MARSHALL OF CAMBRIDGE (HOLDINGS) LIMITED

Report & Accounts 2006

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Chairman’s Statement 3

Operating Reviews

Marshall Aerospace 5

Marshall Motor Holdings:

Marshall Motor Group 9

Marshall Leasing 11

Marshall Thermo King 13

Marshall Specialist Vehicles 15

Property Review 16

Corporate Responsibility 17

Financial Review 18

Corporate Governance 20

The Board 23

Directors’ Report 24

Statement of Directors’ Responsibilities 27

Group Profit and Loss Account 28

Group Statement of Total Recognised Gains and Losses 28

Group Statement of Cash Flows 29

Group Balance Sheet 30

Company Balance Sheet 31

Notes to the Financial Statements 32

Report of the Auditors 50

Recent Financial History 51

Notice of AGM 52

AGM Agenda 53

Sir Arthur Marshall OBE DL 54

Key Group Personnel 56

C o n t e n t s

3

I cannot begin my Statement this year

without a reference to the death of our

Honorary Life President, my father Sir

Arthur Marshall, who after an

incredible 103 year innings finally

folded his wings and died peacefully at home early in

the morning of March 16th. The tributes to him have

been pouring in from all over the world and from

some 500 kind colleagues, friends and acquaintances,

to whom we in the Company are all most grateful.

There have also been amazing obituaries in the

national press. Although my father had ‘retired’ in

1989, it was good that we were able to persuade him

to write the history of the wonderful story of the life

of his family and the development of Marshall of

Cambridge in his much sought-after book ‘The

Marshall Story’. We must all be grateful to him for

what he has bequeathed to us in this Company, some

highlights of which are recorded on pages 54-55 of

this report, and it is in our hands to continue to build

further on his legacy.

2006 has been an excellent year for the Group, thanks to the hard work

of our dedicated management and staff.

Our Aerospace activities have continued to grow on the back of the

important HIOS contract which gives such critical support to the Royal

Air Force on its C-130 fleet. Our work in Canada has already resulted in

a sharp reduction in turnaround time for the RCAF C-130 fleet. We are

delighted that our Dutch company has been established to carry out

engineering work in support of our C-130 digitisation and modernisation

programme for the C-130s of the Royal Netherlands Air Force. Our

manufacturing of Airbus wing stringers for the A320 and A330

programmes is exceeding expectations, as is our work for Boeing on

long range integral fuel tanks.

As I write this, we anticipate soon taking delivery of an A400M engine

from Airbus for us to mount and test-fly on a C-130 Hercules which has

been substantially modified for this important task. I was also delighted

that in July we were able to celebrate with Lockheed Martin and

the Royal Air Force the fortieth anniversary of our support for the

C-130, which has been such a success story for all of us and the nation.

At Cambridge Airport we have seen a major increase in the number of

executive jets and are ourselves participating in the rapid growth of this

sector with our work for NetJets on Citations.

Michael Marshall

Chairman and Chief Executive

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C h a i r m a n ’ s S t a t e m e n t

Our Motor Group has had a further tough year but has maintained its

sales penetration levels. The prime focus has been on continuing to

provide our customers with a service second to none. We are pleased to

have reached agreement with the HM Revenue and Customs on the

repayment to us of VAT on demonstrator vehicles.

Specialist Vehicles is now building up its production of the bodies for the

MoD Support Vehicle contract with MAN at our new facility at

Mildenhall, close to the RAF Station which is used by the USAF. We are

involved in a number of important MoD manufacturing and logistics

support programmes.

Marshall Thermo King and VTR, now under the Chairmanship of my son

Robert and led by Nigel Faben, have consolidated their headquarters in

the Quorum building next to Cambridge Airport, from which, with their

twelve depots and one hundred mobile workshops, we are positioning to

provide a first rate service to our customers.

As a result of the increase in profits and reserves, the Board recommends

that the final dividend should be increased to 14p, thereby making a

total payment for the year of 19p.

We have built further on our strong links with the community and have

continued to support many local activities and schools. We have also

maintained our participation in national organisations and charities in the

industries of which we are a part.

Our staff continue to work enthusiastically and I am grateful for all their

support. I was very pleased that John Lander was awarded the MBE in

the New Year’s Honours List for his splendid work in training and leading

apprentices working on our aircraft modernisation programmes.

I am sad, that after almost 52 years work with the Company and 42 years

on the Board of our Group, Peter Hedderwick has finally decided to

retire from the Board at the AGM, at the end of his current term. Peter

has enjoyed the trust of all of us, including my father, and provided a

vital link during the years of transition to me and the next generation of

management. His wise contributions to the development of the business,

and particularly the Aerospace business in which he spent the major part

of his career, will be greatly missed. We are enormously grateful to him

for all that he has done for our Group.

I would again like to thank our shareholders for their encouragement,

our non-executive directors for their support and guidance, and above all

our executive directors, management and staff who continue to ensure

that, whenever possible, we exceed our customers’ expectations. As

always, delighted customers underpin all our endeavours.

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M a r s h a l l A e r o s p a c e

Turnover was up by 61% on 2005 and the company returned to profit,

recording by far its best result for several years. The most important

element underpinning this growth and improvement was the securing

of a contract with the UK MoD, at the end of May 2006, to provide

enhanced levels of service in support of the Royal Air Force fleet of

C-130 Hercules aircraft.

This programme known as Hercules Integrated Operational Support

(HIOS) tasks Marshall Aerospace to provide support through to the

planned retirement date for the C-130J aircraft (currently 2030) and

requires the company to deliver maintenance, logistic and technical

services sufficient to ensure a set level of daily availability. In

delivering these services the company is partnered with Lockheed

Martin, Rolls-Royce and the MoD Hercules Integrated Project Team,

with Marshall Aerospace taking the lead management role.

Personnel from all the organisations are centred at Cambridge and

new office facilities have been built to cater for the joint working

teams. The contract has a headline value for Marshall Aerospace of

£1.4bn and will save MoD some £171m, over the life of the contract,

as compared with the pre-existing arrangements. HIOS represents a

ground breaking way of working between Industry and Government

and the reputation of Marshall Aerospace has been greatly enhanced

through this innovative approach to partnership.

The company believes that there will be extensive opportunities to

extend the concept of integrated operational support to new and

existing customers and this forms one of the three legs to our

strategy going forward.

The second leg is based on the provision of technology services.

During the course of the last year we have made considerable

progress, in particular in developing our business of providing

specialist fuel tanks. We are now the selected supplier to Boeing on

the 777-200 LR Civil airliner and on the US Navy P8A Multi-

Mission military aircraft. In addition we are undertaking

preliminary design work on tanks for the next generation 737-900

and Boeing Business Jet aircraft. Further opportunities exist to

become a supplier on the US Air Force KC767 military tanker

aircraft. Whilst all these programmes are in the preliminary phases

MARSHALL AVIATION SERVICES

CAMBRIDGE

AERO CLUB

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2006 was a year of significant growth and improvement for Marshall Aerospace.

M a r s h a l l A e r o s p a c e

the potential for high volumes of production orders is good. We are

considering developing a US presence to facilitate the ongoing

delivery of these and similar programmes. Equally encouraging is the

development of our Test Business where enquiries and orders are

growing on a monthly basis.

The third leg of our strategy is based on People Services and I am

pleased to report that Aeropeople has made further strides during the

course of the last year. Of particular significance was the completion

of the acquisition of the Acetech business from Babcock plc.

This acquisition has given a boost to our customer base and the

integrated company now has an average of 400 engineers on contract

at any one time. We will look to supplement this business through

further acquisitions this year. We have also started up an Airfield

Services arm providing air traffic control, fire and airfield

management personnel.

The thrust of Marshall Aerospace strategy is to move the company over

time away from its traditional reliance on runway related volume

towards a broader range of services many of which may not be

delivered from Cambridge. In this respect, we were pleased to open

our Netherlands Design Office, based in Leiden. It is planned that

Marshall Aerospace Netherlands B.V. will be staffed by the end of 2007

with some twenty engineers. They will be carrying out tasks in support

of the Royal Netherlands Air Force and other customers in the region.

In the short to medium term, however, it is essential that Marshall

Aerospace maintains its core strength and the expansion of military

work for a wide range of customers over the past year has been helpful

in this respect. We have progressively effected an exit

from large civil aircraft maintenance where low

margins and lack of consistency of work had led

to this stream of activity

becoming unviable. We do,

however, see real prospects for expanding our Business Jet service and

maintenance business both at Cambridge and at other locations. We

are building a relationship with NetJets the world’s largest operator and

we expect to see our work on Citation aircraft more than double over

the course of the next year.

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M a r s h a l l A e r o s p a c e

In order to focus the organisation better on delivery, the company

has undertaken a major re-organisation. We have broken down our

traditional functional organisation and created a series of business

streams focused on specific markets, each with a designated Head of

Business Unit specifically tasked with developing and growing their

area. These key positions have been staffed through a combination

of internal promotion and external recruitment. As a service

business, it is essential that we put our customers at the heart of our

approach and we continue to count customer service satisfaction as

the single most important non-financial key performance indicator

that we measure. Our customer satisfaction index score continued

to show improvement during 2006.

The expansion of business over the past year, taken together with the

efforts to develop and implement the diversification strategy, has placed

intense pressure on resource but the company has managed to cope

remarkably well despite running

below target personnel numbers

throughout the period. We have

strengthened our Human

Resources team both to help manage

the pressures and to bring all our HR processes into

line with best practice. The emphasis that the company has placed on

training over the past years is certainly standing us in good stead and,

whilst we have made a number of outside appointments during the

year, we have also been in a good position to promote internally.

In summary, Marshall Aerospace has had an extremely busy and

exciting year during which we established a more predictable

throughput of work and created a platform from which we can start to

reshape the business for the medium to long term. This will involve

significant challenges particularly in terms of resource but we are

seeing progress in a number of key areas which is encouraging.

As ever, it will be the company’s service ethic and open approach to

partnership working which will underpin these developments.

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Martin Broadhurst

Chief Executive

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Following a year of relocations and refurbishments, we focused during 2006 on the capabilities of our people, with a

particular emphasis on the operation and the structure of our management team in the Motor Group.

M a r s h a l l M o t o r H o l d i n g s

Our aim is to ensure that our staff have the necessary skills to move the

business forward in a demanding environment over the next decade. In

Marshall Leasing, we completed an acquisition to strengthen this

successful business.

MARSHALL MOTOR GROUP

The Motor Group is positioned as a

regional force in the retail car market. We

also successfully operate in the truck and

commercial vehicle market, but we are

particularly influenced by the

performance of the new car market.

The decline in the new car market

seen in 2005 continued into

2006, yet despite this we

achieved a number of

significant highlights during

the year, spearheaded by

the performance of our

Land Rover dealerships. The

introduction of Discovery 3 and

Range Rover Sport helped our Land Rover

branches perform above expectations. We were particularly pleased to

be rated as the number one Land Rover Dealer Group on performance

during the year in the UK.

Our Vauxhall franchises in the Group also performed well during the

year, especially the Leicester Vauxhall dealership which was the

Group’s top performing branch in 2006. The Vauxhall franchise, which

in recent years has been refocused on retail sales, has performed well

within the Group. Strong performances were also seen from our

Honda, Toyota and Nissan car operations, three brands with which we

are keen to grow our representation.

Our used car performance during the year did not quite reach the level

we had planned, with a sales shortfall in the nearly new market caused,

in our view, by extremely competitive new car pricing.

The new year has started well for our new and used car businesses

throughout the Group despite signs of upward pressure on interest

rates in early 2007. However, we are

susceptible to pressures

both on consumer

spending power and

also long term

environmental issues.

Clearly those

manufacturers involved

in producing large

prestige vehicles are continuing to work very

hard to ensure that their products lose their perception of causing

environmental damage. We have already seen a number of new

products coming through specifically designed to avoid the increasing

costs of high emissions and congestion charges.

One priority during 2006 was reinforcing the capabilities of our

management team. The management structure within head office and

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M a r s h a l l M o t o r H o l d i n g s

the regions was reorganised during the summer, focusing on

streamlining the communication between the Motor Holdings Board

and the branch network. The subsequent performance of the Motor

Group has confirmed that these actions were timely and appropriate.

All of the senior management of the Group have embarked on a

Leadership Development programme specifically designed to help those

managers develop and bring out the best in their dealership teams. In

addition to this training, a robust system of performance reviews has

been introduced throughout the Group. We are intending to develop

further our work with Loughborough University Automotive Academy,

expanding the intake of young people to the Group, who are supported

by Marshall through their BSc degree course in Automotive Retailing.

We are continuing to measure performance of the key elements of our

business to ensure that our performance is in line with our

expectations. We have focused in particular on our market share of the

new vehicle franchises, together with measurement of our stock turns

on used vehicles based on the available display spaces, and

improvements in stock management and sales performance within our

parts business. Our two large parts wholesale operations are now

managed jointly within the Group. Our service departments are

measured on capacity utilisation and growth in labour sales and

associated products, and we appointed a Group Service Development

Manager during the year to ensure that this vital area of our business

continues to prosper. We have seen some tremendous success in the

sale of service plans, add-on products and, in particular, the

development of tyre sales across the Group.

All these key performance indicators are relevant to the business but

without customer feedback they only tell part of the story. During the

last 12 months we have sought and received feedback from 16,000

customers, a number well in excess of anything achieved by the

manufacturers. Encouragingly, when asked the key question of

whether they would recommend us to family and friends, 95% of our

customers said "yes". Whilst pleased with this result, we are not

complacent, and have worked hard to understand the reasoning

behind those who said "no".

The scale of our activity on CSI or customer research resulted in our

winning an Automotive Management award for Excellence in Customer

Service during 2006. We are currently reviewing the whole area of

communication with our customers to ensure that our contact with

them is timely and appropriate. This includes the use of email, SMS text

and the internet. We firmly believe that retention of customers and the

provision to them of a more competitive range of products and services

is the key to the future of this business.

Into 2007, we are continuing to focus sharply on the growth of our

used car business and our after sales operations. We are particularly

working on the development of "all makes servicing" plans to ensure

that capacity in our workshops is fully utilised. The issue of available

land and property to develop further businesses continues to be a

challenge. We are fortunate to have property in key locations in

many of the towns in which we operate, but further

growth and development is

certainly affected by

alternative use values

of suitable sites.

The importance of

good relationships with

our stakeholders in the

business, particularly our

customers, our suppliers and our staff, will

continue to be high on the agenda over the next few

years. We will continue to work hard to attract and retain customers,

and to ensure regular communication with them. Good relationships

with our manufacturing suppliers, together with suppliers of finance, oil,

fuel, etc, will continue to be key to the success of our business. RE

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M a r s h a l l M o t o r H o l d i n g s

The relationships with our staff are crucial to our success and as the

competitive business environment puts increasing demands on them,

we endeavour to ensure that they feel valued and recognised in their

jobs. Staff retention and long service is valued in the business, and we

will continue to recognise long service and exceptional job performance

across the Group.

Marshall Leasing had another excellent year in 2006, delivering a

profit of £1.1m. This represents a 15% increase over 2005, and

shows the continued strength of the business.

During the course of the year, we acquired the vehicle assets and

staff of Gates Contract Hire. This business, a long established and

respected company, shares our focus on customer satisfaction and

retention through high service levels. Indeed, the philosophies of

both companies are remarkably similar. As a result, we are confident

that the combined business will flourish, with the Gates brand being

retained with its own market positioning. The acquisition has added

20% to our funded fleet size, and has been profitable from day one.

This growth has been particularly welcome, as the competitive

environment has remained extremely tough, with the result that

our like-for-like fleet size would otherwise have

diminished slightly.

We have seen some success in new

account opening, and are confident that

we can build on this with further new

clients throughout 2007. Meanwhile, our

focus has been placed strongly on existing

client retention. To this end, we have

developed and launched a number of new products within the year,

thereby enabling us to offer a compelling proposition to both existing

and new clients.

