Real Asset Value Growth

Ennstone plc Annual Report and Accounts 2007 Annual Report and Accounts 2007 Contents

ENNSTONE 01 02 10 Ennstone plc 21 25 e of the Ennstone 28 Dir . A step-by-step process, from acquiring the mineral 30 Dir ough to the finished product, is explained overleaf. 34 37 Dir 42 in r

45 46

47 48 49

84 85

92 Thr 93 Shar 94 96

With the UK quarrying industry only replacing one tonne for n. every two extracted, the rate at which we are replacing our www.ennstone.co.uk g reserves is four times the industry average. In the next two nted years, we aim to convert 50 million tonnes of reserves to consented, demonstrating real asset value growth.

Ennstone plc Breedon Hall, Breedon on the Hill, Derby. DE73 8AN Tel 01332 694444 Fax 01332 694445 Real Asset Value Growth

ENNSTONE

Ennstone plc 2

Ethiebeaton Quarry, in Scotland, is just one example of our integrated business model 3 in action, showing how we add value at 1 every opportunity.

4 6 Scotland England

Alan Mackenzie Bill Taylor Will Spurr Owen Batham Chief Executive Managing Director Chief Executive Chief Executive 7 Ennstone Thistle BEAR Scotland Ennstone Johnston Ennstone Concrete Products Age 46 Age 46 Age 43 Age 39

Inverness Norwich Leicester Aberdeen Birmingham

The rock is sorted Our highly The fragmented rock is This secondary crusher into its component experienced then fed into a primary material is then moved sizes. These single Some materials can be Our modern, efficient Another use for single contracting teams jaw crushing machine onto the computer sized aggregates enhanced by washing. asphalt plants use sized stone, and our are available to lay Edinburgh Minerals are at the heart After removal of topsoil which produces rock of a controlled tertiary and are then used Certain concrete single sized aggregates manufactured sands, A fleet of over 400 our asphalt products of the business. We and overburden, rock size more suited to being quaternary crushing and in our added products are made using to produce a full is in concrete in our delivery vehicles including throughout Scotland, invest in increasing our is extracted from the conveyed and handled. screening stages where value activities, manufactured sands, range of asphalts for state-of-the-art ready tippers, mixer trucks and the English Midlands long term reserves and quarry face using An impact or cone the material is sized and or are carefully which are produced from road construction. mixed concrete plants, demountable trucks, which and East Anglia on gaining valuable planning carefully planned blasting secondary crusher then our higher value single sorted to go into what would otherwise Some mixes contain a yet another method can be either a tipper or a jobs ranging from permissions to enable us and large excavating further reduces the size sized aggregates are our decorative have been a waste proportion of recycled of adding value to our mixer, deliver our products individual drives to to extract minerals. machinery. . of the rock. produced. products range. product. road surfaces. aggregates. cleanly and efficiently. motorways.

Cert no. SGS-COC-0620

1 Securing minerals 2 Mineral extraction 3 Primary and 4 Final crushing 5 Special 6 Concrete 7 Asphalt 8 Ready mixed 9 Transport 10 Contracting secondary and screening aggregates products concrete crushing

Cert no. SGS-COC-0620

Annual Report and Accounts 2007 Annual Report and Accounts 2007 Annual Report and Accounts 2007

Ethiebeaton Quarry, in Scotland, is just one example of our integrated business model 3 in action, showing how we add value at 1 every opportunity.

4 6 Scotland England

Norwich Leicester Aberdeen Birmingham

Cert no. SGS-COC-0620

Annual Report and Accounts 2007 Annual Report and Accounts 2007 Annual Report and Accounts 2007

Ennstone plc Annual Report and Accounts 2007 Annual Report and Accounts 2007 Contents Adding value – ENNSTONE 01 Highlights 02 Chairman’s Statement 10 Business Review Ennstone plc 21 Financial Review from start to finish 25 Corporate Social Responsibility Growing the value of our assets is at the core of the Ennstone 28 Directors and Advisors philosophy. A step-by-step process, from acquiring the mineral 30 Directors’ Report reserves through to the finished product, is explained overleaf. 34 Corporate Governance 37 Directors’ Remuneration Report 42 Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements 43 Independent Auditor’s Report to the Members 45 Consolidated Income Statement 46 Consolidated Statement of Recognised Income and Expense 47 Consolidated Balance Sheet 48 Consolidated Cash Flow Statement 49 Notes to the Group Financial Statements 84 Company Balance Sheet 85 Notes to the Company Financial Statements 92 Three Year Record 93 Shareholder Information 94 Notice of Annual General Meeting 96 Operational Locations and Management

Securing minerals

We have approximately 300 million tonnes of mineral With the UK quarrying industry only replacing one tonne for reserves, of which around 60% have consent for extraction. every two extracted, the rate at which we are replacing our www.ennstone.co.uk We are focused on replacing the minerals we use, securing reserves is four times the industry average. In the next two additional long term reserves and we are replacing consented years, we aim to convert 50 million tonnes of reserves to reserves at more than twice our current extraction rate. consented, demonstrating real asset value growth.

Ennstone plc Breedon Hall, Breedon on the Hill, Derby. DE73 8AN Tel 01332 694444 Fax 01332 694445 Real Asset Value Growth

Annual Report and Accounts 2007

ENNSTONE

Ennstone plc Financial and Operating Highlights

Underlying operating profit* up 32%

Strong performance from UK Excellent performance from Poland

uS aggregates development on track

real asset value growth - consented reserves replaced at more than twice the rate of extraction

Strong position for further success

£m £m £m £m

192 237 28 45

192 21 35 142 160 18 30 113

05 06 07 05 06 07 05 06 07 05 06 07

Group revenue Underlying Group Underlying Net assets operating profit* EBITDA*

Group Group Revenue Operating Profit* EBITDA* NET ASSETS +23% +32% +29% +35%

* excludes the effect of reorganisation, redundancy and impairment costs 2006 restated to remove the effect of discontinued activities

1 Annual Report and Accounts 2007

We are pleased to announce that the Group The proceeds of the funding strengthened our made strong progress in 2007, despite the balance sheet at the right time and enabled us to current, challenging economic climate. renegotiate both our US and UK banking facilities, We believe this performance clearly achieving cost reductions on the original pricing demonstrates that our strategy of investing matrix. These agreements run to November 2010. in long term minerals, gaining valuable We now have the funding resource in place to take us planning permissions and developing value through this economic phase. added activities as a route to market for these high quality materials, has given us Dividend the ability to continue to grow our returns. Recognising the Group’s continuing strong progress Overall, the Group’s performance was in towards achieving its key objectives, the Board is line with market expectations, with regional proposing a final dividend of 1.02 pence per ordinary variations. We achieved a good performance share. This provides a total dividend for the year of in the UK, a creditable performance in the 1.49 pence per share (2006: 1.44 pence) and reflects US and an excellent performance in Poland. an annual increase of 3.5%. If approved, the final dividend will be paid on 11 July 2008 to shareholders Results on the register on 20 June 2008. Boosted by contributions from acquisitions and developments undertaken over the last two years, Minerals and assets Group revenue increased in the year by 23% to At the heart of the Ennstone business is its mineral £236.8 million (2006: £192.1 million). The strength reserves. We have approximately 300 million tonnes of our UK performance has seen underlying Group of prime aggregates in key locations of which operating profit increase by over 32% to £28.0 million approximately 60% is consented. We are committed (2006: £21.2 million). Underlying EBITDA increased to creating real asset value growth for our shareholders by 29% to £45.1 million. Underlying earnings per and our aim is to convert over 50 million tonnes of share, on a continuing basis for the year, were up unconsented reserves to consented over the next two 0.4% to 2.78 pence per share (2006: 2.77 pence) years. This is significantly more than twice our current after taking account of the additional shares issued extraction rate. Gaining these additional planning under the Placing and Open Offer. The loss on the consents, at a time when the UK is replacing only one discontinued natural stone building products business tonne for every two extracted, shows how focused we was £0.9 million. Reorganisation and redundancy are and demonstrates our planning expertise and how costs, together with impairment costs on the natural we are achieving real asset value growth. stone building products business were £5.0 million. Furthermore, we aim to ensure that the volume of our Balance sheet unconsented reserves is maintained by continuing to In May, we strengthened our balance sheet with a acquire additional minerals in key locations. Most of 1 for 3 Placing and Open Offer which raised £47.5 these additional minerals will be adjacent to existing million, net of expenses. These funds were used quarries, but we will also take the opportunity to acquire initially to reduce Group debt, then used to further our greenfield developments for future potential quarry stated objectives of developing our US aggregates operations. position, strengthening the northern region of our Scottish business along with bolt on acquisitions By investing in modern, efficient equipment, we are in our other businesses. As at 31 December 2007, changing the profile of our quarries to produce more Group net debt was £162 million (2006: £149 million) higher value, single sized aggregates. This, in turn, representing a reduction in gearing from 105% in increases the value of our quarries and of the minerals 2006 to 84%. yet to be extracted, due to the increased end use value of the aggregates, and generates further real asset value growth.

Chairman’s Statement

2 Annual Report and Accounts 2007 Mineral extraction Rock is extracted by drilling the quarry face, charging the holes Some ‘as blasted’ rock is taken away at this stage to be used as with explosives and detonating these under stringent controls. armour stone for coastal defences. The goal is to reduce the rock to the optimum size for the primary Ennstone extracts over 9 million tonnes of rock every year. crusher to work efficiently.

3 Annual Report and Accounts 2007

Primary and secondary crushing Heavy duty loading shovels are used to load a mobile, primary material is placed onto a primary stockpile using a conveyor. crusher with blasted rock. The primary crusher uses steel jaws or It is then fed to the secondary crushing stage where material of blow-bars to crush or impact the rock in order to reduce the size 50mm and smaller is produced. of discharged material to 125mm and under. This crushed

4 Annual Report and Accounts 2007 Our investment in value added products and services, In March 2007, we strengthened our position in East such as asphalt, ready mixed concrete and contracting, Anglia with the acquisition of Terracarbon, a key regional ensures that we have the route to market for our contracting business. We have now developed a fully aggregates; this is an essential part of our integrated integrated contracting operation serving that region. business model. Following recent investment, our In November 2007, we acquired our first asphalt underlying operating profit in the UK has increased by plant in Suffolk, Waveney Asphalt which, together 68% over the last two years. We expect to continue with its contracting business, extended our coverage our progress over coming years. We are an asset rich southwards, further enhancing our position in East Anglia. business and continue to reduce the age profile of our operating assets. During 2008, we will replace three We now have a significant presence in aggregates, asphalt plants that are nearing forty years old and, asphalt, concrete and contracting across all our by the end of the year, over 40% of our asphalt plant English regional markets. capacity will be less than three years old. In addition, we have built more than twenty concrete plants over The capital investment in recent years in modern, the last three years. This increases capacity, improves high output, energy efficient and flexible equipment, our energy efficiency, demonstrates our environmental coupled with major investment in transport and our awareness and helps deliver our planned growth. commitment to customer service, has enabled us to emerge as the supplier of choice. As the UK business matures, our diversification into ready mixed concrete is an example of how we To enable us to achieve maximum benefit from the constantly strive to improve our trading performance. assets and capacity installed over the last two years, we have restructured our management teams. We believe an exciting, relatively low cost opportunity We now operate with three regions and a special exists to increase the number of our sand and gravel aggregates division. We believe that our market operations. We intend to open two new sand and strength in each of our regions, the benefit of local gravel units during 2008. management control, increased market knowledge and shorter lines of communication, will enable us to UK aggregates maximise the opportunities within our local markets. Our UK aggregates business had another tremendous year, with underlying operating profit Ennstone Thistle achieved another record year in both up 38%. This reflects the continuing progress made revenue and operating profit. An important contribution in Scotland, the strong growth in demand from our towards this was the progress made in its strategy of concrete products operations and, most importantly, consolidating its ready mixed concrete position. the emerging performance of our English aggregates business. In the first quarter of the year, we purchased two ready mixed concrete plants from Tarmac in Fife and a further five Ennstone Johnston is now a source of significant plants from Cemex in the north. These were supplemented profits within the Group as we begin to realise the real by the purchase of a further plant from Tarmac at benefits from the investment in aggregates and value Aviemore and, in January 2008, by the acquisition of added product facilities made over the last two years. TSL Contractors’ concrete plants on the west coast of We continue to develop our integrated business Scotland. Ennstone Thistle now operates twenty one model using these value added products as a route ready mixed concrete plants across its regional markets. to market for our core resource, aggregates. Most of these units are located in existing aggregate quarries generating significant cost benefits. As well as In February 2007, we purchased the Mansfield increasing the value added routes to market available for Asphalt business, further expanding our English Group aggregates, these acquisitions and developments aggregates strategy. This unit extends our have diversified the base of the business further into ready geographical coverage within the East Midlands mixed concrete which generally supplies projects funded market place, consolidates our market position and by the private sector. This complements asphalt, which is enhances our ability to trade. We plan to develop a mainly funded by the public sector, thus giving us a more ready mixed concrete plant on this site during 2008. balanced portfolio.

Chairman’s Statement (continued)

5 Annual Report and Accounts 2007

To further the strategy of strengthening our northern Concrete products region, we purchased Netherglen Quarry in June Ennstone Concrete Products had an excellent year. The and Boyne Bay Lime Company, which operates an actions taken during 2006 to streamline the operational agricultural lime quarry, in September. These quarries management and reposition the business as a route have combined consented reserves of over 7 million to market for large volumes of Group aggregates are tonnes. Plans are already in place to develop our proving successful. integrated business model at Netherglen by installing a new, energy efficient, high capacity asphalt plant that At the end of the first quarter, we announced that we will replace the plant currently operated at Tarmac’s were undertaking a strategic review of Ennstone Building Products. This review concluded that the natural stone sand and gravel operation at Elgin. In addition, we building products business was no longer core to our will relocate our contracting operations and local objectives and a process was initiated to dispose of this management to the quarry and are also finalising plans business. In December, the sale was completed and the to relocate one of the ready mixed concrete plants Company re-branded itself to become Ennstone Concrete recently purchased from Cemex. These plans follow Products, focusing on heavy-end precast concrete a major investment in 2007 in a large mobile crushing products using large amounts of Group aggregates. train to produce the high quality aggregates required for these value added products. This will further The natural stone building products business has been increase the percentage of Group aggregates used in treated as a discontinued activity within the accounts. our value added activities which already stands at over From a cash perspective, the disposal will generate 80% in Scotland. approximately £5.2 million, £3.4 million of which has already been received. In November, we purchased DW Gordon Blocks and immediately leased the business to a specialist In November, planning permission was granted for block manufacturer with a supply agreement for phase one of our residential development proposals their aggregate requirements. It is expected that we at Telford. The application for phase two is about to will relocate this business to our Craigenlow Quarry be submitted and we believe that a positive outcome within the next three years, thereby realising not only will be achieved in the near future. As previously major cost savings in labour and haulage but also announced, we have an option agreement with Barratt the potential to redevelop five acres of high value Developments under which they will acquire both residential land in Aberdeen. phases for residential development at a price of £10.5 million. Completion of this transaction will afford us the Ennstone Thistle has developed our integrated opportunity to turn our Telford unit into one of the most modern, low cost, concrete product facilities in the business model at Orrock Quarry under an operating UK. Preparatory works to enable us to operate on the agreement from Tarmac. In order to take this unit expected reduced footprint at Telford have continued to the next level, we plan to relocate our Kirkcaldy during the year and we are well placed to offer vacant concrete plant into the quarry and to replace the possession of phase one to Barratt in the first half of ageing asphalt plant. In November, we purchased the year. this business outright, including 19 million tonnes of minerals, thereby ensuring that all of the benefits of this US aggregates investment will remain with the Group. The difficulties facing the US economy have been well documented. Against this background, our US BEAR Scotland, our associated highways maintenance business achieved a very creditable performance with business, continues to be an important route to market operating profit of £4.1 million, demonstrating that for Group products. Its highly skilled management Ennstone, Inc. can trade profitably in difficult market team works closely with Ennstone Thistle to ensure conditions. Despite US housing demand dropping by that opportunities are maximised. BEAR’s new five year over 35% since 2006 and our US business currently trunk road maintenance contracts also give us more having limited aggregate operations to supply our visibility on an important element of our order book. ready mixed concrete plants, management has This business is now regarded as one of the best in demonstrated their adaptability and strength in the industry. delivering this performance.

Chairman’s Statement (continued)

6 Annual Report and Accounts 2007 F inal crushing and screening Material from the secondary crushing stage is passed to the These are used in the production of asphalt and ready mixed and computer controlled, tertiary and quaternary crushing and screening precast concrete. stages where the material is separated into the desired range of Within our integrated business model, one of our objectives is to sizes. At this point, our higher value, single sized aggregates and ensure that 85% of our value added products use Group aggregates. manufactured sands are produced.

7 Annual Report and Accounts 2007

We have one of the best ready mixed concrete plant During the year, we acquired two ready mixed networks within our chosen regions. The strategy, concrete operations, Handyman Concrete and Deep of developing our integrated business model by Creek, both of which now use Group aggregates. acquiring more of our own aggregates to increase the Handyman is located close to Dulles Airport and has volume of these used in our ready mixed concrete a second, non-operational site at Lorton, close to plants from 41% to 85%, will improve our US Washington DC, which will begin production in 2008. business performance in the years ahead. We have Deep Creek is located in Maryland, close to Keplinger. already made good progress in achieving this goal. Poland aggregates During the year, we have taken action to counter After recording its first annual profit in 2006, our the impact of the weak US economy. We have Polish business was expected to have another year restructured the US business into three divisions. of strong growth. In 2007, Ennstone Poland delivered Ennstone Aggregates operates in Pennsylvania, on our best estimates by recording an operating profit West Virginia and Virginia. Valley Redi Mix operates in excess of £1.5 million, over three times 2006 levels. north west of Washington DC and into West Virginia, whilst Colonial Concrete supplies the ready mixed The European Union funds now being invested concrete market from just north of Washington Dulles in Poland are being targeted on developing the Airport to Richmond in the south, through the core infrastructure of the country. This has resulted in areas of northern Virginia. The business now has selling prices increasing strongly, especially in gravel key management based in these divisions with clear, and ready mixed concrete. We are well placed to short lines of communication and focused objectives benefit from this process in our chosen north west and goals to deliver for each of their divisions. region. We have targeted further development for 2008 and beyond. We have made significant progress in our aggregate development strategy by acquiring Keplinger Quarry, Due to the buoyant economy and the resulting our first hard rock unit, which supplies both the increased attractiveness of Polish assets to our major external market and our West Virginia, Valley Redi Mix competitors, the values attached to such assets operation. During 2008, we will invest in new plant and the acquisition prices being paid for them have and equipment to enable us to increase capacity from increased dramatically in the last twelve months. 120,000 tons to 450,000 tons per annum. Since the This has meant that cost effective development year end, we have acquired Luck Stone’s sand and opportunities are more difficult to identify. However, gravel quarry at Mattaponi, enabling us to commence we continue to strive to develop the business and, supplies to our Colonial Concrete plants in and during 2008, we expect to deliver further growth. We around the strategically important city of Richmond. plan to build two new ready mixed concrete plants on We have acquired extra mineral reserves to further greenfield sites that we have already purchased. We extend the life of this unit. We also acquired an also intend to open one new sand and gravel quarry option on 15 million tons of unconsented reserves, and expect to complete the acquisition of another some ten miles from Richmond. During 2008, we to support our ready mixed concrete business in the expect to gain appropriate consents under this southern part of our region. option to develop this into our first million tons per year sand and gravel unit. Further reserves are The future of this business remains exciting and it will available to be acquired to extend this deposit to provide a good springboard for further European growth well over 25 million tons. over time.

Chairman’s Statement (continued)

8 Annual Report and Accounts 2007 People With regard to the environment, we are continuing Ennstone has excellent assets in good locations but to drive forward programmes to become better it relies on its people to give it that extra dimension. neighbours and to reduce our carbon footprint. The Our aim is to be a strong regional operator and the three asphalt plants recently ordered for Scotland supplier of choice to all of our customers. To achieve will lower our plant age profile considerably. All of the this, we need employees who work hard and are newly installed plants have the latest energy saving dedicated to our goals and objectives. We employ and environmental technology and all are capable of people with an enthusiasm and passion to succeed recycling asphalt planings. We have recently installed so that we can harness and release this, enabling natural gas at another of our asphalt plants and we our business to be better than the competition. I are working closely with the Carbon Trust to identify would like to thank each of our employees for their similar opportunities to reduce our impact on the efforts and contribution during 2007 and I ask for, environment. We will continue to set standards to and expect, even greater commitment as we face improve our environmental credentials across the the challenges of the changing economic climate in Group’s operations. 2008. I know our people have the pride to make us the best. Outlook Our real asset value growth strategy continues to Health, safety and environment move forward well, with our goal of getting more I am delighted to report that our initiatives to further than twice our extraction rate of minerals consented improve upon our health and safety performance looking good. are making a difference. As a barometer of this, our UK trade body, the Quarry Products Association, Our integrated business model is giving us strong presented Ennstone with a special award for growth in the UK, with a mature, well balanced outstanding performance in reducing accident business in Scotland consistently delivering better incidence rates. Ennstone Concrete Products won returns. In England, we expect to continue to see a Silver Award for safety improvement from the a better performance as our investments over the British Precast Concrete Federation and in Poland, last two years bring further rewards. Our Concrete Ennbeton won an “Employer – Organiser of Safe Products business is positioned to take full advantage Work” award for the Szczecin region and a diploma at of the upturn in drainage and Network Rail work, national level. extending our route to market for Group aggregates.

Whilst it is pleasing that our efforts are recognised in In the US, we are beginning to develop a more this way, our primary goal remains the safe operation balanced business in order to achieve our goals of all Ennstone units and a “safety first” culture. We in this challenging US market. Finally, we have an are not complacent and we will continue to drive exceptional business in Poland, where our concrete forward initiatives to build on this safe working culture plant coverage of north west Poland and our quarry throughout our operations. developments leave us in an excellent position to achieve further successes.

Your Board feels that the Group has laid the right foundations and made the right investments in recent years to achieve its goals and objectives for 2008 and we look forward to another successful year.

Vaughan McLeod Chairman 11 March 2008

9 Annual Report and Accounts 2007

Ennstone is a producer of construction We are constantly seeking to identify or create surplus materials, operating in focused regional assets on which we can obtain alternative value added markets. Its business has developed planning permissions. Examples of this are at Telford and positions in central England, northern DW Gordon Blocks where substantial areas of land will Scotland, northern and western Virginia be sold to developers to release funds to further invest in and Pennsylvania in the US and north west the Group’s development strategy and to create further Poland in Europe. real asset value growth for shareholders.

