20-F 1 d20f.htm ANNUAL REPORT Annual Report
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F


(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
  SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                                 

Commission file number: 0-17630


CRH public limited company

 

(Exact name of Registrant as specified in its charter)


Republic of Ireland

(Jurisdiction of incorporation or organization)

Belgard Castle, Clondalkin, Dublin 22

(Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

Ordinary Shares/Income Shares of €0.34 each

American Depositary Shares, each representing the right to receive one Ordinary Share

Securities registered or to be registered pursuant to Section 12(g) of the Act.    None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.    None


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary Shares/Income Shares of €0.34 each *

   536,323,523

5% Cumulative Preference Shares of €1.27 each

   50,000

7% ‘A’ Cumulative Preference Shares of €1.27 each

   872,000

* Each Income Share is tied to an Ordinary Share and may only be transferred or otherwise dealt with in conjunction with such Ordinary Share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):    Yes  x    No  ¨

Large accelerated filer  x   Accelerated filer  ¨   Non-accelerated filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 



Table of Contents

TABLE OF CONTENTS

 

          PAGE

     Introduction     
     Forward-Looking Statements    1
     Statements Regarding Competitive Position    1
     PART I     

Item 1.

   Identity of Directors, Senior Management and Advisers    2

Item 2.

   Offer Statistics and Expected Timetable    2

Item 3.

   Key Information    2
     Exchange Rates    4
     Dividends    5
     Risk Factors    6

Item 4.

   Information on the Company    10
     History and Development of the Company    10
     Product Spread    12
     Strategy    12
     General Development of the Business    13
     Business Overview    14
     Seasonality    29
     Organizational Structure    29
     Sources and Availability of Raw Materials    30
     Property, Plant and Equipment    30
     Environmental Regulations    30

Item 4a.

   Unresolved Staff Comments    31

Item 5.

   Operating and Financial Review and Prospects    31
     Summary of 2005 results    31
     General    33
     2005 compared with 2004    34
     Taxation    48
     Critical Accounting Policies    48
     Impact of Inflation    51
     Liquidity and Capital Resources    51
     Off-Balance Sheet Arrangements    53
     Material Commitments for Capital Expenditure    53
     Governmental Policies    54
     Trend Information—2006    54

Item 6.

   Directors, Senior Management and Employees    55
     Directors and Senior Management    55
     Directors’ Compensation    56
     Corporate Governance    56
     Employees    63
     1990 Share Option Schemes    64
     2000 Share Option Scheme    65
     2000 Savings-Related Share Option Schemes    66
     Share Participation Schemes    66
     Performance Share Plan    66
     Share Ownership by Directors    67

Item 7.

   Major Shareholders and Related Party Transactions    67
     Major Shareholders    67
     Related Party Transactions    68


Table of Contents

TABLE OF CONTENTS

 

          PAGE

Item 8.

   Financial Information    68
     Consolidated Statements and Other Financial Information    68
     Dividends    68
     Legal Proceedings    68
     Significant Changes    68

Item 9.

   The Offer and Listing    69

Item 10.

   Additional Information    70
     Memorandum and Articles of Association    70
     Material Contracts    73
     Exchange Controls    73
     Taxation    73
     Documents on Display    75

Item 11.

   Quantitative and Qualitative Disclosures about Market Risk    76

Item 12.

   Description of Securities Other than Equity Securities    80
     PART II     

Item 13.

   Defaults, Dividend Arrearages and Delinquencies    81

Item 14.

   Material Modifications to the Rights of Security Holders and Use of Proceeds    81

Item 15

   Controls and Procedures    81

Item 16A

   Audit Committee Financial Expert    81

Item 16B

   Code of Ethics    81

Item 16C

   Principal Accountant Fees and Services    82

Item 16D

   Exemptions from the Listing Standards of Audit Committees    83

Item 16E

   Purchases of Equity Securities by the Issuer and Affiliated Persons    83
     PART III     

Item 17

   Financial Statements    83

Item 18.

   Financial Statements    83

Item 19.

   Exhibits    83
     SIGNATURES     


Table of Contents

INTRODUCTION

 

Forward-Looking Statements

 

In order to utilize the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, CRH public limited company (the “Company”), and its subsidiaries (collectively, “CRH” or the “Group”) is providing the following cautionary statement.

 

This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of CRH and certain of the plans and objectives of CRH with respect to these items. These statements may generally, but not always, be identified by the use of words such as “anticipates”, “should”, “expects”, “estimates”, “believes” or similar expressions. In particular, among other statements, certain statements in “Item 4—Information on the Company” with regard to management objectives, trends in market shares, market standing and product volumes, in “Item 3—Key Information—Dividends” and in “Item 8—Financial Information—Dividends” with regard to future dividends, the statements in “Item 5—Operating and Financial Review and Prospects” with regard to trends in results of operations, margins, governmental policies and spending, overall market and macro-economic trends and statements in “Item 11—Quantitative and Qualitative Disclosures about Market Risk”, with regard to risk management, interest and exchange risk are all forward–looking in nature. By their nature, forward–looking statements involve risk and uncertainty because they reflect the Company’s current expectations and assumptions as to future events and circumstances that may not prove accurate. A number of material factors could cause actual results and developments to differ materially from those expressed or implied by these forward–looking statements including those discussed in “Item 3—Key Information—Risk Factors” and in “Item 5—Operating and Financial Review and Prospects”.

 

Statements Regarding Competitive Position

 

Statements made in “Item 4—Information on the Company” and in “Item 5—Operating and Financial Review and Prospects” referring to the Group’s competitive position are based on the Company’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and the Company’s internal assessment of market share based on publicly available information about the financial results and performance of market participants.

 

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PART I

 

ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3—KEY INFORMATION

 

As part of the European Commission’s plan to develop a single European capital market, the application of International Financial Reporting Standards (“IFRS”) is mandatory for the consolidated financial statements of all listed European Union companies for reporting periods beginning on or after January 1, 2005. The Regulation passed by the European Union required that IFRS-compliant financial statements be produced by CRH for the financial periods ending June 30, 2005 and December 31, 2005 and that those financial statements contain a full set of disclosures for the comparative periods in 2004. Under this Regulation, January 1, 2004 is the transition date to IFRS for CRH.

 

The consolidated financial statements of CRH have been prepared in accordance with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and International Accounting Standards and Standing Interpretations Committee interpretations approved by the predecessor International Accounting Standards Committee that have been subsequently authorized by the IASB and remain in effect. IFRS as adopted by the European Union differs in certain respects from IFRS as issued by the IASB. However, the consolidated financial statements for the financial years presented would be no different had IFRS as issued by the IASB been applied. References to IFRS hereafter should be construed as references to IFRS as adopted by the European Union.

 

These Consolidated Financial Statements are the Group’s first financial statements to be prepared in accordance with IFRS. An explanation of how the transition to IFRS has impacted the reported financial position, financial performance and cash flows of the Group is provided in Note 34 of Notes to Consolidated Financial Statements.

 

Under the IFRS transition provisions within the Securities and Exchange Commission’s (“SEC”) Form 20-F requirements, CRH is permitted to provide two years of comparable financial information under IFRS and reconciliations to U.S. GAAP for the periods presented. In addition, CRH is providing selected U.S. generally accepted accounting principles (“U.S. GAAP”) information for five years.

 

IFRS differs in certain significant respects from U.S. GAAP. A summary of the significant differences between IFRS and U.S. GAAP, together with a reconciliation of net income and shareholders’ equity, is set forth in Note 36 of Notes to Consolidated Financial Statements.

 

The selected financial data are qualified in their entirety by reference to, and should be read in conjunction with, the Consolidated Financial Statements, the related Notes and “Item 5—Operating and Financial Review and Prospects” included elsewhere in this Annual Report.

 

The selected consolidated financial data for the two years ended December 31, 2005, have been derived from, and should be read in conjunction with, the audited Consolidated Financial Statements and Notes thereto set forth in Item 18 of this Annual Report.

 

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CONSOLIDATED INCOME STATEMENT DATA

 

     Year ended December 31

               
     2005 (a)

    2005

    2004

               
     U.S.$ m     € m     € m                
     (Amounts in millions, except per
share data and ratios)
               

Amounts in accordance with IFRS

                                

Revenue

   18,418.5     14,449.3     12,754.5                

Group operating income (b)

   1,774.8     1,392.3     1,220.2                

Income before tax

   1,630.2     1,278.9     1,104.0                

Income tax expense

   347.5     272.6     232.2                

Net income attributable to equity holders of the Company

   1,272.0     997.9     866.1                

Group operating income as a percentage of revenue

   9.6 %   9.6 %   9.6 %              

Basic earnings per Ordinary Share

   238.0c     186.7c     163.6c                

Diluted earnings per Ordinary Share

   236.1c     185.2c     162.7c                

Dividends paid per Ordinary Share

   44.17c     34.65c     29.50c                

Average number of Ordinary Shares outstanding

   534.3     534.3     529.5                

Ratio of earnings to fixed charges (times) (c)

   5.6     5.6     6.0                
     Year ended December 31

     2005 (a)

    2005

    2004

    2003

   2002

   2001

     U.S.$ m     € m     € m     € m    € m    € m

Amounts in accordance with U.S. GAAP

                                

Net sales excluding share of joint ventures

   17,631.0     13,831.5     12,280.1     10,774.3    10,517.2    10,206.8

Group operating income excluding share of joint ventures

   1,516.9     1,190.0     1,066.9     939.4    1,022.3    979.4

Net income attributable to ordinary shareholders

   1,159.6     909.7     780.0     633.6    705.4    550.7

Net income per Ordinary Share

   217.1c     170.3c     147.3c     120.6c    134.9c    109.1c

Diluted net income per Ordinary Share

   215.3c     168.9c     146.5c     119.3c    134.2c    108.1c

Dividends paid per Ordinary Share

   44.17c     34.65c     29.50c     26.17c    23.68c    21.42c

Average number of Ordinary Shares outstanding (millions of shares)

   534.3     534.3     529.5     525.7    522.8    504.7

Ratio of earnings to fixed charges (times) (c)

   5.4     5.4     5.6     5.3    5.0    3.7

(a) The translation from euro into U.S. dollars has been made at the rate of €1.00 to U.S.$1.2747 (the noon buying rate at May 24, 2006).
(b) Group operating income is shown before gain on sale of property, plant and equipment, net finance costs, share of associates income after taxes and taxes on income.
(c) The ratio of earnings to fixed charges of CRH was computed by dividing the amount of its earnings by the amount of its fixed charges. For the purposes of calculating this ratio, earnings have been calculated by adding: pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees; fixed charges; and distributed income of equity investees. The fixed charges were calculated by adding finance costs; discounts and expenses related to indebtedness; an estimate of the interest within rental expense; and preference security dividend requirements of consolidated subsidiaries.

 

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CONSOLIDATED BALANCE SHEET DATA

 

     As at December 31

               
     2005 (a)

    2005

    2004

               
     U.S.$ m     € m     € m                
     (Amounts in millions, except per
share data and debt ratio)
               

Amounts in accordance with IFRS

                                

Total assets

   20,462.2     16,052.6     13,072.0                

Non-current interest-bearing loans and borrowings

   5,767.4     4,524.5     3,802.4                

Net debt (b)

   4,395.5     3,448.3     2,758.1                

Ordinary shareholders’ equity

   7,895.7     6,194.2     4,944.0                

Debt ratio (c)

   55.7 %   55.7 %   55.8 %              

Capital stock

   232.4     182.3     181.0                

Number of Ordinary Shares at December 31 (millions of shares)

   536.3     536.3     532.6                
     As at December 31

     2005 (a)

    2005

    2004

    2003

   2002

   2001

     U.S.$ m     € m     € m     € m    € m    € m

Amounts in accordance with U.S. GAAP

                                

Total assets

   20,600.3     16,160.9     12,581.6     11,803.1    11,344.1    11,405.7

Non-current interest-bearing loans and borrowings

   5,407.6     4,242.3     3,051.0     2,912.7    2,530.8    2,563.6

Ordinary shareholders’ equity

   9,051.3     7,100.7     5,783.1     5,276.5    5,271.1    5,243.9

Capital stock

   232.4     182.3     181.0     179.3    178.2    177.3

 

OTHER DATA

 

     Year ended December 31

     2005 (a)

   2005

   2004

     U.S.$ m    € m    € m

Amounts in accordance with IFRS

              

Expenditure on acquisitions and investments

   1,654.3    1,297.8    1,019.4

Expenditure on property, plant and equipment

   831.2    652.1    550.7

(a) The translation from euro into U.S. dollars has been made at the rate of €1.00 to U.S. $1.2747 (the noon buying rate at May 24, 2006).