Amongst these, a dramatically improved short term vehicle rental service

has been introduced, and has already been widely welcomed amongst

our client base. Further developments are planned, reflecting our

determination to remain at the leading edge of our industry.

In 2007, the sales environment remains competitive. We will meet the

challenge with confidence, however, knowing that we offer a unique

combination of small company service and large corporation stability.

MARSHALL MOTOR HOLDINGS SUMMARY

Following a testing year in 2006, we have approached 2007 with a

leaner, more focused business. We will continue to look to grow our new

vehicle activities, both within the Motor Group and the Leasing business.

The success of our business however, will increasingly be underpinned

by the continued growth of our aftersales, used car, leasing and

contract hire operations and particularly by the ability of our staff to

offer exceptional customer service in every one of our locations.

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Roger Knight

Chief Executive

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M a r s h a l l T h e r m o K i n g

Marshall Thermo King is working hard with Thermo King to re-establish the pre-eminence of their product in the UK.

2006 saw the first significant increase in sales of Thermo King

refrigeration products in the UK for several years, following an

extended period of falling market share. This has come about as a result

of renewed support of the dealer network and improved

competitiveness of the product line. However, this increase in new unit

sales takes time to filter through to aftersales support where Marshall

Thermo King achieves most of its sales and gross margin. The result for

the year was, therefore, disappointing.

The main emphases of the year have been to: strengthen the management

team; complete the process of centralisation of business processes and

the national call centre to the new Cambridge headquarters office; and to

build the relationship with Thermo King so that we can both capitalise on

the increasing unit sales and improving market share. The ultimate aim

of this effort is, of course, to provide the customer with best in class sales

and aftersales support of the best refrigeration products in the market.

TEAM WORK

I was delighted that Nigel Faben transferred

from the Motor Group to become

Managing Director. His

experience as Financial

Director and Aftersales

Director of the Motor

Group has been ideal for

ensuring a disciplined

and spirited approach

to establishing the

Cambridge headquarters.

This included integrating all

back office systems and sales

and aftersales work scheduling

systems with the engineer field communication equipment. One of his

initial tasks was to complete and consolidate the centralisation of our Call

Centre and back office systems.

The result of this integration is a cost effective one-stop-shop service for

our refrigeration customers, for whom speed of repair and minimum

downtime of their refrigerated fleet are of paramount importance.

Over the course of the year, we have seen continuous improvement in

sales, service performance and back office efficiencies. Great credit

must go to all the team for making these difficult changes and

maintaining their focus on the customer throughout.

VTR

VTR has franchise agencies with many tail lift manufacturers, and there

are good opportunities for future expansion. In 2006 VTR improved

sales and gross profit but overall profits were depressed due to the

move at the start of the year to a new headquarters at Aldridge. We

have capacity for higher volumes of work and our efforts are being

concentrated on winning that business in 2007 and improving our

outlook as a result.

CUSTOMER SERVICE

At MTK and VTR we acknowledge that the success of our business is

directly related to the quality of service which we give to our

customers. Every effort is being made to ensure that interaction with our

customers is prompt, courteous and efficient. We can now measure

our response times, monitor periods of down time and record our "first

time fix rates" as well as providing our customers with this information

in a prompt and professional manner.

OUTLOOK

In 2007 we have the opportunity to increase sales through a

resurgence in the competitiveness of the

Thermo King product, better partnership

with Thermo King, greater emphasis on

aftersales, and through a relentless focus

on satisfying our customers’ needs.

As sales develop, we aim to increase the

numbers of tail lifts and refrigeration units

being looked after by our aftersales departments. Our ability to

provide first class support to our customers through our reinvigorated

central support and local teams will strongly affect our performance in

2007. We are determined to improve our relationships with our

customers and Thermo King which should, in turn, translate into an

improved financial performance.

Robert MarshallChairman R

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M a r s h a l l S p e c i a l i s t V e h i c l e s

MSV is currently enjoying a strong order book of long term

design and production contracts for the British Army’s Support

Vehicles and the Watchkeeper aerial surveillance programme.

On the back of a stable order bank, MSV has focused on its military

customers, concentrating on the delivery and support of mission

critical systems. The company has undergone a major management

overhaul to enable employees at all levels to improve project

management controls and business systems. We have also made the

decision to locate the production of the Support Vehicles at a new

facility in Mildenhall equipped with automated welding equipment

and a state-of-the-art metal surface treatment plant. This is the most

significant investment in the company for many years and we look

forward to reaping the rewards over the 10 year life of the contract.

INVESTING IN PEOPLE

Following a comprehensive business review in early 2006, the company

has decided to concentrate on a limited number of core military and

government markets. To facilitate this, the business has been restructured

into a number of streams. Since the start of 2007, the Support Vehicle at

Mildenhall and our unmanned aerial vehicle activities at Cambridge have

been managed as separate subsidiary companies, Marshall Vehicle

Engineering Ltd and Marshall UAV Ltd respectively.

The success of these entities is dependent on the good governance of

the company as a whole and, more importantly, the people that run

them. People are at the heart of MSV’s capability. During the year

considerable progress was made in encouraging project teams to take

full responsibility for project delivery. Training has focused on

increasing cross department co-operation and project management.

A philosophy of continuous improvement is now an accepted part of

the MSV culture, and through this approach significant improvements

have been realised in the company’s bid process, procurement and

IT systems.

VEHICLE ENGINEERING

The ability to manage complex projects, delivering on time and to cost

is key to our future success. Over the past year increased emphasis has

been placed on developing our teams by way of establishing dedicated

project rooms and processes. An example of progress has been on the

design, testing and manufacture of the load beds for the Army’s Support

Vehicle Programme. This has been managed in conjunction with the

establishment of the new 120,000 square feet factory at Mildenhall,

housing one of the largest electro-phosphating plants within the UK

and state-of-the-art robotic welding equipment. This new facility has

been brought in on time and to budget.

MILITARY ENGINEERING

In our traditional markets of providing military customers with shelter

based systems and vehicle engineering, it has been a busy time with a

broad workload. We progressed well into the design and prototype phase

of the ground systems for the Watchkeeper aerial surveillance programme.

The company completed the design and manufacture of the prototype

stretcher handling system for the Boxer armoured vehicle being procured

for the Dutch Army. Other specialist shelter systems were designed and

manufactured for Sweden, reviving a long-standing relationship.

In addition to MSV’s traditionally recognised capabilities in the design

and manufacture of shelters and specialist vehicles, the company has also

demonstrated the ability to provide valuable assistance to prime

contractors in the field of human factors and safety engineering. This has

enabled MSV to engage with customers on a broad front from an early

stage in major programmes. In this respect, our specialist engineering

department at Petersfield has had a good year and has fulfilled customer

expectations and its prime role within MSV with enthusiasm and aplomb.

SUMMARY

In 2006, we used the stable order bank to restructure and rationalise the

company. We invested in our people and built up our capability to

manage large complex projects within budget and to the satisfaction of

our customers. We invested heavily in our new factory at Mildenhall

which will be unique in scale and capability in the UK. The company

has developed well in the year and is starting to meet expectations.

For 2007 the priorities will be to ensure that the investment in the Support

Vehicle at Mildenhall starts making the expected return, the continuation

of the development of our people together with the enhancement of our

project management capabilities, and the building of the long term order

bank in our key military markets.

Robert MarshallChairman

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P r o p e r t y R e v i e w

The Carter Group has built a number of major buildings for the Group andthe most recent result of this successful relationship is Phase II of the AircraftSupport Centre which has been completed on time and within budget. TheCarter Group is another very large East Anglian family-owned business whichalso believes in the benefits of developing long term relationships.

In the summer of 2006 the multi-million pound programme to replace theAirport Works oil fired heating system with a much more efficient localisedgas fired heating plant was completed. The improvement to the local airquality around Cambridge Airport has been welcomed by the local councils.

In the summer of 2006 the Cambridge City Local Plan was adopted and thishas confirmed that the 115 hectares of Cambridge Airport that lie within theCity boundaries should be removed from the Green Belt and allocated forhousing if the flying activities of Marshall Aerospace can be relocated.

The remainder of Cambridge Airport falls within the South CambridgeshireDistrict Council area and a Public Inquiry is due to take place in the summerof 2007 to consider the removal of the remainder of the Airport from theGreen Belt and its allocation for housing. The Council’s draft Cambridge EastArea Action Plan, which will be considered at this Public Inquiry, proposesthe building of about 10,000 houses on Marshall-owned land.

Marshall has confirmed that if the Cambridge East Area Action Plan isapproved then it will be willing to release its land for housing, providing thatsuitable alternative sites can be found for the Marshall businesses which

would need to be relocated, and that the development is of a high qualitythat enhances the City.

In 2006, Marshall Specialist Vehicles won a major contract with partners toprovide support vehicles to the British Army. To provide state-of-the-artfacilities for this important contract, MSV has established a newmanufacturing facility in Mildenhall.

This development has been enthusiastically supported by Forest HeathDistrict Council, which is also encouraging Marshall Aerospace to relocatesome of its aviation activities to land adjacent to RAF Mildenhall rather thanan alternative possible relocation site in Wyton.

We have been working in partnership with a local housing developer toredevelop a two acre site in Cambridge. In December 2006, Marshall andthe developer received planning permission for the construction of 113apartments on this site. Work is underway to refurbish and extend existingpremises on Marshall-owned land north of Newmarket Road in Cambridge toprovide space for the relocation of the businesses which are currentlyoperating from this site.

During the year the Motor Group sold surplus premises in Spalding andPeterborough which generated an exceptional profit of £153,000. Itcontinues to invest in refurbishing its premises and there was a majorrefurbishment of its Vauxhall franchise in Peterborough, which wascompleted in early 2007.

The Cambridge office and housing markets have continued to improve and asa result the directors have incorporated a revaluation increase of our propertyassets of £1.35m into the financial statements.

Jonathan Barker

Company Secretary

2006 was a year during which the property interest of the Marshall Group continued to benefit from a number

of important long term relationships.

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C o r p o r a t e R e s p o n s i b i l i t y

The Marshall Group of Companies values its important relationships with its staff,

customers, suppliers and the local communities in which it operates.

SKILLS DEVELOPMENT

The Company’s commitment to the ongoing development of employee skills continues, recognising that

continued investment in this important area strengthens individuals and the Group’s future.

The range of skills development programmes running throughout the Company continues to extend from full

apprenticeships and induction for new starters to the honing of advanced leadership skills for senior managers

and includes the ongoing development of product, technical and management skills in all areas of the

businesses, including the BSc Degree in Automotive Retailing which the Motor Group is supporting at

Loughborough University.

Recognition on a local, national, or even international level encourages individuals and businesses to strive

for ever greater challenges and we continue to be delighted by the number of awards that recognise

individual or business success.

Our active Human Resources teams work alongside our operational management teams to help ensure

that we continue to attract, recruit and retain the very best people in the business. We seek to employ

people who reflect the diverse nature of society and we value our people and their contribution,

irrespective of their age, gender, disability, sexual orientation, race, colour, religion or ethnic origin.

COMMUNITY

Most of the Company’s employees are drawn from the local communities within which our businesses are

based. For the Motor Group, these communities are also our customers. The Group, therefore, remains

committed to the development and maintenance of close relationships with the local community at all

levels from local charitable projects to district or regional initiatives.

Marshall employees from across the Group continue to be actively involved in many aspects of local

community life in a variety of largely voluntary roles, including as school governors, magistrates, youth

organisation leader and as charity volunteers. The Group also continues to encourage employees to

support a number of national charities and events such as: the Macmillan Cancer Relief Biggest Coffee

Morning; the Red Nose Day in aid of Comic Relief; and the BBC’s Children in Need.

HEALTH, SAFETY & ENVIRONMENT

Maintaining high standards in the area of Health & Safety and the Environment remains a high priority.

We continue to invest significantly in new and revised systems and processes to ensure that we

consistently meet our obligations in each of these areas.

Globally, concern for the environment is gaining momentum; in particular regarding the impact that

mankind is having on climate change. As part of good business practice and our commitment to understand

better our role in managing our own impact on the environment, the Marshall Group continues to invest in

new initiatives to reduce the emissions generated by the Company in the course of our business. This has

included the complete upgrade of our heating systems at the Cambridge Airport site to modern, highly

efficient gas-fired boiler systems with state-of-the-art computerised thermostatic control systems.

We are very proud that Marshall Aerospace has been awarded, for the second consecutive year, a Gold

Medal by RoSPA, recognising five years of continuous improvement.

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18

F i n a n c i a l R e v i e w

The profit before tax for the Group for 2006 was a record £18.5m.

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RESULTSGroup sales increased over 10% to £633m following the award of theHIOS contract to Marshall Aerospace and a general increase in activitylevels for the engineering companies, although the climate for motorretail sales remained challenging.

Gross profits increased by nearly 19% to £142m representing a returnof 22.4% on sales, well up on the 20.8% achieved in 2005. MarshallAerospace was the catalyst for this improvement, although MarshallSpecialist Vehicles saw an increase here too.

Exceptional property profits, principally on the sale of the formerVolvo premises in Peterborough and Spalding, were only £153,000but the main exceptional item, included in cost of sales, was the VATrecovery of £1.8m in respect of two claims against HMRC togetherwith interest of £2m.

The pre tax profit of £18.5m is the highest profit the Group has everreported and has been achieved with trading conditions still difficult forsome subsidiaries.

DIVIDENDSPreference dividends amounting to £744,000 were paid to preferenceshareholders during the year. The directors increased the interimdividend to ordinary shareholders in respect of 2006’s results to 5pper share and this was paid out in January, 2007. In view of the results,the Board is recommending a final dividend of 14p. This wouldrepresent a total dividend on ordinary shares of 19p in respect of 2006.If the final dividend is approved by shareholders at the AGM, it wouldbe the intention to pay this on 29th June 2007.

It is important to reiterate that, as a private company, we have limitedaccess to external funds, other than by way of borrowing or loans,generally from the banks. Accordingly, the Group has to generate andretain sufficient post-tax profits to fund future investments, as well asgrowth in the business. It is, therefore, the Group’s policy to try toensure that dividends are well covered by post tax earnings.

GROUP ACCOUNTING POLICIESThere have been no new Financial Reporting Standards to adopt in2006 so the Group’s financial statements have been drawn up on abasis consistent with previous years and in accordance with the latestrequirements applicable to us.

Shareholders will be aware from last year’s report that for the UK, and,for that matter, the rest of the EC, International Accounting Standards

(IAS) and International Financial Reporting Standards (IFRS) becamemandatory for all listed or quoted companies from 2005. Although theGroup is not required to comply, we have evaluated the implications forthe Group of adopting these Standards. No decision has, as yet, beenmade to change but the Board continues to keep this issue under review.

TAXATIONThe Group tax charge at 34.9% is above the statutory rate of 30%,principally because of certain expenses not allowed for tax and also theeffect of there being restricted allowances on the purchase of land andbuildings. The Group has been able to utilise in 2006 certain taxationlosses brought forward from 2005. A full analysis and reconciliation ofthe tax charges is given in Note 8 on page 36.

In accordance with FRS 19, the deferred tax accounting standard, wecontinue to recognise deferred tax in the financial statements. This can besimply explained as taxation charges, reliefs or benefits which will beincluded in future years’ financial statements. Where recovery is notassured, such as Industrial Building Allowances which the Government hasrecently indicated will now be phased out by 2011, an asset is not booked.

GOODWILLIntangible assets acquired in the year amounted to £0.4m as a result ofthe purchase of Acetech by Aeropeople. The policy for goodwill is tocapitalise and then write-down the assets over the years in which it isexpected results will benefit.

NET ASSETSThe Group net assets were increased to nearly £138m at the end of2006. The carrying value of the Group’s principal investmentproperty, the Quorum, rose from £9.0m to £9.5m following animprovement in the Cambridge commercial property market and therevaluation surplus of £1.3m on this, and the other investmentproperties, was credited to the revaluation reserve thereby increasingnet assets.