Strategy The Group has developed an integrated business The Group has implemented a five point strategy model strategy that aims to lower its cost base focused on: significantly by investing in modern, high output, energy efficient, non labour intensive plant and • Securing strong positions in its regional markets machinery. This new plant and machinery is then by acquiring long term mineral reserves; utilised to drive up the production of higher value, • gaining new and extended planning permissions single sized aggregates and drive down costs. to extract those minerals and maximise the value of all our land assets, creating real asset value These single sized aggregates are the essential ingredient growth; in value added products such as asphalt, ready mixed • investing to become a low cost, highly efficient concrete and concrete products and we have invested producer of predominantly higher value, single heavily in installing region-wide capacity to produce these sized aggregates; products, largely within our existing quarry operations. • investing in value added capacity such as asphalt, ready mixed concrete, concrete products The value added operations serve as a route to market and contracting, as routes to market for our for our higher value aggregates. In the UK, the provision aggregates; of contracting services, largely the laying of asphalt and • becoming the supplier of choice in all of our the investment in BEAR Scotland, provides an additional markets. value added route to market for Group products and, with BEAR in particular, provides good visibility on our Ennstone seeks to pursue opportunities only in areas forward order book. where it can achieve long term mineral life. We have made a number of major acquisitions that have Our goal is to be the supplier of choice to the established or strengthened our mineral reserves and construction market in the regions in which we operate. trading prospects in our chosen regions. Further bolt Our management style is customer focused with short on acquisitions have enhanced this position. and direct lines of communication which, together with our modern, efficient equipment and contracting capacity, Having established a strong position, the Group then allows us to react quickly to changes in the marketplace looks to secure and extend these mineral reserves. and customer requirements. In today’s legislative world, this is a time consuming, costly and delicate process. However, we pride Resources ourselves on a positive, inclusive approach that As a Group, we employ approximately 1,700 committed makes the effort to involve all stakeholders from an and loyal employees and have access to over 300 early stage. The success of this strategy has been million tonnes of mineral reserves. In the UK, we have evidenced by the real asset value growth permissions three principal trading subsidiaries, Ennstone Johnston received to date for both mineral and value added Limited, Ennstone Thistle Limited and Ennstone Concrete plant developments or extensions. Products Limited. We also have subsidiaries in the US, Ennstone, Inc., and in Poland, Ennstone sp.z o.o.

Business Review

10 Annual Report and Accounts 2007 Special aggregates Some of Ennstone’s mineral reserves have special properties, Breedon Golden Amber Gravel has been used in many prestigious such as colour, shape or texture. We maximise the value of these projects around the UK, including Chatsworth House and characteristics by marketing these in our Special Aggregates Sandringham. It was granted the Royal Warrant in 2004 and product range which includes Breedon Golden Amber Gravel and was recently used at the National War Memorial at Alrewas in Ennviropath. Staffordshire.

In England, Ennstone Johnston operates throughout the UK aggregates Midlands and East Anglia with seven quarries, two of Buoyed by the extra value added, route to market which are sand and gravel units, eight asphalt plants, five capacity installed over the last two years, Ennstone concrete plants and three contracting operations with Johnston delivered record operating profit in 2007. the majority of the value added capacity having been installed since 2006. Good progress has been made during the year in merging this extra value added capacity into the Ennstone Thistle is a more mature business and market place. Following on from the significant gains operates north of the central belt in Scotland with achieved in 2006, ready mixed concrete volumes sixteen operational quarries, two sand and gravel have almost trebled and asphalt volumes have units, eleven asphalt plants, twenty one concrete increased significantly. Aggregate volumes increased plants and four contracting operations. by 7% and, more importantly, sales of higher value, single sized aggregates, including washed dust, Ennstone Concrete Products is a heavy-end precast through these internal value added routes to market, concrete product manufacturer that uses significant increased by over 40%. This reflects the successful quantities of Group aggregates. Operating from three implementation of the strategy of developing an locations in England, its customer base is mainly integrated business in those locations that we can in the drainage, water utilities, rail and construction support with Group aggregates. sectors and its strategy is to concentrate investment on those units that use a high proportion of Group We continue to invest to achieve our goals and, aggregates and can gain market share and strength during the year, we acquired asphalt plants at in the products it manufactures. Mansfield and Waveney together with two contracting businesses which were added to our East Anglian Ennstone, Inc. operates mainly in Virginia, West region. Additionally, we installed a new ready Virginia, Maryland and Pennsylvania from twelve mixed concrete plant at Corby and plans are in quarries, eleven of which are sand and gravel units, place to open a similar unit at Mansfield. On the one wharf, nineteen concrete plants and one mortar back of strong demand, our aggregate production plant. During 2007, it acquired its first hard rock capabilities, particularly for single sized aggregates, quarry and made substantial progress in increasing have been increased. Further investment is planned the volume of Group aggregates used in its ready for 2008 to ensure that over 80% of aggregates used mixed concrete operations. Further aggregate in our value added products continue to come from resources will be added in 2008. Group resources as demand increases.

Ennstone sp.z o.o. has continued to expand in its With demand for our Breedon Golden Amber Gravel chosen region of north west Poland. It currently remaining high, we aim to ensure that maximum operates three sand and gravel units and eleven value is extracted from this highly desirable product. concrete plants and is making excellent progress in We continue to supply many high profile prestigious developing its intended regional presence and share projects around the UK, including the National of the ready mixed concrete market, whilst ensuring War Memorial in Staffordshire. Demand for other that it has the aggregate resources in place to Special Aggregates’ products is increasing and this support this growth. operation, together with our newly formed Scottish counterpart, continually seeks to develop new product opportunities which will form an added range 05 119% of high value aggregates and products.

06 222%

07 246% Additional consented mineral reserves as a percentage of minerals extracted (additional consents includes acquisitions and additional permissions gained)

Business Review (continued)

12 Annual Report and Accounts 2007 Concrete products Aggregates, such as manufactured sands and single sized Ennstone Concrete Products produces concrete pipes and materials, are used extensively at our precast concrete manholes, fencing products, culverts and cable troughing from product operations. We also supply a number of external its two, state-of-the-art factories in the English Midlands. producers with these higher value materials.

13 Annual Report and Accounts 2007

Asphalt Single sized aggregates are essential ingredients in our added to external customers, such as utility companies and local value activities such as asphalt and are used in our energy efficient, authorities, and also to our own contracting operations. Some of environmentally friendly, high capacity asphalt plants. These our plants are able to use a proportion of recycled asphalt, from old aggregates are heated to temperatures of up to 200ºC and then road surfaces that have been removed, in their mixes. coated in bitumen to produce asphalt products that are sold

14 Annual Report and Accounts 2007 Our contracting operations are also beginning to play During the year, we have continued to build on our an important role, both as a route to market and as a reputation for service and technical ability. These means of keeping us in touch with the end customer. factors helped secure a number of important This allows us to respond swiftly to market conditions contracts. We supplied materials to the runway and to extend our value added sales to supply refurbishment at RAF Leuchars in Fife and, in the markets previously out of reach of our operations. We west, we supplied materials by boat to the Tiree continue to develop strong bonds and relationships Airport reconstruction. In addition, we continue to with an extended customer base. We aim to partner our customers on the major PFI schools further develop our links with the important term projects currently being undertaken in Scotland. In maintenance market, consolidating the advances many cases we are supplying aggregates, ready made during the year. mixed concrete, asphalt and contracting to these sites. We have also supplied aggregates to one of All of our English business units and regions are now the preferred block manufacturers and our concrete capable of delivering significant profit generation, pipes have been used in drainage - a truly integrated and the recent restructuring of the management business. team is designed to ensure that we maximise these opportunities during 2008. Pricing across all product ranges has remained good. This more than offset a quiet first six months in Our Scottish operation had a tremendous year, asphalt and contracting sales, where a lack of trunk delivering record operating profits for the seventh year road schemes in our locations, and the start up of in succession, with the most pleasing aspect being the new BEAR contracts, held volumes back. This the growth in our ready mixed concrete business. situation eased somewhat in the second half of the Helped by both acquisition and organic growth, year when we secured and completed a number of volumes for the year almost doubled. Ready mixed projects. We also managed to secure a reasonable concrete is now a substantial value added route to order book to take into 2008. market for the Group’s higher value, single sized aggregates. We have continued to develop all areas of the business. Substantial investment was made during the year to ensure that we had the production capacity to meet the increased demand for our single sized aggregates. This involved introducing a new mobile crushing train in our northern region and enhancing Orrock Quarry’s production capabilities. At the strategically important Craigenlow Quarry, near Aberdeen, we have installed the largest mobile primary crusher in Scotland.

Within our new Scottish Special Aggregates division, we have installed a sophisticated bagging plant at Capo Quarry to bag Group materials and, as with our English operation, this division is becoming a growing source of profit generation.

05 58%

06 68%

07 73% Percentage of Group aggregates used in value added products

Business Review (continued)

15 Annual Report and Accounts 2007

Ready mixed concrete Our ready mixed concrete plants use our high value, single bases and other do-it-yourself projects at home. sized aggregates mixed with cement, additives and water in high We have fifty six ready mixed concrete plants spread specification concrete mixes. We supply major projects such as throughout the UK, the US and Poland producing over one road bridges, airports, house building and factory construction million cubic metres of concrete per year. and also have the flexibility to supply small jobs such as garage

16 Annual Report and Accounts 2007 UK concrete products US aggregates Ennstone Concrete Products had an excellent year. Trading within our US operations was on budget for The flat management structure, with short and direct the first six months but, as the year progressed, the lines of communication initiated last year, is now expected seasonal upturn in work opportunities failed well established and the benefits achieved were to materialise. This in turn made it difficult to recover cost increases in raw materials for ready mixed substantial. We used this direct management ethos concrete and margins have eased year on year. The to improve our cost controls and this, together with US continues to be difficult but we have taken many more robust purchasing, helped negate severe price steps forward and laid strong foundations to enable increases for raw materials such as cement and steel. us to do better than most in this climate. We also took the opportunity to remodel our product designs to ensure the most efficient use of these In early January 2007, we completed the expensive materials. acquisition of Handyman Concrete, a mini mix concrete operation supplying an area around All of our operations benefited from these actions Washington DC. We have successfully integrated and, despite disappointing sales volumes to the and developed this business which has allowed better margin Network Rail projects, our Telford it to post higher than expected returns. During the year, we also commenced the construction of operation recorded a substantially improved result a ready mixed concrete plant at the strategically year on year. Helped by the well publicised need important Lorton site, which we acquired with for storm water attenuation measures, demand Handyman. We expect this unit to begin trading for concrete pipes, especially large diameter ones, into the Washington DC market in the second half improved considerably, with prices more than of 2008. recovering from the falls of 2006. Looking forward, we expect this strong demand and price growth to Recognising the continuing weakness of the continue during 2008 and we are also optimistic US housing market and the challenging market that Network Rail will procure more work, allowing conditions in general, we have concentrated on volumes to return to expected levels. developing a more balanced customer base and have moved our ready mixed concrete business to focus on more commercial and industrial The strong gales experienced in early 2007 generated opportunities. This type of work brings different a huge demand for new fence posts. This demand, challenges and we have developed our technical which was only curtailed by a shortage of wooden and logistical capabilities to ensure that we have panels, continued through into late summer, ensuring the resource available to respond to them. a strong result from our Cadeby concrete fencing operation. The major investment at Cadeby, in new Our aggregates division had a reasonable year, capacity for the production of drainage products, thanks to a number of large volume construction came on stream in the last quarter and we are projects secured in the Pittsburgh area. This expecting a strong performance from these products division is also responsible for the new hard rock in the coming year. quarry at Keplinger, where we have invested to develop higher value, single sized aggregates. These aggregates are now used by Valley Redi A strategic review of the building products operations Mix, including its newly acquired plants at Deep concluded that the natural stone building products Creek, in Maryland. business was no longer core to our objectives. The disposal of this significant business was completed during the year and the company rebranded to become Ennstone Concrete Products.

05 38

06 51

07 56 Number of concrete plants

Business Review (continued)

17 Annual Report and Accounts 2007

Transport Transport is an essential element of our integrated business Our demountable truck-body system allows us to switch tippers model. Across the Group we have over 450 liveried trucks which to mixers in less than twenty minutes and gives us the flexibility are a combination of Company owned and owner driver vehicles. to react to market requirements quickly. Our fleet of lorries are Our trucks can carry up to thirty tonnes of aggregates or asphalt tracked by satellite which gives us exact locations of our vehicles and our mixers up to eight cubic metres of ready mixed concrete. allowing us to utilise them efficiently and advise our customers of accurate delivery times.

18 Annual Report and Accounts 2007 In Virginia, aggregates had a more difficult time, Ready mixed concrete also had a good year and suffering a downturn in volume from the ready we continue to develop our customer base with an mixed concrete operations which it supplies and investment in two new concrete pump trucks. This, also from some production problems at the new together with the growing reputation of our joint Fulks sand and gravel quarry, near Fredericksburg. venture testing house, Betotest, has enabled us With these production issues now resolved and a to become a major supplier in the large, important full eleven months benefit to accrue from the recent markets of north west Poland around Szczecin and Mattaponi acquisition, we are expecting a much Poznan. improved performance from this region in 2008. Our multi-purpose truck fleet allowed us to maintain Poland aggregates very cost effective haulage rates, despite large Our Polish operation’s performance in 2007 was increases in the costs of fuel and spares. Aided exceptional. Its strategically located network of by the new plants commissioned at Stargard quarries and ready mixed concrete plants was well and Boczow, we also secured, and successfully positioned to take advantage of a very mild winter completed, an important contract for a new and a strong demand for building materials, induced factory for Bridgestone. Our excellent geographical by the flow of European funds. This has generated coverage throughout the north west area has strong volumes and created material shortages which enabled us to secure the ready mixed concrete have allowed us to push forward both our aggregates supplies to the Budimex S3 road contract for 2008. and ready mixed concrete pricing from a low base, enhancing margin.

We achieved a quick and successful integration of Chelm Quarry, purchased at the end of 2006. This, coupled with investment in modern, efficient plant and machinery to produce more gravel from our three quarries, ensured gravel production was up 175% year on year and the aggregates division returned its first operating profit. The second phase of this investment process will carry through into 2008 and the full benefits are yet to be realised with one new quarry scheduled to open in the autumn and another targeted for acquisition.

Business Review (continued)

19 Annual Report and Accounts 2007

Contracting Our contracting units operate across Scotland, the English contract to supply and lay all of the asphalt for the dualling of Midlands and East Anglia. Contracting is an important the A92 Dundee to Arbroath road. route to market for, predominantly, our asphalt and we have Ennstone owns and operates a full range of plant and equipment undertaken many major schemes, including a major for laying asphalt to within a tolerance of 3mm.

20 Annual Report and Accounts 2007 Operating results The increase in total Group debt, as well as interest rate The continued investment in value added activities, rises in both the UK and US, meant that net finance such as asphalt, ready mixed concrete and expenses amounted to £11.1 million (2006: £8.4 million). contracting operations in our English business, Underlying EBITDA interest cover was fairly stable at 4.1 was largely responsible for revenue from continuing times (2006: 4.2 times). operations rising by over 23% to £236.8 million (2006: £192.1 million). The underlying taxation charge for the year was £4.9 million (2006: £4.0 million) and the effective rate was Underlying Group operating profit, before 29.0% (2006: 29.4%), reflecting higher UK and Polish reorganisation, redundancy and impairments, profits. increased by £6.8 million to £28.0 million (2006: £21.2 million) reflecting the increased returns Underlying continuing earnings per share were from the value added product capacity installed in 2.78pence (2006: 2.77pence). England, a very strong Scottish performance and an excellent result from Poland. Underlying Group Balance sheet operating margins increased to 11.8% from 11.0% Total equity at 31 December 2007 amounted to last year due to the strong margins achieved in the £191.9 million (2006: £142.4 million). In June 2007, UK, as our integrated business model began to the Group raised £50.8 million, before expenses, by deliver on the investment made over the last two way of a share placing and open offer. The Group years. There was no goodwill impairment charge incurred a £2.2 million actuarial loss on defined during the year. benefit pension schemes and a £1.4 million gain on foreign exchange translation. During the year, we have incurred site reorganisation costs in respect of the development Acquisitions, disposals of the Group’s Telford site. In anticipation of a and capital expenditure successful outcome of a planning application for During the year, the Group spent £35.3 million on the redevelopment and partial sale of this site, acquisitions. These included the trade and assets we have undertaken preparatory work essential of Mansfield Asphalt Company, two concrete plants to operating on a reduced footprint. These costs, in Fife, a leasehold interest in Netherglen Quarry, together with certain redundancy costs and the five concrete plants owned by Cemex UK Limited, impairment of operating assets used in the natural a concrete plant in Aviemore, a freehold interest in stone building products operations prior to the Orrock Quarry, DW Gordon Blocks, Terracarbon, disposal of this business, have been disclosed in a Handyman Concrete and Deep Creek Ready Mix separate column in the income statement. Concrete.

The Group’s share of profit, after tax, of associated The Group also acquired the entire issued share undertakings was £0.1million (2006: £0.8 million). capitals of The Boyne Bay Lime Company Limited, During the year, the Group increased its interest Waveney Asphalt Company Limited and Keplinger in Alba Traffic Management Limited which is now Lime Co Inc. In addition, the Group increased its accounted for as a subsidiary undertaking. shareholding in Alba Traffic Management Limited from 45% to 90%.

05 15 Further details of these transactions can be found in the Directors’ Report and in note 27 to the Financial 06 19 Statements.

07 26 UK underlying profits (£m) excludes the effect of reorganisation, redundancy and impairment costs.

Financial Review

21 Annual Report and Accounts 2007

The Group spent £42.6 million on capital expenditure, Risk including £26.0 million financed by way of capital Risk is an inherent and accepted element of doing leases. Most of this expenditure was targeted on business. We have identified the principal risks and developing the Group’s integrated business model maintain and develop a risk management system that and was focused on crushing equipment to produce is appropriate and commensurate to our business. high value, single sized aggregates as well as other We set out below our key risks, together with the value added activities, such as asphalt and ready mitigating factors or action we have taken. mixed concrete plants. The main financial risks of the Group relate to Pensions the availability of funds to meet business needs, The Group operates defined benefit pension customer default and fluctuations in interest and arrangements, the Johnson Management Holdings foreign exchange rates. The Group finance function Limited Pension and Life Assurance Scheme, which is tasked with managing these risks through a had significant ongoing funding and accounting deficits, series of risk avoidance strategies including robust which are disclosed, and provided for appropriately in cash forecasting, performance management, credit accordance with the relevant accounting standards, in insurance, interest rate hedging and, as far as our financial statements. possible, the matching of exchange rate exposures on overseas assets with local currency loans. We have agreed a long term funding plan with the Pension Trustees which required the Group to make The Group is heavily reliant on energy and fuel a one off payment of £4.3 million, in January 2008, oil to manufacture its products and get them to and to pledge a property as security. In exchange, our market. The recent fluctuations in crude oil prices annual deficit funding commitment has reduced by underline the volatility of these products and £1.2 million and we expect a £250,000 saving on our we have introduced a strategic purchasing plan Pension Protection Fund Levy costs. The scheme is which attempts to mitigate the risk. We have also now closed to final salary accrual and a curtailment invested in modern energy efficient equipment gain of £0.7 million arose in the year as a result. We to reduce overall usage and give ourselves offset professional costs associated with this agreement the flexibility to switch between fuels, whilst against this gain. All employees have been invited to at the same time improving our environmental join the Ennstone Group Pension Scheme, which is a performance. defined contribution scheme. The Group has demonstrated that, over time, Cash flow it can recover its cost increases from the end Cash generated from operations increased by 49% customer and, helped by the investment in both to £32.6 million (2006: £21.9 million). The Group new products and modern efficient plants, margins spent £35.3 million on acquisitions and had a cash on the whole have moved forward despite flat spend on capital expenditure projects of £16.6 demand, especially in the UK. There is a risk, in an million. We raised £49.5 million through the placing industry dominated by large multi-nationals, that of shares and £3.4 million from business disposals, one of the industry’s larger players may attempt to resulting in net cash inflow for the year of £0.2 gain an advantage by reducing prices in the short million (2006: outflow £4.2 million). Net debt at 31 term to secure market share. However, recent December 2007 was £161.7 million (2006: £149.2 industry consolidation may help negate this threat million), resulting in gearing of 84% (2006: 105%). The and, in any event, the Group is a low cost producer ratio of net debt to underlying EBITDA was 3.6 times in all its regions and is able to withstand short term 05 25 (2006: 4.3 times). price erosion.

06 22

07 33 Cash generated from operations (£m)

Financial Review (continued)

22 Annual Report and Accounts 2007 The Group is subject to both the environmental and Key performance indicators health and safety risks inherent in the quarrying The Group uses the following financial and non- and aggregates processing industry. Management, financial key performance indicators (KPI’s) to training and control systems are in place to measure the operational and strategic performance minimise and prevent these risks. These systems of the business. are reviewed regularly and all new plant and equipment is specified with these risks in mind. Earnings per share and real asset value growth per share Planning consents are required in order to utilise the The primary performance indicators are the Group’s Group’s mineral reserves and to build and operate earnings per share and real asset value growth per added value processing plants such as asphalt and share. Our aim is to increase earnings per share concrete plants. The planning regime is slow and each year, both through the growth of our existing laborious and gaining permissions becomes more business and through acquisition, and to achieve onerous to achieve every year. However, we adopt a real asset value growth per share by replacing very pro-active approach. We involve all stakeholders consented reserves at more than twice our annual in early consultation and regularly meet with local extraction rate. During 2007, we achieved growth communities in organised liaison groups. We believe in underlying continuing earnings per share of our policy of early consultation with the various 0.4% and replaced consented reserves at 246% of stakeholders is the reason why we have such a extraction. successful track record in achieving key permissions. Operating profit Quarrying is an extremely regulated and controlled The Group uses business unit operating profit as the industry. Whilst Ennstone prides itself in setting high key performance indicator to monitor the progress and standards, we are subject to this regime getting development of each of our business units towards tougher. This is an industry wide issue and Ennstone our overall targets. During 2007, Group underlying participates fully in the industry trade associations in operating profit increased by 32% as a result of an effort to ensure any new measures are workable increased investment in value added products. and achievable, whilst minimising the impact on the environment of delivering products which are Cash management fundamental to the economic well‑being of the The level of available cash within the Group is communities in which we operate. monitored as a KPI to ensure that available facilities meet the needs of the business. The Aggregates Levy will increase by 35 pence per tonne to £1.95 per tonne on 1 April 2008. We Non-financial KPI’s believe this is an unnecessary and ineffective ‘green Non-financial KPI’s include the monitoring of mineral tax’. As it largely affects the entire aggregates reserves based on quarry life, taking into account industry, we believe this increase will be recoverable consents gained and minerals extracted, to ensure from our customers. In addition, the development the sustainability of this key asset to the Group. of our integrated business model in the UK moves The Group has a target over the next two years of us further up the aggregates value chain and leaves increasing consented aggregate reserves at double us better placed to cope with this and any further the rate of extraction levels. changes.

23 Annual Report and Accounts 2007

Other non-financial KPI’s include those in respect of health and safety, particularly lost time incidence rates. This is the frequency rate of injuries resulting in an employee being absent for one or more shifts.

Other KPI’s The Group also monitors a range of other KPI’s, including bitumen and cement costs per tonne, interest cover and net debt to EBITDA.

Bank facilities It is Group policy to maintain committed bank and other facilities to meet anticipated financial requirements, based on peak forecast borrowings for at least the next 12 months. Committed facilities include term loans, committed until Autumn 2010, and variable rate, tax exempt bonds in the US (repayable in instalments over ten years). At 31 December 2007, total undrawn bank facilities available amounted to £52.0 million (2006: £8.6 million).

