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Trading Update: 4 January 2013

Trading Performance

Marshalls' revenue for the year ended 31 December 2012 was £309 million (2011: £334 million; 2010: £309 million) a decrease of 7 per cent including the impact of prolonged periods of heavy rainfall during the normally busy summer months. The Group's International business continues to make steady progress and has grown to approaching 5 per cent of Group sales. Current Group trading continues to be in line with expectations.

Sales to the Public Sector and Commercial end market, which represent approximately 63 per cent of Marshalls' sales, were down 6 per cent and sales to the Domestic end market, which represent approximately 32 per cent of Group sales, were down 12 per cent compared with the prior year period.

The reorganisation announced in July 2012, and detailed in the Half Year statement in August 2012, was completed ahead of schedule and the cost reduction benefits are being delivered as expected. The decisive and proactive actions taken by Marshalls in 2012 in response to continuing uncertainty about the market environment have reduced both fixed costs and net debt. Cash realisation from surplus property sales, accelerated inventory reduction and reduced capital expenditure is ahead of plan. This has resulted in a reduction in year end net debt to £64 million (2011: £77 million) which is on track to meet our target net debt to EBITDA ratio of two times cover by the end of 2013.

As a result of the change in future Corporation Tax rates on deferred tax and recently completed property transactions we expect a tax credit of approximately 10 per cent on underlying earnings in 2012.

Outlook

Despite the challenging economic background, Marshalls continues to target growth markets within the Public Sector and Commercial end market. Street furniture, water management and internal natural stone flooring are seen as particular growth areas, in addition to the continuing commitment to home, rail and retail. The Group continues to focus on product innovation and delivering industry leading customer service.

In the Domestic end market consumer confidence remains reasonably stable, albeit at a low level, and the continued development of the Marshalls Register is an area of focus. The survey of domestic installers at the end of October 2012 revealed order books of 8.7 weeks (October 2011: 7.8 weeks).

Marshalls has strong operational and financial flexibility. Capacity and the cost base are at a sustainable level for current market volumes. The Group is well placed to take advantage of any improvement in market conditions.

The next update will be the Preliminary Results Announcement on Friday 8 March 2013.