Group total reserves are now over £122m of which only £5.3mrepresents revaluation surpluses or capital profits.

Net current assets, namely our net working capital and cash balances,increased during the year, as the increase in profitability outstrippedcash being invested in fixed assets, which, nevertheless, increased to£113.5m (2005 - £105.5m) reflecting the continued commitment toinvest for the future.

PENSIONSThe Group’s defined benefit scheme, the “Plan” had shown a funding

4002002

£490m

£536m

£605m

£574m

£633m

2003 2004 2005 2006

450

500

550

600

650

Turnover (£m)

110

115

120

125

130

135

140

2002 2003 2004 2005 2006

Net assets (£m)

19

F i n a n c i a l R e v i e w

deficit of £2.4m in April 2005. Since then, the Group has invested afurther £0.75m and there has been an improvement in the marketssuch that at 5th April, 2006 there was a surplus of £0.8m.

For accounting purposes, however, the above valuation which informsthe Company and the Trustees of the recommended funding position,is no longer the relevant valuation methodology. FRS 17, which wasadopted fully for the first time in 2005, mandates that all liabilitiesshould be valued by reference to the yield attainable on AA ratedCorporate Bonds. This valuation takes no account of where the assetsof the pension fund are actually invested, or of the yields currently andprospectively to be earned on those assets. On this basis, the deficit at31st December 2006 (not April 2006) was estimated at £1.96m beforetax (and £1.4m after tax relief). The improvement from the £4m deficitin 2005, arose from the additional contributions and the improvementin the markets although the increase in yield on corporate bonds from4.74% in 2005, to 5.16% had a smaller impact than would beexpected. The Board and the Pension Fund Trustees are very closelyaligned in addressing and continuing to monitor and manage thefunding challenges as well as taking account of the best interests of the employees.

CASH FLOWThe Group ended 2006 with cash balances of just over £23m, anincrease of £8.5m over 2005 and a sound position. This cashimprovement was achieved without restricting any essential investmentfor the future. Rigorous reviews, however, of the return or pay back arecarried out for all capital projects, other than those deemed essential inorder to comply with operating regulations or legislative requirements.

The investment in fixed assets amounted to £29.9m compared with£31.7m in 2005. Only £1.8m of this was on property developmentswith a further £8.2m on equipment and technological improvementsand a continuing spend of £18.4m gross (£13.6m net) on the Leasingfleet including the acquisition of the Gates fleet which increased thefleet size to 3,598.

TREASURY MANAGEMENTThe Group Finance function continues to manage, centrally, our mainGroup banking relationships. It is also responsible for monitoring,controlling and reviewing the management of the Group’s loans, cash,currency and interest risk for the benefit of the Group and subsidiarycompanies. The function is not set up as a profit centre but one whichis meant to mitigate cost and risk for the benefit of the tradingsubsidiaries in the Group.

The Group, once again, became a net receiver of interest reflecting thehigher level of cash balances throughout the year, as well as interestrelating to the tax rebate.

Group borrowings were largely stable in the year, reducing slightlyfrom £25.6m to £24.8m. The main movements were in Leasing loans,whilst a further £1m was repaid on the loan taken out in 2003 to helpfund the purchase of the TMS assets. Notes 19 and 28 give furtheranalysis of loans and cash flow.

The Group trades not only in Sterling but in a number of othercurrencies, principally US Dollars and the Euro. Managementendeavours to identify, monitor, measure and control likely currencyexposures within the Group’s trading operations. Where it is possibleto protect trading margins against the adverse impact of currencymovements, forward exchange cover is considered.

KEY PERFORMANCE INDICATORSThere are a number of Key Performance Indicators ("KPIs") bothfinancial and non-financial used by the individual companies to gaugeperformance. The diversity of the nature of the Group’s businessesmeans that few are applicable for every company. Accordingly, as aGroup, we set a number of specific KPIs against which we canmonitor individual or Group performance in the monthly managementaccounts. These are measured and reported on monthly to the Board.

The principal measures used to monitor the Group’s results areachieving a minimum return on capital employed of 12.5% and areturn on sales of at least 2% which were both accomplished in 2006.At company level, the former remains a target but the latter is too higha threshold for the motor retail businesses and too low a target for theengineering companies and therefore only works as an amalgam forthe Group.

There are also two primary cash measures. The first is for the Group tobe cash generative in any three year period after allowing for normalcapital expenditure but excluding acquisitions or major developments.The second target is to ensure that available cash and borrowingfacilities are at least 5% of turnover. Again, in 2006 both of thesewere achieved. All subsidiary companies are monitored on their cashgenerative performance and use of Group facilities.

Non-financial KPIs, particularly customer satisfaction measures, arereferred to in the various subsidiary operating reviews.

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Bill Dastur

Group Financial Director

28%3%(4%)

(45%)

(27%)

(24%)

62%

Land & buildings

Plant & machinery

Motor vehicles

Hire & Leasing fleet

7%

2006 (2005) Capital expenditure analysis

15

20

25

30

35

2002 2003 2004 2005 2006

Gross capital expenditure (£m)

CORPORATE GOVERNANCE

The Combined Code on Corporate Governance applies only to those

companies listed on the London Stock Exchange which are obliged to

implement the various guidelines. However, the Group continues to

endeavour to apply the highest standards of corporate governance and

has implemented the recommendations, where it is considered both

practical and appropriate for a private company.

Set out below are the arrangements which have applied during 2006.

THE WORKINGS OF THE BOARD

Eleven directors served during the year, ten at the year end, including

five experienced non-executive directors. The Board has overall

responsibility for the Group; it is responsible for setting the Group’s

strategic aims, ensuring that sufficient resources are available for the

Group to meet its objectives as well as monitoring executive

management. The Board is accountable to the shareholders for the

performance and activities of the Group.

The Board has a formal schedule of matters required to be brought to

it for its decision. Such matters include: monitoring the Group’s

businesses and their performance; developing strategy; approval of

major investments, acquisitions and disposals; approval of major

contracts, board and senior management appointments; corporate

governance; dividend policy; and the endorsement of Group policy in

important areas.

The Board delegates executive responsibility to management for the

Group’s performance in order to ensure that the business is managed

in a fit and proper manner in keeping with its values and business

principles. The Board has put in place an organisational structure with

formally defined lines of responsibility and there are clear limits on the

authority, which the Group’s businesses and individuals have, to make

financial commitments. Directors receive detailed briefing papers,

including monthly management accounts prior to each meeting to

enable them to perform their role effectively.

The Board and its principal committees met regularly during the year.

The timetable is set at the beginning of the year so as to ensure that

sufficient regular meetings are scheduled and other meetings held, as

required, in order for the Board and the committees to discharge their

respective duties sufficiently. In 2006, in addition to the AGM, the

Board held ten regular meetings.

The Board has established procedures to allow individual directors to

seek independent professional advice at the Company’s expense for

the furtherance of their duties. All directors have access to the services

of the Company Secretary who is responsible for ensuring compliance

with relevant procedures, rules and regulations. There are also

procedures in place for the induction and training of new directors.

BOARD INDEPENDENCE

The non-executives bring a wide range of experience to the Board and

participate fully in key decisions facing the Group. They are all

considered by the Board to be independent of management and free

from any business, or other relationship, which could materially

interfere with the exercise of independent judgement.

PDN Hedderwick and JCG Stancliffe were appointed to the Board in

1965 and 1992 respectively. Their length of service exceeds the nine

years referred to in the Combined Code. The Board considers,

however, that the experience and long association of both the

directors with the Group provide a valuable contribution to the

Board, given the long term nature of the business. In particular, they

have both continued to demonstrate a strong independence of

management in the manner in which they discharge their

responsibilities as directors. Accordingly, the Board has decided that,

in the absence of any other relevant factors, both should be

considered independent non-executive directors.

In the few instances where a director has not been able to attend a

Board or committee meeting, this has been due to a prior commitment

or for reason of illness. In such circumstances, it has been the normal

practice for his/her comments on the papers to be relayed to the

chairman in advance. The number of meetings of the Board and the

Audit Committee, held during the year, and directors’ attendance

thereat, is given below:

DIRECTORS’ ATTENDANCE AT MEETINGS OF THE BOARD AND

AUDIT COMMITTEE DURING 2006

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C o r p o r a t e G o v e r n a n c e

Meetings Holdings Board Audit Committee Attended Held* Attended Held*

MJ Marshall 10 10NV Barber 9 10MT Broadhurst 10 10WCM Dastur 10 10PDN Hedderwick 10 10RM Knight 10 10RD Marshall 8 10Sir Ralph Robins 8 10 4 4FAL Robinson 4 5 2 2SJ Sillars 10 10JCG Stancliffe 10 10 4 4

*During the period a director was in office or a member of the audit committee

21

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C o r p o r a t e G o v e r n a n c e

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE

The company purchased and maintained a directors’ and officers’

liability insurance policy throughout 2006. Although a director’s

defence costs may be met, neither the company’s indemnity nor

insurance provides cover in the event that he or she is proved to have

acted fraudulently or dishonestly.

BOARD COMMITTEES

In accordance with the principles of good corporate governance, the

following committees, all of which have written terms of reference,

have been established by the Board.

AUDIT COMMITTEE

The Audit Committee met four times during 2006. Its members are

independent, non-executive directors under the chairmanship of JCG

Stancliffe. While the audit committee members are not considered to

have "recent" financial experience, as recommended by the Combined

Code, in common with all the non-executive directors, the members

of the Audit Committee are experienced individuals, and the Board

considers that they have the requisite skills and attributes to enable the

Audit Committee to properly discharge its responsibilities.

A key function of the Audit Committee is to monitor the control

environment through reports to it from the Group Finance function

and the internal and external auditors. Its responsibilities include

advising and reporting to the Board after each meeting on its review of

the internal and external audit processes, presentation of the financial

results, the review of the success of any major capital acquisition or

capital expenditure, the review of progress on major contracts and

reviewing the performance, independence and objectivity of the

external auditors.

The Group Financial Director, the external audit partner and the

internal auditor attend each meeting at the request of the committee

chairman. The committee also met with the external auditor, without

the executive management being present.

The committee received reports from the Group Financial Director

concerning the Group’s accounting treatment of various issues

including provisions, pensions and the revaluation of fixed assets. The

committee were satisfied that such liabilities and contingencies were

appropriately reflected in the financial results.

The committee evaluated the performance of the external auditors and

enquired into their independence and objectivity. The external auditors

are engaged to express an opinion on the financial statements. They

review and test the systems of internal financial control and the data

contained in the financial statements to the extent necessary to express

their audit opinion. They discuss with management the reporting of

operational results and the financial position of the Group and present

their findings to the Audit Committee. The auditors regularly rotate the

partners assigned to the audit. In 2007, the Group has been advised

that the current engagement partner who has completed six years on

the audit will be replaced. After review, the Audit Committee has

recommended to the Board that the re-appointment of the auditors be

proposed to shareholders at the Annual General Meeting to be held in

2007. Internal audit’s work is focused on areas of priority as identified

by the risk profiles. During the year, internal audit has, in conjunction

with the management teams of each of the subsidiaries, continued to

develop the risk profiles for those operating subsidiaries, together with

a group level risk assessment. These assessments have enabled the

Audit Committee to review the effectiveness of the system of internal

control in operation for managing significant risks throughout the year.

The reports describe the significant risks identified together with an

assessment of the effectiveness of management’s controls. The

continuing development of the systems and processes to identify,

manage and address these risks is also covered.

The committee approved the annual internal audit plan to be

undertaken during the year. Regular reports of audit findings and

management responses were reviewed in detail. Discussions of these

reports contributed to the committee’s view of the effectiveness of

company’s internal control framework.

NOMINATIONS COMMITTEE

The Nominations Committee which met twice during the year has

responsibility for overseeing that appropriate procedures are in place

for the nomination, selection and training of directors as well as

ensuring the right balance between executive and non-executive

directors with an appropriate blend of skills and training. All new

appointments to the board are based on the recommendation of the

Chairman and Nominations Committee and approved by the entire

board. There are also procedures in place for the proper induction and

training of new directors.

EXECUTIVE REMUNERATION

The Chairman has a Remuneration Committee to advise him in the

process of setting and reviewing executive remuneration. This met on

two occasions during 2006. Operating subsidiary Chief Executives and

the Group Financial Director have service contracts, which are

terminable by no longer than twelve months’ notice given by either

party thereto.

22

C o r p o r a t e G o v e r n a n c e

AGM

The Chairman, the executive directors and board committee chairmen

were present at the 2006 AGM and available to answer shareholders’

questions or to hear their views.

INTERNAL CONTROL

The Board has established what it believes is an appropriate control

environment through the definition of the organisational structure and

authority levels.

The key features of the Group’s internal control system are: an

organisational structure at head office and at subsidiary level which

clearly defines responsibilities; an annual budgeting process,

supported by regular forecasts; monthly detailed management

accounts with a report to the Board; an internal audit function; control

of capital expenditure through budgets and authorisation levels;

defined procedures for investment and treasury management; detailed

matrix levels of authority; Board approval of significant investments,

acquisitions and disposals; and policies for health, safety and

environment which are applicable to the whole Group.

During the year, the Audit Committee received and reviewed reports

from both the internal and external auditors. In the Board’s view, the

information the Board received was sufficient to enable it to review the

effectiveness of the systems of internal control.

GOING CONCERN

In accordance with the Combined Code, the directors, having made

appropriate enquiries, consider that adequate resources exist for the

Group to continue in operational existence for the foreseeable future

and that, therefore, it is appropriate to adopt the going concern basis

in preparing the financial statements.

ETHICS POLICY

In 2006, the Board approved and issued a Code of Business Ethics to

all employees of the Group. This document sought to encapsulate and

combine in one document the various Group policies and guidelines

in place. It seeks to ensure the Group’s commitment to the highest

ethical standards in all its dealings and provides a framework and

decision tree to guide members of staff. There is also a confidential

disclosure mechanism for reporting serious breaches of this code.

HEALTH & SAFETY POLICY

The Group is committed to safeguarding the health and safety of its

employees, customers, contractors and visitors to the Group’s premises,

and the community. Subsidiaries employ health and safety advisers for

the implementation of the Group’s health and safety policies. The

Group’s policies are kept under review and include procedures that:

• Ensure that all sites meet all legal and company health and

safety requirement;

• Strive to eliminate unsafe practices at all locations;

• Promote high standards of safety awareness through

employee involvement and management commitment at

each location;

• Minimise danger to local communities; and

• Provide an immediate and effective response in the event of

accidents and emergencies.

THE ENVIRONMENT

All Marshall operating companies are required to conform to the

relevant legislation and codes of practice. In addition, companies

adopt integrated environmental management systems which

specifically focus on minimising pollution by:

• Controlling emissions to air, land and water;

• Reducing the consumption of energy;

• Managing waste to maximise re-cycling;

• Improving the awareness of, and training to, employees in

environmental best practice.

ADVISERS

AUDITORS Ernst & Young LLP SOLICITORS Greenwoods / Rustons & Lloyd / Eversheds / Bird & Bird BANKERS Barclays Bank PLC

PROPERTY ADVISERS Bidwells PENSION AND ACTUARIAL ADVISERS Buck Consultants INSURANCE BROKERS Willis

REGISTERED OFFICE Airport House Newmarket Road Cambridge CB5 8RY REGISTERED NUMBER 2051460

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EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS

M.J. MARSHALL CBE DL * o

Appointed to main Board in 1960

Having joined the Group in 1955, he was appointed aDirector in 1957. In 1963 he was appointed ManagingDirector of the Motor Group. In 1990, he became Chairmanand Chief Executive of the whole Group. He is a DeputyLieutenant of Cambridgeshire, Honorary Air Commodore ofNo 2623 (East Anglian) Squadron RAuxAF, President of TheAir League, a Fellow of the Royal Aeronautical Society, aCompanion of the Institute of Management and a VicePresident of the Institute of the Motor Industry and of theEngineering Employers’ Federation, and President of theFund for Addenbrooke’s. Aged 75.