The Group’s main financial covenants are in respect of interest cover, rolling EBITDA and minimum net assets.

Dividend A final dividend of 1.02 pence per ordinary share has been proposed, making a total of 1.49 pence per ordinary share for the year, an increase of 3.5% compared to 2006. If approved, the final dividend will be paid on 11 July 2008 to shareholders on the register on 20 June 2008.

Ciaran Kennedy Group Finance Director 11 March 2008

Financial Review (continued)

24 Annual Report and Accounts 2007 Ennstone recognises that its activities and Our own, internal awards competition ‘You Make the operations have a significant impact on the Difference’, is proving very successful. Safety ideas wider social, environmental and economic entered for the competition are used to improve safety well-being of the areas in which we operate. at all units in the Group. As a member of the business community, we recognise our corporate social responsibility In November, we were joint sponsors with the Health commitments in our various roles, which and Safety Executive (HSE) and the Royal Society for include producer, investor, employer and the Prevention of Accidents of a seminar on preventing consumer. We are committed to ensuring work related dermatitis. that our business is conducted in all respects according to rigorous ethical, professional and We are pleased to report, for the third year running, that legal standards. no HSE notices were served during the year on the UK business. However, in the US, we noted a significant Ennstone’s policy is to fully comply with the laws and upturn in the number of citations received compared regulations applicable to its business and to conduct with 2006. We feel that this upturn does not reflect its business in accordance with established best decreasing standards in our US business, but is rather practice in each of the countries in which it operates. an escalation in the activity of the Mine Safety and Health and safety Health Administration following the fatal accidents in We are committed to providing a working environment underground mines at Sago in January 2006, and Utah which is both safe and fit for the intended purpose and in August 2007. ensures that health and safety issues are a priority for all business operations. Environment We remain committed to the continual improvement of Accident rate reduction continues to be of paramount our environmental performance and to ensure that all importance to the business. Reportable injuries for the of our activities comply with environmental standards Group (UK Reportable Injuries Diseases and Dangerous and legislation. Occurrence Regulations criteria) fell from 33 in 2006 to 19 in 2007. For the UK, our Accident Incidence Rate fell In 2007, a further ten business units in the Group gained from 2,370 in 2006 to 782 for 2007. BS EN ISO 14001:2004 accreditation, bringing the total number of sites with this coveted award to fourteen. We In October, we had the distinction of being awarded have targeted a further fifteen units to gain this status the Quarry Products Association’s ‘Special Award in 2008, reinforcing our commitment to improve our for Outstanding Performance in Reducing Accident environmental performance. Incidence Rates’ for the dramatic improvement in lowering reportable accident figures at our operations In order to improve our ability to deal with an unforeseen in the UK. This follows on from the previous two years environmental spillage or emission, we have recently where we won and were runners-up respectively, in agreed a three year contract with a major environmental other safety categories at these prestigious awards. specialist for priority emergency response. All of our units Also in 2007, our Concrete Products business was in the UK now use electricity derived solely from renewable recognised by the British Precast Concrete Federation sources and we continue to seek new ways to reduce our for its work in improvements for designated safety carbon footprint. objectives. We reduced the number of reportable accidents over the course of the year from fourteen to two. Our Szczecin based business won a national diploma from the Polish National Department of Labour Inspectors for outstanding safety practices.

Corporate Social Responsibility

25 Annual Report and Accounts 2007 25 Annual Report and Accounts 2007

Environment and restoration The quarrying industry is one of the major contributors to tree planting. Where we have completed production at some of our sand and gravel Ennstone has planted around 4,000 trees over the last two years units, we have returned them to agriculture, with landscape and wildlife and this rate is set to increase in the future. Hedgerow and woodland features including ponds and small lakes. Careful soil handling and planting are now common features of many of our restoration schemes. husbandry, improved drainage and removal of steep slopes, mean that crop yields on restored land may be higher than previously.

26 Annual Report and Accounts 2007 Environmental awareness is the responsibility of all In the East Midlands, we became a Premier employees and internal initiatives are in place at many Supporter of the Heart of the National Forest sites to reduce energy usage and minimise wastage. Foundation with a five year sponsorship deal, totalling These include recycling of waste paper, cardboard, £200,000, for the Foundation’s ‘Heart of the Forest’ plastic cups and aluminium cans, reducing energy project. Our major support will focus on the creation consumption through the use of timers and sensors of a new woodland trail – The Ennstone Trail – which to control hot water, air conditioning and lighting, will link a visitor centre with the nearly completed reducing water consumption and re-use of packaging National Forest Youth Hostel and the Sustrans and filling materials. We comply with Producer National Cycleway. Responsibility Obligations (Packaging Waste) Regulations which set targets for the recovery and Our Polish operation sponsors local cultural festivals recycling of packaging waste. at Dobra, Moryn and Chelm, and for the last five years have contributed funds to the Dobra English We continue to carry out trials and research into ways in Song Festival. Recently, we have donated material to which we can use larger proportions of recycled asphalt community lidos at Chelm and Dobra. planings (RAP) in our bituminous products. At present we have asphalt mix designs that use up to 40% of RAP Equal opportunities and hope to increase this amount with further trials. The Group is committed to employment policies that follow best practice and offer opportunities We have plans to construct more washing plants to for employment, training, career development and help reduce waste from our operations by extracting promotion based on individual abilities, regardless of impurities from our products thereby producing gender, race, national origin, disability, age, sexual premium quality sands. We are also able to produce orientation, or religious or political beliefs. ‘filler’, which is added to asphalt, from our own resources making us self-sufficient for our demands Employee involvement for this material. This was previously a waste product. and employment practices The Group aims to manage its employees openly, We have made a commitment to review our honestly and fairly and to be a responsible employer, environmental policy, procedures and guidance adopting values and standards designed to help regularly and recognise that, as our understanding of guide our staff in their conduct and business sustainable development improves, we will need to relationships. re-examine these and keep them updated. We recognise that our competitive advantage is, Communities in part, sustained by the training we offer to our employees and we provide significant investment in Ennstone strives to be a good corporate citizen in this area. We are committed to having a fully trained our areas of operation around the world, recognising and competent workforce and actively promote our responsibility to work in partnership with the vocational training for our employees. communities in which we operate. We now have active liaison committees at the majority of our units We have a policy of providing information to our and are keen to facilitate these very productive employees on a regular basis. This information meetings. includes matters relating to their company’s performance, its prospects in the markets it serves We continue to support people in the areas in which and the future outlook of its business. In addition, we we operate. We have helped local community groups, distribute several newsletters which keep employees youth groups and sports teams with monetary abreast of Group progress. Financial participation in donations, sports kits, equipment and contributions the Group is encouraged through Savings Related of aggregates, concrete and asphalt for their facilities. Share Option Schemes.

Corporate Social Responsibility (continued)

27 Annual Report and Accounts 2007

Directors and Advisors

Vaughan McLeod Executive Chairman Age 57, he was appointed to the Board in 1996. Vaughan is a member of the Nomination Committee. He was formerly chief executive of Ennemix plc, which he founded in 1967 and built up over 29 years prior to its sale to Lafarge SA. The whole of his working life has been spent in the building materials industry.

Ciaran Kennedy Group Finance Director Age 42, he was appointed to the Board in April 2006. A chartered management accountant, he joined Ennstone Thistle Limited in 1993 and became its finance director in 1995. In 2001, he was appointed chief executive of Ennstone Thistle, a role which he held until he left the Group in December 2005. He returned as a Main Board executive director on 19 April 2006 and was appointed as Group Finance Director in May 2006.

Mark Elliott Executive Director Age 49, Mark was appointed to the Board in March 2005. He has developed the Group’s US operations since 1998 and is based at the Group’s US offices. Mark has over 30 years experience in the construction industry, both in the UK and overseas.

28 Annual Report and Accounts 2007 Eric Gadsden Graham Brown Senior Independent Independent Non-Executive Director Non-Executive Director Age 62, Graham was appointed to the Age 63, Eric was appointed to the Board in March 2007. He is chairman Board in May 2005, and became Senior of the Audit Committee and a member Independent Non-Executive Director of the Remuneration and Nomination in March 2007. He is chairman of Committees. Graham is also a non- the Remuneration and Nomination executive director of Easternrange Committees and a member of the Audit Ltd and Go Plant Ltd operating in the Committee. Eric is executive chairman housebuilding, property development of Michelmersh Brick Holdings PLC and plant hire sectors. Graham is a and managing director of WE Black Chartered Accountant with over twenty Limited, a Buckinghamshire construction years experience in housebuilding, property company. construction and property development, having been group finance director of Wilson Bowden plc until the end of 2006.

Tim Ross Michael Johnston Independent Non-Executive Director Non-Executive Director Age 59, Tim was appointed as a Non- Age 54, Michael was appointed to the Executive Director in 1998. He is a Board in 2004. He was previously deputy member of the Audit and Remuneration chairman of Johnston Group PLC. Committees. A solicitor and past director of George Wimpey PLC, with extensive experience of the aggregates industry in the UK, US and Eastern Europe. He is non-executive chairman of Hargreaves Services plc and of May Gurney Integrated Services plc, non-executive deputy chairman of Connaught plc, and a non-executive director of Lavendon Group plc. Advisors

Company Secretary Auditor Solicitors Corporate Advisors Ross McDonald KPMG Audit Plc, Jones Day, Altium Capital Ltd, Birmingham London Manchester

Registered Office Bankers Stockbrokers Registrars & Transfer Office Breedon Hall, Barclays Bank PLC, Altium Securities, Capita IRG Plc,The Registry, Breedon on the Hill, Birmingham London Beckenham Road, Derby DE73 8AN Beckenham, Kent BR3 4TU

Registered Number 185664

29 Annual Report and Accounts 2007

Directors’ Report

The directors present their report, together with the audited financial statements, for the year ended 31 December 2007.

Principal Activity and Business Review The Company’s principal activity is that of a holding company for companies involved in the quarrying, production and sale of aggregates and related activities. Further details of the Group’s activities and future developments are included in the Chairman’s Statement on pages 2 to 9, in the Business Review on pages 10 to 19 and in the Financial Review on pages 21 to 24.

Dividends An interim dividend of 0.47 pence per ordinary share (2006: 0.44 pence) was paid on 7 January 2008 and it is proposed to pay a final dividend of 1.02 pence per ordinary share (2006: 1.00 pence) on 11 July 2008, to shareholders on the register at the close of business on 20 June 2008, making a total of 1.49 pence per ordinary share (2006: 1.44 pence) for the year.

Share Capital On 1 June 2007, the Group placed 120,892,813 new ordinary shares of 25 pence each, at 42 pence per share, raising a total of £50.8 million before expenses.

Acquisitions and Disposals On 3 January 2007, the Group acquired the trade and assets of Handyman Concrete, Inc. in Virginia for a cash consideration of US$9.1 million (£4.6 million). On 12 January 2007, the Group acquired two concrete plants in Fife, Scotland for a cash consideration of £0.8 million. On 15 February 2007, the Group acquired the trade and assets of Mansfield Asphalt Company Limited in Nottinghamshire for a consideration of £7.3 million. On 23 February 2007, the Group acquired five concrete plants in northern Scotland for a cash consideration of £1.0 million. On 13 March 2007, the Group acquired the trade and assets of Terracarbon Limited and Skillplane Limited and certain assets of Terra Properties (Hackford) Limited in Norfolk for a total consideration of £1.5 million. On 31 May 2007, the Group acquired the leasehold interest in Netherglen Quarry near Elgin in northern Scotland for £2.1 million. On 25 June 2007, the Group sold the trade and assets, and certain related leasehold interests, in its natural stone building products business at Stainton, Northumberland for £1.8 million. On 16 July 2007, the Group acquired a concrete plant in Aviemore, Scotland for £0.3 million. On 17 July 2007, the Group acquired the entire issued share capital of Keplinger Lime Company, Inc in West Virginia for US$4.3 million (£2.2 million) and certain related real estate for a further US$0.5 million (£0.3 million). On 8 August 2007, the Group acquired a further holding of 45% of the issued share capital of Alba Traffic Management Limited in Inverness, Scotland for £0.2 million. As a result, the Group’s shareholding in Alba Traffic Management Limited is 90% acquired at a total cost of £0.7 million. On 31 August 2007, the Group sold its interest in its natural stone building products business at Burford Quarry, Oxfordshire for £1.9 million. On 18 September 2007, the Group acquired the trade and assets of Deep Creek Ready Mix Concrete in Maryland for US$4.5 million (£2.3 million) and certain related real estate for a further US$0.5 million (£0.3 million). On 21 September 2007, the Group acquired the entire issued share capital of Boyne Bay Lime Company Limited in northern Scotland for £0.8 million. On 3 October 2007, the Group acquired the trade and assets of D W Gordon Blocks, near Aberdeen in Scotland, for £4.1 million. On 9 November 2007, the Group acquired the entire issued share capital of Waveney Asphalt Company Limited in Suffolk for up to £3.3 million of which £2.5 million was satisfied in cash and the balance will be satisfied by the issue of up to 1,785,714 ordinary shares of 25p each in Ennstone plc. On 28 November 2007, the Group sold its freehold interest in Burford Quarry, Oxfordshire for £1.8 million. On 30 November 2007, the Group acquired the freehold interest in Orrock Quarry in Fife, Scotland for £4.8 million. Since the year end, the following acquisitions have taken place: On 7 January 2008, the Group acquired certain of the trade and assets of TSL Contractors Limited in the west of Scotland for a cash consideration of £1.0 million. On 31 January 2008, the Group acquired the entire issued share capital of King William Sand & Gravel Mattaponi, Inc. in Virginia for a cash consideration of US$5.5 million (£2.8 million).

30 Annual Report and Accounts 2007

Directors The following directors served during the year: Vaughan McLeod Executive Chairman Ciaran Kennedy Group Finance Director Mark Elliott Executive Director Eric Gadsden Independent Non-Executive Director Tim Ross Independent Non-Executive Director Graham Brown Independent Non-Executive Director (appointed 5 March 2007) Michael Johnston Non-Executive Director Mr Ross holds a one year fixed term appointment which expires at the Annual General Meeting this year. It is proposed to offer Mr Ross, who will have served ten years as a non-executive director by May 2008, a further contract for a fixed term of approximately one year to expire at the Annual General Meeting in 2009. Notwithstanding his length of service as a non–executive director, the Board continues to consider that Mr Ross remains an independent director because he has no material financial reliance on Ennstone, his training as a lawyer and his considerable corporate experience as Chairman of Hargreaves Services plc and May Gurney Integrated Services plc (amongst others), brings an independent and logical thought process to the Board’s deliberations. Mr Gadsden holds a two year fixed term appointment which expires at the Annual General Meeting in 2009. Mr Brown holds a two year fixed term appointment which expires at the Annual General Meeting in 2009. Mr Johnston holds a two year fixed term appointment which expires at the Annual General Meeting this year. It is proposed to offer Mr Johnston a further contract for a fixed term of approximately one year to expire at the Annual General Meeting in 2009 as a non- independent non-executive director. Biographical details of the directors can be found on pages 28 and 29 and details of the Directors’ service contracts are given in the Directors’ Remuneration Report on pages 37 to 41.

Directors Interests The directors in office at 31 December 2007 had the following interests in the issued share capital of the Company:

Ordinary Shares of 25p each 31 December 1 January 2007 2007 or, if later, date of appointment CV McLeod 12,772,865 8,934,649 CA Kennedy 166,666 125,000 MA Elliott 33,333 – EJS Gadsden 1,846,000 612,000 Non Beneficial 704,000 528,000 TS Ross 60,997 11,998 GM Brown 85,000 – JMS Johnston 6,914,446 7,714,446 Non Beneficial 16,182,938 17,262,938 All of the above interests are beneficial, unless indicated otherwise. No Director has any interests in the issued share capital or loan stock of any subsidiary undertaking. There were no changes in the directors’ interests between 1 January 2008 and 10 March 2008.

Substantial Shareholdings The Company is aware that, at 10 March 2008, other than the Directors, the following held 3% or more of the issued share capital of the Company:

Ordinary shares of 25p each Beneficial holder Number % Natixis Asset Management 40,177,364 8.29 Legal & General Investment Management Limited 34,495,851 7.12 Richelieu Finance 17,425,000 3.60 Standard Life Investment Management 15,146,418 3.13

Annual Report and Accounts 2007 31

Directors’ Report (continued)

Employees The Group recognises the importance of employee involvement in the operation and development of its business units, which are given autonomy within a Group policy and structure, to enable management to be fully accountable for their own actions and gain maximum benefit from local knowledge. Employees are informed by regular consultation and internal newsletters of the progress of both their own business units and the Group as a whole. The Group is committed to providing equal opportunities for individuals in all aspects of employment, and considers the skills and aptitudes of disabled persons in recruitment, career development, training and promotion. If existing employees become disabled, every effort is made to retain them, and retraining is arranged wherever possible.

Health and Safety The Group strives to provide and maintain a safe environment for all employees, customers and other visitors to its premises and to comply with all relevant health and safety legislation. In addition, all Group companies: n aim to protect the health of employees with suitable, specific, work-based strategies; n seek to minimise the risk of injury from company activity; n ensure that, through senior management participation, sufficient resources and information are made available and suitable management systems are in place to address health and safety matters; and n encourage the involvement of employees and aim for continual improvement in health and safety matters through a formal structure with a reporting and review process. Compliance with Group policy is monitored and reviewed centrally and a comprehensive monthly health and safety report is produced for the Board. Mr CA Kennedy has been designated by the Board as the director responsible for Health and Safety matters. Ennstone has invested heavily in a dedicated health and safety computer system, Envoy, that is designed to give a structure and platform to manage safety on all its sites. The modules on this include: n Training. Individual records are kept per employee and their competence is assessed against a training matrix per job; n Maintenance. A section allows supervisors and managers to record and schedule maintenance issues which ensures items are dealt with on a timely basis; and n Risk assessment. A module allows employees to assess and review risk assessments per individual task. Ennstone has made a substantial commitment to health and safety training and aims to have 80% of all operatives trained to at least NVQ level 2 by the end of 2009.

Charitable Donations and Political Contributions The Group made charitable donations of £35,323 (2006 : £32,037). The Group did not make any contributions to political parties during either the current or the previous year.

Payment of Suppliers The Company is a holding company and has no external trade suppliers. It is the policy of the Group’s operating businesses to negotiate payment terms when agreeing the overall terms of transactions with all their suppliers, and to abide by them, provided that they are satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any standard or external code which deals specifically with the payment of suppliers.

Annual General Meeting Although the Company’s Articles of Association provide that all unissued shares shall be at the disposal of the directors, Section 80 of the Companies Act 1985 requires that the authority of the directors to allot relevant securities shall be subject to the approval of shareholders in general meeting. Accordingly, shareholders are being asked at the forthcoming Annual General Meeting to renew, by ordinary resolution, for a period of five years from the date of the 2008 Annual General Meeting, the directors’ authority to allot the Company’s remaining authorised but unissued ordinary shares up to a nominal amount of £40,378,636. There is no present intention of issuing further ordinary shares under this authority, except for those which may be issued under the Company’s share option schemes. No further issue will be made that will effectively change control of the Company without the prior approval of shareholders in general meeting. In addition, shareholders are being asked to grant the directors authority to allot, wholly for cash otherwise than in connection with a rights issue, ordinary shares up to a nominal amount of £6,056,795 which is 5% of the current issued ordinary share capital of the Company. This latter authority will expire on the same date as the above authority to allot shares. The Company did not purchase any of its ordinary shares during the year. However, the approval of shareholders is being sought to renew the existing authority to purchase its own shares. Unless previously renewed, varied or revoked, this authority will expire at the conclusion of the Annual General Meeting of the Company to be held in 2009 or within 12 months from the date of approval of the authority, whichever shall be the earlier.

32 Annual Report and Accounts 2007 Disclosure of Information to Auditor The Directors who hold office at the date of this Report confirm that, so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware and each Director has taken all steps that he ought to have taken to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Auditor In accordance with section 385 of the Companies Act 1985, a Resolution is to be proposed at the forthcoming Annual General Meeting for the re-appointment of KPMG Audit Plc as auditor of the Company. By order of the Board

R E McDonald Company Secretary 11 March 2008

Annual Report and Accounts 2007 33

Corporate Governance

The Board is committed to compliance with the principles of corporate governance as set out in the Combined Code on Corporate Governance which is appended to the Listing Rules of the Financial Services Authority (“the Combined Code”). The purpose of this statement is to describe the Company’s approach to corporate governance and, in particular, to explain how the Company has applied the Principles of Good Governance set out in Section 1 of the Combined Code, including both the Main and Supporting Principles. In the opinion of the directors, the Company complies with all the provisions of the Combined Code, and it has complied throughout the year, except for certain specific provisions detailed in this report below and in the Directors’ Remuneration Report on pages 37 to 41. The Company does not comply with Combined Code provision A2 which requires that the roles of Chairman and Chief Executive are not exercised by the same person. It is the Board’s view that, because of the Group’s size and the appointment of three independent non- executive directors, all with considerable corporate experience, two other executive directors with extensive operational experience and a chief executive in each of its operating companies who have regular contact with all members of the Board, it is not necessary for the role of Chairman and Chief Executive to be separated.

The Board of Directors The current Board comprises the executive chairman, two executive directors, three independent non-executive directors and one non- executive director who is not considered to be independent. The Board considers that each of the non-executive directors brings a senior level of experience and judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct. Mr Ross was the senior independent non-executive director until March 2007, and Mr Gadsden has held that position since that date. By March 2008, Mr Ross had served on the Board as a non- executive director for 10 years. Notwithstanding this period of service, the Board continues to consider that he is independent in the terms of Combined Code provision A3.1 because he has no material financial reliance on Ennstone, and his training as a lawyer and his considerable corporate experience as chairman of Hargreaves Services plc and May Gurney Integrated Services plc (amongst others) brings an independent and logical thought process to the Board’s deliberations. Biographical details of the Directors are set out on pages 28 to 29. The Board has adopted the recommendation of the Combined Code that directors should submit themselves for re-election at least every three years. Given his length of service on the Board, Mr Ross will submit himself for re-election annually. Mr Johnston will also submit himself for re-election annually in recognition of his status as a non-independent non-executive director. All directors are required to seek re-appointment at the first Annual General Meeting after their appointment. The Board is provided with regular and timely information on the financial performance of businesses within the Group, and of the Group as a whole, together with other trading reports, contract performance and market reports and data, including reports on personnel related matters such as health and safety and environmental issues. Ten formal board meetings are held each year to consider those matters which have been specifically reserved to the Board for review and decision, including the management of assets to maximise performance and the control of the operation of the business, to review corporate strategy and the progress of individual business units, and to discharge the directors’ other duties. An updated schedule of Matters Reserved to the Board was adopted in January 2007. Regular informal meetings are held to enable all members of the Board to discuss relevant issues with local management and staff at the business units. All directors are able to take independent professional advice in furtherance of their duties at the Company’s expense and have access to the Company Secretary, who is responsible to the Board for ensuring that all applicable procedures and regulations are complied with. The appointment and removal of the Company Secretary are matters for the Board as a whole. The senior independent non-executive director has updated the previous evaluation of the effectiveness and performance of the Board and the individual directors, including the Chairman. This update was carried out by way of a questionnaire followed by detailed discussions of the results involving all the directors. It identified three areas where the Board believed that it should improve its knowledge and understanding: (i) the Group’s reputation in its major marketplaces and the factors that influence it; (ii) ensuring that the appropriate financial and human capital resources are available across the Group to allow it to successfully implement its strategy; and (iii) developments in the Group’s major markets and its performance relative to its major competitors. Over the coming year, a programme will be developed to seek to further enhance the Board’s appreciation of these matters. The Chairman and the senior independent non-executive director address the development and training needs of the Board as a whole. In particular, newly-appointed directors who do not have previous public company experience are provided with appropriate training and new non-executive directors are offered an appropriate induction programme. Meetings are held between the non-executive directors without the presence of the executive directors. To help all board members gain a deeper understanding of the business, some Board meetings are held at operational locations during the year and, at least twice yearly, the Board meets with senior management of the operating companies and receives presentations from them on their half year and full year operating performances. The directors explain their responsibilities for preparing the financial statements on page 42 and the Report of the Independent Auditor on pages 43 and 44 contains a statement of their reporting responsibilities.