 

(b) Net debt is calculated as the sum of interest-bearing loans and borrowings, derivative financial instruments, cash and cash equivalents and liquid investments.

 

(c) Debt ratio represents net debt as a percentage of ordinary shareholders’ equity.

 

Exchange Rates

 

In this Annual Report on Form 20-F (“Form 20-F”), references to “U.S.$”, “U.S. dollars” or “U.S. cents” are to United States dollars, references to “euro”, “euro cent” or “€” are to the euro and “U.K.£” or “pounds sterling” are to the currency of the United Kingdom of Great Britain and Northern Ireland (“United Kingdom”). Other currencies referred to in this Form 20-F include Polish Zloty (“PLN”), Swiss Franc (“CHF”) and Argentine Peso (“ARP”).

 

Merely for the convenience of the reader, this Form 20-F contains translations of certain euro amounts into U.S. dollars at specified rates. These translations should not be construed as representations that the euro amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.

 

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Unless otherwise stated, the translations of euro into U.S. dollars have been made at €1 equal to U.S. $1.1842, the noon buying rate in New York City for cable transfers in euro on December 31, 2005 as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”). On May 24, the Noon Buying Rate was €1 = U.S. $1.2747.

 

The following table sets forth, for the periods and dates indicated, the average, high, low and end-of-period Noon Buying Rates in U.S. dollars per €1 (to the nearest cent).

 

Years ended December 31


   Period End

   Average Rate*

   High

   Low

2001

   0.89    0.89    0.95    0.84

2002

   1.05    0.95    1.05    0.86

2003

   1.26    1.14    1.26    1.07

2004

   1.35    1.25    1.36    1.18

2005

   1.18    1.24    1.35    1.17

2006 (through May 24, 2006)

   1.27    1.23    1.29    1.19

Months ended


   Period End

   Average Rate*

   High

   Low

December 2005

   1.18    1.19    1.20    1.17

January 2006

   1.22    1.21    1.23    1.20

February 2006

   1.19    1.19    1.21    1.19

March 2006

   1.21    1.20    1.22    1.19

April 2006

   1.26    1.23    1.26    1.21

May 2006 (through May 24, 2006)

   1.27    1.28    1.29    1.26

* The average of the Noon Buying Rates on the last day of each month during the period or in the case of monthly averages, the average of all days in the month.

 

The above rates may vary slightly from the rates used for translating foreign currencies into euro in the preparation of the Company’s Consolidated Financial Statements (see page F-11).

 

For a discussion of the effects of exchange rate fluctuations on the financial condition and results of operations of the Group, see “Item 5—Operating and Financial Review and Prospects”.

 

Dividends

 

The following table sets forth the amounts of interim, final and total dividends in euro cent per Ordinary Share in respect of each fiscal year indicated. Each amount represents the actual dividend payable.

 

Solely for convenience of the reader, these dividends have been translated into U.S. cents per American Depositary Share (“ADS”) (each representing one Ordinary Share) at the rate on each of the respective payment dates.

 

     euro cents per ordinary
share


   Translated into U.S. cents
per ADS


Years ended
December 31


   Interim

   Final

   Total

   Interim

   Final

   Total

2001

   6.75    16.25    23.00    6.03    14.80    20.83

2002

   7.43    17.97    25.40    7.53    18.84    26.37

2003

   8.20    19.90    28.10    9.43    25.07    34.50

2004

   9.60    23.40    33.00    12.42    31.68    44.10

2005

   11.25    27.75    39.00    13.31    35.30    48.61

 

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Risk Factors

 

This section describes the material risks that could affect the Group’s business. The factors below should be considered in connection with any forward-looking statements in this Form 20-F and the cautionary statements contained in “Introduction—Forward-Looking Statements”.

 

CRH operates in cyclical industries which are affected by factors beyond Group control such as the level of construction activity, fuel and raw material prices, which are in turn affected by the performance of national economies, the implementation of economic policies by sovereign governments and political developments.

 

Group financial performance is closely tied to the performance of the housing, industrial and commercial construction markets and to general levels of infrastructural activity. These markets are cyclical and are affected by a series of factors that are beyond Group control, including:

 

    the performance of national economies in the 25 countries in which CRH operates;

 

    monetary policies in the countries in which CRH operates; for example, the tightening of interest rates usually reduces mortgage financing, which impacts on residential construction activity;

 

    the allocation of government funding for public infrastructure programs, such as the development of highways in the United States under The Federal Highway Bill (SAFETEA-LU) and the National Development Plan in Ireland;

 

    the level of demand for construction materials and services; and

 

    the price of fuel and principal raw materials such as bitumen, steel and polystyrene bead.

 

Each of the above factors could have a material adverse effect on Group operating results and the market price of CRH’s securities.

 

The onset of a cycle of reduced economic growth in the countries in which CRH has significant operations or the implementation of unfavorable governmental policies could adversely affect Group revenues and operating margins.

 

CRH has significant operations in the United States and Europe and a possible deterioration of macro-economic conditions in these regions could have a material negative impact on Group operating results. Moreover, a U.S. or an EU economic slowdown may have negative implications for the economies of other markets in which CRH operates. To the extent government funding through governmental infrastructure programs is decreased or terminated as a result of such macroeconomic developments or significant change in government policy, Group revenues will be adversely affected because CRH will supply fewer products, or none at all, to such programs.

 

Existing products may be replaced by substitute products which CRH does not produce and, as a result, CRH may lose market share in the markets for these products.

 

A number of Group products compete with other forms of building products that CRH does not produce. Any significant replacement of the Group’s building products by substitute products, which CRH does not produce, could adversely impact market share and results of operations in these markets.

 

CRH faces strong competition in its various markets, and if CRH fails to compete successfully, market share will decline.

 

CRH continually faces competition in the markets in which Group companies operate. The competitive environment in which the Group operates can be significantly affected by local factors, such as the number of competitors, production capacity, economic conditions and product demand in the local market. In several

 

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markets, downward pricing pressures are experienced from time to time as a result of competitive pressures and the Group is not always able to quickly recover increased operating expenses (caused by factors such as increased fuel and raw material prices) through higher selling prices. If CRH is consistently unable to recover increased operating expenses through higher selling prices, the Group’s result of operations could be adversely affected.

 

Severe weather can reduce construction activity and lead to a decrease in demand for Group products in areas affected by adverse weather conditions.

 

Group operations and the demand for a number of Group products are affected by weather conditions in the markets CRH serves. Sustained adverse weather conditions such as rain, extreme cold or snow could disrupt or curtail outdoor construction activity which in turn could reduce demand for CRH’s products and have a material adverse effect on Group operations, financial performance or prospects.

 

CRH is subject to stringent environmental and health and safety laws, regulations and standards which could result in costs related to compliance and remediation efforts that may adversely affect Group results of operations and financial condition.

 

CRH is subject to a broad and increasingly stringent range of environmental and health and safety laws, regulations and standards in each of the jurisdictions in which CRH operates. This results in significant compliance costs and could expose the Group to legal liability or place limitations on the development of the Group’s operations. The laws, regulations and standards relate to, among other things, air and noise emissions, wastewater discharges, avoidance of soil and groundwater contamination, the use and handling of hazardous materials and waste disposal practices.

 

Environmental and health and safety laws, regulations and standards also may expose CRH to the risk of substantial costs and liabilities, including liabilities associated with assets that have been sold and activities that have been discontinued. In addition, many of CRH’s manufacturing sites have a history of industrial use and, while CRH applies very strict environmental operating standards and undertakes extensive environmental due diligence in relation to acquisitions, some soil and groundwater contamination has occurred in the past at a limited number of sites, although to date the remediation costs have not been material to CRH. Such contamination might occur or be discovered at other sites in the future. Consistent with the past practice of its business, CRH continues to monitor or remediate soil and groundwater contamination at certain of these sites. Despite CRH’s policy and efforts to comply with all applicable environmental laws, CRH may face remediation liabilities and legal proceedings concerning environmental matters.

 

Based on information currently available, CRH has budgeted capital and revenue expenditures for environmental improvement projects and has established reserves for known environmental remediation liabilities that are probable and reasonably capable of estimation. However, CRH cannot predict environmental matters with certainty, and Group budgeted amounts and established reserves may not be adequate for all purposes. In addition, the development or discovery of new facts, events, circumstances or conditions, including future decisions to close plants, which may trigger remediation liabilities, and other developments such as changes in law or increasingly strict enforcement by governmental authorities, could result in increased costs and liabilities or prevent or restrict some of the Group’s operations.

 

For additional information see also “Item 4—Information on the Company—Environmental Regulations”.

 

Economic, political and local business risks associated with international sales and operations could adversely affect CRH’s business.

 

CRH operates mainly in North America and the EU as well as, to a lesser degree, in developing markets in South America and Eastern Europe. The economies of these countries are at different stages of socio-economic development. Consequently, CRH’s future results could be harmed by a variety of factors, including:

 

    changes in the specific country’s or region’s political or economic conditions, particularly in the emerging markets in which CRH operates;

 

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    trade protection measures and import or export licensing requirements;

 

    potentially negative consequences from changes in tax laws;

 

    differing labor regulations;

 

    unexpected changes in regulatory requirements; and

 

    state-imposed restrictions on repatriation of funds.

 

CRH’s overall success as a global business depends, in part, upon its ability to succeed in differing and sometimes fast-changing economic, social and political conditions.

 

A write-down of goodwill could have a significant impact on the Group’s income and equity.

 

An acquisition generates goodwill to the extent that the price paid by CRH exceeds the fair value of the net assets acquired. Acquisitions in recent years have generated substantial goodwill. Additional goodwill may arise as a result of further acquisitions.

 

Under IFRS goodwill and indefinite-lived intangible assets are not amortized but are subject to annual impairment tests. Other intangible assets deemed separable from goodwill arising on acquisitions are amortized.

 

The U.S. GAAP treatment of goodwill and other intangible assets under Statement of Financial Accounting Standards (“SFAS”) SFAS 142 “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001, is similar to IFRS. For the purposes of the U.S. GAAP reconciliation in Note 36 of Notes to Consolidated Financial Statements, the Group applied the SFAS 142 rules on accounting for goodwill and other intangible assets beginning January 1, 2002 and performed the first of the required annual impairment tests of goodwill as of that date. Both the 2004 and 2005 impairment tests indicated that no impairment had occurred.

 

Goodwill does not affect cash flow. However, a full write-down of goodwill at December 31, 2005 would have resulted in a charge to income and reduction in equity of €2,237.3 million under U.S. GAAP and €2,194.6 million under IFRS.

 

CRH may be adversely affected by governmental regulations.

 

CRH is subject to various statutes, regulations and laws applicable to businesses generally in the countries and markets in which it operates. These include statutes, regulations and laws affecting land usage, zoning, labor and employment practices, competition and other matters.

 

CRH expects that its employees comply with a code of conduct that involves best practice in relation to these matters but cannot guarantee that its operating units will at all times be successful in complying with all demands of regulatory agencies in a manner which will not materially adversely affect its business, financial conditions or results of operations.

 

CRH pursues a strategy of growth through acquisitions. CRH may not be able to continue to grow as contemplated in its business plan if CRH is unable to identify attractive targets, complete the acquisition transactions and integrate the operations of the acquired businesses.

 

A key element of the Group’s growth strategy is to continue its acquisition strategy mainly through value-adding mid-sized deals and occasionally with larger strategic acquisitions. This strategy depends on the ability to identify and acquire suitable assets at acceptable prices. CRH may not be able to identify suitable companies and, even if identified, may not be able to acquire them. At the same time, the Group’s competitors also strive to expand through acquisitions and may bid for companies that CRH view as potential acquisition targets. In addition, acquisitions may require the assimilation of new operations, products, services and personnel and may

 

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cause dissipation of Group management resources, as management may have to divert attention from day-to-day business operations to focus on addressing such issues. The Group’s ability to realize the expected benefits from future acquisitions depends, in large part, on its ability to integrate the new operations with existing operations in a timely and effective manner. Even if CRH is able to acquire suitable companies, it still may not be able to incorporate them successfully into its business and, accordingly, may be deprived of the expected benefits of the acquisitions.

 

Because many of the Group’s subsidiaries operate in a currency other than the euro, adverse changes in foreign exchange rates relative to the euro could adversely affect Group reported earnings and cash flow.