M.T. BROADHURST OBE FRAeS C.Dir Appointed 1996

Having joined the Group in 1975, he was appointedManaging Director of Marshall Aerospace in 1996 and ChiefExecutive in 1999. He is also Chairman of Connexions forCambridgeshire and Peterborough. Aged 53.

W.C.M. DASTUR FCA Appointed 1996

Formerly a partner with Ernst & Young, he joined theGroup and the Board in 1996 as Group FinancialDirector. He acts as Chairman of the Trustees for theGroup’s various pension funds. He is also Chairman ofEly Cathedral Finance Investment Advisory Committeeand a Fellow of the Royal Society for the Encouragementof Arts, Manufactures and Commerce. Aged 54.

R.M. KNIGHT Appointed 1996

He has over 30 years of motor industry experience,working for both manufacturers and retailers, includingVolvo Concessionaires, Rover Group and Henlys. Hejoined the Group in 1989 as Regional Director, waspromoted to Managing Director of Marshall MotorHoldings in 1995 and is now Chief Executive. He sits onthe National Franchised Dealer Association StrategyCommittee and the DTI-sponsored Retail Motor StrategyGroup. Aged 58.

R.D. MARSHALL Appointed 2000

He joined Marshall Aerospace in 1995 and wasappointed a Director in 1999 before moving to MarshallSpecialist Vehicles as Chief Executive in 2000. He wasappointed Chairman of Marshall Specialist Vehicles fromJanuary 2006 and Chairman of Marshall Thermo Kingfrom January 2007. Aged 44.

COMPANY SECRETARYJ.D. BARKER AIB ACIS

Formerly with Lloyds Bank plc before joining the MarshallGroup in 1976. He is a member of the Institute of Bankersand the Institute of Chartered Secretaries andAdministrators and was appointed Company Secretary ofthe Group in 1993. He is Company Secretary of allprincipal Group companies and the Audit Committee.Aged 56.

P.D.N. HEDDERWICK CBE FRAeS Appointed 1965

Formerly Managing Director of Marshall Aerospace. Hewas appointed CBE in 1989 and elected a Fellow of theRoyal Aeronautical Society in 1995. Aged 74.

J.C.G. STANCLIFFE * ✝ Appointed 1992

Deputy Chairman of Marshall of Cambridge (Holdings)Limited and Chairman of the Audit Committee. Formerly aDirector of S. G. Warburg Group and Mercury AssetManagement Group. Aged 75.

N.V. BARBER * Appointed 2000

Formerly an Executive Director of Smiths Industries,responsible for their aerospace activities and prior to thatsuccessively Managing Director of the Weapons Systemsand Military Aircraft divisions of British Aerospace. PastPresident of the SBAC. Aged 67.

S.J. SILLARS Appointed 2004

Sarah has been the Chief Executive of The Institute ofMotor Industry since 2002. Prior to this appointment shewas the Operations Director of Anne Gray Associates aleading Management Consultancy to the Motor Industry.She is a member of the DTI's Retail Motor Strategy Group,Fellow of the IMI and a Freeman of the City of London. Aged 48.

23

T h e B o a r d

✝ Member of the Audit Committee

* Nomination Committee

oRemuneration Advisory Committee

SIR RALPH ROBINS DL FREng FRAeS ✝ oAppointed 2004

He retired as Chairman of Rolls-Royce plc in January2003, and is a former Chairman of Cable & Wireless plcand the Defence Industries Council. He is also a formerPresident of the Society of British Aerospace Companiesand Director of several international companies. He is aDeputy Lieutenant of Derbyshire and a Freeman of theCity of London. Aged 74.

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24

DIRECTORS’ REPORT

The directors present their report and financial statements for the year ended 31st December, 2006.

RESULTS AND DIVIDENDSThe Group recorded a profit after tax and minority interests for the year of £12,060,000 (2005 - £1,816,000). An interim dividend of 5.0p was paid on 15th January, 2007and the directors recommend a final ordinary dividend in respect of the year of 14p per share, which, in accordance with FRS 21, is not shown as a liability in the financialstatements as it has been proposed after the balance sheet date and will be included in the financial statements for 2007. Preference dividends on the ‘A’ and ‘B’ preferenceshares amounting to £744,000 were accrued and paid during the year.

PRINCIPAL ACTIVITIESThe activities of the Group consist principally of the business of car and commercial vehicle sales, distribution, service, hire and associated activities, together with generalengineering connected with aircraft and military systems.

REVIEW OF THE BUSINESS AND FUTURE DEVELOPMENTSIn contrast with 2005, 2006 was a record year for the Group. The Group produced the highest pre-tax profit in its 98 year history on the back of a strong set of results fromMarshall Aerospace. Improvement in the order take position for the engineering companies in 2006 contributed to higher levels of activity and, coupled with the benefit ofcontracts won towards the end of 2005, contributed to a much improved performance. The motor retail market, nationally, fell again which was reflected in low operatingprofitability in the Motor Group, although the Leasing operations held up well and produced another good set of results. Marshall Thermo King had a difficult year withsignificant restructuring at senior management level, operations and in the administrative areas. These changes should provide a platform for a better performance in 2007.VTR fell back slightly in 2006 as it moved its headquarters into new premises and upgraded its computer support systems. Exceptional property profits were low although theresults for the Motor Group were boosted by a settlement with HMRC on a long running VAT claim in respect of demonstrator bonuses.

The Group entered 2007 with an improved long term order book for its engineering businesses, although the prospects for the motor retail market continue to remain mixedwhilst vehicle and refrigeration support activities also face a challenging and competitive environment. The Group remains focused on structuring its cost base to match currentactivity levels as well as ensuring the appropriate amounts of investment are made in its businesses, facilities and people to provide a solid base for future success. This isreinforced by the commitment to balance short term performance with long term sustainability through capital expenditure on property and infrastructure improvements aswell as a profit improvement and enhancement initiatives.

The Group uses a series of Key Performance Indicators to measure performance both at a Group and company level. These include returns on sales, return on capital employed,interest cover and cash generation measures as well as order intake, unit sales, service absorption and utilisation measures. These are explained further in the individualoperating and financial reviews earlier in this report. However, a principal measure of improving customer service and satisfaction remains paramount to all our business andunderpins the ongoing business ethos of the Group.

The Group undertakes an annual assessment of the risks and uncertainties facing the Group as a whole and each of its principal trading subsidiaries. This is carried out byoperational management and a summary of the main risks is set out below.

Further details on the Group’s principal businesses and their prospects for the future can be found in the operational reviews of the subsidiaries included earlier in this report.

RISK ASSESSMENTThe risk management process is designed to identify, manage and mitigate business risk. Regular reporting of these risks and the monitoring of actions and controls is conductedby the Audit Committee, which reports its findings to the Board. This process is described in the Corporate Governance section on pages 20 to 22.

The factors described below highlight risks and uncertainties which affect the Group but are not intended to be an exhaustive analysis of all the potential risks which may arisein the ordinary course of business or otherwise. Some risks may be unknown to the Group and other risks, currently regarded as immaterial, could turn out to be material.

Business conditions, general economy and Government policyThe profitability of the Group’s businesses could be adversely affected by a worsening of general economic conditions in the UK. Factors such as unemployment, the level ofvolatility of equity markets, interest rates, exchange rates, and inflation could all impact the markets in which we operate and reduce demand whilst action taken by the UKgovernment relating to the taxation of private cars and the availability and cost of credit could significantly affect the market for the sale of new and used motor cars. In thecase of new car sales during a period of economic downturn, there is likely to be an oversupply of vehicles leading to reduced margins. Whilst a short term worsening ineconomic conditions in the UK should not significantly adversely impact in our various aftersales business, a sustained downturn over a number of years would be likely tolead to reduced profits in these businesses. Equally, a reduction in defence spending by the Government or a change in procurement policy would have a marked impact onthe engineering businesses which could lead to reduced orders, activities and, thus, our ability to absorb fully current levels of overheads. Over a prolonged period this wouldhave a detrimental effect on performance, profitability and, possibly, employment levels.

Complexity of major projectsMarshall Aerospace and Marshall Specialist Vehicles undertake highly complex projects involving design, development and integration of major aircraft systems and military systemsrespectively. Underestimation of the technical content and requirements could lead to cost and schedule overruns impacting both financial performance and customer confidence.

Labour marketThe UK aerospace skills base is under pressure with falling numbers available in the engineering resource pool. Aerospace is a highly labour intensive industry and Marshallcontinues to invest strongly in training to protect itself from this threat to its business.

Franchises and agreementsWe operate motor car franchises as well as refrigeration and tail lift franchises and aircraft servicing agreements. Franchises are awarded to us and the failure to continue to

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DIRECTORS’ REPORT

hold franchises could result in a significant reduction in the profits of the Group due to our inability then to source new car stock to sell, perform warranty repairs or carry outmaintenance activity.

Vehicle manufacturer dependenciesWe depend on the vehicle manufacturers’ financial condition, marketing, vehicle design, production capabilities, reputation, management and industrial relations. Althoughwe do not depend on any single vehicle manufacturer, a failure by a manufacturer, as with MG Rover a few years ago, could lead to significant losses. Vehicle manufacturersprovide sales incentive, warranty and other programmes that are intended to promote new vehicle sales. A withdrawal or reduction in these programmes would have anadverse impact on our business.

Regulatory compliance riskThe Group is subject to a regulatory compliance risk which can arise from a failure to comply fully with the laws, regulations or codes applicable, for example, those set outby the Civil Aviation Authority, the Ministry of Defence, the Health and Safety Executive and Financial Services Authority as well as local authorities. Non-compliance canlead to fines, enforced suspension from sales of general insurance products or public reprimand or, in the extreme, closure of parts of our business.

CompetitionThe global markets in which the Group operates are highly competitive. Innovative competition for corporate and retail clients and customers comes both from incumbentplayers and a steady stream of new market entrants, particularly in the aerospace and vehicle engineering businesses. The landscape is expected to remain highly competitivein all areas, which could adversely affect the Group’s profitability if the Group fails to continue to retain and attract clients and customers.

Certain Group companies compete with other franchised operations, private buyers and sellers, internet based dealers, independent service and repair shops and manufacturerswho have entered the retail market. Motor Group competes for the sale of new and used vehicles, the performance of warranty repairs, non warranty repairs, routine maintenancebusiness and for the provision of spare parts. The principal competitive factors in service and parts sales are price, customer database, familiarity with a manufacturer’s brandsand models and the quality of customer service. We also compete with a range of financial institutions in arranging finance for vehicle purchases. Some of our competitors mayhave greater resources and lower overhead and sales costs. This could lead to our failure to be able to compete and result in a reduction in our profitability.

Reliance on certain members of management and staffThe Group is dependent on members of its senior management team and skilled personnel and the future financial well-being of the Group could depend in part on our abilityto attract and retain highly skilled management and personnel. The loss of the service of a number of such individuals could have a material adverse effect on the business.Additionally, if we fail to recruit and retain skilled staff it may not be possible to continue to grow the business.

Failure of information systemsOur businesses are dependent on the efficient and uninterrupted operation of our information technology and computer systems, which are vulnerable to damage or interruptionfrom power loss, telecommunications failures, sabotage, vandalism or similar misconduct. Whilst the Group has put in place insurance cover and also contingency and disasterrecovery plans in order to mitigate the impact of such failures it can never be certain that these plans could cover every eventuality or situation or fully recompense every loss.

Reliance on the use of significant estimatesMarshall Leasing enters into leasing arrangements whereby it agrees to repurchase vehicles from their lessees or providers of lease finance at the end of the lease agreement whichare typically two to four years in the future. The repurchase price is determined at the time the agreement is entered into based on the then estimate of a vehicle’s future residualvalue. The actual value of the vehicles at the end of the lease contract and therefore the profits that the company can realise from their eventual sales could vary materially fromthese estimates due to changes in either the popularity or the reliability of the brand. Marshall Thermo King enters into long term contracts with some of its customers wherebyit undertakes to provide maintenance and repair services on refrigeration equipment for fixed monthly fees. The income and costs arise or are incurred in different periods andthe resulting profit or loss can vary depending upon the reliability and usage of the equipment, risks which are outside the direct control of Marshall Thermo King.

FINANCIAL RISKSLiquidity and financing Liquidity and financing risks relate to the ability to pay for goods and services required by the Group to trade on a day-to-day basis. The main sources of financing facilitiesare from banks by way of borrowing facilities and from suppliers by way of trade credit. A withdrawal of financing facilities or a failure to renew them as they expire couldlead to a significant reduction in the trading ability of the Group.

Cash forecasts identifying the liquidity requirements for the Group are produced regularly and are reviewed regularly by the Group Finance function and the Board to ensurethat the Group has sufficient cash resources or facilities for at least a 12 month period. The Group’s policy is to maintain a minimum level of facilities and ensure the fundingof the Leasing fleet is achieved partly by debt matched in its maturity to the life of the vehicles leased out. As at 31 December, 2006, the Group had cash balances of over£23m and available facilities of £15m.

Exchange rate riskThe Group’s approach to exchange rate risk is explained further in the Financial Review.

Interest rateThe Group’s policy is to maximise interest recoverable whilst managing and monitoring the potential interest rate on borrowings. The use of derivative financial instruments,such as interest rate swaps, are considered but rarely used and the principal mechanism has been to borrow on both a fixed and floating rate basis.

CounterpartyThe Board’s policy is to limit exposures by setting credit limits for each counterparty. Surplus cash is invested in short term financial instruments and only deposited withcounterparties with minimum credit rating of AA.

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DIRECTORS’ REPORT

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The interests of the directors of Marshall of Cambridge (Holdings) Limited and their families in the shares of the Company at 1st January 2006 were:

Ordinary shares of £1 each

8% ‘A’ cumulative preference shares of £1 each

10% ‘B’ cumulative preference shares of £1 each

As trustee

3,521,750

2,452,333

1,812,500

M.J. Marshall*

Beneficially

522,000

348,000

201,000

As trustee

-

-

60,000

J.C.G. Stancliffe

Beneficially

647,500

240,000

180,000

As trustee

29,500

50,333

11,500

W.C.M. Dastur

The interests of the directors of Marshall of Cambridge (Holdings) Limited and their families in the shares of the Company at 31st December, 2006 were:

Ordinary shares of £1 each

8% ‘A’ cumulative preference shares of £1 each

10% ‘B’ cumulative preference shares of £1 each

M.J. Marshall* J.C.G. StancliffeR.D. Marshall** W.C.M. Dastur

*M. J. Marshall has a life interest in one half of the income from 2,446,098 ordinary shares, 1,630,732 8% ‘A’ cumulative preference shares and 1,223,049 10%‘B’ cumulative preference shares out of the totals referred to above in the trustee column.

**R.D. Marshall has a life interest in one eleventh of the income from 1,015,092 ordinary shares, 677,268 8% ‘A’ cumulative preference shares and 507,951 10%‘B’ cumulative preference shares out of the totals referred to above in the trustee column.

As trustee

3,521,500

2,462,666

1,829,333

Beneficially

522,000

348,000

201,000

As trustee

-

-

60,000

Beneficially

10,380

-

-

As trustee

1,045,402

737,934

536,284

R.D. Marshall**

Beneficially

1,000

-

-

As trustee

1,045,402

727,601

519,451

Beneficially

652,520

240,000

180,000

As trustee

29,500

60,666

28,333

DIRECTORSThe directors who served during the year were:-

At the forthcoming Annual General Meeting, N.V Barber, Sir Ralph Robins and P.D.N Hedderwick retire by rotation. N.V Barber and Sir Ralph Robins, being eligible, offer

themselves for re-election; P.D.N Hedderwick is not seeking re-election. F.A.L Robinson retired at the Annual General Meeting on 7th June 2006.

