limited Sourcing and distribution of natural stone products Ordinary 100   Marshalls NV is largely dependent on the continued support of Marshalls Mono Limited, which has indicated that it intends to continue providing this support for the foreseeable future.   Marshalls Import Export Company Limited is registered in China and Marshalls Landscape Products (North America) Inc. is registered in the USA. Paver Systems Limited, Paver Systems (Carluke) Limited and Locharbriggs Sandstone Limited are registered in Scotland. The  Paver Systems Limited and Paver Systems (Carluke) Limited Roadmeetings, Carluke, Lanarkshire ML8 4QG Locharbriggs Sandstone Limited Locharbriggs, Dumfries, Dumfriesshire DG1 1QS Marshalls Landscape Products (North America) Inc. 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801, USA Marshalls NV Nieuwstraat 4, 2840 Rumst, Belgium Xiamen Marshalls Import Export Company Limited 12 A4, Xiangyu Building, No. 22, 4th Xiangxing Road, Xiangyu Free Trade Zone, Xiamen, China 33 Investments continued 171 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Notes to the Company Financial Statements continued 34 Deferred taxation Recognised deferred taxation assets and liabilities Assets Liabilities 2021 2020 2021 2020 £’000 £’000 £’000 £’000 Equity settled share-based payments 673 1,058 — – Movement in temporary differences Recognised in other  Recognised comprehensive 31 December 2021 in income income 2021 £’000 £’000 £’000 £’000 Equity settled share-based payments 1,058 (313) (72) 673 Recognised in other  Recognised comprehensive 31 December 2020 in income income 2020 £’000 £’000 £’000 £’000 Equity settled share-based payments 1,464 (375) (31) 1,058 35 Debtors 2021 2020 £’000 £’000 Corporation tax 964 890 Amounts owed from subsidiary undertakings — 3,827 964 4,717 No debtors were due after more than one year. 36 Creditors 2021 2020 £’000 £’000 Amounts owed to subsidiary undertakings 23,106 — No creditors were due after more than one year. 37 Capital and reserves Called-up share capital As at 31 December 2021, the authorised, issued and fully paid up Ordinary Share capital was as follows: Authorised 2021 and 2020 Issued and paid up 2021 and 2020 Value Value Ordinary Shares Number £’000 Number £’000  300,000,000 75,000 200,052,157 50,013 Share premium account The share premium account represents all proceeds received above the share capital cost. Own shares reserve  of shares in the Company are debited directly to equity and disclosed separately in the balance sheet as “own shares”. Further details  Marshalls plc | Financial statements 172 37 Capital and reserves continued Capital redemption reserve The capital redemption reserve records the nominal value of shares repurchased by the Company. Distributable reserves The Company’s distributable reserves amount to £168 million (2020: £195 million) at the end of the period. Equity reserve The equity reserve represents the number of shares expected to vest in respect of share-based payment awards granted to employees of the Company. 38 Capital and leasing commitments The Company had no capital or leasing commitments at 31 December 2021 or 31 December 2020. 39 Bank facilities The Group’s banking arrangements are in respect of Marshalls plc, Marshalls Group Limited and Marshalls Mono Limited with each company being nominated borrowers. The operational banking activities of the Group are undertaken by Marshalls Group Limited and the Group’s bank debt is largely included in Marshalls Group Limited’s balance sheet. 40 Contingent liabilities Royal Bank of Scotland plc has issued, on behalf of Marshalls plc, the following irrevocable letters of credit relating to the Group’s cap on self-insurance for employer’s liability and vehicle insurance: Beneficiary Amount Period Purpose M S Amlin Limited £430,000 23 Dec 2011 to 30 Oct 2022 Employer’s liability  £500,000 8 Dec 2020 to 30 Oct 2022 Employer’s liability  £575,000 8 Dec 2020 to 30 Oct 2022 Vehicle insurance Aviva Insurance Limited £100,000 19 Mar 2014 to 29 Oct 2022 Vehicle insurance M S Amlin Limited £180,000 30 Oct 2016 to 30 Oct 2022 Vehicle insurance 41 Pension scheme    Full details of the Scheme are provided in Note 20. The Company is unable to identify its share of the Scheme assets and liabilities on a consistent and reasonable basis.   