 

A significant portion of Group revenues and expenses originates in currencies other than the euro, primarily in U.S. dollars, pounds sterling, Swiss franc and Polish zloty. For the year ended December 31, 2005, approximately 64% of Group shareholders’ funds were denominated in currencies other than the euro, predominantly the U.S. dollar (50%). As a result, from year to year, adverse changes in the exchange rates used to translate foreign currencies into euros, such as the weakening of the U.S. dollar against the euro, may impact the Group’s reported results. It is the Group’s policy partially to hedge its investment in foreign currencies by maintaining a net debt position in all relevant foreign currencies, but otherwise CRH does not generally engage in hedging transactions to reduce Group exposure to foreign exchange translation risk. For additional information on the impact of foreign exchange movements on the Group’s financial statements for the year ended December 31, 2005 see “Item 5—Operating and Financial Review and Prospects”.

 

CRH does not have a controlling interest in certain of the businesses in which it has invested and in the future may invest in businesses in which there will not be a controlling interest. In addition, CRH is subject to restrictions due to minority interests in certain of its subsidiaries.

 

CRH has a significant but not controlling interest in certain operations. Some important decisions such as the approval of business plans and decisions as to the timing and amount of cash distributions may require the consent of CRH’s partners or may be approved without CRH’s consent. These limitations could make it difficult for CRH to pursue corporate objectives in the future.

 

CRH conducts its business through subsidiary companies. In some cases, minority shareholders hold significant interests in these subsidiaries. Various disadvantages may result from the participation of minority shareholders whose interests may not always coincide with CRH. The presence of minority interests may, among other things, impede CRH’s ability to implement organizational efficiencies and transfer cash and assets from one subsidiary to another in order to allocate assets most effectively.

 

CRH has incurred and will continue to incur debt, which could result in increased financing costs and could constrain CRH’s business activities.

 

CRH has incurred and will continue to incur significant amounts of debt in order to finance its business and ongoing acquisition program. As of December 31, 2005, CRH had outstanding net indebtedness of €3,448.3 million. A significant portion of CRH’s cash flow from operations is dedicated to the payment of principal and interest on its indebtedness and will not be available for other purposes. If CRH’s earnings were to decline significantly, it could experience difficulty in servicing its debt instruments.

 

CRH has entered into certain financing agreements containing restrictive covenants, which could limit its operating and financial flexibility. Such covenants require CRH to maintain a certain interest coverage ratio, a certain ratio of current assets to current liabilities, a minimum net worth and place limits on the ratio of net debt to net worth as well as imposing various conditions for significant disposals of assets. These restrictions could limit CRH’s flexibility in planning for, and reacting to, competitive pressures and changes in its business, industry and general economic conditions and limit its ability to make strategic acquisitions and capitalize on business opportunities.

 

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ITEM 4—INFORMATION ON THE COMPANY

 

History and Development of the Company

 

CRH public limited company is the parent company for an international group of companies, engaged in the manufacture and supply of a wide range of building materials and in the operation of builders merchanting and “Do-It-Yourself” (“DIY”) stores. CRH is one of the top three companies, based on market capitalization, quoted on The Irish Stock Exchange Limited (“Irish Stock Exchange”) in Dublin. CRH is also quoted on The London Stock Exchange Limited (“London Stock Exchange”) in London and, since March 31, 2006, on the New York Stock Exchange in the United States. Until March 31, 2006, CRH was quoted on the NASDAQ National Market in the United States. The market capitalization of CRH as of December 31, 2005 was €13.3 billion.

 

The Group resulted from the merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone, Limited (incorporated in 1949). Cement Limited manufactured and supplied cement while Roadstone, Limited was primarily involved in the manufacture and supply of aggregates, readymixed concrete, mortar, coated macadam, asphalt and contract surfacing to the Irish construction industry.

 

The Company is incorporated in the Republic of Ireland. The Group’s worldwide headquarters are located in Dublin, Ireland. Its principal executive offices are located at Belgard Castle, Clondalkin, Dublin 22 (telephone: 353-1-404 1000). The Company’s registered office is located at 42 Fitzwilliam Square, Dublin 2, Ireland and its U.S. agent is Oldcastle Inc., 375 Northridge Road, Atlanta, Georgia 30350. The Company is the holding company of the Group, with direct and indirect share and loan interests in subsidiaries, joint ventures and associates.

 

From the Group headquarters, a team of executives exercises strategic control over decentralized operations in Ireland, Britain, Mainland Europe and the Americas. The Group employs a total of approximately 66,500 people worldwide.

 

The Group is organized into four Divisions, two in Europe: Materials and Products & Distribution; and two in the Americas: Materials in the United States and Products & Distribution in the United States, Canada, Chile and Argentina.

 

For IFRS reporting purposes, the Group’s activities fall into three reporting business segments: Materials, Products and Distribution which are further analyzed between the Group’s geographical areas being Europe and Americas. The activities of the various segments are briefly described as follows:

 

    Materials businesses are involved in the production of cement, aggregates, asphalt and readymixed concrete.

 

    Products businesses are involved in the production of concrete products and a range of construction-related products and services.

 

    Distribution businesses are engaged in the marketing and sale of builders’ supplies to the construction industry and of materials and products for the DIY market.

 

Note 1 of Notes to Consolidated Financial Statements has been prepared under IFRS as outlined above. The Europe Materials Division is further analyzed in Note 36 to the Notes to Consolidated Financial Statements into the reportable segments outlined below under U.S. GAAP as the Ireland segment of Europe Materials exceeds the threshold for separate disclosure under SFAS 131.

 

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The seven reportable segments within the meaning of SFAS 131 are set out below:

 

Division


   Reportable Segments

Europe Materials

   Ireland

Europe Products & Distribution

   Rest of Europe
Products

Distribution

Americas Materials

   Materials

Americas Products & Distribution

   Products
Distribution

 

     2005

    2004

 

Share of revenue and operating income


   Revenue

    Operating
income


    Revenue

    Operating
income


 

Europe Materials—Ireland

   7.7 %   10.4 %   7.9 %   11.4 %

Europe Materials—Rest of Europe

   10.6 %   16.7 %   10.2 %   14.8 %

Europe Products

   17.5 %   12.6 %   17.6 %   15.6 %

Europe Distribution

   15.2 %   8.8 %   14.9 %   10.0 %

Americas Materials

   21.9 %   23.6 %   22.1 %   22.4 %

Americas Products

   19.1 %   22.1 %   19.3 %   20.6 %

Americas Distribution

   8.0 %   5.8 %   8.0 %   5.2 %
    

 

 

 

Total

   100 %   100 %   100 %   100 %
    

 

 

 

 

Note 36 of Notes to Consolidated Financial Statements (pages F-104 to F-107) shows for CRH’s last two fiscal years the segmental disclosures required under U.S. GAAP. The geographical information required under SFAS 131 is presented in Note 1.

 

In the detailed description of the Group’s business that follows, estimates of the Group’s various aggregate and stone reserves have been provided by engineers employed by the individual operating companies. Details of product end-use by sector for each reporting segment are based on management estimates.

 

As a result of planned geographic diversification since the mid-1970s, the Group has expanded by acquisition and organic growth into an international manufacturer and supplier of building materials, with activities spread across four major markets: Ireland, Benelux, the Rest of Europe and the Americas.

 

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Product Spread

 

Activities—Annualized production volumes

 

Primary Materials     

Cement

   12.8 million tons **

Aggregates

   223.2 million tons

Asphalt & surfacing

   41.6 million tons

Readymixed concrete

   18.8 million cubic meters

Agricultural & chemical lime

   1.3 million tons
Value-added Building Products     

Precast concrete products

   9.7 million tons

Other concrete products*

   31.6 million tons

Clay bricks, pavers & tiles

   4.6 million tons

Insulation products

   5.7 million cubic meters

Security gates & fencing

   2.2 million lineal meters

Glass fabrication & rooflights

   15.6 million square meters
Building Materials Distribution     

DIY

   200 stores

Builders merchants

   484 stores

* This category includes block, masonry, patio products, pavers, prepackaged concrete mixes, rooftiles, and sand-lime elements and bricks.
** Throughout this document tons denotes metric tonnes (i.e. 1,000 kilograms).

 

Strategy

 

A tried and tested strategy

 

CRH was founded in 1970 following the merger of two major Irish companies, Irish Cement and Roadstone. This newly-formed business, operating in a cyclical industry, was highly exposed to a single core business in a single economy.

 

Shortly thereafter, the Board set a clear strategy for the development of the Group: to seek new geographic platforms in its core businesses and to take advantage of complementary product opportunities in order to achieve strategic balance and to establish multiple platforms from which to deliver performance and growth.

 

While this strategy has evolved over the years, the broad thrust is still applicable today as the Group continues to expand from its current base in three core businesses across 25 countries.

 

In delivering this strategy, CRH sticks to core businesses in building materials; develops regional market leadership positions; reinvests in existing assets and people; acquires well-run, value-creating businesses and seeks exposure to new development opportunities all in order to maintain and develop a balanced portfolio, while creating horizons for future growth.

 

Strong corporate culture and identity... delivering a balanced business

 

Local autonomy

 

Experienced operational management are given a high degree of individual autonomy and responsibility to accommodate national and cultural needs and to leverage local market knowledge.

 

Dual citizenship

 

There is a strong management commitment to both the local company and to the CRH Group, supported by best practice teams that share experience and know-how across products and regions.

 

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Mix of skills

 

CRH’s market-driven approach attracts, retains and motivates exceptional management including internally developed operational managers, highly qualified business professionals and owner-entrepreneurs. This provides a healthy mix and depth of skills with many managers having managed through previous economic cycles. Our succession planning focuses on sharing this wealth of experience with the next generation of CRH management.

 

Lean Group centre

 

Guidance, support, functional expertise and control, as appropriate, is provided in the areas of performance measurement, financial reporting, cash management, strategic planning, business development, human resources, environment and health & safety.

 

Regional and product balance

 

CRH’s unique balance, both in terms of geographic spread and involvement across its three core businesses, smooths the effects of varying economic conditions and provides greater opportunities for growth.

 

Revenue


   Geographic

 

Americas

   49 %

Europe

   51 %
    

Total

   100 %
    

     Segmental

 

Materials

   40 %

Products

   37 %

Distribution

   23 %
    

Total

   100 %
    

 

Sectoral balance

 

CRH seeks to reduce the effects of varying demand patterns across building and construction end-use sectors by maintaining a balanced portfolio of products serving a broad customer base.

 

Revenue


      

Residential

   45 %

Non-residential

   30 %

Infrastructure

   25 %
    

Total

   100 %
    

New Construction

   55 %

Repair, Maintenance & Improvement (“RMI”)

   45 %
    

Total

   100 %
    


  Residential—construction and repair, maintenance and improvement of homes.
  Non-residential—primarily construction of industrial, municipal, retail and office buildings.
  Infrastructure—primarily construction and repair of roads and products for use in telecommunication, energy and water facilities.

 

General Development of the Business

 

In the early and mid-1970s, over 85% of CRH’s income was earned in the Republic of Ireland. The Group’s overseas interests during this period comprised Forticrete Limited, a small Liverpool-based (England) concrete

 

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products company and Van Neerbos Beheer bv, a Dutch-based builders merchant with a small manufacturing division and one DIY store. A strategic decision was taken in 1977 to invest in familiar business sectors overseas and to develop the existing overseas operations with a view to spreading risks and opportunities more broadly. Between 1978 and May 2006, approximately €12.2 billion has been spent by the Group in acquiring and investing in 578 companies, and the Group now has operations at over 2,600 locations in 25 countries. The major acquisitions and investments made by the Group during the year ended December 31, 2005 were Mountain companies, Bizzack and assets of Southern Minnesota Construction amounting to €332.4 million and 26.3% of Corporación Uniland in Spain amounting to €297.9 million. During the year ended 2004 the major investment was the acquisition of 49% of Secil in Portugal amounting to €429.0 million.

 

Business Overview

 

Contributions to Revenue and Group operating income before Interest Expense

 

For US GAAP reporting purposes the Group’s four divisions are comprised of a total of seven reportable segments as set out on page 11.

 

The percentage of Group revenue and operating income for each of the seven reporting business segments for 2005 and 2004 is shown in the table on page 11.

 

Business Operations in Americas Materials

 

The Americas Materials Division is organized into four principal regional groups all in the United States; New England; New York and New Jersey; the West comprising operations from Washington on the Pacific coast across to Minnesota and down to New Mexico; and the Central region which encompasses operations in Michigan, Ohio, West Virginia, Pennsylvania, Delaware, Alabama, Kentucky and Virginia. The Division employs 14,500 people at over 730 locations.

 

Products and services


 

Annualized volumes


Aggregates

  146.8 million tons

Asphalt

  37.3 million tons

Readymixed concrete

  6.5 million cubic meters

 

Product end-use


      

Residential

   15 %

Non-residential

   20 %

Infrastructure

   65 %
    

Total

   100 %
    

Product end-use


      

New Construction

   30 %

Repair, Maintenance & Improvement (“RMI”)

   70 %
    

Total

   100 %
    

 

Aggregate reserves are adequate to permit production at current operating levels for a minimum of 20 years, which equates to minimum reserves of approximately 2.9 billion tons based on 2005 production.