M.J. Marshall CBE DL (Chairman)

J.C.G. Stancliffe (Deputy Chairman)

N.V. Barber

M.T. Broadhurst OBE

W.C.M. Dastur

P.D.N. Hedderwick CBE

R.M. Knight

R.D. Marshall

Sir Ralph Robins DL

F.A.L. Robinson

S.J. Sillars

Pensions The Group maintains a variety of pension schemes including a defined benefit scheme, the Plan. The pension fund liabilities of the Plan are balanced by a portfolioof assets, which leaves potential risk around the mortality rate, wage inflation and return on assets. In addition, actions by the Pensions Regulators or the Trusteesand/or any material revisions to the existing pension legislation could require increased contributions by the Group to the Plan.

TaxThe Group is subject to the tax laws in all countries in which is operates. Tax risk is the risk associated with changes in tax law or in the interpretation of tax law.It also includes the risk of changes in tax rates and the risk of failure to comply with procedures required by tax authorities. Failure to manage tax risks could leadto an additional tax charge. It could also lead to a financial penalty for failure to comply with required tax procedures or other aspects of tax law.

Health, safety and the environmentThe Group faces health and safety risks due to the scale of its operations. It is committed to maintaining high standards of health and safety, and its processes reflectthis risk. Further information on the approach to health and safety is available in the Corporate Responsibility section on page 17.

The Group’s activities have an impact on the environment. The need for action to tackle climate change was further emphasised in the Stern Review published in2006 and the Group is studying the implications of this.

FIXED ASSETSThe Group invested £29.9m in new assets and businesses during 2006 (2005 - £32.0m). The Group’s freehold investment properties were informally revalued onan open market basis by the directors, as at 31st December, 2006 at £11,575,000. A revaluation surplus of £1,315,000 has been taken to the revaluation reserve.Other tangible fixed assets’ details and movements can be found in note 13 to the financial statements.

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCEThe Company has continued to effect directors’ and officers’ insurance in respect of all the directors of the Company and its subsidiary undertakings.

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DIRECTORS’ REPORT

EMPLOYMENT POLICIESThe Group is committed to its Equal Opportunities programme covering recruitment and selection, training and development, appraisal and promotion. The Grouprecognises the diversity of its employees, its customers and the community at large and seeks to use employees’ talents and abilities to the full. This approachextends to the fair treatment of employees with disabilities in relation to their recruitment, training and development. Full consideration is given to the retention ofstaff who become disabled during employment.

The Group recognises the importance of good communications and relations with its employees and the requirements of the Information and Consultation ofEmployees Regulations 2004. It is Group policy to keep employees as fully informed as possible on matters which affect them through communication procedures,which include regular briefings, consultative committees and through its regular Group newsletter, Teamwork. These arrangements are continually being reviewedand updated to ensure the Group meets the latest standards.

During the year, a series of meetings was held between management and employee representatives to discuss performance and to enhance information flow.

SOCIAL POLICYThe Group takes its responsibilities to its employees, customers and shareholders seriously, as well as its wider social responsibilities. The Group has a policy of notmaking donations to political groups, parties or individuals, but has a positive policy of supporting, selectively, charities and organisations which benefit either thecommunities in which the Group operates or the industries in which the Group works.

POLITICAL AND CHARITABLE CONTRIBUTIONSThe Group made various charitable contributions during the year totalling £195,000 (2005 - £29,000). There were no political donations.

DISCLOSURE OF INFORMATION TO THE AUDITORSSo far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by theauditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Group’s auditor, each directorhas taken all the steps that he/she is obliged to take as a director in order to made himself/herself aware of any relevant audit information and to establish that theauditor is aware of that information.

AUDITORSA resolution to re-appoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting.

BY ORDER OF THE BOARD

J. D. BarkerSecretary23rd April, 2007

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company lawrequires the directors to prepare financial statements for each financial year. Under that law, the directors have elected to prepare the financial statements inaccordance with UK Generally Accepted Accounting Practice (UK Accounting Standards and applicable law). The financial statements are required by law to give atrue and fair view of the state of affairs of the Group and of the Company and of the profit or loss of the Group for that period. In preparing those financialstatements, the directors are required to:

• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group 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 Group and theCompany and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets ofthe Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsiblefor the maintenance and integrity of the corporate and financial information included on the Group’s websites. Legislation in the UK governing the preparation anddissemination of financial statements may differ from legislation in other jurisdictions.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

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GROUP PROFIT AND LOSS ACCOUNTfor the year ended 31st December, 2006

TURNOVER: continuing operations

Cost of sales

GROSS PROFIT

Distribution and selling costs

Administrative expenses

Other operating income

GROUP OPERATING PROFIT / (LOSS): continuing operations

Share of operating loss in joint venture

TOTAL OPERATING PROFIT / (LOSS): GROUP AND SHARE OF JOINT VENTURES

EXCEPTIONAL ITEMS:

Profit on disposal of fixed assets

PROFIT ON ORDINARY ACTIVITIES BEFORE INVESTMENT INCOME, INTEREST AND TAXATION

Income from investments

Interest receivable

Interest payable and similar charges

Other finance income

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

Tax on profit on ordinary activities

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION

Minority interests

PROFIT FOR THE FINANCIAL YEAR ATTRIBUTABLE TO THE MEMBERS OF THE PARENT COMPANY

BASIC AND DILUTED EARNINGS PER ORDINARY SHARE

2005

£000

574,042

(454,401)

119,641

(5,826)

(115,343)

86

(1,442)

(2)

(1,444)

4,180

2,736

6

402

(2,088)

166

1,222

598

1,820

(4)

1,816

14.6p

2006

£000

633,207

(491,131)

142,076

(5,717)

(119,212)

92

17,239

-

17,239

153

17,392

2

2,980

(2,110)

258

18,522

(6,462)

12,060

-

12,060

154.3p

Notes

2

2/3

4

5

6

29

8

9

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION excluding share of profits of joint venture

Share of joint venture’s profit on ordinary activities after taxation

Profit on ordinary activities after taxation attributable to shareholders

Unrealised surplus on revaluation of investment properties

Actuarial profit / (loss) net of tax

TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR

Prior year adjustments

TOTAL RECOGNISED GAINS AND LOSSES SINCE LAST ANNUAL REPORT

2005

£000

1,813

7

1,820

1,142

(1,151)

1,811

(2,693)

(882)

2006

£000

12,060

-

12,060

1,315

977

14,352

-

14,352

GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31st December, 2006

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GROUP STATEMENT OF CASH FLOWSfor the year ended 31st December, 2006

Cash inflow from operating activities before contribution to the pension fund

Contribution to the pension fund

NET CASH INFLOW FROM OPERATING ACTIVITIES

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE

Interest received

Interest paid

Interest element of finance lease rental payments and stock finance

Preference dividends paid

CORPORATION TAX PAID

CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT

Payments to acquire tangible fixed assets

Payments to acquire intangible fixed assets

Payments to acquire investments

Receipts from sales of tangible fixed assets

Receipts from sales of fixed asset investments

ACQUISITIONS AND DISPOSALS

Purchase of subsidiary undertaking

Net cash acquired with subsidiary undertaking

EQUITY DIVIDENDS PAID

NET CASH INFLOW / (OUTFLOW) BEFORE FINANCING

FINANCING

New loans

Repayment of loans

Capital element of finance lease rental payments

INCREASE / (DECREASE) IN CASH AT BANK AND IN HAND

2005

£000

18,603

(1,325)

17,278

415

(1,280)

(798)

(744)

(2,407)

(1,701)

(31,508)

(208)

(7)

9,089

106

(22,528)

(312)

65

(247)

(1,027)

(10,632)

13,838

(13,687)

(37)

114

(10,518)

Notes

28

10

28

28

28

28

28

29

2006

£000

39,076

(750)

38,326

750

(1,399)

(711)

(744)

(2,104)

(2,176)

(29,480)

(416)

(2)

6,136

-

(23,762)

-

-

-

(1,027)

9,257

13,776

(14,564)

46

(742)

8,515

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FIXED ASSETS

Intangible assets

Tangible assets

Investments:

Investment in joint venture:

Share of gross assets

Share of gross liabilities

Other investments

Total investments

Other investments

TOTAL FIXED ASSETS

CURRENT ASSETS

Stocks

Debtors

Cash at bank and in hand

CREDITORS: amounts falling due within one year

NET CURRENT ASSETS

TOTAL ASSETS LESS CURRENT LIABILITIES

CREDITORS: amounts falling due after more than one year

PROVISIONS FOR LIABILITIES

PENSION LIABILITY

MINORITY INTERESTS

CAPITAL AND RESERVES

Called up share capital

Revaluation reserve

Capital redemption reserve

Profit and loss account

On behalf of the Board:

M. J. Marshall )

)

)Directors

W. C. M. Dastur )

23rd April, 2007

2005

£000

2,018

103,498

29

(18)

11

331

342

105,858

69,398

61,353

14,784

145,535

(105,652)

39,883

145,741

(17,523)

(15)

(2,807)

(32)

125,364

15,733

3,834

130

105,667

125,364

2006

£000

1,967

111,510

29

(18)

11

324

335

113,812

65,906

80,598

23,299

169,803

(125,917)

43,886

157,698

(17,191)

(1,231)

(1,372)

(32)

137,872

15,733

5,149

130

116,860

137,872

Notes

12

13

14

15

16

28

17

18

21

29

22

23

23

23

GROUP BALANCE SHEETat 31st December, 2006

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FIXED ASSETS

Tangible assets

Investments

TOTAL FIXED ASSETS

CURRENT ASSETS

Debtors

Cash at bank and in hand

CREDITORS: amounts falling due within one year

NET CURRENT ASSETS

TOTAL ASSETS LESS CURRENT LIABILITIES

CREDITORS: amounts falling due after more than one year

PENSION LIABILITY

CAPITAL AND RESERVES

Called up share capital

Capital redemption reserve

Profit and loss account

On behalf of the Board:

M. J. Marshall )

)

)Directors

W. C. M. Dastur )

23rd April, 2007

2005

£000

177

16,379

16,556

13,574

11,324

24,898

(10,644)

14,254

30,810

(2,000)

(2,807)

26,003

15,733

130

10,140

26,003

2006

£000

210

16,372

16,582

18,638

20,216

38,854

(27,936)

10,918

27,500

(1,000)

(1,372)

25,128

15,733

130

9,265

25,128

Notes

13

14

16

17

18

22

23

23

COMPANY BALANCE SHEETat 31st December, 2006

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Accounting convention and basis of preparationThe Group financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties, and

comply with all applicable accounting standards.

Basis of consolidationThe Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings, all of which are made up to 31st

December, each year, together with the Group’s share of results of joint ventures. Other investments are held in the balance sheet at cost. No profit and

loss account is presented for the parent company as provided by Section 230 of the Companies Act 1985.

TurnoverTurnover comprises group sales and charges for services rendered during the year, excluding value added tax, trade discounts and inter-company sales,

except in the case of long term work in progress, where turnover represents the value of work done during the year.

GoodwillPurchased goodwill arising on the acquisition of businesses or subsidiary undertakings, is capitalised as an intangible asset and amortised on a straight

line basis over an appropriate period representing its useful economic life but not exceeding 20 years. Where a business is sold, or where goodwill has

been impaired, the net book value of goodwill or the amount of impaired goodwill, as applicable, is charged through the profit and loss account in the

year of disposal or impairment.

DepreciationDepreciation is provided on fixed assets, other than freehold land and investment properties, at rates calculated to write off the cost or valuation, less

estimated residual value, based on prices prevailing at the date of acquisition or revaluation, of each asset evenly over its expected useful life, as follows:

Freehold buildings:

Residential properties 50 years

Garage properties 25 years

Hangars 20 years

Runway 20 years

Offices 15 - 40 years

Temporary shelters 5 years

Leasehold land over lease term

Leasehold improvements over lease term

Plant and equipment 3 - 8 years

Motor vehicles (except short term hire vehicles and leased vehicles) 3 - 4 years

Vehicles on lease to customer over lease term

Aircraft 10 - 20 years

Vehicles acquired, whether by purchase or finance lease, for the purpose of letting under lease contracts, are depreciated evenly over the period of the

lease contract to reduce the original cost to the estimated residual value at the end of the lease.

The carrying values of tangible fixed assets are reviewed for impairment periodically if events or changes in circumstances indicate the carrying value

may not be recoverable.

Investment propertiesCertain of the Group’s properties are held for long term investment. In accordance with SSAP 19, such investment properties are included in the balance

sheet at valuation and the aggregate surplus or deficit is transferred to a revaluation reserve. No depreciation is provided in respect of

investment properties.

Although the Companies Act would normally require the systematic annual depreciation of fixed assets, the directors believe that this policy of not

providing depreciation or amortisation is necessary in order for the financial statements to give a true and fair view since the current value of investment

properties, and changes in that current value, are of greater importance rather than a calculation of systematic annual depreciation.

1. ACCOUNTING POLICIES

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

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1. ACCOUNTING POLICIES (continued)

LeasesAssets obtained under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated as set out above.

The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and apportioned under a

declining balance method.

Rentals paid under operating leases are charged to income on a straight line basis.

Where assets are leased out under finance leases, the amount due from the lease customer is recorded in the balance sheet at the amount of the net

investment in the lease. The total interest under finance leases is allocated to accounting periods under a declining balance method.

Rental income from operating leases is recognised on a straight line basis over the period of the lease.

Foreign currenciesMonetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date or the forward

contract rate, if appropriate. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to

the profit and loss account.

StocksStocks and work in progress are valued at the lower of cost and net realisable value. In the case of work in progress, cost includes, where appropriate,

labour and attributable production overheads. Long-term contract work in progress is stated at cost, as defined above, less amounts transferred to the

profit and loss account, provision for any known or anticipated losses and payments on account received and receivable.

Profit on long term contracts is taken, as the work is carried out, if the final outcome can be assessed with reasonable certainty. The profit included is

calculated on a prudent basis and the resulting turnover together with related costs are recorded as the contract progresses.

Stocks held on consignment are accounted for in the balance sheet when the terms of a consignment agreement and commercial practice indicate that

the principal benefit of owning the stock (the ability to sell it) and principal risks of ownership (stockholding cost, responsibility for safe-keeping and

some risk of obsolescence) rest with the Group.

Research and developmentResearch and development expenditure is written off as incurred, except that development expenditure incurred on an individual project is carried

forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortised in line with the expected

future sales from the related project.

TaxationThe charge for taxation is based on the profit 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 in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events

that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date, with the following exceptions:

• provision is made for gains on disposal of fixed assets which have been rolled over into replacement assets only where, at the balance sheet date,

there is a commitment to dispose of the replacement assets.

• provision is made for the tax which would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the balance

sheet date, dividends have been accrued as receivable.

• deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits

from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on a non-discounted basis at the tax rates which are expected to apply in the periods in which timing differences reverse, based

on tax rates and laws enacted, or substantively enacted, at the balance sheet date.

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

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PensionsThe Group operates a number of different pension funds, including both defined contribution and defined benefit schemes, for employees of the Group.The assets of all the schemes are held in separately administered trust funds. For the defined contribution schemes, contributions are charged to theprofit and loss account as they become payable in accordance with the rules of the schemes.

For the defined benefit scheme regular valuations are prepared by an independent professionally qualified actuary. These determine the level ofcontributions required to fund the benefits set out in the rules of the plan and allow for the periodic increase of pensions in payment. The regular servicecost of providing retirement benefits to employees during the year, together with the cost of any benefits relating to past service, is charged to operatingprofit in the year.

A credit representing the expected return on the assets of the retirement benefit schemes during the year is included within other finance income. Thisis based on the market value of the assets of the schemes at the start of the financial year. A charge representing the expected increase in the liabilitiesof the retirement benefit schemes during the year is also included within other finance income. This arises from the liabilities of the schemes being oneyear closer to payment.