42 Accounting estimates and judgements The preparation of the Financial Statements requires management to make judgements, estimates and assumptions. Although these judgements and estimates are based on management’s best knowledge, actual results ultimately may differ from these estimates.   There are no critical accounting judgements or key sources of estimation uncertainty. 43 Related parties Related party relationships exist with other members of the Group. All operating costs are borne by Marshalls Group Limited and are  those that prevail in arm’s length transactions. 173 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Financial History – Consolidated Group Year ended 31 December 2017 Year ended 31 December 2018  31 December 2019  31 December 2020 Year ended 31 December 2021 £’000 £’000 £’000 £’000 £’000 Consolidated Income Statement Revenue 430,194 490,988 541,832 469,454 589,264 Net operating costs (before adjusting items) (376,755) (426,154) (468,151) (442,272) (513,106) Operating profit (before adjusting items) 53,439 64,834 73,681 27,182 76,158 Adjusting items — — — (17,809) 65 Operating profit 53,439 64,834 73,681 9,373 76,223 Financial income and expenses (net) (1,388) (1,899) (3,828) (4,720) (6,901) Profit before tax (before adjusting items) 52,051 62,935 69,853 22,462 72,070 Profit before tax 52,051 62,935 69,853 4,653 69,322 Income tax expense (9,925) (11,307) (11,942) (2,095) (14,424) Profit for the financial year 42,126 51,628 57,911 2,558 54,898 Profit for the year attributable to: Equity shareholders of the Parent 42,503 51,958 58,240 2,370 54,806 Non-controlling interests (377) (330) (329) 188 92 42,126 51,628 57,911 2,558 54,898 EBITA 54,581 66,593 76,104 12,092 79,401 EBITA (before adjusting items) 54,581 66,593 76,104 29,901 79,336 EBITDA 67,895 80,792 103,875 45,298 107,139 EBITDA (before adjusting items) 67,895 80,792 103,875 57,618 107,074 Basic earnings per share (pence) 21.5 26.3 29.4 1.2 27.5 Basic earnings per share (before adjusting items) 21.5 26.3 29.4 8.6 28.6 Dividends per share (pence) – IFRS 12.2 14.8 16.7 — 9.0 Dividends per share (pence) – traditional 10.2 12.0 4.7 4.3 14.3 Dividends per share (pence) – supplementary 4.0 4.0 — — — Year-end share price (pence) 454.9 464.8 860.0 748.5 699.5 Tax rate (%) 19.1 18.0 17.1 45.0 20.8     2021 £’000 £’000 £’000 £’000 £’000 Consolidated Balance Sheet Non-current assets 248,055 302,785 350,035 324,416 332,742 Current assets 166,372 210,776 212,534 290,013 263,230 Total assets 414,427 513,561 562,569 614,429 595,972 Current liabilities (109,507) (141,190) (162,349) (157,158) (150,634) Non-current liabilities (67,293) (105,656) (104,454) (169,423) (101,021) Net assets 237,627 266,715 295,766 287,848 344,317 Net borrowings (24,297) (37,433) (59,976) (75,566) (41,121) Gearing ratio 10.2% 14.0% 20.3% 26.3% 11.9%     Leases    Marshalls plc | Financial statements 174 ABI Barbour ABI - a provider of construction intelligence data Alliance 8.7 Organisation supporting eradication of forced labour, modern  BEIS Business, Energy & Industry Strategy BES 6001 BRE environmental and sustainability standard BRE Independent organisation offering expertise in the built environment sector CO 2 e Carbon dioxide equivalent - metric tonnes of CO2 emissions with the same global warming potential as on metric tonne of another greenhouse gas CCO Corporate Criminal Offence - legislation which can hold companies accountable for tax fraud CDP Carbon Disclosure Project Circular economy Production model recycling and reusing as much as possible COP26 UN Climate Change Conference CO 2 , CO 2 e and greenhouse gas emissions Carbon dioxide emissions. Carbon dioxide (CO 2 ) is the primary greenhouse gas emitted through human activities. While CO 2 emissions come from a variety of natural sources, human related emissions are responsible for the