34 Annual Report and Accounts 2007 Board Committees Throughout the year the Board maintained three standing committees, the Remuneration Committee, the Audit Committee and the Nomination Committee.

Remuneration Committee Throughout the year, the Remuneration Committee comprised solely of at least two independent non-executive directors and has complied with the recommendations of the Combined Code. Mr Ross and Mr Gadsden served on the Remuneration Committee throughout the year, and Mr Brown became a member of the Committee upon his appointment to the Board. Mr Gadsden is chairman of the Remuneration Committee. The executive chairman makes himself available to the Remuneration Committee to discuss the performance of other executives and to make proposals as necessary. The Remuneration Committee’s responsibilities are to make recommendations to the Board on terms of service, remuneration and benefits of the executive directors and senior executives of the Group. Further details of the terms of reference for the Remuneration Committee are set out in the Directors’ Remuneration Report on pages 37 to 41 and are available on the Group’s website.

Audit Committee Throughout the year, the Group complied with the recommendation of the Combined Code that the Audit Committee be made up solely of independent non-executive directors. Mr Ross and Mr Gadsden served on the Audit Committee throughout the year, and Mr Brown became a member of the Committee and its Chairman from 15 March 2007. Written terms of reference have been agreed for the Audit Committee which include keeping under review the scope and results of the audit, its cost effectiveness, the independence and objectivity of the auditor and the effectiveness of internal control. Full terms of reference for the Audit Committee are available on the Group’s website. The Audit Committee invites the Executive Chairman, the Group Finance Director, senior financial executives of the Company and senior representatives of the external auditor to attend part of its meetings as appropriate. The Audit Committee has: n reviewed the interim and annual financial statements and associated announcements; n made recommendations in relation to the re-appointment, remuneration and terms of engagement of the external auditor; n reviewed the external auditor’s work plan, audit process, independence and objectivity; n reviewed the need for an internal audit function; n reviewed the “whistle-blowing” procedures; and n considered the allocation of non–audit services to the external auditors. The members of the Audit Committee have relevant and recent financial experience at senior executive level.

Nomination Committee A Nomination Committee was in existence throughout the year. Mr Ross, Mr Gadsden and Mr McLeod served on the Nomination Committee during the year. Mr Ross was chairman of the Nomination Committee until March 2007, and Mr Gadsden has assumed that role since that date. Mr Ross resigned from the Nomination Committee in March 2008 and Mr Brown became a member of it at that date, and accordingly the Group has complied with the recommendation of the Combined Code that a majority of members of the Committee shall be independent non-executive directors. The Nomination Committee meets on an as needed basis. It reviews the composition of the Board and makes recommendations with regard to changes, both in the nomination of new directors and the continuation of the appointment of existing directors. It also considers senior appointments and succession planning in the operating companies. Full terms of reference are available on the Group’s website. Succession planning is considered to be a matter for the Board as a whole rather than the Nomination Committee.

Meetings Attendance The Board formally met 10 times during the year and the attendance of the directors at each meeting together with attendance at committee meetings, is set out in the table below. Board members also attended budget and strategy presentations and visited operating locations during the year. Audit Remuneration Nomination Board Committee Committee Committee Eligible Eligible Eligible Eligible Attended to attend Attended to attend Attended to attend Attended to attend CV McLeod 10 10 – – – – 1 1 C A Kennedy 10 10 – – – – – – MA Elliott 5 10 – – – – – – EJS Gadsden 10 10 2 2 2 2 1 1 TS Ross 10 10 2 2 2 2 1 1 GM Brown 8 8 2 2 2 2 – – JMS Johnston 10 10 – – – – – – The table shows only those meetings which each director attended as a member rather than as an invitee.

Annual Report and Accounts 2007 35

Corporate Governance (continued)

Shareholder Relations The Company is committed to maintaining good communications with its shareholders. Institutional investors and analysts are invited to briefings by the Company immediately after the announcement of the Group’s interim and full year results. The content of these briefings is posted onto the Group’s website so as to be available to all shareholders. The Group attends investor shows and provides other shareholder information within its website. The Group also published an Investor Newsletter during 2007, which was sent to all existing shareholders, and it intends to publish future editions on a regular basis. Members of the Board have meetings with institutional shareholders to aid understanding of the Group’s strategic objectives and performance, and all shareholders are encouraged to participate in the Company’s Annual General Meeting. Mr Gadsden, as chairman of the Remuneration and Nomination Committees at the year end and Mr Brown as chairman of the Audit Committee at the year end, will be available to answer questions at the forthcoming Annual General Meeting. In addition, proxy votes will be counted and the results announced after any vote on a show of hands. The Board complies with the recommendation of the Combined Code that the notice of the Annual General Meeting and related papers should be sent to shareholders at least twenty working days before the meeting. The non-executive directors are not required to meet formally with shareholders, although they attend the Annual General Meeting. The Chairman ensures that the views of shareholders are communicated to the Board as a whole and that non-executive directors develop an understanding of the views of major shareholders. The senior independent non-executive director is available to shareholders for matters for which the normal contact channels are inappropriate.

Internal Control The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Combined Code introduced a requirement that the directors review the effectiveness of the Group’s system of internal control. This extended the previous requirement in respect of internal financial controls to cover all controls including financial, operational, compliance and risk management. Guidance for directors, “Internal Control: Guidance for Directors on the Combined Code”, was published in September 1999, in the form of the Turnbull Guidance. Procedures have been established to regularly identify, evaluate and to manage significant risk. These procedures have been in place throughout the year and up to the date of this report and accord with the Turnbull Guidance. As part of this risk assessment, the directors reviewed the effectiveness of internal control including financial, operational, compliance and risk management controls, which mitigate the significant risks identified. The procedures used by the directors to review the effectiveness of these controls included: n reports from management; n discussions with senior personnel throughout the Group; and n consideration by the Audit Committee of any reports from the external auditor. A number of committees have been established involving the Group’s senior management to increase the effectiveness of controls and to ensure a continuing programme of review. The matters referred to these committees include human resources; health and safety; IT and communications; planning and estates; environmental issues; investor relations; and treasury. The Board reviews the role of insurance in managing risk across the Group. The key elements of the system of internal control have been identified as: n a clearly defined organisation structure and limits of authority; n a comprehensive planning system, with detailed operational annual budgets identifying key risks and opportunities; n a monthly review of results compared with budgets and short term forecasts; n regular reporting to the Board on treasury, legal and pension matters; n clearly defined policies and authorisation procedures for capital expenditure; and n the review by the Audit Committee of any significant control issues raised by the external auditor. The Group does not have an internal audit function although a number of senior head office executives are responsible for monitoring certain areas of the Group’s activities based on their skills and background. This is presently considered appropriate given the size of the Group and the close involvement of executive directors and senior management on a day to day operational basis. However, the need for an internal audit function is kept under constant review.

Going Concern After making appropriate enquiries, the directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

36 Annual Report and Accounts 2007

Directors’ Remuneration Report

The responsibility for establishing the overall remuneration policy lies with the Board as a whole. The Remuneration Committee works within agreed terms of reference to make recommendations to the Board on the Group’s framework for executive remuneration. The terms of reference of the Remuneration Committee are available on the Group’s website. This report has been prepared in accordance with schedule 7A to the Companies Act 1985. As required by the Act, a resolution to approve the report will be proposed at the forthcoming Annual General Meeting of the Company.

Remuneration Committee The Remuneration Committee was chaired by Mr Ross until March 2007. Mr Gadsden replaced Mr Ross as Chairman of the Remuneration Committee, and Mr Brown became a member of the Remuneration Committee in March 2007. At the end of the financial year, the Remuneration Committee therefore comprised Mr Gadsden, Mr Ross and Mr Brown, all of whom are independent non-executive directors. The Company Secretary acts as secretary to the Remuneration Committee. The Executive Chairman is invited to attend Remuneration Committee meetings. The Remuneration Committee considers his views when reviewing the performance of other directors and senior executives but he is not involved in discussions concerning his own remuneration. The Remuneration Committee met twice in 2007. The role of the Remuneration Committee is broadly to determine the terms of employment, including remuneration and other benefits, for individual directors and senior management, within the overall policy as agreed by the Board as a whole. The Remuneration Committee gives full consideration to the provisions of the Combined Code concerning remuneration policy, service contracts and compensation. The Remuneration Committee takes into account remuneration packages of comparable companies and has access to professional advice from both internal and external sources in order to determine and develop its recommendations.

Remuneration Policy In order to ensure that it attracts and retains a management team with the appropriate skills to provide maximum shareholder value for the future, the Group needs to ensure that its pay and benefit practices are competitive but consistent with the Group’s circumstances; that they motivate employees at all levels; and that they recognise and reward high standards of performance. The Group’s remuneration policy is as follows: n to ensure that individual rewards and incentives are aligned with the performance of the Group and the interests of shareholders; n to maintain a competitive remuneration package which enables the Group to attract, retain and motivate high calibre executives; and n to ensure that performance related elements form a significant proportion of total remuneration. Mr Gadsden, Mr Brown, Mr Ross and Mr Johnston, as non-executive directors, do not participate in any incentive scheme, share scheme or pension arrangement. The remuneration of non-executive directors is a matter for the Board as a whole, taking into account market rates and the required time commitment.

(i) Basic Salary Executive directors’ and senior managers’ individual salaries and performance incentives are determined by personal factors. These include the individual’s performance as measured by an appraisal process and any other matters likely to affect a particular executive’s value in the employment market. Basic salaries are reviewed on an annual basis or following a significant change in responsibilities. The Remuneration Committee has a broad policy of setting base salary levels around the median levels by reference to comparable companies with the ability to pay above the median level for exceptional performance.

(ii) Incentive Arrangements Annual Cash Bonus In addition to basic salary, the Group operates a performance related cash bonus scheme and challenging performance goals are set which must be achieved before the maximum bonus becomes payable. For Mr McLeod and Mr Kennedy, as executive directors, the maximum bonus opportunity is up to 90% of salary as at the end of the year, linked to personal objectives and targets based on the Group’s earnings per share performance relative to market expectations, which is the key measure on which the Group’s performance is judged. For Mr Elliott, the maximum bonus opportunity is up to 75% of basic salary and for other senior management in the Group, up to 65% and is linked to personal performance and targets based on achieving operating profit targets for the businesses for which they are responsible. Bonuses are not pensionable.

Long-Term Incentive arrangements To date, the Company’s policy for long-term incentives has been based around share option grants. The Company historically operated two executive share option schemes, the 1997 Approved Executive Share Option Scheme (“the Approved Scheme”) and the 1997 Unapproved Executive Share Option Scheme (“the Unapproved Scheme”), the former of these being approved by the Inland Revenue. Additionally, the Company operates a Sharesave Scheme which is open to all employees, including the executive directors. The last grant of share options to executive directors was made in April 2002 and to senior executives in April 2003. Options granted prior to 2003 did not have any performance condition attached. The Approved Scheme and the Unapproved Scheme both expired in 2007. After considering the total remuneration packages of senior executives, as well as the business strategy, the Remuneration Committee concluded that a performance share plan (“the Plan”) should be introduced, and the Plan was approved by shareholders at the Annual General Meeting in 2006. No awards have been made under the Plan to date.

Annual Report and Accounts 2007 37

Directors’ Remuneration Report (continued)

The key parameters of the Plan are set out below: n All employees in the Group will be eligible to participate in the Plan. n The face value of awards of performance shares granted to any individual will be limited to 50% of base salary per annum in normal circumstances. Initially, the executives will receive grants worth up to a maximum of 15%-30% of base salary, depending on seniority and value to the business. n Performance shares will vest no earlier than the third anniversary of grant (other than in exceptional circumstances such as a takeover or in a good leaver situation). The Remuneration Committee will determine performance conditions for each grant of performance shares, with performance measured over a fixed period of at least three years with no provision to re-test. n For the initial grants of performance shares the performance condition anticipated at the date of approval of the plan is set out below:

*EPS growth over a 3 year performance period Proportion of award vesting Below RPI + 9% Zero RPI + 9% 25% RPI + 18% 100% Between RPI + 9% and Between 25% and 100% RPI + 18% pro rata on a straight-line basis

*EPS growth will be measured by reference to the adjusted EPS, as disclosed in the audited annual financial statements. n Adjusted EPS is based on basic EPS adjusted for goodwill impairment and profits or losses of discontinued operations. Any further adjustments for unusual items are at the discretion of the Remuneration Committee. n The Remuneration Committee considers that adjusted EPS is the most appropriate measure of performance for the initial awards for the following reasons: q The adjusted EPS target will reward significant and sustained increases in profitability that would be expected to flow through into shareholder value. q Adjusted EPS is a transparent performance measure for the Group. q A significant minority of executives who will be participating in the Plan are based overseas. The adjusted EPS measure delivers a stronger “line of sight” for these executives than, say, a Total Shareholder Return (“TSR”) condition. q The range of adjusted EPS growth targets selected will be considered by the Remuneration Committee to be appropriately stretching, taking account of the outlook for growth in the aggregates industry and the outlook for the Group over the relevant three year period. q The lack of a suitable comparator group makes the use of TSR inappropriate. q Grant levels are, by market standards, relatively modest to ensure P&L cost and share usage is not excessive. The Remuneration Committee wishes to ensure that the most effective incentive possible is provided within the limited resource available. n Whilst adjusted EPS is considered to be the most appropriate performance condition, different performance conditions may be set for future awards but shareholder approval will be required if targets set for awards to senior executives are, in the view of the Remuneration Committee, materially less challenging. For 2007, the Remuneration Committee agreed that no awards were to be made under either the Approved Scheme or the Unapproved Scheme or the Plan. The only long term incentive awards to be made in the future will be those to be granted under the Plan.

(iii) Pensions Contributions are made by the Company in respect of Mr McLeod to private pension schemes up to a maximum of 25% of salary. Contributions are made to the Ennstone Group pension scheme in respect of Mr Kennedy equal to 25% of salary. No contribution is made by the Company in respect of Mr Elliott. However, he is paid a salary supplement equal to 10% of his base salary which he uses for his private pension arrangement. No other contributions are made to any Group Pension Scheme in respect of any director.

Service Agreements In accordance with best practice, it is the Company’s policy to have service contracts for the executive directors which contain a notice period of twelve months or less. The Company entered into a service contract with Mr McLeod on 29 May 1997, terminable on twelve months notice by either party. This contract provides that, in the event of an unconditional offer for the entire share capital of the Company, Mr McLeod will be entitled to give the Company, in writing, not less than 60 days notice of his wish to terminate his contract and, upon giving such notice, he is entitled to receive from the Company a payment equal to his full basic salary, an amount representing the average of the bonus received in each of the three preceding years and an amount representing the cost to the Company of other benefits provided under the contract. The Company entered into a service contract with Mr Kennedy on 19 April 2006 which is terminable on 12 months’ notice from the Company and 6 months’ notice from Mr Kennedy.

38 Annual Report and Accounts 2007 Ennstone, Inc. entered into a service contract with Mr Elliott on 13 March 2007 which is terminable on 12 months’ notice by Ennstone Inc. and 6 months’ notice by Mr Elliott. In the event that Mr Elliott’s service contract is terminated in certain circumstances, Ennstone, Inc. shall pay his reasonable costs of repatriation from the US to the UK. During any notice period, it is the Company’s policy to have regard to an individual’s duty to mitigate his loss in respect of those contractual rights that he would be otherwise entitled to receive. On the early termination of any contract, the Board will act in shareholders’ interests in arriving at the level of compensation to be awarded.

Non-executive Directors Non-executive directors do not have service agreements. They are appointed for an initial two year period which may be extended for a further term by mutual consent. The appointments of Mr Gadsden, Mr Brown and Mr Johnston as non-executive directors, are for fixed terms of approximately two years. The appointment of Mr Ross as a non-executive director is for a fixed term of approximately one year. Subject to their re-election at the forthcoming Annual General Meeting, it is proposed to offer Mr Ross and Mr Johnston further contracts for fixed terms of approximately one year, to expire at the Annual General Meeting in 2009. All non-executive directors’ appointments can be terminated on three months notice from either side. A sub-committee of the Board determines non-executive remuneration. Non-executive directors are paid a basic fee in cash. An additional fee of £5,000 per annum is paid to the senior independent non-executive director.

Non-executive Directorships In line with the Combined Code, executive directors are allowed to take on not more than one non-executive position on a non-competitor board, for which they may retain payments received in respect of the appointment. All such appointments are subject to Board approval. No current executive director undertook an external non-executive appointment during 2007.

Succession Planning The Board recognises the requirements of the Combined Code that it should satisfy itself that plans are in place for an orderly succession to Board and senior management positions. It continually monitors the composition of the senior management team, including the directors, and the balance of skills represented on the Board. It formulates plans well in advance of potential vacancies arising after taking into account factors such as age, experience and career progression opportunities.

Performance Graph For shareholders’ information, the Company’s total shareholder performance, assuming dividends have been reinvested, for the five years to 31 December 2007 is shown on the graph below, compared with the return performance achieved by the FTSE All Share Index of which the Company is a member. 200 180 160 140 120 100

80 60 40 20 0 31-Dec-02 31-Dec-03 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07

This graph shows the value, by the end of 2007, of £100 invested in Ennstone plc ordinary shares on 1 January 2003 compared with that of £100 invested in the FTSE All Share Index. FTSE All Share Ennstone plc

Annual Report and Accounts 2007 39

Directors’ Remuneration Report (continued)

Details of Remuneration The auditor is required to report on the information contained in this section of the Directors’ Remuneration Report. The remuneration of the directors for the year ended 31 December 2007 was as follows:

Pension Total contributions Note Salary Bonus Fees Benefits 2007 2006 2007 2006 (note 1) £000 £000 £000 £000 £000 £000 £000 £000 CV McLeod 330 242 – 30 602 569 79 72 CA Kennedy 155 117 – 22 294 189 39 25 MA Elliott 2 153 33 – 4 190 224 – – EJS Gadsden – – 37 – 37 30 – – TS Ross – – 35 – 35 35 – – GM Brown – – 29 – 29 – – – JMS Johnston – – 34 – 34 30 – – Former directors J Barlow – – – – – 155 – 18 PA Marriott – – – – – 11 – – Total 2007 638 392 135 56 1,221 118 Total 2006 607 472 106 58 1,243 115

Notes 1. The Remuneration Committee reviewed the Executive Directors’ personal performance, objectives and achievements against the Group’s performance in 2007. Bonuses of 75% of salary as at the 31 December 2007 will be paid to Mr McLeod and Mr Kennedy and 20% of salary as at 31 December 2007 will be paid to Mr Elliott. These bonuses have been provided for in the accounts for the year ended 31 December 2007 and are shown in the above table. 2. Mr Elliott’s remuneration includes a 10% supplement which he uses for his private pension arrangement. Benefits for Mr McLeod, Mr Kennedy and Mr Elliott include the provision of a fully expensed motor vehicle, together with private health insurance. Included in fees above, is an amount of £35,000 (2006: £35,000) in respect of services provided by Crosswater Resources Limited, a company in which Mr Ross has a beneficial interest.

Share Options The auditor is also required to report on the information contained in this section of the Directors’ Remuneration Report. Details of directors’ share options are as follows:

Options over ordinary shares of 25p each 31 December 1 January Exercise Exercise period 2007 2007 price Number Number 1997 Sharesave Scheme CV McLeod 25,958 25,958 36.5p 1 June 2008 to 1 December 2008

2007 Sharesave Scheme CA Kennedy 30,000 – 32.0p 1 December 2010 to 1 June 2011 No directors’ share options have been exercised during the year. All options may be exercised immediately in the event of a takeover, amalgamation, reconstruction or winding up of the Company. There has been no movement in the directors’ share options between 1 January 2008 and 10 March 2008.

40 Annual Report and Accounts 2007 The market prices of the Company’s ordinary shares at 31 December, and the highest and lowest market prices during the year, were as follows: 31 December 2006 46.75 pence 31 December 2007 36.50 pence Highest 54.25 pence Lowest 36.25 pence

Signed on behalf of the Board by:

EJS Gadsden Chairman – Remuneration Committee 11 March 2008

Annual Report and Accounts 2007 41

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. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and the performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The parent company financial statements are required by law to give a true and fair view of the state of affairs of the parent company. In preparing each of the Group and parent company financial statements, the Directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; n for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and n 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. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 1985. 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 directors’ report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

42 Annual Report and Accounts 2007 Independent Auditor’s Report to the Members of Ennstone plc

KPMG Audit Plc 2 Cornwall Street Birmingham B3 2DL United Kingdom

We have audited the Group and parent company financial statements (the ‘’financial statements’’) of Ennstone plc for the year ended 31 December 2007 which comprise the Consolidated Income Statement, the Consolidated and Parent Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Recognised Income and Expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our 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.

Respective Responsibilities of Directors and Auditors The directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company financial statements and the Directors’ Remuneration Report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 42. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in the Financial Review and in the Business Review that is cross referenced from the Business Review section of the Directors’ Report. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Annual Report and Accounts 2007 43

Independent Auditor’s Report to the Members of Ennstone plc (continued)

Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited.

Opinion In our opinion: n the consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’s affairs as at 31 December 2007 and of its profit for the year then ended; n the consolidated financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; n the parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the parent company’s affairs as at 31 December 2007; n the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and n the information given in the Directors’ Report is consistent with the financial statements.