The difference between the market value of assets and the present value of accrued pension liabilities is shown as an asset or liability in the balancesheet net of deferred tax. Differences between actual and expected returns on assets during the year are recognised in the statement of total recognisedgains and losses in the year, together with differences arising from changes in assumptions and are disclosed as actuarial gains or losses net of tax.

Post balance sheet eventsThe financial statements take into consideration events occurring between the year end date and the date of their approval by the Board of Directors,as indicated on the balance sheet. In accordance with FRS 21 equity dividends on ordinary share capital are recognised as a liability in the period inwhich they are declared.

The Group operates in the principal markets of the sale, distribution, hire and associated activities in relation to cars and commercial vehicles; aerospace,

military and civilian systems engineering and property rental. An analysis of turnover, operating profit and net assets is given below.

Analysis by business:

Cars and commercial vehicles

Aerospace, military and civilian systems engineering

Property and investment

Unallocated net liabilities

Segmental net assets comprise the non-interest bearing operating assets less the non-interest bearing operating liabilities. They, therefore, exclude assets

in respect of cash, fixed asset investments and current asset investments as well as liabilities in respect of dividends, corporation tax, overdrafts and loans,

which together are disclosed as unallocated net liabilities.

Unallocated net liabilities comprise:

Fixed asset investments

Corporation tax

Deferred tax

Interest

Dividends

Cash

Loans and financing

A geographical analysis has not been given since, in the opinion of the directors, this would be seriously prejudicial to the Group’s activities.

2005

£000

81,847

37,823

14,832

134,502

(9,138)

125,364

2005

£000

342

1,675

240

-

(448)

14,784

(25,731)

(9,138)

2006

£000

81,421

50,689

7,601

139,711

(1,839)

137,872

2006

£000

335

(1,116)

(1,059)

2,212

(521)

23,299

(24,989)

(1,839)

2005

£000

3,823

(5,511)

246

(1,442)

-

(1,442)

2006

£000

3,179

14,158

(98)

17,239

-

17,239

2005

£000

437,203

135,690

1,149

574,042

-

574,042

2006

£000

430,501

201,565

1,141

633,207

-

633,207

Turnover Operating profit / (loss) Net assets

2. SEGMENTAL ANALYSIS

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

1. ACCOUNTING POLICIES (continued)

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Operating profit / (loss) is after charging / (crediting):

Auditors’ remuneration - audit fees

- taxation fees

- other fees

Depreciation - owned assets

- leased assets

Amortisation - goodwill

Operating lease rentals - plant and machinery

- land and buildings

Finance lease rental income - motor vehicles

Profit on disposal of tangible fixed assets

Profit on disposal of fixed asset investments

Total credited to profit on ordinary activities before tax

Tax credit on exceptional profit

Bank interest receivable

Interest receivable on tax repayments and other rebates

Share of joint venture’s interest

Interest receivable

Bank loans and overdrafts

Finance lease charges

Stock finance charges

Interest payable and similar charges

2005

£000

286

164

23

15,570

61

330

128

1,558

(352)

2005

£000

4,104

76

4,180

(249)

2005

£000

393

6

3

402

2005

£000

1,290

8

790

2,088

4. EXCEPTIONAL ITEMS

5. INTEREST RECEIVABLE

6. INTEREST PAYABLE AND SIMILAR CHARGES

3. OPERATING PROFIT / (LOSS)2006

£000

343

188

44

16,732

68

467

103

1,736

(453)

2006

£000

153

-

153

-

2006

£000

938

2,042

-

2,980

2006

£000

1,399

10

701

2,110

The loss dealt with in the financial statements of the parent company was £8,000 (2005 - profit of £2,051,000).

7. PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY

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(a) Analysis of tax charge / (credit) for the year

UK corporation tax charge / (credit) on the profit / (loss) for the year

UK corporation tax adjustment in respect of prior years

Share of joint venture’s tax

Overseas tax

Current tax charge / (credit)

Deferred tax charge

Total tax charge / (credit)

2005

£000

(981)

(642)

(6)

88

(1,541)

943

(598)

1,222

367

641

(156)

(335)

(1,234)

7

-

(609)

(270)

48

(1,541)

2006

£000

4,853

(39)

-

153

4,967

1,495

6,462

18,522

5,557

874

(716)

82

-

-

(791)

(39)

-

-

4,967

8. TAX ON PROFIT ON ORDINARY ACTIVITIES

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

2005

£000

(155)

372

372

155

744

734

293

1,771

2006

£000

(155)

372

372

155

744

734

366

1,844

9. EARNINGS PER ORDINARY SHARE

10. DIVIDENDS

Dividends on preference shares:

Accrual for dividend due in period 16th October to 31st December, 2005

Paid 15th April, 2006

Paid 15th October, 2006

Accrual for dividend due in period 16th October to 31st December, 2006

Dividends on ordinary shares:

10.0p per share paid on 30th June 2006 (1st July 2005 - 10.0p)

5.0p per share paid on 15th January 2007 (13th January 2006 - 4.0p)

Aggregate dividends declared during the year

(b) Factors affecting current tax charge for the year

Profit on ordinary activities before tax

Profit on ordinary activities before tax at 30%

Effects of:

Expenses not deductible for tax purposes

Capital allowances in excess of depreciation

Short term timing differences

Chargeable gains not recognised

Losses carried forward

Utilisation of losses brought forward

Adjustments in respect of prior years

Indexation allowance

Overseas tax

Current tax charge / (credit)

(c) Factors that may affect future tax charges

No provision has been made for deferred tax on gains recognised on revaluing property to its market value, or on the sale of properties where taxable gains have been

rolled over into replacement assets. Such tax would become payable only if the properties concerned were sold without it being possible to claim rollover relief. The total

amount unprovided in respect of these two elements is £5,727,000 (2005 - £5,392,000). At present, it is not envisaged that any tax will become payable in the foreseeable

future. In addition, the group has not recognised a potential deferred tax asset of £483,000 (2005 - £454,000), being the element of the full potential deferred tax asset that

relates to capital allowances on buildings. The asset will be recoverable only if, in the year or years in which it is realised, the Group has sufficient taxable profits and the

Government has recently signalled its intention to phase out this allowance by 2011.

The Company is a close company within the provisions of the Income and Corporation Taxes Act, 1988.

Basic earnings per ordinary share are calculated by dividing the profit after tax and minority interests, after deducting preference dividends, of £11,316,000(2005 - £1,072,000) by 7,332,500 (2005 - 7,332,500) ordinary shares, being the average number of ordinary shares in issue during the year. Dilutedearnings per share are calculated in the same way as currently there is no commitment to issue shares in the future.

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(a) Group staff costs

Wages and salaries

Social security costs

Other pension costs

The average monthly number of employees of the Group during the year was made up as follows:

Cars and commercial vehicles

Aerospace, military and civilian systems engineering

(b) Directors’ emoluments

Emoluments

Long term incentive payments

Company contributions paid to defined benefit pension schemes

Contributing members of defined benefit pension schemes

The amounts, including profit related payments, in respect of the highest paid director, for whom there were no

company pension contributions in either year, were as follows:

Emoluments

2005

£000

89,836

9,015

3,110

101,961

No.

1,906

1,663

3,569

£000

1,711

9

120

1,840

No.

4

£000

472

2006

£000

97,342

10,112

3,268

110,722

No.

1,808

1,776

3,584

£000

2,204

9

125

2,338

No.

4

£000

646

11. STAFF COSTS AND DIRECTORS’ EMOLUMENTS

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Cost:

At 1st January, 2006

Arising on acquisitions

At 31st December, 2006

Amortisation:

At 1st January, 2006

Provided during the year

At 31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

Goodwill

£000

2,955

416

3,371

937

467

1,404

1,967

2,018

12. INTANGIBLE FIXED ASSETS

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Group

Cost or valuation:

At 1st January, 2006

Additions

Disposals

Revaluation

At 31st December, 2006

Depreciation:

At 1st January, 2006

Provided during the year

Eliminated on disposals

At 31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

Assets held

for contract

rental

£000

44,141

18,372

(13,017)

-

49,496

15,391

9,295

(8,267)

16,419

33,077

28,750

Total

£000

198,461

29,480

(15,196)

1,315

214,060

94,963

16,800

(9,213)

102,550

111,510

103,498

Plant and

machinery

£000

71,645

8,256

(158)

-

79,743

55,836

4,802

(129)

60,509

19,234

15,809

Motor

vehicles

£000

5,541

962

(939)

-

5,564

4,116

780

(744)

4,152

1,412

1,425

Land and buildings

Long

leasehold

£000

2,232

207

-

-

2,439

378

138

-

516

1,923

1,854

Freehold

£000

74,902

1,683

(1,082)

1,315

76,818

19,242

1,785

(73)

20,954

55,864

55,660

13. TANGIBLE FIXED ASSETS

Company

Cost:

At 1st January, 2006

Additions

Disposals

At 31st December, 2006

Depreciation:

At 1st January, 2006

Provided during the year

Eliminated on disposals

At 31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

Total

£000

547

123

(47)

623

370

90

(47)

413

210

177

Motor

vehicles

£000

285

55

(47)

293

182

67

(47)

202

91

103

Plant and

machinery

£000

262

68

-

330

188

23

-

211

119

74

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Assets acquired under finance leases

Included in plant and machinery are the following amounts relating to assets acquired by the Group under finance leases:

Group

Cost:

At 1st January, 2006

Additions

Disposals

At 31st December, 2006

Depreciation:

At 1st January, 2006

Provided during the year

Eliminated on disposal

31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

Assets acquired to let under finance leases

The Group has purchased motor vehicles with an original cost of £930,000 (2005 - £882,000) for the purposes of letting under finance leases

which are not shown as fixed assets. The related depreciation charge for the year was £209,000 (2005 - £175,000).

Plant and

machinery

£000

237

124

(54)

307

196

68

(54)

210

97

41

13. TANGIBLE FIXED ASSETS (continued)

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Investment properties

Investment properties included in freehold land and buildings are stated at market value. No depreciation is provided in respect of such properties in

accordance with current accounting practice. All other properties are included at original cost.

The Group’s freehold investment properties were informally valued on an open market basis by the directors as at 31st December, 2006 at £11,575,000.

A revaluation surplus of £1,315,000 has been taken to the revaluation reserve.

The historical cost of the investment properties included at valuation in freehold land and buildings is £6,426,000 (2005 - £6,425,000).

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Other

investments

£000

110

2

-

112

31

81

79

Joint

ventures

£000

11

-

-

11

-

11

11

Total

£000

373

2

(9)

366

31

335

342

Group

Cost:

At 1st January, 2006

Additions

Mark to market

At 31st December, 2006

Provision:

At 1st January, 2006 and

At 31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

14. INVESTMENTS

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Company

Cost:

At 1st January, 2006

Additions

Mark to market

31st December, 2006

Provision:

At 1st January, 2006 and

At 31st December, 2006

Net book value:

At 31st December, 2006

Net book value:

At 1st January, 2006

Total

£000

26,379

2

(9)

26,372

10,000

16,372

16,379

Subsidiary

undertakings

£000

26,050

-

-

26,050

10,000

16,050

16,050

Listed on

London Stock

Exchange

£000

252

-

(9)

243

-

243

252

Listed on

London Stock

Exchange

£000

252

-

(9)

243

-

243

252

Other

investments

£000

77

2

-

79

-

79

77

Marshall of Cambridge Aerospace Limited holds 50% of the issued ordinary share capital of BRAMA Brown & Root and Marshall Aerospace Limited

(BRAMA). This company is disclosed as a joint venture in the Group financial statements and, as such, has been accounted for in accordance with the

Group’s accounting policy. The company is registered in England and Wales and did not trade during the year.

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14. INVESTMENTS (continued)

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Cost

£000

12,000

12,000

1,734

269

20

17

10

-

26,050

The Company’s direct investments in subsidiary undertakings at 31st December, 2006 were as follows:

Proportion Ordinary Shares

Subsidiary undertaking held of £1 each Principal activity

Marshall of Cambridge Aerospace Limited 100% 12,000,000 Aerospace engineering

Marshall Specialist Vehicles Limited 100% 12,000,000 Military and civilian systems engineering

MGPH Limited 100% 500,000 Property holding

Marshall of Cambridge (Motor Holdings) Limited 100% 2,250,000 (See below)

MC (Outstations) Limited 100% 12,000 Non-trading

The Cambridge Aero Club Limited 100% 5,000 Flying instruction & aircraft charter

Marshall of Cambridge (Airport Properties) Limited 100% 10,000 Farming and property holding

Marshall of Cambridge (Engineering) Limited 100% 100 Dormant

The following companies are subsidiary undertakings of Marshall of Cambridge (Motor Holdings) Limited:

+ Dormant

* Wholly owned by Marshall of Cambridge (Motor Holdings) Limited

** 99% owned by Marshall of Cambridge (Motor Holdings) Limited

*** Wholly owned by Fellhouse Limited

**** Wholly owned by Marshall Leasing Limited

All the above subsidiary undertakings of Marshall of Cambridge (Motor Holdings) Limited carry on the business of car and commercial vehicle and

equipment sales, distribution, service, leasing, hire and associated activities except Marshall of Cambridge (Garage Properties) Limited (property holding)

and those companies marked as dormant above. On 1st August 2006, Marshall Leasing acquired the trade and assets of a contract hire company from Gates

Contract Hire Limited. It later also acquired the name.

Aeropeople Limited and Marshall Aerospace International Services Limited are wholly owned subsidiaries of Marshall of Cambridge Aerospace Limited.

Aeropeople Limited supplies labour to aerospace and associated industries and Marshall Aerospace International Services Limited is dormant.

Marshall Vehicle Engineering Limited incorporated on 2nd October 2006 and Marshall UAV Limited incorporated on 24th October 2006 are wholly

owned subsidiaries of Marshall Specialist Vehicles Limited. Marshall Vehicle Engineering Limited manufactures, assembles and integrates load beds onto

vehicle chassis and Marshall UAV Limited provides the design, development and manufacture of unmanned aerial vehicles.

All of the subsidiary undertakings referred to above are registered in England and Wales.

Marshall Aerospace Canada Inc is registered in Canada and provides design and engineering support and labour supplies to the aerospace industry.

Marshall Aerospace Netherlands B.V. was registered in the Netherlands on 26th July 2006 and provides design and engineering support to the aerospace

industry. Both Marshall Aerospace Canada Inc and Marshall Aerospace Netherlands B.V. are wholly owned subsidiaries of Marshall of Cambridge

Aerospace Limited.

* Marshall Motor Group Limited

* Marshall of Cambridge (Garage Properties) Limited

* Marshall Leasing Limited

* Marshall Thermo King Limited

* Fellhouse Limited

* Tim Brinton Cars Limited

* + Marshall Commercial Vehicles Limited

* + Brunswick Croydon Limited

** Marshall of Ipswich Limited

** Marshall of Peterborough Limited

*** Jack Roberts (Tail Lifts) Limited

**** Gates Contract Hire Limited

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Loans (see note 19)

Loan notes (see note 19)

Payments received on account

Trade creditors

Amounts owed to subsidiary undertakings

Corporation tax

Other taxes and social security costs

Other creditors

Accruals and deferred income

Ordinary dividends

Accrued preference dividends

Obligations under finance leases (see note 20)

2005

£000

1,000

-

-

71

6,720

631

185

-

1,589

293

155

-

10,644

2006

£000

1,000

-

-

109

24,021

-

151

-

2,134

366

155

-

27,936

2005

£000

12,406

346

6,524

61,836

-

-

4,419

3,517

16,115

293

155

41

105,652

2006

£000

13,682

-

20,204

50,146

-

1,116

4,060

2,315

33,810

366

155

63

125,917

17. CREDITORS: Amounts falling due within one year

Group Company

Trade debtors

Amounts recoverable on long term contracts

Amounts owed by subsidiary undertakings

Other debtors

Prepayments and accrued income

Other taxes recoverable

Corporation tax

Deferred tax

Finance lease debtors

During the year, the Group received gross rentals of £453,000 (2005 - £352,000) in respect of finance leases.