 

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The Division is broadly self-sufficient in aggregates and its principal purchased raw materials are liquid asphalt and cement used in the manufacturing of asphalt and readymixed concrete respectively. These raw materials are available from a number of suppliers. There is a continued focus on improving bitumen and energy purchasing and the substitution of recycled oil for natural gas in asphalt manufacturing.

 

Federal, state and local government authority road and infrastructural projects awarded by public bid represent a significant proportion of work carried out by the Division. The Division also has a broad commercial base, supplying stone, readymixed concrete and asphalt for industrial, office, shopping mall and private residential development and refurbishment.

 

Development strategy

 

The strategy for Americas Materials is to leverage its existing strong reserve positions near major metropolitan areas by investing in additional reserves, new capacity and downstream activities, and to look for new growth regions in the Americas. The Division plans to continue its strategy of bolt-on acquisitions to existing strong market positions and intends to improve on its excellent environmental and safety records.

 

New England

 

    Further vertical integration of operations in New Hampshire, Maine and Vermont

 

    Expand readymixed concrete operations

 

New York/New Jersey

 

    Expand New Jersey businesses through bolt-on acquisitions

 

    Improve bitumen winter-fill capacity

 

    Invest in existing large aggregates facilities to both increase capacity and reduce costs

 

Central

 

    Continue vertical integration of operations in Michigan, Ohio and West Virginia through selective acquisitions

 

    Seek add-on acquisitions and greenfield opportunities to augment existing strong positions in Pennsylvania and Delaware

 

    Continue to develop new platform in Kentucky and Virginia

 

West

 

    Continue to consolidate vertically integrated positions in the mountain regions with selective add-on acquisitions

 

    Develop further opportunities in the Northwest, Iowa and new platform in Minnesota

 

Business Operations in Americas Products & Distribution

 

The Products & Distribution Division in the Americas operates mainly in the United States with a presence in Canada and South America. This Division is comprised of two reportable segments, Products and Distribution.

 

Products

 

This segment comprises four groups: Architectural Products, Precast and Glass, each with local and national market positions in North America, and South America where CRH is a major producer of clay products in

 

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Argentina and has glass tempering operations in Argentina and Chile. The Products segment employs approximately 16,340 people at over 300 locations.

 

Products and services


 

Location


 

Annualized volumes


Precast concrete products

  Canada, U.S.   2.7 million tons

Prepackaged concrete mixes

  U.S.   2.0 million tons

Concrete masonry, pavers, rooftiles and patio products

  Canada, U.S.   10.8 million tons

Clay bricks, pavers, tiles

  Argentina, U.S.   1.7 million tons

Glass fabrication

  Argentina, Canada, Chile, U.S.   14.5 million square meters

 

Product end-use


      

Residential

   43 %

Non-residential

   40 %

Infrastructure

   17 %
    

Total

   100 %
    

Product end-use


      

New Construction

   60 %

Repair, Maintenance & Improvement (“RMI”)

   40 %
    

Total

   100 %
    

 

Architectural Products group (“APG”).    APG, which is a large North American producer of concrete block, masonry, hardscape and roofing products, prepackaged concrete mixes and lightweight aggregates, services the U.S. and eastern Canada from over 200 locations in 38 states and two Canadian provinces.

 

APG’s concrete masonry and roofing products are used for cladding and foundations in both residential and non-residential construction. Hardscape products, marketed under the Belgard® brand, include interlocking pavers, flags and retaining walls which are used in residential and non-residential construction as well as in streets and highways. The residential and non-residential sectors combined account for over 75% of APG’s output. A significant proportion of APG’s output is used in the RMI and DIY sectors.

 

Lawn and garden products are marketed under the Oldcastle and Durascape® brands to major DIY and homecenter chains across the United States. Cementitious dry-mixes, marketed under the Sakrete® brand, and lightweight aggregate are also important product lines. Competition for APG arises primarily from other locally-owned concrete products companies. Principal raw material supplies are readily available.

 

APG also includes Glen-Gery Corporation, a clay brick producer with an annual capacity of over 500 million bricks, operating 10 brick plants located primarily in the northeast and midwest regions of the United States.

 

Precast group.    The Precast group produces precast, prestressed and polymer concrete and concrete pipe in the U.S. and Canada with 70 locations in 25 states and the province of Quebec.

 

The most significant individual precast concrete products are the underground vaults sold principally to water, electrical and telephone utilities. Other important precast items include drainage and sanitary sewer products such as pipe, manholes, inlets and catch basins. Street and highway products such as median barriers, culverts and short span bridges and precast flooring in the Northeast round out the main product lines. In many instances, precast products are an alternative to poured-in-place concrete, which is a significant competing product.

 

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In the northeast, the Building Systems group manufactures and installs prestressed concrete plank and other products. These products are used mainly in structures such as hotels, apartments, prisons, parking garages and bridges.

 

Concrete pipe is used for storm and sanitary sewer applications, which are largely local government projects. Competing materials include corrugated steel pipe and high-density polyethylene pipe in storm sewer applications and plastic pipe in sanitary sewer applications.

 

Glass group.    The Glass group is a producer of tempered glass, double-glazed units for commercial and residential applications, laminated glass, entrance and glass-wall systems and silk-screened and spandrel glass. The group delivers to 48 of the top 50 MSA’s (Metropolitan Statistical Areas) in the U.S. and four Canadian provinces. It has 48 locations in 22 states and four Canadian provinces.

 

Tempered glass is a building product with major applications in the RMI construction sector, and has a growing range of specialty uses in furniture, appliances, marine windows and in a wide range of architectural applications. The product range includes insulated, spandrel, laminated, security and sound control glass manufactured in a variety of shapes, thicknesses, colors and qualities. In 2005, the Glass group produced 14.5 million square meters of glass products.

 

The Glass group’s major customers are glazing contractors, manufacturers of shower/bath enclosures, window and door manufacturers and glass distributors. The major raw material, annealed glass, is purchased from a number of major glass producers. The Glass group has a strong focus on operational best practices and continuous cost control to minimize the impact of raw material increases.

 

South America.    CRH’s subsidiary in Argentina, Canteras Cerro Negro (“CCN”) is a producer of clay roof, wall and floor tiles, and services the Argentine market from two state-of-the-art production facilities at Olavarria, 350km south of Buenos Aires. Superglass is a glass temperer in Argentina.

 

CRH’s subsidiary in Chile, Vidrios Dell Orto, is a glass fabricator.

 

Development strategy

 

The strategy for Americas Products is to expand current strong positions in all product groups through acquisition and appropriate greenfield development, using scale, best practices and product/process innovation to create competitive advantage and to improve margins in the face of rising input costs.

 

Architectural Products

 

    Develop and grow strong regional positions in masonry and related products

 

    Grow retail platform with a complementary array of garden, patio products and building products and anticipate customers’ expansion with greenfield investments

 

    Increase penetration of the professional hardscape market with Belgard® products and segmental retaining walls

 

Precast

 

    In-fill geographic coverage in the U.S. and Canada through acquisition or construction of new facilities

 

    Pursue new product and new region opportunities

 

Glass

 

    Expansion of existing markets through new products, services and regions

 

    Focus on technology upgrades, cost control, organic growth and better customer service

 

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South America

 

    Use upgraded manufacturing capabilities for cost efficiency and product development

 

    Continue to expand export business

 

    Expand with selective acquisitions as regional economies improve

 

Distribution

 

The Distribution group operates as Allied Building Products (“Allied”). Allied is a distributor of roofing and siding products to residential and also to commercial roofing and siding contractors with an emphasis on replacement projects. It employs approximately 2,950 people at 151 branches in 26 states in the United States. In major metropolitan areas, principally New York, Denver and Boston, it also distributes gypsum board, steel studs and acoustical tile and grid (“Interior Products”) to commercial/office refurbishment project and to new residential projects.

 

Products and services


   Number of branches

Roofing, siding & related products

   124 branches

Interior products

   27 branches

 

Product end-use


      

Residential

   60 %

Non-residential

   40 %
    

Total

   100 %
    

Product end-use


      

New Construction

   30 %

Repair, Maintenance & Improvement (“RMI”)

   70 %
    

Total

   100 %
    

 

Roofing/Siding and Interior Products distributors in the United States are supplied by a limited number of large national manufacturers, while customers tend to be small-to-medium sized local contractors. The Distribution group has no activities outside the U.S.

 

The Distribution group’s customers are residential and commercial contractors. Allied’s activities are mainly in the northern tier states of the U.S. with a major presence in the northeast and a less dense but growing presence in cities throughout the western states.

 

Development strategy

 

The strategy for Americas Distribution is to continuously improve its existing business and to leverage its centralized infrastructure by acquisitive growth and by opening new branches in major metropolitan areas.

 

Business Operations in Europe Materials

 

The Materials Division in Europe is a producer of primary materials and value-added manufactured products operating in 13 countries. This Division is comprised of two reportable segments (see page 10), Ireland and the Rest of Europe.

 

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Europe Materials—Ireland

 

In Ireland, the Europe Materials Division produces cement, aggregates, asphalt, and readymixed concrete. In total Ireland segment employs approximately 3,500 people at over 115 locations.

 

Products and services


  

Annualized volumes


Cement

   2.7 million tons

Aggregates

   33.5 million tons

Asphalt

   3.3 million tons

Readymixed concrete

   3.2 million cubic meters

Agricultural & chemical lime

   0.5 million tons

Concrete products

   3.4 million tons

Clay bricks

   0.2 million tons

Product end-use


      

Residential

   40 %

Non-residential

   30 %

Infrastructure

   30 %
    

Total

   100 %
    

Product end-use


      

New Construction

   80 %

Repair, Maintenance & Improvement (“RMI”)

   20 %
    

Total

   100 %
    

 

Irish Cement Through Irish Cement, CRH is the largest supplier and producer of cement in the Republic of Ireland. Irish Cement sales in 2005 accounted for approximately 55% of cement market demand in the whole island of Ireland.

 

Irish Cement operates two cement plants, one at Platin, north of Dublin, and one in Limerick in the southwest of the country, with a total annual production capacity of 2.6 million tons of clinker. Capacity utilization was high at both plants in 2005.

 

Cement is manufactured by burning crushed limestone and shale, obtained from Irish Cement’s own quarries, at very high temperatures to form “clinker”. After it has cooled, clinker is ground into a fine powder, which is the principal binding agent in concrete and other cement products. Customers primarily comprise concrete producers and merchants supplying construction contractors and others.

 

Sales to other CRH subsidiaries accounted for approximately 30% of Irish Cement’s sales in the Republic of Ireland in 2005, with the next five largest customers accounting for approximately 30%. Competition comes principally from three cement plants, two in the Irish Republic and a third plant near Belfast. Irish Cement’s results are influenced primarily by the level of construction activity in the Republic of Ireland.

 

Roadstone-Wood The Roadstone-Wood group produces aggregates, readymixed concrete, concrete products and asphalt road products at 79 locations throughout the Republic of Ireland. Aggregates, asphalt and related services are sold principally to local governmental highway authorities and to contractors, while readymixed concrete and concrete products (manufactured mainly at locations with aggregates on site and including block, masonry, pipe, rooftiles and precast concrete flooring) are sold to both the public and private construction sectors. Roadstone-Wood is also involved in asphalt contracting. Agricultural limestone sales to the farming community are another significant feature of Roadstone-Wood operations.

 

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The Roadstone-Wood group encounters strong competition in all of its markets and competes principally on quality, service and price. Operations are affected by the overall level of government capital expenditure, the level of activity in the housing, agricultural, industrial and commercial construction markets and by the weather.

 

Premier Periclase At a single plant located on the coast near Dublin, Premier Periclase produces high-quality sinter magnesia using the seawater process. Sinter magnesia is primarily used in the production of heat resistant refractory bricks for lining high temperature vessels in the steel, cement and glass manufacturing industries. Premier Periclase exports all of its production to the refractory industry worldwide and competes with a number of other sinter magnesia producers located mainly in Europe, the United States, China and Australia. Results are influenced primarily by activity in the world steel industry, which is cyclical and is dependent on general world economic conditions.

 

Northstone produces aggregates, readymixed concrete, concrete products and asphalt road products, primarily in Northern Ireland. In addition, Northstone is involved in civil engineering contracting and property development in Northern Ireland and at selected sites in England.