KPMG Audit Plc 11 March 2008 Chartered Accountants Registered Auditor

44 Annual Report and Accounts 2007 Consolidated Income Statement for year ended 31 December 2007

Restated Before Reorganisation, before Reorganisation, reorganisation, redundancy and reorganisation, redundancy and Restated redundancy and impairments 2007 redundancy and impairments 2006 impairments (note 3) Total impairments (note 3) Total Note £000 £000 £000 £000 £000 £000 Revenue 1,2 236,836 – 236,836 192,092 – 192,092 Cost of sales (160,423) (421) (160,844) (128,720) 74 (128,646)

Gross profit 76,413 (421) 75,992 63,372 74 63,446 Distribution expenses (29,914) (164) (30,078) (21,851) (187) (22,038) Administrative expenses (18,489) (6,128) (24,617) (20,353) – (20,353)

Group operating profit 2,5 28,010 (6,713) 21,297 21,168 (113) 21,055 Share of profit of associated undertakings 13 92 – 92 843 – 843

Profit from operations 28,102 (6,713) 21,389 22,011 (113) 21,898 Financial income 7 3,056 – 3,056 3,110 – 3,110 Financial expense 7 (14,192) – (14,192) (11,461) – (11,461)

Profit from continuing operations before tax 16,966 (6,713) 10,253 13,660 (113) 13,547 Tax 8 (4,934) 1,693 (3,241) (4,018) 34 (3,984)

Profit from continuing operations after tax 12,032 (5,020) 7,012 9,642 (79) 9,563 Loss on discontinued operations, net of tax 4 (877) – (877) (3) – (3)

Profit for the year 11,155 (5,020) 6,135 9,639 (79) 9,560

Attributable to: Equity holders of the parent 11,149 (5,020) 6,129 9,215 (79) 9,136 Minority interest 21 6 – 6 424 – 424

Profit for the year 11,155 (5,020) 6,135 9,639 (79) 9,560

Basic earnings per ordinary share 9 2.57p 1.41p 2.77p 2.75p Diluted basic earnings per ordinary share 9 2.57p 1.41p 2.76p 2.74p

Continuing earnings per ordinary share 9 2.78p 1.62p 2.77p 2.75p Diluted continuing earnings per ordinary share 9 2.77p 1.62p 2.76p 2.74p

Annual Report and Accounts 2007 45

Consolidated Statement of Recognised Income and Expense for year ended 31 December 2007

2007 2006 Note £000 £000 Foreign exchange translation differences 21 1,423 (3,388) Changes in fair value of cash flow hedges (241) 610 Actuarial gains and losses on defined benefit pension schemes 22 (2,175) 4,173 Tax recognised on income and expenses recognised directly in equity 8 725 (1,112) Net (expense)/income recognised directly in equity (268) 283 Profit for the year 6,135 9,560 Total recognised income and expense 5,867 9,843 Total recognised income and expense for the year is attributable to: Equity holders of the parent 21 5,861 9,419 Minority interest 21 6 424 5,867 9,843

46 Annual Report and Accounts 2007 Consolidated Balance Sheet at 31 December 2007

2007 2006 Note £000 £000 Non-current assets Property, plant and equipment 11 263,472 224,422 Intangible assets – Goodwill 12 95,758 80,273 Intangible assets – Other 12 627 663 Investments in associated undertakings 13 40 412 Other receivables 28 1,528 – Deferred tax assets 14 2,482 2,582 Total non-current assets 363,907 308,352 Current assets Inventories 16 20,017 16,950 Trade and other receivables 17 56,450 42,344 Current tax assets 3,185 1,077 Cash and cash equivalents 2,592 2,329 Non-current assets held for sale 15 4,809 4,630 Total current assets 87,053 67,330 Total assets 450,960 375,682 Current liabilities Other interest-bearing loans and borrowings 18 (16,921) (15,931) Trade and other payables 19 (48,845) (39,782) Current tax payable (2,966) (1,467) Provisions 20 (587) (820) Total current liabilities (69,319) (58,000) Non-current liabilities Other interest-bearing loans and borrowings 18 (147,384) (135,634) Other payables 19 (3,315) (2,565) Provisions 20 (5,405) (4,978) Retirement benefit obligations 22 (8,273) (8,607) Deferred tax liabilities 14 (25,388) (23,537) Total non-current liabilities (189,765) (175,321) Total liabilities (259,084) (233,321) Net assets 191,876 142,361 Equity attributable to equity holders of the parent Share capital 21 121,136 89,588 Share premium 21 45,354 26,914 Other reserves 21 11,172 9,918 Retained earnings 21 14,122 15,906 Total equity attributable to equity holders of the parent 191,784 142,326 Minority interest 21 92 35 Total equity 191,876 142,361

These financial statements were approved by the Board of Directors on 11 March 2008 and were signed on its behalf by:

CV McLeod CA Kennedy Director Director

Annual Report and Accounts 2007 47

Consolidated Cash Flow Statement for year ended 31 December 2007

Restated 2007 2006 Note £000 £000 Cash flows from operating activities Profit from continuing operations after tax 7,012 9,563 Adjustments for: Depreciation, amortisation and impairments 21,088 13,075 Financial income (3,056) (3,110) Financial expenses 14,192 11,461 Share of profit of associated undertakings (92) (843) (Profit)/loss on sale of property, plant and equipment (15) 85 Profit on sale of asset held for sale – (118) Equity settled share-based payment expense 31 39 Tax 3,241 3,984 Operating profit before changes in working capital and provisions 42,401 34,136 Increase in trade and other receivables (10,685) (7,211) Increase in inventories (3,244) (3,977) Increase in trade and other payables 7,798 2,081 Decrease in provisions and employee benefits (3,682) (3,109) Cash generated from the operations 32,588 21,920 Interest paid (8,542) (6,073) Tax (paid)/received (685) 197 Interest element on finance lease payments (3,112) (2,025) Adjustment in respect of cash flows on discontinued operations, net of tax (790) 677 Net cash from operating activities 19,459 14,696 Cash flows from investing activities Proceeds from sale of property, plant and equipment 200 651 Proceeds from sale of assets held for sale – 793 Interest received 58 275 Acquisition of businesses 27 (35,284) (46,944) Net (overdrafts)/cash acquired (503) 893 Disposal of discontinued operations 28 3,410 – Acquisition of property, plant and equipment (16,617) (22,943) Increase in investment in associated undertakings – (51) Repayment of loan to associated undertakings – 750 Loan to associated undertakings – (99) Net cash from investing activities (48,736) (66,675) Cash flows from financing activities Proceeds from the issue of share capital 21 49,538 26,160 Proceeds from new loans 57,059 53,079 Repayment of borrowings (56,484) (16,362) Payment of finance lease liabilities (14,142) (10,522) Preference dividend paid to minority interest (106) (106) Dividends paid (6,422) (4,481) Net cash from financing activities 29,443 47,768 Net increase/(decrease) in cash and cash equivalents 166 (4,211) Cash and cash equivalents at 1 January 2,329 6,800 Effect of exchange rate fluctuations on cash held 97 (260) Cash and cash equivalents at 31 December 2,592 2,329

48 Annual Report and Accounts 2007 Notes to the Group Financial Statements

1 Accounting policies Ennstone plc (the “Company”) is a company incorporated in Great Britain. The Group financial statements consolidate those of the Company and its subsidiary undertakings (together referred to as the “Group”) and equity account the Group’s interest in associated undertakings. Principal trading subsidiary undertakings are set out in note C14.

Statement of compliance The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP; these are presented on pages 84 to 91. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements. Judgements made by the directors in the application of those accounting policies that have a significant effect on the Group financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 30. New IFRS standards and interpretations adopted during 2007 In 2007, the following standards became effective and were adopted by the Group: n IFRS 7 Financial instruments: Disclosures and the Amendment to IAS 1 presentation of financial statements: Capital Disclosures; n IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies; n IFRIC 8 Scope of IFRS 2 Share-based Payments; n IFRIC 9 Reassessment of Embedded Derivatives; n IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these standards has not had a significant impact on the results of the Group in 2007 but additional disclosures have been provided in compliance with IFRS 7 and IAS 1.

Measurement convention The financial statements are prepared on the historical cost basis except that derivative financial instruments are stated at their fair value. Non-current assets and assets held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. The financial statements are rounded to the nearest thousand pounds.

Basis of consolidation Subsidiary undertakings are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiary undertakings are included in the Group financial statements from the date that control commences until the date that control ceases. Associated undertakings are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The Group financial statements include the Group’s share of the total recognised income and expense of associated undertakings on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associated undertaking.

Foreign currency Transactions in foreign currencies are translated 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 at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the 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. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of overseas operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from the translation of overseas operations since 1 January 2004, and of related qualifying hedges are taken directly to the translation reserve. They are released into the income statement upon disposal.

Hedge of net investment in foreign operation Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in foreign operation are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in the income statement. When the hedged net investment is disposed of, the cumulative amount in equity is transferred to the income statement as an adjustment to the profit or loss on disposal.

Annual Report and Accounts 2007 49

Notes to the Group Financial Statements (continued)

1 Accounting policies (continued) Financial instruments Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows:

Trade receivables Trade receivables are initially recognised at fair value and then are stated at amortised cost.

Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, including bank deposits with original maturities of three months or less. For the purposes of the cash flow statement bank overdrafts are also included as they are an integral part of the Group’s cash management.

Trade payables Trade payables are initially recognised at fair value and then are stated at amortised cost.

Bank and other borrowings Interest bearing bank loans and overdrafts and other loans are recognised initially at fair value. All borrowings are subsequently stated at amortised cost with the difference between initial net proceeds and redemption value recognised in the income statement over the period to redemption.

Derivative financial instruments The Group uses financial instruments to manage financial risks associated with the Group’s underlying business activities and the financing of those activities. The Group does not undertake any trading in financial instruments. Derivatives are initially recognised at fair value on the date that the contract is entered into and subsequently re-measured in future periods at their fair value. The gain or loss on the re-measurement of fair value is recognised immediately in profit or loss. However, where the derivative qualifies for hedge accounting, recognition of the resultant gain or loss depends on the nature of the item being hedged (see below). Interest rate swaps are used to hedge the Group’s exposure to movements on interest rates. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement. Any gain or loss on a derivative financial instrument not designated as a hedge is recognised in the income statement. The associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects profit and loss. When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, 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 no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately.

Preference share capital Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognised as an interest expense in profit or loss.

Minerals and related interests The fair value of minerals recognised as a result of business combinations is based on market value. The market value of minerals is based on the estimated amount of reserves acquired as verified by third party valuation. Mineral reserves and related interests, including overburden, are depleted over their estimated economic lives on a tonnage extraction basis.

Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use. 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 fair value of property, plant and equipment recognised as a result of business combinations is based on market value. The market value of property, plant and equipment is based on market prices for similar items.

50 Annual Report and Accounts 2007 1 Accounting policies (continued) Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted for as described below. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: Freehold buildings – 50 years Fixtures and fittings – 10 years Long leasehold land and buildings – 50 years or life of the lease if shorter Office equipment – 3-5 years Fixed plant – 20 years Loose plant and machinery – 5-10 years Motor vehicles – 4 years

Intangible assets and goodwill Goodwill arising on acquisitions which have occurred since 1 January 2004 represents the difference between the fair value of the purchase consideration and the fair value of the identifiable net assets and contingencies of an acquired entity. Consideration includes the attributable costs of the acquisition. In respect of acquisitions prior to 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the amount recorded under UK GAAP. Positive goodwill is recognised as an asset in the consolidated balance sheet and is subject to annual impairment review. Goodwill arising on the acquisition of subsidiary undertakings is recognised separately as an intangible asset in the consolidated balance sheet. Goodwill arising on the acquisition of associated undertakings is included within the carrying value of the investment. Negative goodwill is recognised in the income statement immediately. The fair value of other intangible assets acquired as a result of business combinations is based on the discounted cash flows expected to be derived from the use of the assets. Other intangible assets are stated at fair value at acquisition less accumulated amortisation and impairment losses. Amortisation is based on the useful economic lives of the assets concerned which are principally as follows: Customer lists – 5-20 years

Impairment The carrying amounts of the Group’s non-financial assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the recoverable amount of the asset is estimated. For goodwill, recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Annual Report and Accounts 2007 51

Notes to the Group Financial Statements (continued)

1 Accounting policies (continued) Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

Defined benefit schemes The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises all actuarial gains and losses arising from defined benefit plans directly in equity immediately. Gains arising on the curtailment of schemes are recognised in the income statement in the period in which they arise.

Share-based payment transactions The share option programme allows Group employees to acquire shares of the ultimate parent company. These awards are granted by the ultimate parent. 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. The fair value of the options granted is measured using a Modified Black Scholes Valuation Model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. In accordance with IFRS 2 share-based payments, no expense is recorded for equity settled options granted prior to 7 November 2002 nor for those vested by 1 January 2005.

Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Restoration provisions provide for the cost of restoring sites subject to extraction where an obligation arises so as to comply with contractual, environmental, planning and other legislation. Non-current restoration liabilities are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Revenue Revenue, which excludes value added and sales taxes and allowances for trade discounts, represents the amounts derived from the provision of goods and services, including an appropriate element in respect of long term contracts, to external customers, during the year. Revenue is recognised by the Group when the risks and rewards associated with the transaction have been transferred to the customers. The risks and rewards are deemed to have been transferred when products have been delivered to, or been picked up by, the customer.

Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Finance income and expenses Financial income and expenses comprise interest payable, finance charges, dividends on preference shares classified as liabilities, finance leases, interest receivable on funds invested, dividend income, foreign exchange gains and losses and gains and losses on hedging instruments that are recognised in the income statement. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established.

52 Annual Report and Accounts 2007 1 Accounting policies (continued) Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement 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 tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiary undertakings to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Non-current assets held for sale and discontinued operations A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year. On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent remeasurement. These assets are classed as current assets in line with IFRS 5. A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary undertaking acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.

New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2007, and have not been applied in preparing these consolidated financial statements. The adoption of these standards is not expected to have any impact on the financial statements.

2 Segmental analysis The Group is currently organised into three main geographical segments reflecting the Group’s management and internal reporting structure and the location of its assets and customers. This is the basis for primary segmental disclosures. Inter segment pricing is determined on an arm’s length basis. Restated 2007 2006 Operating Operating Revenue profit Revenue profit Income statement £000 £000 £000 £000 UK before reorganisation, redundancy and impairments 188,848 25,866 148,853 18,775 UK reorganisation, redundancy and impairments – (6,713) – (113) UK total 188,848 19,153 148,853 18,662 US 36,258 4,083 36,183 5,437 Poland 11,730 1,560 7,056 434 Central administration – (3,499) – (3,478) Group 236,836 21,297 192,092 21,055 Share of profit of associated undertakings: UK 75 830 Poland 17 13 Net financial expense (11,136) (8,351) Profit from continuing activities before tax 10,253 13,547 Tax (3,241) (3,984) Loss on discontinued UK operations, net of tax (877) (3) Profit for the year 6,135 9,560

Annual Report and Accounts 2007 53

Notes to the Group Financial Statements (continued)

2 Segmental analysis (continued) 2007 2006 Total Total Total Total assets liabilities assets liabilities Balance sheet £000 £000 £000 £000 UK 321,555 (35,206) 277,069 (32,030) US 92,098 (5,453) 72,468 (4,656) Poland 21,592 (3,066) 16,156 (1,928) Central administration 7,456 (5,120) 4,001 (1,168) Total operations 442,701 (48,845) 369,694 (39,782) Tax 5,667 (28,354) 3,659 (25,004) Non-current items – (3,315) – (2,565) Net debt 2,592 (164,305) 2,329 (151,565) Provisions and retirement benefit obligations – (14,265) – (14,405) Total group 450,960 (259,084) 375,682 (233,321) Net assets 191,876 142,361

UK total assets include £Nil (2006: £390,000) in respect of investments in associated undertakings and Poland total assets include £40,000 (2006: £22,000) in respect of investments in associated undertakings. Non-current assets held for sale of £4,809,000 (2006: £4,630,000) are included within the UK segment.

Analysis of depletion, depreciation, impairment, amortisation and capital expenditure Mineral Impairment and Additions Additions depletion Depreciation amortisation to property, to other and and of intangible plant and intangible impairments impairments assets equipment assets £000 £000 £000 £000 £000 2007 UK 2,501 13,862 41 43,623 5 US 293 3,695 – 17,528 – Poland 49 939 – 3,578 – Central administration – 171 – 279 – Total 2,843 18,667 41 65,008 5

2006 UK 1,162 8,463 33 42,102 242 US 271 3,091 – 10,406 – Poland 18 522 – 5,298 – Central administration – 196 – 195 – Total 1,451 12,272 33 58,001 242

Additions to property, plant and equipment include acquisitions through additions in respect of business combinations.

54 Annual Report and Accounts 2007

2 Segmental analysis (continued) The group has two main activities by product and they may be analysed as follows:

2007 2006 Operational Capital Operational Capital Revenue assets expenditure Revenue assets expenditure £000 £000 £000 £000 £000 £000 Aggregates 213,900 383,093 59,843 166,719 307,895 49,568 Building products 22,936 52,152 4,886 25,373 57,798 8,238 Central administration – 7,456 279 – 4,001 195 Total 236,836 442,701 65,008 192,092 369,694 58,001

3 Reorganisation, redundancy and impairments During the year ended 31 December 2007, the Group incurred reorganisation costs, in respect of the redevelopment and anticipated part sale of the Doseley site at Telford, and certain redundancy costs. Additionally, the Group incurred costs in respect of the impairment of certain assets used in its natural stone building products business prior to its sale. During the year ended 31 December 2006, the Group incurred reorganisation costs in respect of the Doseley site and, in addition, the Group released certain provisions which were no longer deemed to be required.

2007 2006 £000 £000 Included in cost of sales: Reorganisation costs (421) (928) Release of provisions – 1,002 (421) 74 Included in distribution expenses: Reorganisation costs (164) (187) Included in administrative expenses: Reorganisation costs (71) – Redundancy costs (466) – Impairment of natural stone building products property, plant and equipment (note 11) (4,010) – Impairment of natural stone building products inventories (1,581) – (6,128) – Net reorganisation, redundancy and impairment costs before tax (6,713) (113) Related tax credit 1,693 34 Net reorganisation, redundancy and impairment costs after tax (5,020) (79)

4 Loss on discontinued operations The loss on discontinued operations arose following the decision to dispose of the Group’s natural stone building products business. The loss on discontinued operations is analysed as follows:

2007 2006 £000 £000 Revenue 3,484 6,514 Costs and overheads (4,737) (6,518) Loss on discontinued operations before tax (1,253) (4) Related tax credit 376 1 Loss on discontinued operations after tax (877) (3)

The loss per share in respect of discontinued activities is given in note 9.

Annual Report and Accounts 2007 55

Notes to the Group Financial Statements (continued)

5 Expenses and auditor’s remuneration Group operating profit has been arrived at after charging/(crediting): 2007 2006 £000 £000 Amortisation of intangibles 41 33 Depreciation and impairments: Owned assets 15,481 9,749 Assets held under finance lease 6,029 3,974 (Profit)/loss on disposal of property, plant and equipment (15) 85 Profit on disposal of asset held for sale – (118) Operating lease rentals: Plant equipment and vehicles 964 771 Other 2,330 2,504

Depreciation and impairments includes depreciation of £463,000 (2006: £681,000) and impairments of £4,010,000 (2006: £Nil) in respect of discontinued operations.

Auditor’s remuneration: 2007 2006 £000 £000 Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 76 75 Fees payable to the Company’s auditor and its associates for other services: The audit of the Company’s subsidiary undertakings, pursuant to legislation 234 215 Other services pursuant to legislation 210 266 Tax services 316 149 Valuation and actuarial services 306 188 Fees in respect of Ennstone plc pension scheme: Valuation and actuarial services – 61 1,142 954

Other services pursuant to legislation includes amounts charged to share premium reserve, in respect of the share placing and open offer, of £200,000 (2006: £230,000).

6 Staff numbers and costs The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

2007 2006 Number Number UK 1,156 1,014 US 368 318 Poland 116 104 Central 20 17 1,660 1,453

56 Annual Report and Accounts 2007 6 Staff numbers and costs (continued) The aggregate payroll costs of these persons were as follows:

2007 2006 £000 £000 Wages and salaries 40,451 34,778 Social security costs 3,760 3,347 Other pension costs 1,028 1,050 Share based payments 31 39 45,270 39,214

Aggregate payroll costs include £1,071,000 (2006: £1,661,000) in respect of discontinued operations.

7 Financial income and expense

2007 2006 £000 £000 Interest income – bank 58 275 Expected return on retirement plan assets 2,998 2,835 Financial income 3,056 3,110

Interest expense – bank and finance leases 11,212 8,575 Interest on defined benefit pension plan obligations 2,782 2,688 Preference dividends payable to minority interests 106 106 Unwinding of discount on restoration provision 92 92 Financial expense 14,192 11,461

Annual Report and Accounts 2007 57

Notes to the Group Financial Statements (continued)

8 Taxation Recognised in the income statement Restated 2007 2006 £000 £000 Current tax expense UK taxation – continuing Current year – (316) Adjustments in respect of prior years 765 1,044 765 728 Overseas taxation Current year (775) (1,625) Adjustments in respect of prior years (23) 202 (798) (1,423)

Deferred tax expense Origination and reversal of temporary differences – continuing (3,019) (1,768) Adjustments in respect of prior years (189) (1,521) Origination and reversal of temporary differences – discontinued 376 1 (2,832) (3,288) Total tax in income statement (2,865) (3,983)

Tax charge on continuing operations (3,241) (3,984) Tax credit on discontinued operations 376 1 Total tax in the income statement (2,865) (3,983)

Reconciliation of effective tax rate Restated 2007 2006 £000 £000 Profit from continuing operations before tax 10,253 13,547 Loss on discontinued operations before tax (1,253) (4) Profit before tax 9,000 13,543

Tax using the UK corporation tax rate of 30% (2006: 30%) (2,700) (4,063) Non-deductible expenses (539) (176) Unrelieved trading losses (11) (3) Effect of tax losses utilised 70 83 Effect of overseas tax rates 269 (169) Over/(under) provided in prior years 553 (275) Effect of unrecognised temporary differences (535) 602 Income from associated undertakings already taxed 28 18 Total tax in income statement (2,865) (3,983)

58 Annual Report and Accounts 2007 8 Taxation (continued) Tax recognised directly in equity The following amounts are included in the consolidated statement of recognised income and expense: 2007 2006 £000 £000 Relating to: Actuarial gains and losses, cash flow hedges and foreign exchange losses (note 14) 725 (1,112)

9 Earnings per share The calculation of earnings per share is based on the profit for the year attributable to ordinary shareholders of £6,129,000 (2006: £9,136,000) and on the weighted average number of ordinary shares in issue during the year. The calculation of earnings per share before reorganisation, redundancy and impairments is based on the profit for the year attributable to ordinary shareholders adjusted to add back the reorganisation, redundancy and impairment costs of £5,020,000 (2006: £79,000). Diluted earnings per ordinary share reflects the effect of outstanding dilutive share options. Reconciliations of the weighted average number of shares used in the calculations are shown below:

2007 2006 Number of Number of shares shares Equity shares: For basic earnings per share 433,308,994 332,607,093 Share options 426,734 934,043 For dilutive earnings per share 433,735,728 333,541,136

Continuing earnings per ordinary share in the year is based on profit attributable to ordinary shareholders, adjusted to add back the loss on discontinued operations of £877,000. Discontinued loss per ordinary share in the year of 0.20p (2006: Nil) is based on the loss on discontinued operations. Diluted discontinued earnings per ordinary share in the year of 0.20p (2006: Nil) reflects the outstanding dilutive share options as above.

10 Dividends The following dividends were declared and paid by the Group:

2007 2006 £000 £000 Interim dividend for the prior year of 0.44p per share (2006: 0.40p) 1,577 1,189 Final dividend for the prior year recognised in the year of 1.00p per share (2006: 0.92p) 4,845 3,292 6,422 4,481

After 31 December 2007, the following dividends were proposed by directors in respect of 2007. The dividends have not been provided in these accounts.