16. DEBTORS

Group Company

2005

£000

39,610

5,362

-

11,415

2,420

40

1,675

240

591

61,353

2006

£000

46,398

10,721

-

19,950

2,879

63

-

-

587

80,598

2005

£000

2

-

13,059

39

34

-

-

440

-

13,574

2006

£000

123

-

16,617

32

44

-

1,373

449

-

18,638

Long term contract balances:

Costs to date less provision for losses

Applicable payments on account

Work in progress

Raw materials, components and consumables

Finished goods and goods for resale

Progress payments receivable in excess of the value of work done on individual contracts less provisions for losses are shown separately under creditors:

amounts falling due within one year in the balance sheet. At 31st December, 2006, the Group held vehicles on consignment from manufacturers with a

wholesale value of £9,437,000 (2005 - £11,326,000) which are included within finished goods and goods for resale. The difference between purchase price

and production cost of stocks and their replacement cost is not material.

15. STOCKS

Group

2005

£000

10,750

(9,711)

1,039

6,635

5,283

56,441

69,398

2006

£000

-

-

-

7,426

6,415

52,065

65,906

43

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

Amounts falling due:

Within one year

Between one and two years

Between two and five years

Less: included in creditors: amounts falling

due within one year

Amounts falling due after more than one year

Analysis of changes in loan financing during the year:

At 1st January

New loans

Loans repaid

At 31st December

All loans are repayable within 5 years with a variable interest rate and, with the exception of one loan for £2,000,000 held by the Company which is unsecured,

are secured on vehicles leased to third parties. Loan notes are unsecured with an interest rate 0.95% below base rate and were repaid on 3rd January, 2006.

19. LOANS2005

£000

12,752

9,341

3,538

25,631

(12,752)

12,879

25,480

13,838

(13,687)

25,631

2006

£000

13,682

9,529

1,632

24,843

(13,682)

11,161

25,631

13,776

(14,564)

24,843

Loan

notes

£000

-

-

-

-

-

-

346

-

(346)

-

Loans

£000

13,682

9,529

1,632

24,843

(13,682)

11,161

25,285

13,776

(14,218)

24,843

Group

2005

£000

1,000

1,000

1,000

3,000

(1,000)

2,000

4,000

-

(1,000)

3,000

2006

Loans

£000

1,000

1,000

-

2,000

(1,000)

1,000

3,000

-

(1,000)

2,000

Company

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Amounts falling due:

Within one year

Between two and five years

Less: finance charges allocated to future periods

Included in creditors:

Amounts falling due within one year

Amounts falling due after more than one year

20. OBLIGATIONS UNDER FINANCE LEASES 2005

£000

46

62

108

(8)

100

41

59

100

2006

£000

70

90

160

(14)

146

63

83

146

Group

Loans (see note 19)

Accruals and deferred income

Obligations under finance leases (see note 20)

2005

£000

12,879

4,585

59

17,523

2006

£000

11,161

5,947

83

17,191

18. CREDITORS: Amounts falling due after more than one year Group

2005

£000

2,000

-

-

2,000

2006

£000

1,000

-

-

1,000

Company

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

At 1st January, 2006

Arising during the year

Amounts utilised

Amounts reversed

At 31st December, 2006

A provision is recognised for expected warranty claims on products sold. It is expected that the majority of the warranty costs will be incurred in thenext financial year.

£000

15

264

(32)

(75)

172

21. PROVISIONS FOR LIABILITIES

(a) Warranty provision

(b) Deferred tax

Group

The deferred tax (liability) / asset provided in the financial statement is made up as follows:

Accelerated capital allowances

Other short term timing differences

Overseas tax

The deferred tax liability not provided is made up as follows:

Accelerated capital allowances

Capital gains rolled over

Revaluation reserve

Group

2005

£000

(454)

4,242

1,150

4,938

2006

£000

(483)

4,182

1,544

5,243

£000

440

(187)

(418)

614

449

£000

240

(1,495)

(418)

614

(1,059)

2006

£000

(1,894)

835

-

(1,059)

2005

£000

18

422

-

440

2005

£000

(559)

751

48

240

2006

£000

27

422

-

449

Group Company

The movement in the deferred tax (liability) / asset during the year is as follows:

At 1st January, 2006

Charge for the year

Charge on actuarial gain

Credit on reduction in pension deficit

At 31st December, 2006

CompanyGroup

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

23. SHAREHOLDERS’ FUNDS Profit and

loss

account

£000

105,667

12,060

(1,844)

-

977

116,860

Profit and

loss

account

£000

10,140

(8)

(1,844)

977

9,265

Total

shareholders’

funds

£000

125,364

12,060

(1,844)

1,315

977

137,872

Total

shareholders’

funds

£000

26,003

(8)

(1,844)

977

25,128

Revaluation

reserve*

£000

3,834

-

-

1,315

-

5,149

Share

capital

£000

15,733

-

-

-

15,733

Capital

redemption

reserve

£000

130

-

-

-

-

130

Capital

redemption

reserve

£000

130

-

-

-

130

Share

capital

£000

15,733

-

-

-

-

15,733

*The revaluation reserve relates to investment properties only.

Group

At 1st January, 2006

Profit for the year after minority interests

Dividends payable

Surplus on revaluation of investment properties

Actuarial profit net of tax on pension liability

At 31st December, 2006

Company

At 1st January, 2006

Loss for the year

Dividends payable

Actuarial profit net of tax on pension liability

At 31st December, 2006

Ordinary shares of £1 each

8% ‘A’ cumulative preference shares of £1 each

10% ‘B’ cumulative preference shares of £1 each

Rights of preference shares

(i) holders of preference shares are entitled, in priority to holders of ordinary shares, to fixed cumulative preference dividends annually as follows:

- in respect of the ‘A’ preference shares 8p per share

- in respect of the ‘B’ preference shares 10p per share

(ii) on a return of capital on a winding up or redemption, the preference shares carry the right to repayment of capital at par; this right is in priority

to the rights of ordinary shareholders;

(iii) they carry the right to attend and vote at a general meeting of the Company only if a resolution is to be considered at the meeting for winding up

the Company or for reducing the capital of the Company, in which cases the holders are only entitled to vote on these specific resolutions, or if

the preference dividends are more than 36 months in arrears.

2005

£000

7,333

4,800

3,600

15,733

2005

No.

7,332,500

4,800,000

3,600,000

15,732,500

2006

No.

7,332,500

4,800,000

3,600,000

15,732,500

2006

£000

7,333

4,800

3,600

15,733

2006

£000

7,800

4,800

3,600

16,200

2005

£000

7,800

4,800

3,600

16,200

22. SHARE CAPITALAuthorised Allotted, called up and fully paid

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

25. CONTINGENT LIABILITIES

26. CAPITAL COMMITMENTS

27. OTHER FINANCIAL COMMITMENTS

Group

Authorised by the Board and contracted but not provided for

These commitments to invest in fixed assets have been made by subsidiary undertakings.

The Group leases a number of properties, equipment and vehicles under operating leases.

The minimum annual rentals under these leases are as follows:

Operating leases which expire:

- within 1 year

- in 2 to 5 years

- over 5 years

2006

£000

384

2,080

2,049

4,513

2005

£000

25

443

882

1,350

Other

2006

£000

7,434

2006

£000

50

39

-

89

2005

£000

1,142

Group

2005

£000

56

47

-

103

Land and Buildings

Guarantees to third parties, granted by subsidiary undertakings, amounted to £2,396,000 (2005 - £1,766,000). At the year end there was no liability in respect of performance guarantees granted by the Company on behalf of subsidiary undertakings.

Group

2005

£000

1,820

(4)

(1,771)

45

1,142

(1,151)

36

125,328

125,364

2006

£000

12,060

-

(1,844)

10,216

1,315

977

12,508

125,364

137,872

Company

2005

£000

2,051

-

(1,771)

280

-

(1,151)

(871)

26,874

26,003

2006

£000

(8)

-

(1,844)

(1,852)

-

977

(875)

26,003

25,128

24. RECONCILIATION OF SHAREHOLDERS’ FUNDS

Profit attributable to shareholders

Minority interests

Dividends

Other recognised gains relating to the year

Actuarial profit / (loss) net of tax

Net increase / (decrease) in shareholders’ funds

Shareholders’ funds at 1st January

Shareholders’ funds at 31st December

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28. NOTES TO THE STATEMENT OF CASH FLOWS

(a) Reconciliation of operating profit / (loss) to net cash inflow from operating activities

Operating profit / (loss)

Share of results of joint venture

Depreciation of tangible fixed assets

Amortisation of intangible fixed assets

Provision against fixed asset investments

Mark to market of fixed asset investments

Decrease in stocks

Increase in debtors

(Decrease) / increase in provisions

Increase in creditors

Cash inflow from operating activities before contribution to the pension fund

Contribution to the pension fund

Net cash inflow from operating activities

(b) Analysis of net debt

Cash at bank and in hand

Short term loans

Long term loans

Loan notes

Finance lease obligations

Net debt

(c) Reconciliation of net cash flow to movement in net debt

Increase / (decrease) in cash

Cash inflow from new loans

Repayment of loans

New capital element of finance leases

Decrease / (increase) in net debt

Net debt at 1st January

Net debt at 31st December

Non - cash

movement

£000

-

(7,529)

7,529

-

-

-

At

31st December

2006

£000

23,299

(13,682)

(11,161)

-

(146)

(1,690)

At

1st January

2006

£000

14,784

(12,406)

(12,879)

(346)

(100)

(10,947)

Cash

movement

£000

8,515

6,253

(5,811)

346

(46)

9,257

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

2006

£000

17,239

-

16,800

467

-

9

3,492

(17,920)

(1,278)

20,267

39,076

(750)

38,326

2005

£000

(1,444)

2

15,630

330

31

(98)

3,670

(4,716)

136

5,062

18,603

(1,325)

17,278

2005

£000

(10,518)

(13,838)

13,687

37

(10,632)

(315)

(10,947)

2006

£000

8,515

(13,776)

14,564

(46)

9,257

(10,947)

(1,690)

i) The major financial assumptions used by the actuary as at 31st December, 2006 were:

Discount rate

Rate of increase in salaries

Rate of increase in pensions in payment

Inflation assumption

2005

4.74%

4.39%

2.89%

2.89%

2004

5.23%

4.36%

2.86%

2.86%

2006

5.16%

4.51%

3.01%

3.01%

2005

£000

1,265

(1,099)

166

(867)

(701)

2005

£000

2,021

(1,935)

(1,731)

(1,645)

494

(1,151)

2006

£000

763

(638)

1,271

1,396

(419)

977

2006

£000

1,483

(1,225)

258

(1,071)

(813)

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(a) The Group operates, for the benefit of its employees, three schemes, one of which has elements of both defined benefit and defined contribution, while the othertwo are entirely defined contribution. All the schemes are funded by the payment of contributions to trustee administered funds which are kept entirely separatefrom the assets of the Group. The level of pension contribution is determined with the advice of independent qualified actuaries.

(b) The scheme which has elements of both defined benefit and defined contribution, is known as the Marshall Group Executive Pension Plan (the “Plan”). The defined contribution type schemes, which cover approximately 95% of scheme members, were established in 1982 and 1988. The total pension cost forthe Group for the year in respect of all defined contribution schemes was £2,197,000 (2005 - £2,243,000). The total defined benefit cost for the Group in respectof the Plan was £813,000 (2005 - £701,000) under FRS 17 of which £1,071,000 (2005 - £867,000) has been charged against operating profit and £258,000(2005 - £166,000) has been credited to other finance income.

(c) The Plan was assessed by a qualified independent actuary from Buck Consultants, as at 6th April, 2006 using the projected unit method and indicated a fundingsurplus of £805,000. The valuation of the defined benefit section of the Plan under FRS 17 has been based on this actuarial valuation, updated by the actuaryfrom Buck Consultants in order to assess the assets and the liabilities of the scheme as at 31st December, 2006. The assets and liabilities shown exclude thoserelating to defined contribution pensions.

NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

29. PENSIONS AND OTHER RETIREMENT BENEFIT COSTS

ii) Analysis of the amount charged against profits:

Finance income

Expected return on pension scheme assets

Interest on pension scheme liabilities

Net credit to finance income

Operating profit

Current service costs

Total charge

iii) Analysis of the amount recognised in the statement of recognised gains and losses

Actual return less expected return on pension scheme assets

Experience gains and losses arising on the scheme liabilities

Changes in assumptions underlying the present value of the scheme liabilities

Actuarial gain / (loss)

Deferred tax thereon

Actuarial profit / (loss) net of tax recognised in the statement of recognised gains and losses

vi) The five year history of experience gains and losses is as follows:

Actual return less expected return on scheme assets:

Amount

% of scheme assets at year end

Experience gains and losses arising on scheme liabilities:

Amount

% of scheme liabilities at year end

Total amount recognised in the statement of total recognised gains and losses:

Amount

% of scheme liabilities at year end

2004

%

0.4

(0.9)

(2.4)

£000

75

(189)

(488)

2003

%

6.4

1.3

1.6

£000

960

245

301

2002

%

(27.0)

0.3

(25.7)

£000

(3,406)

54

(4,433)

2005

%

9.4

(7.6)

(6.5)

£000

2,021

(1,935)

(1,645)

2006

%

3.2

(2.5)

5.4

£000

763

(638)

1,396

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NOTES TO THE FINANCIAL STATEMENTSat 31st December, 2006

29. PENSIONS AND OTHER RETIREMENT BENEFIT COSTS (continued)

2006

£000

2005

£000

(3,749)

(867)

2,086

166

(1,645)

(4,009)

(4,009)

(1,071)

1,466

258

1,396

(1,960)

v) The movement in the deficit over the year is as follows:

Deficit in the scheme at the beginning of the year

Current service cost

Employers’ contributions

Finance costs

Actuarial gain / (loss)

Deficit in the scheme as at 31 December

Equities

Property

Government stock

Corporate bonds

Cash

Total market value of assets

Present value of insured annuity policies

Present value of scheme liabilities

Deficit in the scheme as at 31 December

Related deferred tax asset

Net pension liability

iv) The value of the assets in the scheme and the expected long-term rate of return as at 31st December, 2006 were:

Rate of return

%

8.04

8.04

4.12

4.74

4.50

Rate of return

%

7.85

7.00

4.60

5.10

5.25

Note: The difference between assets and liabilities is extremely volatile; it can alter significantly depending on the date at which the measurements are carried out.

2006

£000

13,558

3,359

2,332

2,257

(35)

21,471

2,416

23,887

(25,847)

(1,960)

588

(1,372)

2005

£000

11,751

2,476

1,932

1,882

849

18,890

2,518

21,408

(25,417)

(4,009)

1,202

(2,807)

Rate of return

%

8.17

8.17

4.57

5.23

4.75

2004

£000

9,390

2,092

741

2,171

175

14,569

2,287

16,856

(20,605)

(3,749)

1,125

(2,624)

Due to an administrative error, in December 2006 one of the directors, RD Marshall, received an interest free loan of £6,840 from Marshall SpecialistVehicles Limited, a subsidiary company of which he is also a director. This was repaid in full on 22nd February 2007.

The parent company has claimed the exemptions under FRS 8 and has not disclosed transactions with subsidiary undertakings.

30. RELATED PARTIES

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REPORT OF THE AUDITORS

INDEPENDENT AUDITORS’ REPORT to the members of Marshall of Cambridge (Holdings) LimitedWe have audited the Group and parent Company financial statements (the ‘financial statements’) of Marshall of Cambridge (Holdings) Limited for the year ended 31st

December, 2006 which comprise the Group Profit and Loss Account, Group Statement of Total Recognised Gains and Losses, Group Statement of Cash Flows, Group

Balance Sheet, Company Balance Sheet and the related notes 1 to 30. These financial statements have been prepared under the accounting policies set out therein.