increase that has occurred in the atmosphere since the Industrial Revolution. “Carbon dioxide equivalent” or “CO 2 e” is a term for describing different greenhouse gases in a common unit. For any quantity and type of greenhouse gas, CO 2  2 which would have the equivalent global warming impact. Carbon neutral Carbon neutral is a term used to describe the state of an entity (such as a company, service, product or event), where the carbon emissions caused by them have been balanced out by funding an equivalent amount of carbon savings elsewhere in the world. Carbon sequestration Carbon sequestration is the long-term removal, capture or sequestration of CO 2 from the atmosphere to slow or reverse atmospheric CO 2 pollution and to mitigate or reverse climate change. Carbon dioxide is captured from the atmosphere through biological, chemical and physical processes. Concrete building products naturally absorb CO 2 . Calculations show that concrete absorbs roughly 30 per cent of the amount of CO 2 that cement production emits over its life. CPA Construction Products Association D365 Microsoft cloud ERP software system eNPS Employee Net Promoter Score - how likely employees are to recommend an organisation as a good place to work EPDs Environmental Product Declarations ERP system Enterprise Resource Planning software system ESOS Energy Saving Opportunity Scheme ETI Ethical Trading Initiative EVG Employee Voice Group   managed forests FTSE4Good An index of companies scoring highly in corporate social responsibility measures GDPR General Data Protection Regulation GfK Company providing data and analytics on consumer goods GHG Greenhouse gases Global warming projections At 1.5°C warming, about 14 per cent of the Earth’s population will  at 2°C warming that number jumps to 37 per cent. Extreme heatwaves will become widespread at 1.5°C warming. ILO International Labour Organisation ISO International Organisation for Standardisation LDI asset portfolio Liability Driven Investment asset portfolio - investment needed to fund future liabilities Marshalls NOW  MHFAs Mental Health First Aiders MIP Management Incentive Plan Mitigation vs adaptation The difference between climate change mitigation strategies and climate change adaptation is that mitigation is aimed at tackling the causes and minimising the possible impacts of climate change. Adaptation looks at how to reduce the negative effects it has and how to take advantage of any opportunities that arise. Glossary 175 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Net zero A net zero company will set and pursue a 1.5°C aligned science- based target for its full value chain emissions. Any remaining hard-to-decarbonise emissions must be compensated using  NGO Non-Governmental Organisation NHBC National House Building Council PAS 2050  standard on product carbon footprinting that has been used as the basis for the development of other standards internationally. From creation to disposal; throughout the life cycle. The term is used in a number of business contexts, but most typically in company’s responsibility for dealing with hazardous waste and product performance. PAS 2060  neutrality and builds on the existing PAS 2050 environmental  offsetting of greenhouse gas (“GHG”) emissions for organisations, products and events. Product carbon footprints A lifecycle product carbon footprint measures the total greenhouse gas emissions generated by a product, from extraction of raw materials, to end of life. It is measured in carbon dioxide equivalent (CO 2 e). Product carbon footprints should be associated with a scope or boundary, the most common being: Cradle to gate: This measures the total greenhouse gas emissions from the extraction of raw materials through to product manufacture up to the factory gate. Cradle to grave: This measures the total greenhouse gas emissions from the extraction of raw materials through to the product’s manufacture, distribution, use and eventual disposal. QR technologies Quick Response technology, a type of barcode RIDDOR Reporting of Injuries, Diseases and