 

During 2005, Northstone produced and sold approximately 2.6 million tons of aggregates, of which approximately one quarter was used to supply its fifteen readymixed concrete plants and its concrete block, concrete rooftile and asphalt operations at ten locations. Aggregate reserves are adequate to permit production at current operating levels for a minimum of 25 years, which equates to minimum reserves of 65 million tons based on 2005 production. Approximately 45% of Northern Ireland production is used in highway surfacing by Northstone’s contracting division for local governmental authorities.

 

Development strategy

 

The strategy for Europe Materials—Ireland is to maintain the Group’s position as the lowest cost/best value producer and continue to operate to the highest environmental standards.

 

Europe Materials—Rest of Europe

 

This segment comprises manufacturing facilities in Estonia, Finland, Israel, Latvia, Poland, Russia, Spain, Switzerland, Portugal, Tunisia and Ukraine which produce a range of building products including cement, aggregates, asphalt and concrete products.

 

In total, the Europe Materials—Rest of Europe segment employs approximately 8,100 people at over 330 locations.

 

Products and services


  

Location


   Annualized volumes

Cement

   Finland, Poland, Portugal (49%), Switzerland, Tunisia (49%), Ukraine    10.1 million tons

Aggregates

   Estonia, Finland, Latvia, Poland, Portugal (49%), Spain, Switzerland    42.9 million tons

Asphalt

   Finland, Poland, Switzerland    1.0 million tons

Readymixed concrete

   Estonia, Finland, Latvia, Poland, Portugal (49%), Russia, Spain, Switzerland, Tunisia (49%)    9.1 million cubic meters

Agricultural & chemical lime

   Poland, Switzerland    0.8 million tons

Concrete products

   Estonia, Finland, Poland, Portugal (49%), Spain, Tunisia (49%)    4.4 million tons

 

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Product end-use


      

Residential

   35 %

Non-residential

   25 %

Infrastructure

   40 %
    

Total

   100 %
    

Product end-use


      
New Construction    80 %
Repair, Maintenance & Improvement (“RMI”)    20 %
    

Total

   100 %
    

 

Finnsementti is the sole cement manufacturer in Finland. Operating from two dry-process plants in southern Finland, the company has an annual capacity of 1.4 million tons of cement. The largest plant at Pargas on an island near Turku, has one dry-process kiln, and an annual cement capacity of 0.9 million tons. The second plant is located at Lapeenranta near the Russian border and is equipped with two dry-process kilns and an annual capacity of 0.5 million tons. Limestone is available under long-term supply agreements.

 

Sales to other CRH subsidiaries accounted for approximately 27% of Finnsementti’s sales in 2005. Finnsementti competes on the basis of the quality and consistency of its product and on the reliability of its service. Competition comes principally from two cement importers, one in Turku in Finland and the second based in Russia. Annual cement imports into Finland are reported to be approximately 0.3 million tons per annum.

 

Lohja Rudus is an aggregates and readymixed concrete producer in Finland. It also has locations in the Baltic States of Latvia and Estonia, and is the only Western readymixed concrete producer in St. Petersburg in Russia.

 

Abetoni, is a manufacturer of precast concrete products in Finland.

 

Poland Cementownia Ozarów operates two modern dry process kilns at Ozarów, approximately 170km south east of Warsaw, with a total annual production capacity of 2.7 million tons. In addition, CRH owns Cementownia Rejowiec, located approximately 210km south east of Warsaw, which has an annual cement capacity of 0.4 million tons. Limestone reserves are sufficient for 80 years at current output levels.

 

Along with the manufacture of cement, CRH produces a range of building materials including aggregates, asphalt, readymixed concrete, concrete products and lime in Poland.

 

Jura is a cement manufacturer in Switzerland, with two modern, well-equipped, energy-efficient cement plants, one in Wildegg in the north of the country and one in Cornaux in the west. Jura has an annual capacity of 1.4 million tons.

 

Both cement plants are located close to large limestone deposits. Raw material reserves are substantial, sufficient for over 50 years at current production levels. Approximately 30% of cement produced is sold to Jura’s ready-mixed concrete operations. This is distributed from the two production plants using hired haulers. Jura has a market share of approximately 18%. Competition comes principally from two cement manufacturers in Switzerland. Annual cement imports into Switzerland are reported to be approximately 0.4 million tons per annum.

 

Jura also has aggregates and readymixed concrete operations in Switzerland, which have strong regional positions in the central and north-western regions, producing approximately 3.0 million tons of aggregates and over 0.8 million cubic meters of concrete annually.

 

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Podilsky Cement is a cement manufacturer in the Ukraine. Operating from one wet-process plant in southwest Ukraine, the company produced 1.9 million tons of cement in 2005. Bulk cement accounts for approximately 72% of deliveries. Rail delivery (bulk and bag) accounts for 80% of sales. The main customers are an integrated network of wholesalers and manufacturers of concrete products. Substantial limestone reserves are located close to the plant, which are sufficient for over 100 years at current output. Competition comes principally from several cement manufacturers in the Ukraine.

 

Mashav is the holding company for Nesher Cement, the sole producer of cement in Israel. Nesher operates two clinker production plants located in Ramla (serving Tel Aviv and the surrounding area) and Har Tuv (serving Jerusalem, southern and eastern Israel) and has access to substantial raw material reserves totaling 105 million tons at present. The Ramla facility has two modern dry process kilns with combined annual capacity of 4.0 million tons of clinker. The Har Tuv location has a single semi-dry process kiln with annual capacity of approximately 0.7 million tons of clinker. Mashav also has a 50% joint venture, Taàvura, the largest haulage and logistics company in Israel, which provides transport for the majority of Nesher’s cement and raw materials.

 

Beton Catalan. The Beton Catalan group (“Beton Catalan”) produces aggregates, concrete products and readymixed concrete. While Beton Catalan’s largest market is the densely populated Catalonia region in northeastern Spain, it also operates readymixed concrete plants elsewhere in Spain.

 

Beton Catalan surface-mines aggregates from five quarries in Catalonia and one quarry in each of the Madrid and Valencia regions. During 2005, Beton Catalan produced approximately 3.7 million tons of aggregates of which approximately 97% was used to supply its own readymixed concrete and concrete products operations. Aggregate reserves are adequate to permit production at current operating levels for a minimum of 10 years, which equates to minimum reserves of 37 million tons based on 2005 production. Third party sales of aggregates are primarily to other concrete manufacturers and construction companies in the region.

 

Beton Catalan operates 70 readymixed concrete plants in Spain and in 2005 produced 3.5 million cubic meters of readymixed concrete. Beton Catalan also manufactures a variety of concrete products including blocks, pipe, paving slabs, steel reinforced beams and girders. In 2005, Beton Catalan produced 0.5 million tons of concrete products. Beton Catalan sources its cement supplies primarily from a number of major Spanish producers. Competition comes mainly from other large readymixed concrete producers and from a variety of small concrete product manufacturers in Spain.

 

At year-end 2005, CRH acquired a 26.3% equity stake in Corporación Uniland S.A. (Uniland), a major Spanish manufacturer of cement, readymixed concrete, mortar and aggregates with additional cement and readymixed concrete interests in Tunisia, Argentina and Uruguay, for a consideration of approximately €300 million.

 

In Spain, Uniland operates two integrated cement plants in Catalonia, where it is market leader, with total annual cement production capacity of 3.2 million tons. It also has extensive readymixed concrete, mortar and aggregates operations in the region. In Tunisia, Uniland is the majority owner (88%) of a modern 2 million ton capacity cement plant and is also active in readymixed concrete. Through a 50/50 joint venture with Cementos Molins of Spain, Uniland has strong positions in cement and readymixed concrete in both Argentina and Uruguay.

 

Portugal CRH entered the Portuguese cement and concrete products markets in June 2004 with the purchase of 49% of Secil – with joint management control. In Portugal, Secil operates three integrated cement plants with total capacity of 3.9 million tons, 47 readymixed concrete plants, seven hard rock quarries and has access to total permitted stone reserves of approximately 550 million tons. The company also produces precast concrete and mortars in Portugal. Secil is a prominent producer of cement in southeastern Tunisia where it has one plant with capacity of 1.2 million tons. In addition to its consolidated operations, Secil has a number of investments in associated undertakings in Portugal and Lebanon and has a management contract to operate a cement grinding facility in Angola.

 

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In 2005, Secil produced 4.76 million tons of cement (3.6 million tons in Portugal and 1.16 million tons in Tunisia), and also produced 2.35 million cubic meters of readymixed concrete and 3.2 million tons of aggregates in Portugal.

 

Development strategy

 

The strategy for the Europe Materials—Rest of Europe segment is to build and maintain strong market positions in primary building materials and related products through growth in existing business, construction of new facilities and acquisitions in selected European markets.

 

Finland/Baltics

 

    Maintain the market position in cement, aggregates and readymixed concrete

 

    Invest in plant modernization for operational efficiency

 

    Expand into other selected product and geographic areas

 

Poland/Ukraine

 

    Develop a strong national presence in the Polish materials industry

 

    Invest in plant and equipment for energy efficiency and higher environmental standards

 

    Continue expansion into neighboring countries

 

Switzerland

 

    Enhance existing market positions in cement, aggregates and readymixed concrete

 

    Re-invest in plant and equipment for fuel-type optimization

 

    Acquire new businesses in surrounding regions

 

Spain

 

    Strengthen existing market positions

 

    Expand selectively into related products and regional markets

 

Portugal

 

    Expand into related products and regional markets

 

Elsewhere

 

    Build on existing market positions in Central and Eastern Europe

 

    Selectively acquire materials businesses in other European countries

 

    Expand in the Mediterranean basin

 

Business Operations in Europe Products & Distribution

 

Products & Distribution in Europe is organized in two reportable segments, Products and Distribution. The Products segment is organized into three groups of related businesses involved in clay, concrete and building products. Distribution encompasses builders merchants and DIY stores.

 

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Europe Products

 

The Europe Products segment operates in 13 European countries with the Benelux, the U.K., France, and Germany accounting for the bulk of its sales. The Products segment seeks leadership positions in the markets in which it operates. This segment has approximately 14,600 employees at over 470 locations.

 

Products and services


  

Location


   Annualized volumes

Concrete blocks and pavers

   Benelux, France, Germany, Slovakia, U.K.    11.6 million tons

Precast concrete products

   Benelux, Denmark, France, Poland    6.4 million tons

Clay bricks, pavers & rooftiles

   Germany, Netherlands, Poland, U.K.    2.7 million tons

Fencing & security

   Benelux, France, Germany, U.K.    2.2 million lineal meters

Daylight & Ventilation

   Benelux, France, Germany, Ireland, U.K.    1.1 million square meters

Insulation products

   Benelux, Denmark, Estonia, Finland, Germany, Ireland, Poland, Sweden, U.K.    5.7 million cubic meters

Construction accessories

   Benelux, France, Germany, Spain    n/a

 

Product end-use


      

Residential

   50 %

Non-residential

   35 %

Infrastructure

   15 %
    

Total

   100 %
    

Product end-use


      

New Construction

   75 %

Repair, Maintenance & Improvement (“RMI”)

   25 %
    

Total    100 %
    

 

Concrete Products

 

This group produces architectural products (pavers, tiles and blocks), structural products (floor and wall elements, drainage and poles) and sand-lime brick.

 

Architectural Products

 

The EHL group produces concrete paving and landscape walling products sold primarily to the RMI sector from a network of 33 modern production facilities in Germany, two in Poland, and one in the Czech Republic.

 

Struyk Verwo operates in the Benelux countries, manufacturing a full range of concrete paving products including pavers, flags, kerbs, pipe and street furniture with national coverage from 12 factories in the Netherlands and two in Belgium. Paving products are sold primarily to municipalities and paving contractors.

 

Marlux produces high-quality concrete decorative paving products at 2 modern factories in Belgium, and competes in this niche sector in Belgium, the Netherlands, Germany and France. Marlux branded products, which are sold mainly through specialist retail outlets such as garden and patio centers, are used for decorative applications, typically landscaping of public areas, gardens and patios.

 

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Forticrete manufactures and supplies a wide range of dense concrete masonry, high strength blocks, common blocks and rooftiles. Forticrete operates from a network of 13 locations throughout England. Forticrete’s products are sold primarily to major contractors and builders merchants in competition with other concrete product manufacturers.

 

Premac is a leading paving producer in Slovakia.

 

Remacle is a manufacturer of concrete vaults and precast concrete products in southern Belgium. Duffeleer is a producer of concrete sewerage and drainage products in the southwest of Belgium. Klaps is a leading manufacturer of concrete paving, sewerage and water treatment products based in northern Belgium, and Kellen Concrete Products is a concrete paving manufacturer in the Netherlands.

 

In June 2005, the Concrete Products group acquired Hofman, a distributor of natural stone products based in Belgium and focusing on the import and resale of new pavers together with the purchase, cleaning and resale of used pavers. With annual sales of €10 million, the acquisition expands the group’s product portfolio.