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 auditors’ 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 auditorsThe directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and Accounting

Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements 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 are properly prepared in accordance with the Companies Act

1985. 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 Operating and Financial Review that is cross referred 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 infor-

mation and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information

comprises only the Directors’ Report, the Chairman’s Statement, the Operating and Financial Reviews and the Corporate Governance Statement. 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.

Basis of audit opinionWe 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. 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 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.

OpinionIn our opinion:

• the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the Group’s and parent

Company’s affairs as at 31st December, 2006 and of the Group’s profit for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Directors’ Report is consistent with the financial statements.

Ernst & Young LLP

Registered Auditor

Cambridge

23rd April, 2007

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RECENT FINANCIAL HISTORY

Turnover

Operating profit / (loss) before operating and non-operating exceptional items

Exceptional items

Net interest / investment income

Profit before tax

Taxation

Minority interests

Dividends

Retained profit

Total dividend cover

Earnings per share

Return on average shareholders’ funds

Average no. of staff

Cash generated/(utilised)

Capital expenditure and investment (net)

Fixed assets

Net current assets

Creditors over one year, provisions, pension liability and minority interests

Shareholders’ funds

2002

£000

490,363

162

2,181

2,343

(1,220)

1,123

434

(1)

(1,551)

5

1.0

11p

1.0%

3,352

(6,913)

13,703

88,628

38,472

(13,450)

113,650

2003

£000

Restated

535,900

14,230

1,572

15,802

(778)

15,024

(4,347)

(1)

(1,551)

9,125

6.9

135p

12.8%

3,527

8,607

15,785

89,407

47,980

(19,672)

117,715

2004

£000

Restated

605,015

10,573

2,752

13,325

(1,024)

12,301

(3,398)

(1)

(1,697)

7,205

5.2

111p

10.1%

3,628

4,245

16,860

93,682

52,457

(20,811)

125,328

2005

£000

574,042

(1,444)

4,180

2,736

(1,514)

1,222

598

(4)

(1,771)

45

1.0

15p

1.0%

3,569

(10,518)

22,528

105,858

39,883

(20,377)

125,364

2006

£000

633,207

17,239

153

17,392

1,130

18,522

(6,462)

-

(1,844)

10,216

6.5

154p

14.1%

3,584

8,515

23,762

113,812

43,886

(19,826)

137,872

Following the adoption of FRS 17 and FRS 21, in 2005, values were restated for 2003 and 2004 but not for 2002

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MARSHALL OF CAMBRIDGE (HOLDINGS) LIMITEDTWENTY FIRST ANNUAL GENERAL MEETING

NOTICE OF MEETING

Notice is hereby given that the Twenty First Annual General Meeting of the Shareholders of Marshall ofCambridge (Holdings) Limited will be held at 11.30 am on Wednesday 6th June, 2007 at The Airport,Cambridge, in accordance with the attached Agenda.

J D BarkerSecretary

Dated this 23rd April, 2007by Order of the Board

A Member entitled to attend and vote at the Meeting may appoint a Proxy to attend to vote instead of him / her, and such Proxy need not also be a Member.

Registration Number 2051460 Registered Office: Airport House, Newmarket Road, Cambridge, CB5 8RY, England

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MARSHALL OF CAMBRIDGE (HOLDINGS) LIMITEDTWENTY FIRST ANNUAL GENERAL MEETING

Wednesday 6th June, 2007 at 11.30 am

AGENDA

1. The Notice convening the Meeting to be taken as read.

2. Proxies.

3. Minutes of the Annual General Meeting held on 7th June, 2006.

4. Statement by the Chairman of Marshall of Cambridge (Holdings) Limited.

5. To receive the Directors’ Report and Accounts for the year ended 31st December, 2006 together with the Auditors’ Report thereon and a Resolution to be proposed, seconded and put to the vote THAT they be and are hereby approved and adopted.

6. A Resolution to be proposed, seconded and put to the vote THAT a final ordinary dividend of 14p per share amounting to £1,026,550 be paid on 29th June, 2007.Together with the interim dividend of 5p per share amounting to £366,625 paid on 15th January,2007, the total ordinary dividend would be 19p per share amounting to £1,393,175.

7. Resolutions to be proposed, seconded and put to the vote THAT :

i. NV Barber, who retires by rotation, be re-appointed as a Directorii. Sir Ralph Robins, who retires by rotation, be re-appointed as a Director

8. A Resolution to be proposed, seconded and put to the vote THAT Ernst & Young LLP be re-appointed as Auditors until the completion of the next Annual General Meeting and that their remuneration be fixed by the Directors.

9. To propose the date of the next Annual General Meeting - Wednesday 4th June, 2008.

10. Any other business.

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SIR ARTHUR MARSHALL OBE DL 4th DECEMBER 1903 to 16th MARCH 2007

Sir Arthur Marshall OBE DL who was one of Britain’s aviation pioneers, diedat the age of 103 at his Cambridgeshire home, Horseheath Lodge, on Friday16th March 2007. He was born on 4th December 1903, two weeks beforethe first manned flight by the Wright Brothers.

Following his education at Jesus College, Cambridge where he obtained afirst class degree in Engineering, Arthur Marshall joined his father in thefamily motor business and after learning to fly in 1928, he combined hiswork in the garage with giving flying instruction in his spare time. Theexpansion of the aviation business in the mid 1930s led to the purchase ofland in 1935 on which the present Cambridge Airport was developed.

Pre-war, Arthur Marshall played an important part in the development of flyingtraining, particularly for the Royal Air Force. From his own experience, Arthurwas convinced that selected pupils, fresh from learning to fly, would makebetter Flying Instructors than the then accepted RAF practice of using only themore experienced pilots. He recruited suitable pupils for training whichproved to be an enormous success as the young enthusiastic instructorsestablished day and night elementary and advanced flying instruction of over1,000 hours per year as compared with the normal 250; this provided afourfold increase in the output of trained pilots and instructors. The AirMinistry was reluctant to adopt the scheme universally across the RAF butafter much persistence by Arthur Marshall, they did so in 1941, and from thatdate there was no further shortage of either pilots or instructors for the RAF forthe remainder of the Second World War. In 2001, Air Chief Marshal Sir JohnDay, Commander in Chief of Royal Air Force Personnel & Training Commandcommented that if the Marshall Flying Instructor Scheme, which continues inuse for the RAF to this day, had been adopted earlier in the War, there wouldhave been no shortage of pilots for the Battle of Britain. Sir Arthur Marshallconsidered his Flying Instructor Scheme to be one of his two most significantachievements in supporting the RAF.

The second, of which he was also most proud, was in 1982 when MarshallAerospace was instructed to provide the Hercules with an air-to-air refuellingcapability to enable it to reach the Falkland Islands. Arthur Marshall directedthe Aircraft Design Office to get work under way at once, working on a 24 hourday basis, seven days per week. The first aircraft XV200, having completed dayand night flight refuelling trials was delivered to the RAF for operational use on5th May just 19 days after the initial request had been made. Some years afterthe Falklands Conflict, Prime Minister Margaret Thatcher visited Marshall ofCambridge and commented "your work for the Falklands campaign will neverbe forgotten". It was a testament to the engineering quality of this modificationwhich was personally directed by Arthur Marshall, that the C-130 Hercules air-to-air refuelling probe has continued in RAF service to this day.

During the Second World War Marshall Aerospace repaired over 5,000aircraft which included Whitley, Oxford, Albemarle, Mosquito, Typhoons andDakotas. Completed aircraft were test flown by the company’s full time testpilot but Arthur Marshall undertook some of this flight testing himself. At theend of the war, Arthur Marshall was invited by the Air Ministry to chair theAircraft Repairers Dinner held at the Dorchester Hotel on the 8th November1945 to celebrate the company’s considerable successes in supporting theRAF during the war years.

Arthur Marshall who took over control in 1942 on his father’s death remainedas Chairman of the company for 47 years until his retirement in 1989. In 1942the Group’s turnover was just £1m but by 1989 this had grown to £244m. Hisunique management style as well as his single minded attention to detail andstrong leadership enabled him to achieve success by example which fosteredunrivalled team spirit and enduring loyalty from his workforce. This rareinspiration became a Marshall hallmark which exists to this day and was atelling testimony of his leadership. In his introduction to the company’s LongService Awards on 9th December 1983, Sir Arthur Marshall said "Thecompany endeavours to establish a Marshall attitude and outlook to life andwork – nobody owes us a living and we have to work hard and long tomaintain our position. Any success we have achieved together has resultedfrom long and loyal teamwork ....our roots have become well and trulyestablished based on an overwhelming anxiety to satisfy the customer,whether it be a garage customer or an engineering company customer ....inall respects including, of course, price, delivery and quality”.

Marshall Motor Bodies which later became Marshall Specialist Vehicles wasestablished in 1946 by Arthur Marshall as the vehicle body building division.This business went on to manufacture over 80,000 soft skinned vehicles basedon Bedford Trucks as well as manufacturing buses and a wide range ofspecialist vehicles including, ambulances for the Armed Forces, Royal Mailvehicles and even dustcarts.

Arthur Marshall always remained interested in the progress of the Group’smotor business which, because of manufacturer requirements, remained formany years exclusively based on Austin. His son Michael joined the Companyin 1955 and progressively took over the running of the motor business whichcontinued to expand through the creation of the British Motor Corporation,Leyland Cars and then into its current multi-franchise group.

Following the depression with cancellations and redundancies across theaerospace industry at the end of the Second World War, Marshall ofCambridge undertook contracts on Mosquito aircraft and, later on, Vampireand Venom aircraft. As the aircraft industry got into its post-war strideMarshall, through the reputation which it had established and the wide

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network of friends and contacts which Arthur Marshall had created, was ableto gain contracts from throughout the UK aircraft industry including EnglishElectric, Vickers and Bristol; all of which were willing to be relieved ofmodification work, so that they could concentrate on new aircraft. Contractsgained included development work on the very successful Canberra bomber,as well as design and other work on the Lightning supersonic fighter. Thecompany also converted 73 Canberra aircraft to carry the firstAmerican/British atomic weapons after extensive trials.

Marshall rapidly gained a reputation for making a success of everything thatwas made available to it, and that resulted in Arthur Marshall being askedwhether Marshall could undertake the design and manufacture of theConcorde Droop Nose and the retracting visor. The answer was an instant"yes" and this resulted in Marshall Aerospace manufacturing all of Concorde’sdistinctive Droop Noses.

In 1960, Arthur Marshall began a strong North Atlantic relationship when thecompany was appointed by Gulfstream as their European Service Centrewhich included the completion and furnishing of a number of aircraft prior todelivery. This was followed by a similar appointment for the Cessna Citationexecutive jet in 1974. Arthur Marshall remained a pilot into his 80s andconverted to fly the Citation jet – his first experience of flying jet aircraft – atthe age of 71.

In the mid 1960s, the Ministry of Defence was considering the purchase ofthe versatile Lockheed C-130 Hercules cargo aircraft to replace its aging fleetof Britannia, Beverley and Hastings transport aircraft. The Ministry ofDefence insisted on the establishment of a UK designated company for theseaircraft and Marshall was appointed to this role, subsequently becoming aSister Design Authority for Lockheed Martin in 1988. Arthur Marshallworked tirelessly to gain this Hercules contract and all 66 of the Herculesfleet were delivered via Cambridge for completion work and painting. Thecompany has completed maintenance, modification and repair work on theHercules aircraft on an unbroken basis which continues to this day. Someof the other major modifications for which Arthur Marshall had closeinvolvement included: in 1974, the conversion of a Hercules into ‘Snoopy’,the meteorological research aircraft, (the same aircraft is now to be used forthe A400-M flying TestBed contract); and in 1980, the lengthening of thefuselage by 15ft, the rebuilding of wings, and, the development of a WingTest Rig to identify the progressive life of the rebuilt wings.

Following the Falklands War, Arthur Marshall gained the largest ever contractawarded to the company at that time to convert their fleet of L-1011 TriStaraircraft into Strategic Tanker Freighter aircraft for the RAF. This necessitatedthe building of No 17 Hangar, in which the Thanksgiving Service to Sir Arthur

Marshall will be held on 19th May 2007. Sir Arthur Marshall, who wasknighted in 1974, personally supervised the construction of the hangarwhich commenced in February 1983 and was completed in just six months.On its completion, Sir Arthur Marshall said "it is a hangar we can be proudof – one of the biggest, if not the biggest, of its kind outside of America. Wehave with our aircraft work obviously given a good account of ourselves overthe years – we have succeeded in establishing in all divisions – vehicles andaircraft – the reputation that you can rely on in Marshall – they will not letyou down. Let’s hope that this may prove to be the same with the TriStarproject". Sir Arthur Marshall witnessed the clear success of the TriStar projectprior to his retirement from the company in 1989 at the age of 86 when hewas still working his legendary 7 day 65 hour week.

In his retirement, he took offices at Greenhouse Farm, opposite the airport,where, although long retired from playing a part in the management of theexpanding family business, he nonetheless kept in touch and maintained avery sharp sense of humour. In a speech for his 100th birthday he reflectedthat "as you get older you find there are three phases of life: you are born,you are middle aged and …….you’re looking very well!"

Sir Arthur Marshall was a cautious businessman imbued with relentlessenergy and a legendary attention to detail. It was typical of him that whenhe was appointed High Sheriff in 1969, he adopted for his Arms, the mottoFelix qui Laborat which he always translated as "Happy is he who works".He was passionately attached to Cambridge and was particularly proud ofcreating a highly respected business which provided substantial localemployment and skills in the days when Cambridge was over dependent onthe University for its prosperity. He was also immensely proud that theaerodrome owned by the company provided the region with a fully licensedcustoms airport at no cost to local or central government.

As a local Cambridge man, he maintained a close relationship with JesusCollege which elected him as an Honorary Fellow in 1990 and he was alsoparticularly proud that, in 2001, the Sir Arthur Marshall Institute ofAeronautics was formed as part of the Cambridge University EngineeringDepartment. At the end of a 90th birthday lunch for Sir Arthur in 1993, oneof his closest friends, Sir Peter Masefield, who also enjoyed a distinguishedcareer in aviation, reflected on the 58 years they had known each other bysaying "of all the great figures in the aeronautical scene in all that time, nonehas done more for the country nor earned genuine regard and friendship insuch a dedicated and determined but modest way – even if that personalmodesty has been laced on occasion with a wholly justified and professionalautocratic approach. I think that the mixture has been just right".

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KEY GROUP PERSONNEL

MARSHALL GROUP OF COMPANIESM J Marshall Chairman & Chief Executive

R D Marshall Group Development Director

W C M Dastur Group Financial Director

J D Barker Company Secretary

S J Moynihan Group Financial Controller & Head of Group Insurance

T M Holloway Group Support Executive

MARSHALL MOTOR HOLDINGSR M Knight Chief Executive

F Laud Financial Director

I J Mitchell Senior Divisional Director

C M H Walkinshaw Business Development Director

R J Ward Divisional Director

C A Minter General Manager, Human Resources

MARSHALL LEASINGP G Cakebread Managing Director

C Lavender Operations Director

J A Ross Sales & Marketing Director

MARSHALL THERMO KINGN B J Faben Managing Director

E Gedney Financial Director

VTR GROUPM Smith General Manager

MARSHALL AEROSPACEM T Broadhurst Chief Executive

G R Nix Chief Operating Officer

C J Bunney Commercial Director

G J Clark Financial Director

N M Jennion Production Director

M E Milne Marketing & Business Development Director

R E Ward Engineering Director

R D Buckley Airport Director

I Young Chief Test Pilot

K Hussey Head of Human Resources

AEROPEOPLEK J Bishop Director

MARSHALL SPECIALIST VEHICLESP W Callaghan Chief Executive

R D Cutting Engineering Director

S P Northam Business Development Director

A Pettitt Financial Controller

D P Thompson Head of Human Resources