Dangerous Occurrences Regulations Risk Register A document used to table risks and responses to those risks RM&I Repair, Maintenance & Improvement SASB Sustainability Accounting Standards Board Science-based targets Science-based targets are a set of goals developed by a business to provide it with a clear route to reduce greenhouse gas emissions. An  developed in line with the scale of reductions that are required to keep global warming below 1.5°C from pre-industrial levels. Science Based Targets initiative (“SBTi”)  best practice in emissions reductions and net zero targets in line with climate science. It provides technical assistance and expert resources to companies which set science-based targets in line with the latest climate science. The SBTi is a partnership between CDP, the United Nations Global Compact, the World Resources Institute (“WRI”) and the World Wide Fund for Nature (“WWF”). The SBTi is considered the gold standard in carbon reduction commitment setting. Scope 1, 2 and 3 emissions Scope 1 – all direct emissions Emissions derived from the activities of an organisation or under their control. This includes fuel combustion on site, from owned  emissions from boilers and air-conditioning refrigerant leaks. Scope 2 – indirect emissions Emissions derived from electricity purchased and used by the organisation. Emissions will be created during the production of the energy and eventually used by the organisation. This includes electricity from energy suppliers to power computers, heating and cooling. Scope 3 – all other indirect emissions Emissions derived from activities of the organisation, but occur from sources that they do not own or control. This is usually the  companies, covering emissions associated with business travel, procurement, waste and water. Examples include plane travel, shipping of goods and waste disposal. SDG Sustainable Development Goal SECR Streamlined Energy and Carbon Reporting SIP Share Investment Plan SLAM Stop, Look, Assess, Manage Statista A company providing market and consumer data SuDS Sustainable Drainage Systems TAH  TCFD Task force on Climate related Financial Disclosures The Group  ULEZ Ultra Low Emission Zone UNGC United Nations Global Compact Verisk Maplecroft A company providing risk analytics WDI Workforce Disclosure Initiative WEPs Women’s Empowerment Principles Glossary continued Marshalls plc | Financial statements 176 Shareholder Information Shareholder analysis at 31 December 2021 Number of Number of Size of shareholding shareholders % Ordinary Shares % 1 to 500 1,866 47.76 269,118 0.13 501 to 1,000 476 12.18 359,446 0.18 1,001 to 2,500 537 13.74 910,220 0.45 2,501 to 5,000 333 8.52 1,184,600 0.59 5,001 to 10,000 228 5.84 1,613,582 0.81 10,001 to 25,000 151 3.86 2,414,740 1.21 25,001 to 100,000 131 3.35 6,841,065 3.42 100,001 to 250,000 62 1.59 10,551,383 5.27 250,001 to 500,000 30 0.77 10,971,054 5.48 500,001 and above 93 2.39 164,936,949 82.46 3,907 100.00 200,052,157 100.00 Financial calendar Preliminary announcement of results for the year ended 31 December 2021 Announced 17 March 2022 Final dividend for the year ended 31 December 2021 Payable 1 July 2022 Half-yearly results for the year ending 31 December 2022 Announcement 18 August 2022 Half-yearly dividend for the year ending 31 December 2022 Payable 1 December 2022 Results for the year ending 31 December 2022 Announcement Early March 2023    print technology, which minimises the impact of printing on the environment,  are registered to ISO 14001. CBP011646 Advisers Stockbrokers Numis Securities Limited Peel Hunt Auditor Deloitte LLP Legal advisers Slaughter and May Pinsent Masons LLP Financial adviser N M Rothschild & Sons Limited Bankers    Registrars Computershare Investor Services PLC The Pavilions    above address (tel: 0870 707 1134)  Landscape House Premier Way  Halifax HX5 9HT  Telephone: 01422 312000  Registered in England and Wales: No. 5100353 177 Marshalls plc | Annual Report and Accounts 2021 Financial Statements Annual Report and Accounts 2021 Marshalls plc, Landscape House,  Elland HX5 9HT