2007 2006 pence per pence per share share Equity shares: Interim dividend declared 0.47 0.44 Final dividend proposed 1.02 1.00 Total 1.49 1.44

Annual Report and Accounts 2007 59

Notes to the Group Financial Statements (continued)

11 Property, plant and equipment Mineral Plant, reserves and Land and equipment related interests buildings and vehicles Total £000 £000 £000 £000 Cost Balance at 1 January 2006 62,666 38,659 118,385 219,710 Acquisitions through business combinations (see note 27) 2,275 6,593 7,059 15,927 Other acquisitions 1,783 5,692 34,599 42,074 Reclassification 1,716 (1,716) – – Disposals – (134) (1,915) (2,049) Effect of movements in foreign exchange (1,220) (935) (5,865) (8,020) Balance at 31 December 2006 67,220 48,159 152,263 267,642

At 1 January 2007 67,220 48,159 152,263 267,642 Acquisitions through business combinations (see note 27) 9,218 8,368 4,801 22,387 Other acquisitions 1,239 4,383 36,999 42,621 Disposals – (293) (2,886) (3,179) Effect of movements in foreign exchange 180 426 599 1,205 Disposal of discontinued operation (see note 28) (2,539) (1,249) (10,843) (14,631) Balance at 31 December 2007 75,318 59,794 180,933 316,045

Depreciation and impairments Balance at 1 January 2006 5,150 1,590 25,492 32,232 Depreciation charge for the year 1,451 660 11,612 13,723 Reclassification 1,113 (1,113) – – Disposals – (182) (1,131) (1,313) Effect of movements in foreign exchange (57) (1) (1,364) (1,422) Balance at 31 December 2006 7,657 954 34,609 43,220

Balance at 1 January 2007 7,657 954 34,609 43,220 Depreciation charge for the year 1,635 820 15,045 17,500 Impairments (see note 3) 1,208 36 2,766 4,010 Disposals – – (2,231) (2,231) Effect of movements in foreign exchange (1) 16 54 69 Disposal of discontinued operation (see note 28) (1,314) (174) (8,507) (9,995) Balance at 31 December 2007 9,185 1,652 41,736 52,573

Net book value At 1 January 2006 57,516 37,069 92,893 187,478

At 31 December 2006 and 1 January 2007 59,563 47,205 117,654 224,422

At 31 December 2007 66,133 58,142 139,197 263,472

60 Annual Report and Accounts 2007 11 Property, plant and equipment (continued) Leased plant and machinery At 31 December 2007, the net carrying amount of leased plant and machinery was £58,036,000 (2006: £33,700,000). Depreciation charged on these assets in the year was £6,029,000 (2006: £3,974,000). The leased equipment secures lease obligations (see note 18).

Depreciation and impairment charge The depreciation and impairment is recognised in the following line items in the income statement:

2007 2006 £000 £000 Cost of sales 14,265 11,715 Distribution expenses 1,796 612 Administration expenses 4,986 715 Discontinued operations 463 681 21,510 13,723

Security All mineral reserves and land and buildings are pledged as security for bank loans and borrowings with either Barclays Bank PLC or Wachovia Bank, NA.

12 Intangible assets Customer Goodwill lists Total £000 £000 £000 Cost Balance at 1 January 2006 56,883 481 57,364 Acquisitions through business combinations (see note 27) 31,195 242 31,437 Effect of movements in foreign exchange (837) – (837) Balance at 31 December 2006 87,241 723 87,964

Balance at 1 January 2007 87,241 723 87,964 Acquisitions through business combinations (see note 27) 15,350 5 15,355 Disposal of discontinued operation (see note 28) (3,090) – (3,090) Effect of movements in foreign exchange 135 – 135 Balance at 31 December 2007 99,636 728 100,364

Amortisation and impairment Balance at 1 January 2006 6,968 27 6,995 Amortisation for the year – 33 33 Balance at 31 December 2006 6,968 60 7,028

Balance at 1 January 2007 6,968 60 7,028 Amortisation for the year – 41 41 Disposal of discontinued operation (see note 28) (3,090) – (3,090) Balance at 31 December 2007 3,878 101 3,979

Net book value At 1 January 2006 49,915 454 50,369

At 31 December 2006 and 1 January 2007 80,273 663 80,936

At 31 December 2007 95,758 627 96,385

Annual Report and Accounts 2007 61

Notes to the Group Financial Statements (continued)

12 Intangible assets (continued) Amortisation and impairment charge The amortisation charge is recognised in the following line items in the income statement:

2007 2006 £000 £000 Administration expenses 41 33

Impairment tests for cash-generating units containing goodwill Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis or more frequently if there are indications that goodwill may be impaired. Goodwill is allocated to groups of cash generating units according to the level at which management monitor that goodwill. The following cash-generating units have a significant amount of goodwill:

2007 2006 £000 £000 English aggregates 60,129 50,753 Scottish aggregates 8,929 5,644 English concrete products 9,400 9,400 English natural stone building products – – US aggregates 13,121 10,574 Polish aggregates 4,179 3,902 95,758 80,273

English natural stone building products goodwill at 31 December 2006 is stated net of a provision of £3,090,000. The recoverable amount of the goodwill attaching to cash-generating units is based on value in use calculations. These calculations use cash flow projections based on actual operating results and budgeted forecasts for 2008 extrapolated forward for a 15 year period, reflecting the long term nature of the underlying assets, assuming a zero growth rate, discounted at a rate of 7% (2006: 7%). Directors estimate discount rates using a pre-tax rate reflecting current market assessment of the time value of money and the risks specific to the cash generating units. The Directors have determined that there has been no impairment.

13 Investments in associated undertakings The Group’s trading associated undertakings are as follows:

Country of Proportion of incorporation ordinary shares held Nature of business Held indirectly BEAR Scotland Limited Great Britain 19.13% Support services Marine Mastic Limited Great Britain 33.33% Bituminous products Betotest Polska sp.z o.o. Poland 50.00% Concrete testing

In the Directors’ opinion, due to the lack of operational control, Betotest Polska sp.z o.o. is considered an associated undertaking and accounted for accordingly. BEAR Scotland Limited has been accounted for as an associated undertaking as the Group has significant representation on the Board of that company. During the year, the Group purchased an additional 45% stake in Alba Traffic Management Limited increasing the Group’s stake to 90%. Accordingly, Alba Traffic Management Limited is now accounted for as a subsidiary undertaking.

62 Annual Report and Accounts 2007 13 Investments in associated undertakings (continued)

Interest in Loans to associated associated undertakings undertakings Total £000 £000 £000 Cost At 1 January 2006 83 851 934 Additions 51 99 150 Repayments – (750) (750) At 31 December 2006 and 1 January 2007 134 200 334 Transfer to investment in subsidiary undertaking * (50) (200) (250) At 31 December 2007 84 – 84

Share of post-acquisition reserves and loan impairments At 1 January 2006 12 (777) (765) Share of results of associated undertaking 66 – 66 Adjustment to loan impairments – 777 777 66 777 843 At 31 December 2006 and 1 January 2007 78 – 78 Share of results of associated undertaking 92 – 92 Transfer to investment in subsidiary undertaking * (214) – (214) At 31 December 2007 (44) – (44)

Net book value At 1 January 2006 95 74 169 At 31 December 2006 and 1 January 2007 212 200 412 At 31 December 2007 40 – 40

* During the year, the Group purchased an additional 45% stake in Alba Traffic Management Limited. This company, previously accounted for as an associated undertaking, is now a subsidiary undertaking (see note 27). Summary financial information on associated undertakings – 100 per cent:

Net Assets Liabilities Equity Revenues profit £000 £000 £000 £000 £000 2007 BEAR Scotland Limited 13,309 (15,310) (2,001) 34,029 726 Marine Mastic Limited 38 (33) 5 112 – Betotest Polska sp.z o.o. 133 (49) 84 226 33

2006 BEAR Scotland Limited 3,930 (6,657) (2,727) 35,602 1,337 Marine Mastic Limited 1,060 (1,055) 5 1,330 30 Betotest Polska sp.z o.o. 67 (23) 44 113 26

In accordance with IAS 28, the Group has unrecognised losses in respect of associated undertakings of £383,000 (2006: £522,000)

Annual Report and Accounts 2007 63

Notes to the Group Financial Statements (continued)

14 Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 Property, plant and equipment – – (29,437) (26,689) (29,437) (26,689) Intangible assets – – (181) (194) (181) (194) Interest rate swaps – – (13) (85) (13) (85) Employee benefits 2,482 2,582 – – 2,482 2,582 Provisions – – 1,727 1,273 1,727 1,273 Tax value of loss carry-forwards utilised – – 2,516 2,158 2,516 2,158 Tax assets/(liabilities) 2,482 2,582 (25,388) (23,537) (22,906) (20,955)

In addition, the Group has not recorded a deferred tax asset of £2,500,000 (2006: £4,750,000), principally in respect of losses not considered to be recoverable in the foreseeable future.

Movement in deferred tax during the year 1 January Exchange Recognised Recognised 31 December 2007 adjustments Acquisitions in income in equity 2007 £000 £000 £000 £000 £000 £000 Property, plant and equipment (26,689) 81 (470) (2,359) – (29,437) Intangible assets (194) – – 13 – (181) Interest rate swaps (85) – – – 72 (13) Employee benefits 2,582 – – (753) 653 2,482 Provisions 1,273 (2) 574 (118) – 1,727 Tax value of loss carry-forwards utilised 2,158 (27) – 385 – 2,516 (20,955) 52 104 (2,832) 725 (22,906)

Movement in deferred tax during the prior year

1 January Exchange Recognised Recognised 31 December 2006 adjustments Acquisitions in income in equity 2006 £000 £000 £000 £000 £000 £000 Property, plant and equipment (22,771) 782 (954) (3,746) – (26,689) Intangible assets (132) – (72) 10 – (194) Interest rate swaps 96 2 – – (183) (85) Employee benefits 3,368 – – 466 (1,252) 2,582 Provisions 1,703 (6) 271 (695) – 1,273 Tax value of loss carry-forwards utilised 1,687 (529) – 677 323 2,158 (16,049) 249 (755) (3,288) (1,112) (20,955)

15 Non-current assets held for sale 2007 2006 £000 £000 Property, plant and equipment 4,809 4,630

Assets held for sale represent the carrying value of land and buildings and associated costs of sale at two sites which are currently under option for sale dependent upon the receipt of successful planning permissions.

64 Annual Report and Accounts 2007

16 Inventories 2007 2006 £000 £000 Raw materials and consumables 6,643 5,015 Work in progress 1,753 47 Finished goods 11,621 11,888 20,017 16,950

Inventories of £151,244,000 (2006: £125,144,000) were expensed in the year. Additionally, inventories of £1,581,000 were impaired during the year in respect of discontinued operations.

17 Trade and other receivables 2007 2006 £000 £000 Trade receivables 45,306 33,322 Trade receivables due from associated undertakings (see note 26) 148 1,002 Other trade receivables and prepayments 10,952 7,735 Financial instruments – derivative 44 285 56,450 42,344

The derivative represents the fair value of interest rate swaps. £315,000 (2006: £456,000) was recognised as an impairment loss in the income statement in respect of trade receivables.

18 Other interest-bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 23.

2007 2006 £000 £000 Non-current liabilities Secured bank loans 112,388 110,459 Finance lease liabilities 33,903 24,076 Preference shares of subsidiary undertakings 1,093 1,099 147,384 135,634

Current liabilities Current portion of secured bank loans 2,941 4,675 Current portion of finance lease liabilities 13,980 11,256 16,921 15,931

The secured bank loans and overdrafts of the Group are secured on the freehold and leasehold properties and other assets of the Company and its subsidiary undertakings. Johnston Group Limited and Blockleys Public Limited Company, two of the Group’s subsidiary undertakings, had issued preference shares prior to their acquisition. The amounts outstanding to third parties are as follows:

2007 2006 £000 £000 Johnston Group Limited 10% cumulative preference shares of £1 each 999 1,000 Blockleys Public Limited Company 6% cumulative preference shares of 50p each 94 99 1,093 1,099

Annual Report and Accounts 2007 65

Notes to the Group Financial Statements (continued)

18 Other interest-bearing loans and borrowings (continued) Finance lease liabilities Finance lease liabilities are payable as follows:

Minimum Minimum lease lease payments Interest Principal payments Interest Principal 2007 2007 2007 2006 2006 2006 £000 £000 £000 £000 £000 £000 Less than one year 16,603 2,623 13,980 12,757 1,501 11,256 Between one and five years 37,232 4,622 32,610 26,003 3,093 22,910 More than five years 1,390 97 1,293 1,346 180 1,166 55,225 7,342 47,883 40,106 4,774 35,332

Finance leases are secured on the underlying assets and are generally for periods of between 3 and 7 years. A reconciliation of net movement in cash and cash equivalents to net debt is set out below:

2007 2006 £000 £000 Net increase/(decrease) in cash and cash equivalents 166 (4,211) Cash outflow/(inflow) from movement in debt and leasing financing 13,567 (26,195) Changes in net debt resulting from cash flows 13,733 (30,406) Loans and finance leases acquired with business acquisitions (366) (688) New finance leases (26,004) (19,131) Exchange movements 160 3,765 Movement in net debt (12,477) (46,460) Net debt at beginning of year (149,236) (102,776) Net debt at end of year (161,713) (149,236)

Net debt comprises the following balance sheet items: Cash and cash equivalents 2,592 2,329 Current borrowings (16,921) (15,931) Non-current borrowings (147,384) (135,634) (161,713) (149,236)

19 Trade and other payables 2007 2006 £000 £000 Trade payables 33,251 26,105 Non-trade payables and accrued expenses 8,850 8,132 Interest payable 567 825 Other taxation and social security costs 6,177 4,720 48,845 39,782

Non-current liabilities: Deferred consideration on acquisitions 1,740 990 Other payables 1,575 1,575 3,315 2,565

Deferred consideration represents payments to vendors in respect of business combinations and are payable in instalments over the next 5 years.

66 Annual Report and Accounts 2007

20 Provisions Restoration Other Total £000 £000 £000 At 1 January 2006 3,338 1,832 5,170 Provisions made during the year 113 – 113 Provisions released during the year (note 3) – (1,002) (1,002) Utilised during the year (867) – (867) Amounts arising on acquisition 1,319 1,004 2,323 Effect of foreign exchange (31) – (31) Unwinding of discount 92 – 92 At 31 December 2006 3,964 1,834 5,798

At 1 January 2007 3,964 1,834 5,798 Provisions made during the year 269 130 399 Provisions released during the year – (630) (630) Utilised during the year (1,431) (183) (1,614) Amounts arising on acquisitions (note 27) 695 1,115 1,810 Effect of foreign exchange 137 – 137 Unwinding of discount 92 – 92 At 31 December 2007 3,726 2,266 5,992

Non-current 3,356 2,049 5,405 Current 370 217 587 3,726 2,266 5,992

Restoration provisions principally comprise provisions for the cost of restoring sites subject to extraction where an obligation arises so as to comply with contractual, environmental, planning and other legislation. The obligation will be settled through to the end of the production lives of the related quarries. Other provisions comprise provisions for continued obligations for dilapidations, health and safety, environmental requirements and warranty costs.

Annual Report and Accounts 2007 67

Notes to the Group Financial Statements (continued)

21 Capital and reserves Reconciliation of movement in capital and reserves Total attributable Capital Cash flow to equity Share Share Translation Other redemption hedging Retained holders of Minority Total capital premium reserve reserve reserve reserve earnings the parent interest equity £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 At 1 January 2006 74,290 16,052 1,353 11,745 24,930 (219) (16,962) 111,189 1,918 113,107 Total recognised income and expense – – (3,388) – – 427 12,380 9,419 424 9,843 Shares issued 15,298 12,591 – – – – – 27,889 – 27,889 Expenses of share issue – (1,729) – – – – – (1,729) – (1,729) Equity-settled share-based payment transactions, net of tax – – – – – – 39 39 – 39 Eliminated on acquisition – – – – – – – – (2,307) (2,307) Transfers – – – – (24,930) – 24,930 – – – Dividends – – – – – – (4,481) (4,481) – (4,481) At 31 December 2006 89,588 26,914 (2,035) 11,745 – 208 15,906 142,326 35 142,361

Balance at 1 January 2007 89,588 26,914 (2,035) 11,745 – 208 15,906 142,326 35 142,361 Total recognised income and expense – – 1,423 – – (169) 4,607 5,861 6 5,867 Shares issued 31,548 21,732 – – – – – 53,280 – 53,280 Expenses of share issue – (3,292) – – – – – (3,292) – (3,292) Equity-settled share-based payment transactions, net of tax – – – – – – 31 31 – 31 Arising on acquisition – – – – – – – – 51 51 Dividends – – – – – – (6,422) (6,422) – (6,422) At 31 December 2007 121,136 45,354 (612) 11,745 – 39 14,122 191,784 92 191,876

Translation reserve The translation reserve comprises all foreign exchange differences arising since 1 January 2004 from translation of the financial statements of foreign operations as well as from the translation of liabilities which hedge the Group’s net investment in a foreign subsidiary undertaking.

Other reserve The merger reserve arose on the acquisitions of Blockleys Public Limited Company and Natural Building Materials plc and Johnston Group Plc.

Capital redemption reserve The capital redemption reserve was set up on 22 December 2005 on cancellation, with court approval, of the deferred shares of 50p. During the year ended 31 December 2006, this reserve was transferred to retained earnings, as permitted by the court, following the issue of new share capital.

Cash flow hedging reserve The hedging reserve comprises the effective portion of the cumulative net charge in the fair value of cash flow hedged instruments related to hedged transactions which have not yet occurred.

68 Annual Report and Accounts 2007

21 Capital and reserves (continued) Share capital Ordinary shares of 25p each 2007 2006 Number Number Issued and fully paid at 1 January 358,351,772 297,161,778 Issued for cash 125,239,480 61,189,994 Issued in connection with acquisitions 952,380 – At 31 December 484,543,632 358,351,772

2007 2006 £000 £000 Authorised Ordinary shares of 25p each 162,500 102,000

Allotted, called up and fully paid Ordinary shares of 25p each 121,136 89,588

The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company. On 1 June 2007, the Group placed 120,892,813 new ordinary shares of 25 pence each at 42 pence per share raising a total of £50.8 million before expenses of £3.3 million. On 15 February 2007, the Group placed 4,166,667 new ordinary shares of 25 pence each at 48 pence per share raising a total of £2.0 million. On 8 May 2007, the Group issued 952,380 new ordinary shares of 25 pence each at 47.25 pence per share in connection with the acquisition of Terracarbon. During the year the Group also issued new ordinary shares of 25 pence each, raising a total of £55,000 before expenses, under the Group’s share option schemes as follows:

Number of Issue price shares 1997 Approved Share Option Scheme 34.5p 20,000 1997 Unapproved Share Option Scheme 30.0p 160,000 180,000

Annual Report and Accounts 2007 69

Notes to the Group Financial Statements (continued)

22 Employee benefits Pension plans The Group operates five pension schemes, the assets of which are held in trustee administered funds separate from those of the Group. The schemes are as follows:

Defined contribution schemes The pension charge represents contributions payable to The Ennstone Group Pension Scheme of £622,000 (2006: £548,000) and to the Group’s defined contribution pension scheme in the US of £58,000 (2006: £53,000). Contributions outstanding at 31 December 2007, amounting to £107,000 (2006: £97,000), are included in creditors. The Group holds assets and liabilities in respect of defined contribution benefits. These are equal and are excluded from the following figures.

Defined benefit schemes The Group participated in three UK defined benefit schemes in the year, The Ennstone Staff Pension Scheme (the “Ennstone Scheme”), the Breedon PLC Section of the Legal & General Pension Trust (the “Breedon Scheme”) and the Johnston Management Holdings Limited Pension and Life Assurance Scheme (the “Johnston Scheme”). All schemes are now closed to new entrants. The Ennstone Scheme is in the process of being wound up and there is no further liability to the Group. The Breedon Scheme has been transferred into the Johnston Scheme and there is no further liability to the Group in respect of the Breedon Scheme. For the purpose of IAS 19, the full actuarial valuations have been updated to 31 December 2007 by a qualified actuary. The major assumptions used by the actuary were:

At 31 December At 31 December 2007 2006 % % Rate of increase in salaries 4.40 4.00 Rate of increase in pensions in payment (where applicable) 3.30 2.85 Discount rate 5.60 5.35 Inflation assumption 3.40 3.00 Mortality table assumption – non-pensioners PXA92C2015 PXA92C2015 Mortality table assumption – pensioners PXA92C2010 PXA92C2010

The mortality assumption implies the expected future lifetime from age 65 as follows:

At 31 December At 31 December 2007 2006 Non-pensioner male 19.4 19.4 Pensioner male 19.0 19.0 Non-pensioner female 22.4 22.4 Pensioner female 21.9 21.9

The assumptions have been chosen by the Directors from a range of possible actuarial assumptions which, due to the timescales covered, may not be borne out in practice.

70 Annual Report and Accounts 2007

22 Employee benefits (continued) The fair value of scheme assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the value of the liabilities which is derived from cash flow projections over long periods and are therefore inherently uncertain, are:

Long term Long term rate of rate of return Market return Market expected value at expected value at 31 December 31 December 31 December 31 December 2007 2007 2006 2006 % £000 % £000 Property 7.90 – 7.60 274 Equities 8.40 24,570 8.10 26,336 Bonds 5.10 20,476 4.80 16,990 Other 5.00 1,825 4.50 541 Total fair value of scheme assets 46,871 44,141 Present value of scheme funded obligations (55,144) (52,748) Pension liability (8,273) (8,607)

The overall expected rate of return on assets is determined by reference to local long term interest rates, the yield on gilts or treasury stock and the actuary’s recommendation on the allowance for the potential long term extra return from investing in equities. No credit has been taken for the potential extra yield above gilts or treasury stock for investment in corporate debt when determining the projected pension cost charged to the income statement. Total (credit)/charge recognised in the income statement

2007 2006 £000 £000 Defined benefit schemes: Current service cost 269 312 Gain on curtailments and settlements (718) (3) (Credited)/charged to administrative expense (449) 309 Expected return on scheme assets (2,998) (2,835) Interest cost 2,782 2,688 Credited to financial expense (216) (147) Total (credit)/charge recognised in the income statement (665) 162

Changes in the present value of the defined benefit obligation Opening defined benefit obligation (52,748) (56,943) Current service cost (269) (312) Interest cost (2,782) (2,688) Actuarial (losses)/gains (1,828) 3,805 Liabilities extinguished on settlements – 1,649 Employee contributions (157) (99) Benefits paid 1,922 1,840 Gain on curtailment 718 – Closing defined benefit obligation (55,144) (52,748)

Annual Report and Accounts 2007 71

Notes to the Group Financial Statements (continued)

22 Employee benefits (continued) Changes in the fair value of scheme assets 2007 2006 £000 £000 Opening fair value of assets 44,141 43,026 Expected return on assets 2,998 2,835 Actuarial (losses)/gains (347) 368 Employer contributions 1,844 1,299 Employee contributions 157 99 Benefits paid (1,922) (1,840) Assets distributed on settlements – (1,646) Closing fair value of assets 46,871 44,141

Actual return on scheme assets 2,651 3,203

Expected employer contributions in the following year for defined benefit schemes 4,740 1,825

History of plans Balance sheet 2007 2006 2005 2004 £000 £000 £000 £000 Present value of the defined benefit obligation (55,144) (52,748) (56,943) (48,441) Fair value of plan assets 46,871 44,141 43,026 36,317 Deficit (8,273) (8,607) (13,917) (12,124)

Experience adjustments 2007 2006 2005 2004 £000 £000 £000 £000 Experience adjustments on plan liabilities (1,828) 3,805 (6,881) (2,143) Experience adjustments on plan assets (347) 368 4,491 1,069 (2,175) 4,173 (2,390) (1,074)

In addition to the pension obligations arising on the Group’s three defined benefit schemes, details of which are given above, the Group had a provision brought forward at 1 January 2006 of £232,000 as a result of additional pension benefits due to former employees which were not funded by the schemes. This liability was included within the funding requirement of the schemes and the appropriate deficit adjusted from 31 December 2006 accordingly.