 

In August 2005, the Concrete Products group acquired Stradal in France. With annual sales of €173 million, Stradal operates 24 factories across the country producing landscape, utility and infrastructure products. It is also a 30% shareholder in ECPC, an Egyptian concrete pipe and water treatment system producer.

 

In December, the Concrete Products group acquired RBR, the second largest paving manufacturer in Denmark. RBR is a highly efficient operator with a significant market position in the west of the country. It operates from three production locations and has annual sales of €14 million. The deal represents CRH’s first architectural concrete products investment in Denmark.

 

Structural Products

 

Dycore is a concrete flooring group supplying an extensive range of reinforced and prestressed flooring serving the Dutch market and markets in neighboring countries from three factories. The housing and commercial sectors account for the bulk of precast flooring sales, and competition in this market comes from one larger and several smaller-sized manufacturers.

 

Omnidal manufactures precast concrete wall and floor elements and Schelfhout manufactures concrete wall elements. Both Omnidal and Schelfhout are located in Belgium. Douterloigne is a manufacturer of reinforced hollowcore flooring, concrete pavers and blocks with four production plants in the north and west of Belgium. Maessen is a manufacturer of floor and wall elements in Belgium.

 

Betonelement is a Danish producer of precast concrete elements.

 

La Société Béton Moulé Industriel (“BMI”) is a large manufacturer of precast concrete products for the utility sector with a network of 18 plants throughout France. BMI manufactures poles for power transmission, drainage systems and precast concrete vaults.

 

Ergon is a precast concrete producer in Belgium, France and Poland.

 

In July 2005, the Concrete Products group acquired Marmorith, a manufacturer of prefabricated structural concrete elements (shuttering slabs, load-bearing walls) in Belgium serving the non-residential sector. With annual sales of €18 million, Marmorith operates from a single production plant in Houthalen in northern Belgium; 85% of its sales are generated in Belgium while exports to the Netherlands account for the remaining 15%.

 

Sand-Lime Brick

 

Calduran is a producer of calcium silicate (sand-lime) elements and bricks for the Dutch residential market.

 

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The Concrete Product group’s principal raw materials include cement purchased in the Netherlands, Belgium and Germany, crushed stone sourced in Germany and sand and gravel extracted in the Netherlands. Raw materials are readily available.

 

Clay Products

 

The Europe Products & Distribution Division has clay product manufacturing activities in four countries, with the Ibstock operation in the U.K. being the largest business. Natural gas and liquid petroleum gas are the energy sources for the brick companies’ kilns. Clay supplies are readily available. Competition in clay products comes mainly from other locally-based manufacturers. Sales are made through builders merchants, specialist brick factors and architects.

 

Ibstock is one of the leading brick producers in the U.K., with a market share of approximately 30%. The company produces approximately 0.9 billion bricks annually at a network of 24 factories throughout the country. The primary market is new housing.

 

In March 2005, Ibstock acquired Manchester Brick & Precast, a manufacturer of brick-clad precast arches in Great Britain with annual sales of €2 million. This acquisition is a strategic fit with Ibstock’s Kevington subsidiary, a fabricator of brick specials and brick-clad components which was acquired in May 2001.

 

In the Netherlands, the CRH Kleiwaren group has six factories producing facing bricks and pavers, while Kooy Bilthoven is a specialist brick merchant. In Germany, AKA Ziegelwerke produces facing bricks, pavers and rooftiles at six factories. A further three factories in Poland also produce facing bricks.

 

In June 2005, the Clay Products group purchased Leebo, a designer, manufacturer and installer of façade and roofing systems in the Netherlands with annual sales of €10 million. The company provides façade and roofing solutions for new and existing commercial and industrial buildings and residential developments to a broad end-user base.

 

Building Products

 

Building Products comprises of four sub-groups: Insulation, Fencing & Security, Daylight & Ventilation and Construction Accessories.

 

The CRH Insulation group is a pan-European business manufacturing three of the four main materials used in insulation (the fourth being mineral fiber which is not manufactured by the group).

 

Expanded polystyrene (EPS) building insulation and packaging products are manufactured through Aerobord with four locations in Ireland; Springvale at three locations in the U.K.; Termo Organika at two locations in Poland; and at ThermiSol with eight locations in the Nordic countries of Denmark, Sweden, Finland and Estonia. ThermiSol is a leader in expanded polystyrene insulation in the above-mentioned Nordic countries. Unidek is a producer of EPS and roofing systems with factories in the Netherlands and Germany.

 

EcoTherm produces polyurethane (PUR) insulation at one factory in Holland and one in the U.K. Icopal produces polyurethane in the U.K.

 

Gefinex is a leading manufacturer of extruded polyethylene (XPE) insulation products in Germany and has a 49% stake in Gefinex Jackon, co-leader in the German extruded polystyrene (XPS) market.

 

Insulation products are sold primarily to builders merchants for applications in commercial buildings and housing, while packaging products are manufactured for the electronics, drink concentrate and food processing industries as well as for large supermarket chains.

 

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CRH Fencing & Security is a supplier of security solutions, which includes designing and manufacturing fencing and security gate systems and supplying access control systems for the building industry, manufacturing industry, sports and recreational areas, power stations and airports. Products include chain-link, weld-mesh and bar fencing, swing, sliding and cantilever gates and sophisticated access control and boundary security systems. Raw materials for fencing and security gate manufacturing comprise steel, aluminum, reinforced glass fiber, chain-link fabric and barbed wire purchased from a variety of sources.

 

CRH Fencing & Security has factories in the Netherlands, Germany, France and the U.K. and has sales branches in those countries and in Belgium, Poland, Asia, Australia and the U.S.

 

Daylight and Ventilation This group manufactures glass and synthetic rooflights and associated smoke exhaust and natural ventilation systems. The group comprises 18 manufacturing locations in Germany, the Netherlands and Belgium, the U.K. and Ireland. In February 2005 Laubeuf, with annual sales of €37 million, was purchased. Laubeuf is engaged in the engineering, manufacturing and installation of glass roofs in France and Belgium.

 

The Construction Accessories group was formed following the acquisition in April 2003 of Plakabeton, a leading supplier of metal-based accessories for the construction and precast concrete industries. Plakabeton has production plants in both Belgium and France, and a network of thirteen distribution centers in Belgium, France and Spain.

 

Mavotrans, one of the leading players in construction accessories in the Netherlands, was acquired in July 2004 extending CRH’s position in this product category.

 

In June 2005, the group’s Construction Accessories division acquired Aschwanden, a leading producer of metal-based construction accessories in Switzerland with annual sales of €11 million.

 

In May 2006, the Building Products group further added to its Construction Accessories division with the acquisition of the Halfen-Deha Group. Halfen is a leading European producer of metal construction accessories used in commercial, civil engineering and residential construction. It operates from a network of six modern production sites comprising two in Germany and one each in Poland, the Netherlands, Sweden and Malaysia.

 

Development strategy

 

Build leadership positions in targeted European markets in the manufacture and distribution of building products through organic investment and acquisition; continuously improve our businesses with state-of-the-art IT, exchange of process and product know-how, and active best practice programs.

 

Concrete Products

    Architectural: Consolidate and extract synergies from market-leading positions in Germany, France and Benelux; accelerate growth from our existing platforms in Central Europe and Nordics, and establish new foothold in the Mediterranean; intensify support from mature regions to developing regions by transferring technology, product assortment, logistics and marketing skills

 

    Structural: Continue to optimize Benelux and Danish structural operations and develop complementary presence in adjacent regions; establish new development platforms in Central Europe and the Mediterranean; utilize engineering, project management and logistics skills to add more value to customers

 

    Utility: Develop presence of utility products group (transport/water/energy networks) throughout Europe using presence and knowledge transfer from current businesses

 

    Sand-lime brick: Build on capabilities of Dutch sand-lime operations and offer solutions using other structural concrete products; develop and support new platforms throughout Europe

 

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Clay Products

    Raise profitability through better capacity utilization, cost efficiencies and continuous improvement

 

    Selective plant investment in the U.K. to improve energy efficiency and to enhance process and product flexibility

 

    Maintain market leadership positions in the U.K., Netherlands and Germany

 

Building Products

    Insulation: Continue profit recovery program. Develop improved insulation systems and actively exchange product and process know-how among our group companies

 

    Fencing & Security: Grow security fencing and perimeter protection from current strong base in Germany, Netherlands and the U.K.; develop further in perimeter security and access control systems

 

    Daylight & Ventilation: Continue to focus on organic profit improvement and develop further in new areas

 

    Construction Accessories: Build further on our leading positions in Benelux, Germany, France, Spain and Switzerland and expand to other countries

 

    New platform: Seek new platforms for growth in an attractive new building product segment

 

Europe Distribution

 

This segment has approximately 6,500 employees at 533 locations.

 

Products and services


 

Location


 

Number of locations


Builders merchants

  Austria, France, Germany, Netherlands, Switzerland   333 branches

DIY stores

  Benelux, Germany, Portugal   200 stores

 

Product end-use


      

Residential

   71 %

Non-residential

   26 %

Infrastructure

   3 %
    

Total

   100 %
    

 

Product end-use


      

New Construction

   45 %

Repair, Maintenance & Improvement (“RMI”)

   55 %
    

Total

   100 %
    

 

Builders merchants, Netherlands CRH operates 108 builders merchants locations in the Netherlands. 65 depots cater to the heavyside sector selling a range of bricks, cement, roofing and other building products mainly to small and medium-sized builders under the trade names Ubbens, NVB Vermeulen, Stoel van Klaveren and Van Neerbos. A further eight depots trading under the name Syntec cater to the lightside sector selling a range of hardware, tools, ironmongery and installation fittings to the building trades. The 18-branch Roofing Materials division specializes in roofing and insulation materials in the builders merchanting sector in the Netherlands. Garfield Aluminium operates from three locations as a stockist and distributor of rolled and extruded aluminum products for building and other contractors. The Bouwmaat chain of “cash-and-carry” merchanting outlets sells a wide range of building materials to the smaller builder and jobber from 14 outlets. Competition in merchanting is encountered primarily from other merchanting chains and local individual merchants.

 

Builders merchants, France CRH operates 73 builders merchants locations in France. Matériaux Service is a 15-branch builders merchant located in the greater Paris region (Ile-de France). Raboni is an 11-branch builders

 

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merchant primarily located within central Paris. Raboni sells almost exclusively to professional customers with competition coming from other merchanting operations in the market area. Matériaux Service has a broader customer base compared with Raboni and faces similar competition. Buscaglia operates from four locations in the North East of Paris selling to the Ile-de-France infrastructure market.

 

G. Doras, is a 43-branch builders merchant operating in the Burgundy and Franche-Comté regions in which CRH has a 57.8% stake.

 

Builders merchants, Switzerland In the German-speaking region of Switzerland, CRH trades primarily under two brands: Baubedarf selling heavy building materials (mainly cement, concrete, bricks, insulation and roofing materials), and Richner selling ceramic tiles and sanitary ware. The total group comprises a network of 52 outlets in the German-speaking region of Switzerland. Customers are mostly small local contractors.

 

DIY stores, Benelux CRH operates 31 Karwei and 90 GAMMA DIY stores in the Netherlands and 18 GAMMA stores in Belgium. Three stores are held through 50/50 joint ventures, while all others are 100%-owned. The stores operate within the Intergamma franchise organization, the largest DIY group in the Benelux. Buying and advertising is undertaken by Intergamma, which is owned by its franchisees. The stores sell to DIY enthusiasts and home improvers. Customers generally collect goods although each store offers a delivery service for an additional charge. Competition comes primarily from other national DIY chains and from local DIY stores.

 

DIY stores, Portugal CRH’s 50% joint venture MaxMat is a cash-and-carry DIY chain in Portugal with 21 stores. This sector of the distribution industry has not been fully developed in the Iberian peninsula and the Distribution group expects to expand its position in the DIY and RMI market.

 

In October 2005, Europe Distribution acquired the leading Austrian builders merchant Quester. With annual sales of more than €250 million, Quester serves its retail and professional customers from 32 locations with a wide range of building material products. It is the only builders merchant in Austria with country-wide coverage.

 

In December 2005, Europe Distribution took a 47.8% stake in Bauking, a builders merchant and DIY operator in Germany. Bauking mainly operates in Lower Saxony, Saxony-Anhalt and North Rhine-Westphalia with 68 builders merchant outlets and 40 Hagebau DIY stores. It is the largest member of the Hagebau purchase co-operative in Germany.

 

Development strategy

 

    To grow further the DIY retail chains in Benelux and Portugal

 

    Expand merchanting businesses in Austria, France, Germany, the Netherlands, and Switzerland into neighboring countries

 

    Realize full purchasing and IT synergies.

 

Seasonality

 

Activity in the construction industry is characterized by cyclicality and is dependent to a significant extent on the seasonal impact of weather in the Group’s operating locations with activity in some markets reduced significantly in winter due to inclement weather.

 

Organizational Structure

 

CRH is the holding company for an international group of companies. The principal subsidiary, joint venture and associated undertakings are listed in Exhibit 8.

 

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Sources and Availability of Raw Materials

 

CRH generally owns or leases the real estate on which some of its main raw materials, namely aggregates and clay reserves, are found. CRH is also a significant purchaser of certain important materials such as cement, bitumen, gas, fuel and other energy supplies, the cost of which can fluctuate by material amounts and consequently have an adverse impact on CRH’s business. CRH is not generally dependent on any one source for the supply of these products, other than in certain jurisdictions with regard to the supply of gas and electricity. Competitive markets generally exist in the jurisdictions in which CRH operates for the supply of cement, bitumen and fuel.

 

Property, Plant and Equipment

 

At May 24, 2006, CRH and its joint ventures had a total of 2,017 building materials production locations, of which 1,059 were located in The Americas, 122 were located in Ireland and 836 in Mainland Europe. At the same date, CRH had a total of 684 Merchanting & DIY locations of which 151 were located in the United States and 533 in Mainland Europe. 350 locations in the United States, 8 in the Republic of Ireland, 48 in Britain and Northern Ireland, 484 in Mainland Europe and 9 in Canada are leased, with the remaining 1,802 locations held on a freehold basis.

 

CRH believes that all the facilities are in good condition, adequate for their purpose and suitably utilized according to the individual nature and requirements of the relevant operations. CRH has a continuing program of improvements and replacements to properties when considered appropriate to meet the needs of the individual operations. The Group’s principal properties by acreage at May 24, 2006 are listed below. All quarries are open pit.

 

Principal properties


  

Description


   Title

   Approximate
area—acres


   Business activity

Republic of Ireland

                   

Platin,

Co. Meath

   Cement plant and related land, quarries and buildings    Freehold    1,450    Manufacture of cement and
clinker

Limerick,

Co. Limerick

   Cement plant and related land, quarries and buildings    Freehold    2,250    Manufacture of cement and
clinker

Poland

                   

Ozarów

   Cement plant and related land, quarries and buildings    Freehold    1,500    Manufacture of cement and
clinker

 

Environmental Regulations

 

Policy

 

Our environmental policy, applied across all of the Group companies, is to:

 

    comply, at a minimum, with all applicable environmental legislation and to continually improve our environmental stewardship towards industry best practice

 

    ensure that our employees and contractors are aware of their environmental responsibilities

 

    optimize our use of energy and resources through efficiency gains and recycling

 

    proactively address the challenges of climate change

 

    promote environmentally-driven product innovation and new business opportunities

 

    be good neighbors in the communities in which we operate

 

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Delivery

 

Achieving our environmental policy objectives at all our locations is a management imperative; this line responsibility continues right up to CRH Board level.

 

Daily responsibility for ensuring that the Group’s environmental policy is effectively implemented lies with individual location managers. This is supported and monitored at operating company level by a network of Environmental Liaison Officers (ELOs). The ELOs are charged with ensuring that company environmental policies are properly adhered to, and that site managers are fully aware of their responsibilities in this regard. At each year-end, the ELOs assist the Group Technical Advisor in carrying out a detailed assessment of Group environmental performance, which is reviewed by the CRH Board.

 

Environmental performance

 

The recent review confirmed the required high degree of compliance and good environmental stewardship across all Group companies. There was also solid evidence of continuous improvement in our environmental performance in line with evolving legislation and increasing stakeholder expectations. In 2005, we spent over €45 million on further significant environmental upgrades right across the Group.

 

Considerable progress was achieved in process and energy efficiency gains, through recycling and waste reduction across all of our businesses, with direct economic as well as environmental benefits. Environmental training and best practice programs continued to achieve further operational as well as environmental benefits.

 

Addressing climate change

 

CRH is now a core member of the Cement Sustainability Initiative (CSI), and is committed to detailed environmental reporting in accordance with the CSI Charter guidelines. The CSI is a voluntary initiative by 16 of the world’s major cement producers: it aims to promote greater sustainability in the cement industry in co-operation with the World Business Council for Sustainable Development (WBCSD) and independent stakeholders.

 

In Europe, our cement, lime, periclase and brick companies are committed to achieving Phase I of the National Allocation Plans prepared by the Member States under the Emissions Trading Directive. We are already in dialogue with Member States in relation to Phase II. We are actively taking steps in all our plants to achieve the associated CO2 reduction targets through investing in more efficient technology, and in steadily increasing the use of alternative fuels and materials.

 

Possible environmental liabilities

 

At May 24, 2006, there were no material pending legal proceedings relating to environmental regulations or to site remediations that are anticipated to have a material adverse effect on the financial position or results of operations or liquidity of the Group, nor have internal reviews revealed any situations of likely material future environmental liability to the Group.

 

ITEM 4A—UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5—OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Summary of 2005 results

 

2005 operations

 

The Europe Materials, Americas Materials and Americas Products & Distribution Divisions all achieved significant income growth, while in Europe Products & Distribution, where contributions from acquisitions were offset by weakness in the core Dutch market and continued first-half raw material cost pressures in our Insulation business, the outcome was slightly lower than 2004.

 

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With generally better economic activity in its major countries and continuing tight cost control in very competitive markets, Europe Materials achieved good advances in most of the territories in which it operates. In Finland and the Baltics, robust economic growth translated into better activity levels and increased income. Poland had a strong second-half recovery from a very slow weather-affected first half and finished the year with good momentum and with volumes and income ahead. Switzerland had a good year, with results broadly similar to 2004. In Spain, ongoing strength in housing and infrastructure led to further improvements in income, while our Portuguese joint venture Secil, despite a flattening domestic market, delivered a satisfactory first full-year contribution. Irish income advanced somewhat; a combination of increased public and commercial activity in Northern Ireland together with continued very strong housing and infrastructure markets in the Republic of Ireland, where commercial activity also continued to recover.

 

The most difficult markets faced by CRH in 2005 related to the Europe Products & Distribution Division. The Netherlands, which accounts for approximately half the sales of this Division, had very anaemic economic growth; the residential sector was the brightest spot, continuing to recover from recent lows, but consumer confidence was weak, adversely affecting DIY sales. The German economy was particularly weak, but surrounding countries did somewhat better, while in the U.K., brick demand was down. Ongoing cost initiatives were a factor across our businesses. Against this background, Concrete Products reported similar income, with acquisition contributions and gains in the structural division outweighing weakness in our architectural business. In Clay Products, lower U.K. volumes were offset by stronger Mainland Europe activity and gains in pricing and cost effectiveness. Our growing Building Products division performed well, but Insulation showed further significant declines, due to restructuring costs and continued first-half input cost volatility which eased somewhat in the second half. Despite the very difficult market backdrop, our extensive Distribution group achieved record results; improvements in Portugal, Switzerland and France together with strength in Dutch builders merchants and acquisition contributions more than offsetting the Benelux DIY weakness.

 

The Americas Materials Division is heavily weighted towards United States infrastructure activity, but residential and non-residential markets are also important, providing about one-third of end-use. Highway markets were broadly similar to 2004, and while the new Federal Highway Bill came into effect too late to make any 2005 impact, it should underpin future demand. Following shortfalls in recent years, the Division had significant success in recovering the additional energy cost increases it faced during the year; this will continue to be a prime focus. Sustained cost improvement programs also brought further gains. In varying markets, New England, New York/New Jersey and the Mid-West all improved their performances, while the West, in particular, capitalized on strong readymixed concrete demand driven largely by housing, to achieve record results. With a good performance from operations and the benefit of acquisition contributions, Americas Materials produced strongly increased overall income.

 

Continued strength in United States housing and recovery in non-residential activity provided a positive general economic backdrop for our Americas Products & Distribution Division. Sales and income reached new record levels. Recent acquisitions performed satisfactorily and all four sub-product groups had excellent operational performances. Precast continued its strong recovery of recent years, capitalizing on the continuing advance in non-residential markets, while Glass delivered another improved year. Architectural Products, the largest of these groups, made further advances despite slight signs of softening in its repair, maintenance and improvement markets. Distribution had another outstanding year, benefiting from post-hurricane reconstruction in Florida, and further delivery on its strategy of sales and margin development across the network. Our South American businesses, clay products in Argentina, glass in Argentina and Chile, performed well in an environment which continues to be challenging.

 

MANAGEMENT’S FINANCIAL REVIEW

 

The following discussion should be read in conjunction with the Consolidated Financial Statements of CRH that appear elsewhere in this Annual Report on Form 20-F. These financial statements have been prepared in

 

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accordance with IFRS, which differs in certain significant respects from U.S. GAAP. A discussion of the significant differences between IFRS and U.S. GAAP, which affect the Consolidated Financial Statements of CRH, is set forth in Note 36 of the Notes to Consolidated Financial Statements. In addition, a discussion of the specified exceptions pursuant to IFRS 1 First-time Adoption of International Financial Reporting Standards of which the Group elected to avail is set forth in Note 34 of the Notes to Consolidated Financial Statements.

 

For the years 2005 and 2004 net income per Ordinary Share was lower under U.S. GAAP than basic earnings per Ordinary share under IFRS (see “Item 3—Key Information”).

 

In the discussion of the results of business operations by geographical area below, all references to revenue and operating income are on the basis of the seven reportable segments for U.S. GAAP purposes (see page 11 and Note 36 Segmental Analysis—Information required by SFAS 131 on pages F-104 to F-107). Operating income is stated before gain on sale of assets.

 

General

 

The level of construction activity in the geographical areas in which Group businesses operate influences the Group’s results. Activity in the construction industry is characterized by cyclicality and is dependent to a significant extent on the overall level of government capital expenditure, the level of activity in the housing, industrial and commercial construction markets and local weather conditions.

 

During the last two years, through acquisitions and internal growth, the Group has continued to expand its businesses of producing and selling a wide range of building materials and of operating builders merchanting and DIY stores. Growth in revenue, which has increased by 13.3% in euro terms since 2004, was attributable to acquisitions and increases in ongoing operations and a minor positive translation effect. Operating income remained constant as a percentage of revenue at 9.6% in 2004 and 2005.

 

In 2005, the incremental costs of financing 2004 and 2005 acquisition activity were partly offset by the finance revenue generated on our strong free cash flow with an increase in net finance costs (see below – net finance costs comprises finance revenue, finance cost and the proportionate share of joint ventures’ finance costs) of €12.7 million.

 

The Group’s low effective tax rate (income tax expense as a percentage of income before taxes and excluding income from associates) principally reflects the fact that our manufacturing income in Ireland is subject to a 10% Corporation Tax rate, which is guaranteed to the year 2010. The effective tax rate excluding associates increased to 21.8% in 2005 from 21.4% in 2004 due to increased taxable income in higher tax rate countries.

 

CRH’s ordinary shareholders’ equity increased by €1,774.6 million to €6,194.2 million during the two years to December 31, 2005. This increase reflects net proceeds of €133.0 million from equity issues and €1,558.7 million (after dividends paid of €341.2 million and the add-back of €35.9 million reflecting the expensing of employee share options and related deferred tax) of net income retained, a gain in currency translation effects on the Group’s net investment in different currencies, primarily the U.S. dollar, of €233.5 million, net gains on cash flow hedges less deferred tax of €1.7 million, less actuarial losses on defined benefit pension schemes net of deferred tax amounting to €152.3 million.

 

During the same two-year period, the Group’s net debt (calculated as the sum of long-term debt, bank loans and overdrafts, derivative financial instruments (net), less cash and cash equivalents and liquid investments) increased by €893.6 million to €3,448.3 million. Total expenditure of €3,520.0 million during the two-year period on acquisitions, investments and capital expenditure, together with dividend payments of €341.2 million, tax payments of €464.7 million and other net cash outflows of €387.0 million, were largely offset by cash generated from operations of €3,481.2 million, together with net proceeds of €133.0 million from equity issues and €205.1 million from proceeds from sale of investments and property, plant and equipment.

 

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These factors have resulted in net debt as a percentage of ordinary shareholders’ equity being 2.1 percentage points lower at December 31, 2005 (55.7%) than at January 1, 2004 (57.8%).

 

The Group uses a number of non GAAP measures in the following operating and financial review, which are described and reconciled below.