72 Annual Report and Accounts 2007

22 Employee benefits (continued) Share-based payments The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The number and weighted average exercise prices of share options are as follows: Weighted Weighted average Number average Number exercise price of options exercise price of options 2007 2007 2006 2006 Outstanding at the beginning of the year 37p 2,163,006 38p 5,492,186 Exercised during the year 31p (180,000) 31p (1,757,639) Lapsed during the year 37p (207,446) 47p (1,571,541) Granted during the year 32p 2,718,240 – – Outstanding at the end of the year 34p 4,493,800 37p 2,163,006 Exercisable at the end of the year 616,518 796,518

The weighted average share price at the date of exercise of share options exercised during the year was 49 pence (2006: 49 pence). Details of share options outstanding at 31 December were as follows:

2007 2006 Exercise Scheme Number Number price Exercise period Ennstone 2007 Sharesave Scheme 2,718,240 – 32.0p 1 December 2010 to 1 June 2011 Ennstone 1997 Sharesave Scheme 1,159,042 1,366,488 36.5p 1 June 2008 to 1 December 2008 Ennstone 1997 Unapproved Share Option Scheme – 160,000 30.0p 29 April 2003 to 28 April 2007 Ennstone 1997 Unapproved Share Option Scheme 40,844 40,844 30.5p 20 April 2004 to 19 April 2008 Ennstone 1997 Unapproved Share Option Scheme 20,000 20,000 31.8p 7 November 2004 to 6 November 2008 Ennstone 1997 Unapproved Share Option Scheme 94,639 94,639 34.5p 19 April 2005 to 18 April 2009 Ennstone 1997 Approved Share Option Scheme 101,064 101,064 66.8p 7 May 2001 to 6 May 2008 Ennstone 1997 Approved Share Option Scheme 5,454 5,454 46.8p 2 April 2002 to 1 April 2009 Ennstone 1997 Approved Share Option Scheme 30,000 30,000 48.5p 21 September 2002 to 20 September 2009 Ennstone 1997 Approved Share Option Scheme 144,156 144,156 30.5p 20 April 2004 to 19 April 2011 Ennstone 1997 Approved Share Option Scheme 40,000 40,000 31.8p 7 November 2004 to 6 November 2011 Ennstone 1997 Approved Share Option Scheme 140,361 160,361 34.5p 19 April 2005 to 18 April 2012 4,493,800 2,163,006

Further details of directors’ share options are given in the Directors’ Remuneration Report.

Share-based payments Under IFRS 2, no charge is required to be made in respect of options granted prior to November 2002. The Group’s charge for share- based payments is, therefore, only in respect of the sharesave schemes as all other options were granted prior to November 2002. The fair value of services received in return for scheme options granted is measured based on a Modified Black Scholes Valuation Model using the following assumptions: SAYE SAYE 2007 2005 Fair value of share options and assumptions Fair value at measurement date 4.43p 5.34p Share price at grant date 36.50p 41.25p Exercise price 32.00p 36.25p Expected volatility 18% 12% Option life 3 YRS 3 YRS Expected dividend yield 3.0% 3.0% Risk free interest rate (based on national government bonds) 5.5% 4.0%

Annual Report and Accounts 2007 73

Notes to the Group Financial Statements (continued)

22 Employee benefits (continued) The expected volatility is based on historic volatility (calculated based on the weighted average remaining life of the share options) adjusted for any expected changes to future volatility due to publicly available information. The Group has taken advantage of the exemption to only fair value options granted since November 2002. The total expenses recognised for the year arising from share-based payments are as follows:

2007 2006 £000 £000 Equity settled share-based payment expense included in administrative expenses 31 39

23 Financial instruments The Group has exposure to the following risks from its use of financial instruments: n Credit risk n Liquidity risk n Market risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Treasury activities are managed on a group basis under policies and procedures approved and monitored by the Board. These are designed to reduce the financial risks faced by the Group which primarily relate to movements in exchange and interest rates. Where appropriate, the Group uses financial instruments and derivatives to manage these risks. No speculative use of derivatives, currency or other instruments is permitted.

Credit risk Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. The Group has credit insurance covering the majority of its customers. At the balance sheet date, there were no significant concentrations of credit risk. There has been no change in the Group’s exposure to credit risk or how risk is managed from the prior year.

Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Note Carrying amount 2007 2006 £000 £000 Trade and other receivables 17 56,406 42,059 Interest rate swaps 17 44 285 Non-current other receivables 28 1,528 – Cash and cash equivalents 2,592 2,329 60,570 44,673

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Carrying amount 2007 2006 £000 £000 United Kingdom 39,504 28,316 United States 4,148 3,996 Poland 1,654 1,010 45,306 33,322

Management consider that the credit quality of the various debtors is good in respect of the amounts outstanding. The Group has no individual significant customer. The majority of the Group’s customers are all end-users. The Group credit insures the majority of its UK and US trade receivables. The credit risk is therefore considered to be low.

74 Annual Report and Accounts 2007

23 Financial instruments (continued) The aging of trade receivables at the reporting date was:

Gross Impairment Gross Impairment 2007 2007 2006 2006 £000 £000 £000 £000 Not past due 38,981 – 28,266 – Past due 0-30 days 3,221 – 3,245 – Past due 31-120 days 3,743 (639) 1,981 (579) 45,945 (639) 33,492 (579)

The ageing profile by geographical region is not materially different to the overall analysis by geographic region. Deferred consideration of £1,528,000 (2006: £nil) is not past due. Other trade receivables includes £581,000 (2006: £1,347,000) of financial assets in respect of contract retentions which are not past due.

Liquidity risk Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due. The Group manages liquidity risk by continuously monitoring forecasts and cash flows and negotiating appropriate facilities. The Group uses term overdrafts and committed revolving credit facilities and sufficient headroom is maintained above peak requirements to meet unforeseen events. At 31 December 2007 total undrawn bank facilities amounted to £52.0 million (2006: 8.6 million). The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

Carrying Contractual Within More than amount cash flows one year 1-5 years 5 years 31 December 2007 £000 £000 £000 £000 £000 Non-derivative financial liabilities UK Secured bank loans (94,852) (113,041) (6,236) (106,805) – US Secured bank loans (17,970) (20,429) (3,399) (17,030) – Unsecured preference shares (1,093) (1,623) (106) (424) (1,093) Finance lease liabilities (47,883) (55,225) (16,603) (37,232) (1,390) US bond issue (2,497) (2,938) (589) (2,110) (239) Loan notes (10) (10) (10) – – Trade payables (33,251) (33,251) (33,251) – – Deferred consideration on acquisitions (1,740) (1,740) (983) (757) – (199,296) (228,257) (61,177) (164,358) (2,722)

31 December 2006 Non-derivative financial liabilities UK Secured bank loans (84,595) (116,642) (6,225) (110,417) – US Secured bank loans (27,550) (24,706) (3,315) (21,391) – Unsecured preference shares (1,099) (1,629) (106) (424) (1,099) Finance lease liabilities (35,332) (40,106) (12,757) (26,003) (1,346) US bond issue (2,989) (3,440) (580) (2,134) (726) Loan notes (12) (12) (12) – – Trade payables (26,105) (26,105) (26,105) – – Deferred consideration on acquisitions (990) (990) – (990) – (178,672) (213,630) (49,100) (161,359) (3,171)

75 Annual Report and Accounts 2007

Notes to the Group Financial Statements (continued)

23 Financial instruments (continued) The following table indicates the period in which the cash flows and income or expense associated with the Group’s derivatives that are cash flow hedges are expected to occur.

2007 2006 £000 £000 Interest rate swaps Asset Within one year 117 – Between one year and five years 19 285 136 285

Liability Within one year – – Between one year and five years (92) – (92) –

Net derivatives 44 285

Market risk The Group’s activities expose it to the financial risks of changes in both foreign currency exchange rates and interest rates.

Foreign currency risk The Group reduces its exposure to exchange rate movements on its overseas investments by matching, where cost effective and practicable, the amount and currency of net assets with that of borrowings. The Group operations trade entirely in their functional currencies and accordingly, no translation exposures arise in trade receivables or trade payables. The Group has a US$15.0 million (2006: US$15.0 million) loan in the UK used to hedge against its US assets hence this risk is not material in relation to the Group. The following significant exchange rates applied during the year: Reporting date Average rate spot rate 2007 2006 2007 2006 USD 2.002 1.843 1.982 1.957 PLZ 5.536 5.721 4.869 5.684

Sensitivity analysis A 10 percent weakening of sterling against the following currencies at 31 December 2007 would have increased/(decreased) equity and income or expense by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2006. Income or Equity expense £000 £000 31 December 2007 USD 1,557 136 PLZ 55 258 31 December 2006 USD 1,539 256 PLZ (130) (21)

A 10 percent strengthening of sterling against the above currencies at 31 December 2007 and 2006 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

76 Annual Report and Accounts 2007

23 Financial instruments (continued) Interest rate risk The Group currently borrows at floating and fixed interest rates. The Group uses interest rate swaps, caps and collars to manage its exposure to changes in floating interest rates. These swaps mature in line with the related loan and have fixed interest rates ranging from 4.90% to 4.95%. At 31 December 2007, the Group had interest rate swaps with a notional contract amount of £47,568,000 (2006: £55,065,000). The Group classifies interest rate swaps as cash flow hedges and states them at fair value. The net fair value of swaps at 31 December 2007 was an asset of £44,000 (2006: asset of £285,000) comprising assets of £136,000 (2006: £285,000) and liabilities of £92,000 (2006: £Nil). These amounts were recognised as fair value derivatives and the effective portion of the fair value is recognised in the cash flow hedge reserve. At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was: Carrying amount UK US Poland Total UK US Poland Total 2007 2007 2007 2007 2006 2006 2006 2006 £000 £000 £000 £000 £000 £000 £000 £000 Fixed rate instruments Financial liabilities (73,478) (18,514) (4,552) (96,544) (60,822) (15,741) (2,534) (79,097) Variable rate instruments Financial liabilities (54,862) (12,899) – (67,761) (49,580) (22,874) (14) (72,468) Financial assets 589 519 1,484 2,592 582 1,085 662 2,329 (127,751) (30,894) (3,068) (161,713) (109,820) (37,530) (1,886) (149,236)

Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) both equity and profit or loss by £652,000 (2006: £701,000). This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Fair values versus carrying amounts Derivative financial instruments are carried at fair value calculated using quoted market prices relevant for the term, currency and instrument. The Directors consider that the carrying amounts recorded in the financial statements in respect of other financial assets and liabilities approximates to their fair values.

Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Board closely monitors the shareholder base, dividend yield and earnings per share. Net debt as a percentage of equity was 84% (2006: 105%). There were no changes in the Group’s approach to capital management during the year.

24 Operating leases Total non-cancellable operating lease rentals are payable as follows:

2007 2006 Land and Land and buildings Other buildings Other £000 £000 £000 £000 Less than one year 3 20 84 110 Between one and five years 761 22 923 127 More than five years 10,403 – 9,253 – 11,167 42 10,260 237

The Group leases properties, vehicles and plant for operational purposes. Property leases vary in length up to a maximum of 25 years. Vehicle leases typically run for a period of four years.

77 Annual Report and Accounts 2007

Notes to the Group Financial Statements (continued)

25 Capital commitments During the year ended 31 December 2007, the Group entered into contracts to purchase property, plant and equipment for £10,399,000 (2006: £7,479,000). These commitments are expected to be settled in the following financial year.

26 Related parties The Group’s key management personnel are the Executive and Non-Executive Directors. Details of Directors’ remuneration are given in the Directors’ Remuneration Report on pages 37 to 41. There were no other transactions with key management personnel in either the current or preceding year. During the year, the Group supplied services and materials to, and purchased services and materials from, its associated undertakings on an arms’ length basis as follows:

Trade Trade Revenue Purchases receivable payable Loans £000 £000 £000 £000 £000 2007 BEAR Scotland Limited 7,110 (31) 145 – – Marine Mastic Limited – – 3 – – Betotest Polska sp.z o.o. 4 (93) – (33) – 148 (33) –

2006 BEAR Scotland Limited 7,705 (17) 994 – – Marine Mastic Limited 4 – 8 – – Alba Traffic Management Limited – (719) – (111) 200 Betotest Polska sp.z o.o. 2 (72) – (72) – 1,002 (183) 200

During the year, the Group purchased an additional 45% stake in Alba Traffic Management Limited from BEAR Scotland Limited. Alba Traffic Management Limited is now a subsidiary undertaking.

78 Annual Report and Accounts 2007

27 Acquisitions On 15 February 2007, the Group acquired the trade and assets of Mansfield Asphalt Company Limited. This transaction has been accounted for as an acquisition. The fair value of the consideration paid and the net assets acquired, together with the goodwill arising in respect of this acquisition, are as follows:

Book Fair value Fair value on value adjustments acquisition £000 £000 £000 Land and buildings 51 1,124 1,175 Plant and equipment 505 – 505 Inventories 207 – 207 Provisions: Other – (100) (100) Deferred tax – (307) (307) Total 763 717 1,480

Consideration: Cash 7,270 Expenses 54 Total 7,324 Goodwill arising 5,844

The provisional fair value adjustments comprise adjustments to the carrying value of assets to reflect their fair value and provisions to reflect restoration costs to comply with environmental, planning and other legislation and the deferred tax effect of these adjustments. Since acquisition, the trade has been fully integrated into the appropriate group company. Consequently, no separate detailed trading information is available. No full year revenue information is given as historic revenue in respect of acquisitions is not reflective of the effect on the Group. No meaningful disclosure is therefore available.

79 Annual Report and Accounts 2007

Notes to the Group Financial Statements (continued)

27 Acquisitions (continued) During the year, the Group acquired the trade and assets of two concrete plants owned by Tarmac Limited, a leasehold interest in Netherglen Quarry, five concrete plants owned by Cemex UK Limited, a concrete plant in Aviemore, a freehold interest in Orrock Quarry, DW Gordon Blocks, Terracarbon, Handyman Concrete and Deep Creek Ready Mix Concrete. The Group also acquired the entire issued share capital of The Boyne Bay Lime Company Limited, Waveney Asphalt Company Limited and Keplinger Lime Co. Inc. In addition, the Group purchased an additional 45% stake in Alba Traffic Management Limited, previously a 45% owned associated undertaking. These transactions have been accounted for as acquisitions. The fair value of the consideration paid and the net assets acquired, together with the goodwill arising in respect of these acquisitions, on a consolidated basis, are as follows:

Book Fair value Fair value on value adjustments acquisition £000 £000 £000 Mineral reserves 8,713 505 9,218 Land and buildings 6,746 447 7,193 Plant and equipment 5,450 (1,154) 4,296 Intangible assets – customer lists – 5 5 Inventories 237 (135) 102 Trade and other receivables 3,304 (4) 3,300 Overdrafts (503) – (503) Trade and other current liabilities (2,273) (336) (2,609) Current tax payable (81) – (81) Provisions: Restoration – (695) (695) Other – (1,015) (1,015) Deferred tax (103) 514 411 Minority interests – (51) (51) Total 21,490 (1,919) 19,571

Consideration: Cash 26,695 Deferred 750 Shares 450 Expenses 718 Transfer from investment in associated undertaking 464 Total 29,077 Goodwill arising 9,506

The provisional fair value adjustments comprise: n the revaluation of certain minerals and property, plant and equipment to reflect existing use; n adjustments to reflect the recognition of customer lists acquired; n adjustments to inventories and trade and other receivables to reflect net realisable value; n adjustments to provisions to recognise contractual environmental planning and other liabilities; and n the recognition of deferred tax on these adjustments. These acquisitions have been fully integrated into the trades of the appropriate group companies subsequent to their acquisition. Consequently, no separate detailed trading information is available. No full year revenue information is given as historic revenue in respect of acquisitions is not reflective of the effect on the Group. No meaningful disclosure is therefore available. The goodwill arising represents geographic location of the assets acquired, the skills of the existing workforce and synergies expected from integration with existing businesses. Customer lists are amortised over their useful economic lives. In addition, £508,000 deferred consideration was paid in respect of acquisitions in prior years.

80 Annual Report and Accounts 2007

27 Acquisitions (continued) 2006 acquisitions The provisional fair values made in the 2006 Group financial statements have been reviewed and the following adjustments made:

£000 Adjustment to tax liability (271) Adjustments to consideration 39 (232)

On 24 January 2006, the Group acquired the trade and assets of Ayton Products. This transaction has been accounted for as an acquisition. The fair value of the consideration paid and the net assets acquired, together with the goodwill arising in respect of this acquisition, are as follows:

Fair value Fair value on Book value adjustments acquisition £000 £000 £000 Mineral reserves – 300 300 Land and buildings 3,287 (250) 3,037 Plant and equipment 2,602 – 2,602 Inventories 174 – 174 Trade and other current liabilities (303) – (303) Provisions: Restoration – (175) (175) Total 5,760 (125) 5,635

Consideration: Cash 8,448 Expenses 142 Total 8,590 Goodwill arising 2,955

The provisional fair value adjustments comprise adjustments to the carrying value of assets to reflect their fair value and provisions to reflect restoration costs to comply with environmental, planning and other legislation. Since acquisition, the trade has been fully integrated into the appropriate group company. Consequently, no separate detailed trading information is available.

Annual Report and Accounts 2007 81

Notes to the Group Financial Statements (continued)

27 Acquisitions (continued) In 2006, the Group acquired the trade and assets of May Gurney Surfacing, Matbet-Bis, a ready mixed concrete business in Zbaszyn, GL McKnight, Inc and Frostburg Concrete LLC, together with the entire share capital of Roxbury Ready-Mix, Inc., B&B Concrete, Inc., Smiths (Construction) Plc, Jacksons Precast Limited and Bonitex sp.z o.o. These transactions have been accounted for as acquisitions. The fair value of the consideration paid and the net assets acquired, together with the goodwill arising in respect of these acquisitions, are as follows:

Fair value Fair value on Book value adjustments acquisition £000 £000 £000 Mineral reserves 849 1,126 1,975 Land and buildings 4,205 (649) 3,556 Plant and equipment 4,418 39 4,457 Intangible assets – customer lists – 242 242 Inventories 493 (106) 387 Trade and other receivables 4,532 (82) 4,450 Cash 893 – 893 Other interest bearing loans – current liabilities (221) – (221) Trade and other current liabilities (4,288) (694) (4,982) Other interest bearing loans – non-current liabilities (467) – (467) Other payables – non-current liabilities (48) – (48) Provisions: Restoration – (1,144) (1,144) Other – (1,004) (1,004) Deferred tax (162) (593) (755) Total 10,204 (2,865) 7,339

Consideration: Cash 18,888 Deferred 229 Shares – Expenses 604 Total 19,721 Goodwill arising 12,382

The provisional fair value adjustments comprise: n adjustments to reflect the valuation of intangible assets; n the revaluation of certain minerals and property, plant and equipment to reflect existing use; n adjustments to inventories and trade and other receivables to reflect net realisable value; n adjustments to provisions to recognise contractual environmental, planning and other liabilities including provision for dilapidations; and n provisions to recognise appropriate deferred taxation. These acquisitions have been fully integrated into the trades of the appropriate group companies subsequent to their acquisition. Consequently, no separate detailed trading information is available.

Acquisition of minority interests In November 2006, the Group acquired the remaining 49% interest in Berwyn Granite Quarries Limited for a cash consideration of £18,165,000, including expenses. The carrying amount of Berwyn’s net assets in the consolidated financial statements on the date of the acquisition was £2,307,000. The Group recognised goodwill of £15,858,000.

82 Annual Report and Accounts 2007

28 Disposal of discontinued operation During the year, the Group disposed of its natural stone building products business. This disposal has been accounted for as a discontinued operation. The consideration received and the carrying value, net of depreciation and impairments, of the assets disposed of are as follows: £000 Mineral reserves 1,225 Land and buildings 1,075 Plant and equipment 2,336 Inventory 302 4,938 Consideration: Cash 3,650 Deferred 1,528 Expenses (240) 4,938 Net loss on sale –

In addition, the Group incurred impairment costs of £5,591,000 in respect of this business, prior to sale. Deferred consideration is payable over the next seven years and has been discounted. Goodwill in respect of this business was fully impaired in prior years and has been disposed of accordingly.

29 Post balance sheet events Subsequent to the balance sheet date, the Group has acquired certain trade and assets of TSL Contractors Limited in Scotland for a cash consideration of £1.0 million and, in the US, the Group acquired the entire share capital of King William Sand & Gravel Mattaponi, Inc for a cash consideration of US$5.5 million (£2.8 million). The Group is in the process of identifying the fair value of assets acquired and associated goodwill arising.

30 Accounting estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 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 and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below:

Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the future cash flows expected to arise from the cash-generating unit to which the goodwill is attached.

Defined benefit pension scheme valuations In determining the valuation of defined benefit pension scheme assets and liabilities, a number of key assumptions have been made. The key assumptions, which are given below, are largely dependent on factors outside the control of the Group: n expected return on scheme assets n inflation rate n mortality n discount rates n salary and pension increases

Minerals A number of key assumptions have been made in the calculation of the carrying value of minerals, overburden and related assets and in determining the annual depletion charge. These assumptions include the amount of consented and unconsented reserves available for extraction, the estimated residual value, extraction rates, the depth of overburden, and the gaining of additional planning consents.

Fair values of assets on business combinations In determining the fair valuation of assets acquired under business combinations, including the valuation of other intangibles, a number of estimates are made. These include the market value of minerals, property, plant and equipment, and associated liabilities for contractual restoration provisions.

Annual Report and Accounts 2007 83

Company Balance Sheet at 31 December 2007

Note 2007 2006 £000 £000 £000 £000 Fixed assets Tangible assets C4 1,415 1,605 Investments C5 141,284 141,284 142,699 142,889 Current assets Debtors: amounts falling due after more than one year 142,881 85,043 amounts falling due within one year 5,652 16,999 C6 148,533 102,042 Cash and short term deposits 16,972 154 165,505 102,196 Creditors: amounts falling due within one year C7 (5,490) (13,499) Net current assets 160,015 88,697 Total assets less current liabilities 302,714 231,586 Creditors: amounts falling due after more than one year C8 (111,672) (91,042) Net assets 191,042 140,544

Capital and reserves Called up share capital C10 121,136 89,588 Share premium account C11 45,354 26,914 Other reserves C11 453 587 Profit and loss account C11 24,099 23,455 Equity shareholders’ funds 191,042 140,544

The financial statements were approved by the Board of Directors on 11 March 2008 and signed on its behalf by:

CV McLeod CA Kennedy Director Director

84 Annual Report and Accounts 2007

Notes to the Company Financial Statements

C1 Accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements except in respect of the matters below.

Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards using the historical cost convention except that derivative financial instruments are stated at their fair value. Non-current assets and assets held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. In accordance with section 230(4) of the Companies Act 1985, the Company is exempt from the requirement to present its own profit and loss account. In accordance with FRS 1 the Company is exempt from preparing its own cash flow statement. In accordance with FRS 8: Related parties, the Company is exempt from such disclosure requirements.

Share-based payments The share option programme allows employees to acquire shares in the Company. 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. The fair value of the options granted is measured using a Modified Black Scholes Valuation Model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

Retirement benefit obligations Details of the Group’s pension schemes are disclosed in note 22 of the Group Financial Statements. Pension costs are recognised in the financial statements in accordance with the requirements of FRS 17. Employees of the Company participate in the defined contribution scheme and contributions are charged to the profit and loss account in the period to which they relate.

Investment in subsidiary and associated undertakings In the Company’s balance sheet, investments in subsidiary and associated undertakings are stated at cost less provision for any impairment in value. The cost of investment is stated at the aggregate of: n the cash or loans payable by way of consideration; n the nominal value of the Company’s shares issued as consideration where Section 131 of the Companies Act 1985 (the merger relief provisions) applies or the market value of the Company’s shares on the date they were issued as consideration in cases where the merger relief provisions do not apply; and n the costs of acquisition.

Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.

Financial instruments The Company uses financial instruments to manage financial risks associated with the Company’s underlying business activities and the financing of those activities. The Company does not undertake any trading in financial instruments. Derivatives are initially recognised at fair value on the date that the contract is entered into and subsequently re-measured in future periods at their fair value. The method of recognising the resulting change in fair value is dependent on whether the derivative is designated as a hedging instrument. The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swaps at the balance sheet date, taking into account current interest rates and the current credit worthiness of the swap counterparties.

Leased assets Assets acquired under finance leases and similar hire purchase contracts are included in tangible fixed assets and the outstanding future instalments, net of finance charges, are shown in creditors. Finance charges are allocated to the profit and loss account using the sum of the digits method over the primary lease term. Payments under operating leases are charged to the profit and loss account on a straight line basis over the lease term.

Annual Report and Accounts 2007 85

Notes to the Company Financial Statements (continued)

C1 Accounting policies (continued) Tangible fixed assets Freehold land is not depreciated. Depreciation is provided on other tangible fixed assets on a straight line basis so as to write off the cost of the assets, less their estimated residual values, over their estimated economic lives as follows: Freehold buildings 50 years Fixtures and fittings 10 years Office equipment 3-5 years Motor vehicles 4 years

Taxation The charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen, but not reversed, by the balance sheet date, except as otherwise required by FRS 19.

C2 Profit for the financial year The Company’s profit for the financial year was £7,035,000 (2006: loss £4,609,000). The auditor’s remuneration in respect of audit services provided to the Company was £5,000 (2006: £5,000).

C3 Directors and employees The average number of persons employed by the Company during the year was as follows:

2007 2006 Number Number Central Administration 20 17

The aggregate payroll costs of these persons were as follows:

£000 £000 Wages and salaries 1,864 1,658 Social security costs 202 276 Other pension costs 175 167 Share-based payments 31 39 2,272 2,140

86 Annual Report and Accounts 2007 C4 Tangible fixed assets Plant, Freehold land equipment and buildings and vehicles Total £000 £000 £000 Cost At beginning of year 1,389 867 2,256 Additions 84 195 279 Transfers from group companies – 12 12 Disposals (292) (94) (386) At end of year 1,181 980 2,161

Depreciation At beginning of year 75 576 651 Charge for year 16 155 171 Disposals – (76) (76) At end of year 91 655 746

Net book value At 31 December 2007 1,090 325 1,415 At 31 December 2006 1,314 291 1,605

The above net book value includes £44,000 (2006: £62,000) of assets held under finance leases. Depreciation on these assets was £18,000 (2006: £10,000).

C5 Investments Subsidiary undertakings £000 Cost At beginning and end of year 148,305

Provisions At beginning and end of year 7,021

Net book value At 31 December 2007 141,284 At 31 December 2006 141,284

Subsidiary undertakings The principal trading subsidiary undertakings are listed in note C14.

Annual Report and Accounts 2007 87

Notes to the Company Financial Statements (continued)

C6 Debtors 2007 2006 £000 £000 Amounts owed by Group undertakings 143,566 99,419 Other debtors 1,388 107 Corporation tax recoverable 2,608 1,679 Other taxation and social security costs 14 74 Prepayments and accrued income 821 493 Financial instruments – derivative 136 270 148,533 102,042

Included within amounts owed by Group undertakings is an amount of £142,881,000 (2006: £85,043,000) due after more than one year.

C7 Creditors: amounts falling due within one year 2007 2006 £000 £000 Finance lease and similar hire purchase obligations (note C8) 23 23 Trade creditors 1,709 2,033 Amounts owed to Group undertakings 1,677 9,351 Other taxation and social security costs 108 89 Other creditors 417 596 Accruals and deferred income 1,556 1,407 5,490 13,499

C8 Creditors: amounts falling due after more than one year 2007 2006 £000 £000 Bank loans (secured) 102,487 89,365 Finance leases and similar hire purchase obligations 8 31 Amounts owed to Group undertakings 7,602 71 Other creditors 1,575 1,575 111,672 91,042

The bank loans and overdrafts of the Company are secured on certain of the freehold and leasehold properties and other assets of the Company and its subsidiary undertakings and are all repayable within five years. Hire purchase obligations are secured on the assets to which they relate and, together with finance lease obligations, are repayable within five years. The maturity obligations under finance leases and hire purchase contracts is as follows:

2007 2006 £000 £000 On demand or within one year 23 23 Between one and two years 8 23 Between two and five years – 8 31 54

88 Annual Report and Accounts 2007 C9 Provisions for liabilities and charges The Company has no potential deferred tax liability (2006: £Nil).

C10 Called up share capital 2007 2006 £000 £000 Authorised 650,000,000 (2006: 408,000,000) ordinary shares of 25 pence each 162,500 102,000

Allotted, called up and fully paid 484,543,632 (2006: 358,351,772) ordinary shares of 25 pence each 121,136 89,588

On 1 June 2007, the Company placed 120,892,813 new ordinary shares of 25 pence each at 42 pence per share raising a total of £50.8 million before expenses. On 15 February 2007, the Company placed 4,166,667 new ordinary shares of 25 pence each at 48 pence per share raising a total of £2.0 million. On 8 May 2007, the Company issued 952,380 new ordinary shares of 25 pence each at 47.25 pence per share in connection with the acquisition of Terracarbon. During the year, the Company also issued new ordinary shares of 25 pence each under the Group’s share option schemes as follows:

Number Issue price of shares 1997 Approved Share Option Scheme 34.5p 20,000 1997 Unapproved Share Option Scheme 30.0p 160,000 180,000

Share-based payments The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The number and weighted average exercise prices of share options are as follows:

Weighted Weighted average average exercise Number exercise Number price of options price of options 2007 2007 2006 2006 Outstanding at the beginning of the year 37p 2,163,006 38p 5,492,186 Exercised during the year 31p (180,000) 31p (1,757,639) Lapsed during the year 37p (207,446) 47p (1,571,541) Granted during the year 32p 2,718,240 – – Outstanding at the end of the year 34p 4,493,800 37p 2,163,006

Exercisable at the end of the year 616,518 796,518

The weighted average share price at the date of exercise of share options exercised during the year was 49 pence (2006: 49 pence).

Annual Report and Accounts 2007 89

Notes to the Company Financial Statements (continued)

C10 Called up share capital (continued) Details of share options outstanding at 31 December were as follows:

2007 2006 Scheme Number Number Exercise price Exercise period Ennstone 2007 Sharesave Scheme 2,718,240 – 32.0p 1 December 2010 to 1 June 2011 Ennstone 1997 Sharesave Scheme 1,159,042 1,366,488 36.5p 1 June 2008 to 1 December 2008 Ennstone 1997 Unapproved Share Option Scheme – 160,000 30.0p 29 April 2003 to 28 April 2007 Ennstone 1997 Unapproved Share Option Scheme 40,844 40,844 30.5p 20 April 2004 to 19 April 2008 Ennstone 1997 Unapproved Share Option Scheme 20,000 20,000 31.8p 7 November 2004 to 6 November 2008 Ennstone 1997 Unapproved Share Option Scheme 94,639 94,639 34.5p 19 April 2005 to 18 April 2009 Ennstone 1997 Approved Share Option Scheme 101,064 101,064 66.8p 7 May 2001 to 6 May 2008 Ennstone 1997 Approved Share Option Scheme 5,454 5,454 46.8p 2 April 2002 to 1 April 2009 Ennstone 1997 Approved Share Option Scheme 30,000 30,000 48.5p 21 September 2002 to 20 September 2009 Ennstone 1997 Approved Share Option Scheme 144,156 144,156 30.5p 20 April 2004 to 19 April 2011 Ennstone 1997 Approved Share Option Scheme 40,000 40,000 31.8p 7 November 2004 to 6 November 2011 Ennstone 1997 Approved Share Option Scheme 140,361 160,361 34.5p 19 April 2005 to 18 April 2012 4,493,800 2,163,006

During the year, options were granted over 2,718,240 ordinary shares of 25 pence each in respect of the SAYE scheme. No share options were granted in the preceding year.

Share-based payments The fair value of services received in return for share options granted is measured based on a Modified Black Scholes Valuation Model using the following assumptions:

SAYE SAYE 2007 2005 Fair value of share options and assumptions: Fair value at measurement date 4.43p 5.34p Share price at grant date 36.50p 41.25p Exercise price 32.00p 36.25p Expected volatility 18% 12% Option life 3 YRS 3 YRS Expected dividend yield 3.0% 3.0% Risk free interest rate (based on national government bonds) 5.5% 4.0%

The expected volatility is based on historic volatility (calculated based on the weighted average remaining life of the share options) adjusted for any expected charges to future volatility due to publicly available information. The Company has taken advantage of the exemption to only fair value options granted since November 2002. The total expense recognised for the year arising from share-based payments are as follows:

2007 2006 £000 £000 Equity settled share-based payment expense 31 39

90 Annual Report and Accounts 2007

C11 Reserves Share Cash flow Share premium Other hedging Profit and capital account reserve reserve loss account Total £000 £000 £000 £000 £000 £000 At beginning of year 89,588 26,914 317 270 23,455 140,544 Share issues 31,548 21,732 – – – 53,280 Share issue expenses – (3,292) – – – (3,292) Retained profit for the financial year – – – (134) 7,035 6,901 Equity settled share-based payment transactions – – – – 31 31 Dividends – – – – (6,422) (6,422) At end of year 121,136 45,354 317 136 24,099 191,042

The other reserve comprises unrealised profit on intra-group asset transfers and the undistributable surplus arising from a capital reconstruction in December 1997.

C12 Financial commitments Operating leases At 31 December 2007, there were annual commitments for amounts to be paid under non-cancellable operating leases which expire as follows:

Land and buildings 2007 2006 £000 £000 In 2-5 years 78 – After five years – 78

C13 Pensions The Company operates a defined contribution pension scheme. The cost for the year represents contributions payable by the Company amounting to £175,000 (2006: £167,000).

C14 Subsidiary undertakings The Company’s principal trading subsidiary undertakings are as follows:

Proportion of ordinary Trading Country of incorporation shares held Nature of business Held directly Ennstone Concrete Products Limited Great Britain 100% Production and sale of concrete products

Held indirectly Ennstone Thistle Limited Great Britain 100% Production and sale of aggregates Ennstone, Inc. United States of America 100% Production and sale of aggregates Ennstone Johnston Limited Great Britain 100% Production and sale of aggregates Ennstone sp. z o.o. Poland 100% Production and sale of aggregates

C15 Parent company guarantees The Company has guaranteed the bank overdrafts and loans of certain of its subsidiary undertakings which, at 31 December 2007, amounted to £34,366,000 (2006: £25,768,000).

Annual Report and Accounts 2007 91

Three Year Record

Consolidated Income Statement Before reorganisation, Reorganisation, redundancy redundancy and and impairments impairments Total Restated 2007 2007 2007 2006 2005 £000 £000 £000 £000 £000 Revenue 236,836 236,836 192,092 159,768 Group operating profit 28,010 (6,713) 21,297 21,055 17,961 Share of profit of associated undertakings 92 – 92 843 664 Profit from operations 28,102 (6,713) 21,389 21,898 18,625 Net financial expense (11,136) – (11,136) (8,351) (5,595) Profit on continuing operations before tax 16,966 (6,713) 10,253 13,547 13,030 Tax (4,934) 1,693 (3,241) (3,984) (4,074) Profit from continuing operations after tax 12,032 (5,020) 7,012 9,563 8,956 Loss on discontinued operations, net of tax (877) – (877) (3) (1,377) Profit for the year 11,155 (5,020) 6,135 9,560 7,579

Consolidated Balance Sheet Non-current assets 362,379 308,352 241,489 Current assets 88,581 67,330 57,352 Current liabilities (69,319) (58,000) (56,561) Non-current liabilities (189,765) (175,321) (129,173) Net assets 191,876 142,361 113,107 Basic earnings per ordinary share 2.57p 1.41p 2.75p 2.39p Continuing earnings per ordinary share 2.78p 1.62p 2.75p 2.87p Dividends per ordinary share 1.49p 1.44p 1.32p

92 Annual Report and Accounts 2007

Shareholder Information

Registrar and Transfer office The Company’s Registrar, to whom all enquires concerning shareholdings should be addressed, is Capita IRG Plc, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. UK Shareholder enquiries can also be made to 0871 664 0300. Calls cost 10p per minute plus network extras. Enquiries from outside the UK should be made to +44 208 639 3399.

Share price information line Details of the Company’s current share price can be obtained from the Company’s website or by telephoning the FT Cityline on 0906 843 2118. Calls are currently charged at 60 pence per minute.

Amalgamation of shareholdings If you are receiving more than one copy of the Annual Report and Accounts, this may be because you have several accounts on the share register. If you would like those accounts amalgamated this can be done, without charge, if you write to the Registrar at the above address.

Dividend mandates If you wish dividends to be sent directly into a bank or building society account, you should contact the Registrar at the above address for a dividend mandate form.

Investor relations Details of investor events will be posted on our website, www.ennstone.co.uk

Analysis of ordinary shareholders An analysis of ordinary shareholders at 10 March 2008 was as follows:

Number of Number of ordinary holders shares of 25p By category Individuals 5,039 69,508,073 Institutions and companies 1,310 415,035,559 6,349 484,543,632 By size of holding Up to 1,000 1,914 619,223 1,001 – 10,000 2,744 11,605,498 10,001 – 100,000 1,413 37,606,348 100,001 – 500,000 159 34,344,603 500,001 – 1,000,000 29 21,309,342 Over 1,000,000 90 379,058,618 6,349 484,543,632

Contact If you require information regarding Ennstone plc, please contact Cynthia Maclean, Director of Investor Relations: Tel: +44 (0)1332 694444 Fax: +44 (0)1332 694445 E-mail: [email protected]

Website www.ennstone.co.uk

Annual Report and Accounts 2007 93

Notice of Annual General Meeting

Notice is hereby given that the 2008 Annual General Meeting of Ennstone plc will be held at Breedon Hall, Breedon on the Hill, Derby DE73 8AN at 11.00 am on 13 May 2008 to consider the following resolutions which, in the case of resolutions 10 and 11, will be proposed as special resolutions with the remainder being proposed as ordinary resolutions:

Ordinary Business 1 To receive and adopt the financial statements for the year ended 31 December 2007, together with the Directors’ and Auditor’s reports thereon. (Resolution No. 1) 2 To approve the Directors’ Remuneration Report for the year ended 31 December 2007. (Resolution No. 2) 3 To re-elect Mr MA Elliott as a director of the Company. (Resolution No. 3) 4 To re-elect Mr JMS Johnston as a director of the Company. (Resolution No. 4) 5 To re-elect Mr TS Ross as a director of the Company. (Resolution No. 5) 6 To re-appoint KPMG Audit Plc as auditor of the Company to hold office from the conclusion of this meeting until the conclusion of the next general meeting at which financial statements are laid before the Company. (Resolution No. 6) 7 To authorise the directors to fix the remuneration of the auditor. (Resolution No. 7) 8 To declare a final dividend of 1.02 pence per share on the ordinary shares. (Resolution No. 8)

Special Business To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution: 9 That: (a) the directors be and they are hereby generally and unconditionally authorised for the purpose of Section 80 of the Companies Act 1985 (“the Act”) to exercise all the powers of the Company to allot relevant securities up to an aggregate nominal amount of £40,378,636 such authority to expire on the fifth anniversary of the date on which this Resolution is passed, save that the Company may at any time before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities pursuant to such an offer or agreement as if the power conferred hereby had not expired and provided further that the authority conferred by this Resolution shall be in substitution for any prior authorities conferred on the directors to allot relevant securities; and (b) words and expressions defined in or for the purposes of Part IV of the Act shall bear the same meaning in this Resolution. (Resolution No. 9) To consider and, if thought fit, to pass the following resolutions as Special Resolutions: 10 That: (a) the directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 (‘‘the Act”) to allot equity securities for cash pursuant to the authority conferred by Resolution 9 above as if Section 89(1) of the Act did not apply to such allotment provided that this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue or other offer in favour of holders of ordinary shares in the capital of the Company and other persons entitled to participate by way of rights where the equity securities attributable to the interests of all holders of such ordinary shares and such other persons’ holdings (or as appropriate to the numbers of such shares which such other persons are for these purposes deemed to hold) are proportionate (as nearly as may be) to the respective numbers of such ordinary shares held by them but subject to such exclusions or other arrangements as the directors may deem necessary or expedient for the purpose of dealing with fractional entitlements or legal or practical problems under the laws or the requirements of any regulatory body or any stock exchange, in any territory or as regards shares held by an approved depository or an issue in uncertifiable form or otherwise; and (ii) the allotment (otherwise than pursuant to sub-paragraph (a)(i) of this Resolution) of equity securities up to an aggregate nominal amount of £6,056,795; and shall expire on the fifth anniversary of the date on which this Resolution is passed, save that the Company may at any time before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry as if the power conferred hereby had not expired and provided further that the power conferred by this Resolution shall be in substitution for any prior authorities conferred on the directors to allot equity securities for cash as if Section 89(1) of the Act did not apply thereto (save to the extent already exercised); and (b) words and expressions defined in or for the purposes of Part IV of the Act shall bear the same meaning in this Resolution. (Resolution No. 10)

94 Annual Report and Accounts 2007 Notice of Annual General Meeting (continued)

11 That the Company be and is hereby generally and unconditionally authorised for the purpose of Section 166 of the Companies Act 1985 (the “Act”) to make one or more market purchases (within the meaning of Section 163(3) of the Act) on the London Stock Exchange PLC (“The London Stock Exchange”) of ordinary shares of 25 pence each in the capital of the Company (“Ordinary Shares”) provided that: (a) the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 48,454,363 (representing 10 per cent. of the Company’s issued ordinary share capital); (b) the minimum price which may be paid for such shares is the nominal value of 25 pence per share (exclusive of expenses); (c) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be not more than 5 per cent. above the average of the market values for an Ordinary Share as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the date on which the Ordinary Share is purchased; (d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the annual general meeting of the Company to be held in 2009 or within 12 months from the date of passing of this Resolution, whichever shall be the earlier; and (e) the Company may make a contract or contracts to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority which may be completed wholly or partly after the expiry of such authority. (Resolution No. 11)

By order of the Board RE McDonald Company Secretary Registered office: Breedon Hall Breedon on the Hill Derby DE73 8AN 11 April 2008 Notes: 1 A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote in their stead. A Proxy need not be a member of the Company. 2 A member may appoint more than one proxy to attend the Meeting, but must specify the number of shares in respect of which each proxy is appointed. 3 The instrument appointing a Proxy, together with the power of attorney (if any) under which it is signed or a notarially certified or office copy thereof, must be lodged at the offices of the Company’s Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hours before the Meeting or any adjournment thereof. 4 Completion of a Form of Proxy will not preclude a Member from attending and voting in person at the Meeting if the member so wishes. 5 In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the register of members of the Company at 6.00 pm on 11 May 2008 shall be entitled to attend or vote at the Meeting in respect of the number of shares registered in their name at that time. Changes to entries on the register of Members after 6.00 pm on 11 May 2008 shall be disregarded in determining the rights of any person to attend or vote at the Meeting. 6 There will be available at the offices of the Company, Breedon Hall, Breedon on the Hill, Derby DE73 8AN, during usual business hours on any weekday (Saturday and public holidays excluded) up to and including 13 May 2008 and for a period of 15 minutes prior to the Annual General Meeting and at the Meeting itself, copies of all contracts of service between the Directors and the Company. 7 CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting and any adjournment(s) of the meeting by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with CRESTCo’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company’s agent (ID RA10) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

Annual Report and Accounts 2007 95

Operational Locations and Management

United States Poland

Mark Elliott Tony Large President Chief Executive Ennstone, Inc. Ennstone sp.z o.o. Age 49 Age 47

PA New York Pittsburgh

Szczecin MD WV Washington

Poznan

Richmond VA

Key Aggregates Value Added Products & Services Value Added Products & Services and Aggregates

96 Annual Report and Accounts 2007 2

Ethiebeaton Quarry, in Scotland, is just one example of our integrated business model 3 in action, showing how we add value at 1 every opportunity.

4 6 Scotland England

Inverness Norwich Leicester Aberdeen Birmingham

The rock is sorted The fragmented rock is This secondary crusher into its component then fed into a primary material is then moved sizes. These single Some materials can be Our modern, efficient jaw crushing machine onto the computer sized aggregates enhanced by washing. asphalt plants use Edinburgh Minerals are at the heart After removal of topsoil which produces rock of a controlled tertiary and are then used Certain concrete single sized aggregates of the business. We and overburden, rock size more suited to being quaternary crushing and in our added products are made using to produce a full invest in increasing our is extracted from the conveyed and handled. screening stages where value activities, manufactured sands, range of asphalts for long term reserves and quarry face using An impact or cone the material is sized and or are carefully which are produced from road construction. gaining valuable planning carefully planned blasting secondary crusher then our higher value single sorted to go into what would otherwise Some mixes contain a permissions to enable us and large excavating further reduces the size sized aggregates are our decorative have been a waste proportion of recycled to extract minerals. machinery. . of the rock. produced. products range. product. road surfaces. aggr

Cert no. SGS-COC-0620

Annual Report and Accounts 2007 Annual Report and Accounts 2007 Annual Report and Accounts 2007

Securing minerals

Ennstone plc Breedon Hall, Breedon on the Hill, Derby. DE73 8AN Tel 01332 694444 Fax 01332 694445 alue Growth

Annual Report and Accounts 2007

ENNSTONE

Ennstone plc