 

Interest cover ratio:    management believes that the EBITDA interest cover based ratio is useful to investors because it matches the earnings and cash generated by the business to the underlying funding costs. Recent major non-public financings by the Group and the Group’s major bank facilities incorporate covenants based on EBITDA to net finance costs cover rather than debt to shareholders’ funds. The amount outstanding at December 31, 2005 under these loans is €2,217.3 million.

 

The calculation of net finance costs in the following table presents the various interest-related items of the Group’s Consolidated Statements of Income, added together to show net finance costs for each year. For the purposes of the covenants incorporated in recent financings by the Group, net finance costs excluding joint ventures and associates is calculated as shown in this table.

 

Interest cover


   2005

    2004

 
     € m     € m  

Net finance cost

            

Finance revenue (b)

   (138.3 )   (117.9 )

Finance costs (b)

   297.4     264.3  
    

 

Net interest expense including joint ventures

   159.1     146.4  

Share of joint ventures’ net finance costs (a)

   (13.6 )   (11.7 )
    

 

Net interest expense excluding joint ventures

   145.5     134.7  
    

 

 

Calculation of EBITDA             

Income before finance costs (b)

   1,412.1     1,231.0  

Intangible asset amortization (c)

   9.1     4.1  

Gain on sale of investments and property, plant and equipment (b)

   (19.8 )   (10.8 )

Depreciation (c)

   555.8     515.9  

Share of joint ventures’ operating income (a)

   (81.4 )   (62.4 )

Share of joint ventures’ depreciation

   (30.6 )   (21.5 )
    

 

EBITDA

   1,845.2     1,656.3  
    

 

Interest cover


            
     (times)     (times)  

EBITDA interest cover (EBITDA divided by net interest expense excluding joint ventures)

   12.7     12.3  
    

 


(a) The share of joint ventures’ operating income and net finance costs are separately disclosed in Note 2 of Notes to Consolidated Statements of Income on page F-26.
(b) These items appear on the Consolidated Statements of Income on page F-2.
(c) Amortization of intangible assets and depreciation expense, which are reported in Notes 3 and 4 respectively (page F-27 and F-28) and Note 14 (page F-42) and Note 13 (page F-40) respectively of the Notes to Consolidated Financial Statements, are not shown as separate line items in the Consolidated Statements of Income on page F-2.

 

 

2005 compar ed with 2004

 

International Financial Reporting Standards

 

The Group’s 2005 financial statements are the first to be prepared in accordance with International Financial Reporting Standards (IFRS). In previous years, CRH’s financial statements were prepared in accordance with

 

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Generally Accepted Accounting Practice in the Republic of Ireland (Irish GAAP). All 2004 figures presented for comparative purposes in the financial statements have been restated in accordance with IFRS and, in order to identify the impact of the transition to IFRS on CRH’s previously reported financial performance and position, reconciliations of selected 2004 financial information previously reported under Irish GAAP to the restated information under IFRS are given in Note 34 of Notes to Consolidated Financial Statements.

 

In accordance with IFRS, the Group Consolidated Financial Statements reflect the proportionate consolidation of joint ventures in the Consolidated Statements of Income, Consolidated Statements of Cash Flows and Consolidated Balance Sheets while the Group’s share of income after tax of associates is included as a single line item in arriving at Group income before tax.

 

Results

 

CRH performed strongly in 2005, delivering growth in reported sales of 13.3%, in operating income of 14.1% and in income before tax of 15.8%. The key components of 2005 performance are analyzed in the table on the next page.

 

Exchange translation effects

 

After three years of decline in the average U.S. Dollar exchange rate versus the euro, the average US$/euro rate of 1.2438 for 2005 was little changed from 2004 (1.2439). Average exchange rates for the Group’s other major operating currencies also showed little change with the exception of the Polish Zloty and the Canadian Dollar, which were respectively 12% and 7% stronger versus the euro compared with 2004. As a result, after three consecutive years of significant adverse translation effects, averaging 6% annually, on reported income before tax, the Group benefited in 2005 from a modest positive translation impact of €4 million. The average and year-end exchange rates used in the preparation of our financial statements are included under Accounting Policies on page F-11 of this Report.

 

Incremental impact of acquisitions

 

The incremental 2005 impact of acquisitions completed during 2004 amounted to €536 million of sales and €42 million of operating income. Approximately 80% of these amounts was generated in Europe, reflecting the fact that 2004 acquisition spend predominantly occurred in our European operations. Secil, the Portuguese cement, concrete products and aggregates producer, in which the Europe Materials Division acquired a 49% stake early in June 2004, delivered a satisfactory incremental five-month contribution in 2005. The Europe Products & Distribution Division benefited from good incremental contributions from 2004 acquisitions in its Concrete Products operations. Although its Distribution activities also enjoyed a strong sales boost due to the purchase of NCD Builders Merchants in December 2004, the incremental operating income was impacted somewhat by post-acquisition integration costs related to this transaction. 2004 acquisitions in the Americas contributed an incremental €119 million in revenue and €9 million in operating income.

 

With approximately €1.2 billion of 2005’s €1.45 billion development activity occurring in the second half of the year, the incremental impact in 2005 from this acquisition activity was a relatively modest €448 million in revenue and €18 million in operating income, split approximately equally between our businesses in Europe and the Americas. The major Mountain Companies and Bizzack acquisitions by our Americas Materials Division, which were completed at end-October, came late in the season and had only modest impact on the 2005 results. The Europe Materials Division’s 26.3% equity stake in Spanish cement producer Corporación Uniland was completed just prior to year-end and, as a result, Uniland did not contribute to the Group’s share of associates’ income in 2005.

 

With annualized revenue of some €1.5 billion from 2005 acquisitions plus a share of after tax income from the equity stake in Uniland, CRH’s 2006 results are expected to reflect a significant incremental impact from 2005 development activity.

 

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Ongoing operations

 

2005 saw a continuation of the strong overall organic growth evident in the Group’s 2004 performance with a €106 million improvement in ongoing operating income as shown in the table below.

 

The Europe Materials Division benefited from improved market conditions in all major regions and delivered a €33 million improvement in underlying operating income for the year as a whole. Our European Products activities faced tough conditions throughout 2005 with a combination of higher input costs, subdued markets and a €7 million increase in re-organization costs resulting in a €30 million decline in underlying operating income. Against a backdrop of weak consumer spending patterns in Benelux DIY markets, our European Distribution business did well in limiting the decline in underlying operating income to just €3 million. In Europe overall, operating income from ongoing operations was the same as in 2004.

 

The Americas Materials Division delivered a robust €40 million increase in full-year underlying operating income, although, as expected, the sharp rise in energy costs in the third quarter absorbed a greater proportion of the benefits of strong price increases than in the first half of the year. Our Americas Products businesses also faced somewhat slower underlying income growth in the second half as RMI demand moderated but nevertheless delivered a €53 million underlying operating income increase for 2005 as a whole. Distribution activities in the Americas performed strongly throughout the year generating a €13 million advance in underlying operating income. Combined, our operations in the Americas achieved a substantial €106 million, or 18%, increase in underlying operating income in 2005.

 

     Key Components of 2005 Performance

 

€ million


   Revenue

    Operating
income


    Gain
on
sale


   Trading
income


    Finance
costs
(net)


    Associates’
PAT


   Pre-tax
income


 

2004 as reported

   12,755     1,220     11    1,231     (146 )   19    1,104  

Exchange effects

   50     6     —      6     (2 )   —      4  
    

 

 
  

 

 
  

2004 at 2005 exchange rates

   12,805     1,226     11    1,237     (148 )   19    1,108  
    

 

 
  

 

 
  

Incremental impact in 2005 of:

                                        

- 2004 acquisitions

   536     42     —      42     (12 )   —      30  

- 2005 acquisitions

   448     18     —      18     (14 )   —      4  

Ongoing operations *

   660     106     9    115     15     7    137  
    

 

 
  

 

 
  

2005 as reported

   14,449     1,392     20    1,412     (159 )   26    1,279  
    

 

 
  

 

 
  

% change as reported

   +13.3 %   +14.1 %        +14.7 %              +15.8 %

% change at constant 2005 rates

   +12.8 %   +13.5 %        +14.1 %              +15.4 %
    

 

      

            


* The terms “ongoing” ,”organic” and “underlying” have the same meaning in the discussion that follows.

 

The tax charge of €273 million in respect of subsidiaries and joint ventures gives an effective tax rate (excluding associates) of 21.8% compared with 21.4% in 2004.

 

Net income for 2005 amounted to €1,006.3 million, an increase of 15.4% over 2004 net income of €871.8 million.

 

Americas Products & Distribution Division

 

In 2005, of the four operating Divisions, the Americas Products & Distribution Division was the second largest contributor to Group revenue and the largest contributor to Group operating income.

 

The Division is comprised of two reportable segments, Products and Distribution. Discussions of each of the reportable segments follow with the key achievements and challenges during the year.

 

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Despite the challenge of rising input costs, particularly cement, energy and petroleum-based materials, all of the product groups in the Division reported healthy increases in sales and operating income. Internal initiatives to manage costs and prices, combined with strong residential activity and a continuing recovery in the non-residential building sector, contributed to growth and improved performance. Overall, the Division experienced a 13% increase in sales and a 24% improvement in operating income.

 

2005 overview

 

Americas Products (comprising four groups—Architectural Products, Precast, Glass and South America)

 

     % of
Group


   2005

    2004

    Change

   Analysis of change

€ million


             Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic*

Revenue

   19    2,756     2,462     +294    +11    +58    +58    +167

Operating Income

   22    308     251     +57    +2    +2    —      +53

Operating Income Margin

        11.2 %   10.2 %                        

1. The U.S. dollar was little changed against the euro in 2005 ($1.2438) when compared to 2004 ($1.2439).
* The terms “organic” and “underlying” have the same meaning in the discussion that follows.

 

Architectural Products

 

Despite higher energy, transport and raw material prices, and some regional softness in RMI sector demand, APG achieved good operational improvements along with targeted price increases which, with the benefit of acquisition contributions, delivered double-digit percentage growth in revenue and income for the year. The West and South regions performed particularly well and clay brick producer Glen-Gery also advanced, although the impact of higher second-half natural gas costs somewhat eroded its strong first-half gains.

 

APG added substantial new plant capacity in 2005 to support geographic expansion of its retail customer base and its Belgard® professional hardscapes business. Five new paver plants, one block and grinding facility, two stone bagging operations and a concrete-mix plant were completed in 2005, representing an investment of over €68 million. Similar capital developments will continue in 2006 to sustain internal growth.

 

APG completed six acquisitions increasing its presence in all three core markets. The acquisition of P&L Bark in January, Earth Pak in September and Jolly Gardener in October added €125 million in revenue and 13 facilities in eight East Coast states, to expand APG’s position with major homecenter chains and independent retailers in bagged soil and mulch. In February, APG acquired the paver operations of Central Precast in Ottawa, Canada, adding much needed capacity to Montreal-based Permacon and reinforcing its position in the Ontario and Québec professional hardscapes markets. Masonry producer S.T. Wooten of North Carolina was acquired as a bolt-on in September while lightweight aggregate manufacturer Arkalite, with a single plant in Arkansas, was added to APG’s Big River Industries in November.

 

Precast

 

Continued strength of the residential construction sector, together with recovery in non-residential and modest improvement in telecommunications construction, resulted in record volumes from the Precast group’s legacy operations. The combination of cost control, product mix and a disciplined pricing policy resulted in good margin improvement and record income for the group. Backlog has increased both in volume and margin compared with the same time last year, setting the foundation for continued progress in 2006.

 

Development picked up in 2005 with the addition of the three new bolt-on acquisitions mentioned above. All have exceeded our expectations in 2005 and we are pleased with the management teams and the excellent integration that has been achieved in the short time that they have been with our group. In addition, we pushed

 

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forward our internal development program with our acquisition of a new site in Madera, California on which we will consolidate a number of regional operations, to service the fast-growing California Central Valley. We have completed the closure of our parking garage plant in Hatfield, Pennsylvania, which will reduce costs and add focus to our reorganized Building Systems group in the Northeast.

 

Glass

 

The Glass group achieved a year of strong organic revenue and income growth. Robust demand for high-performance, solar-control insulating glass products provided the group with further gains in market share in this higher-margin segment. Our hurricane-resistant product, StormGlass®, also achieved record revenue following the adoption of more demanding building codes along the Atlantic and Gulf coasts.

 

In June, the group extended its position in engineered aluminum fenestration products with the acquisition of Fulton Windows; a leading manufacturer of architectural-rated, operable windows and engineered curtain walls located in Toronto, Ontario. Fulton’s broad product portfolio affords the group critical mass in several key, value-added categories and provides a solid foundation for future bolt-on acquisitions. A new division, Engineered Products, was created to benefit from operating scale. The new division consolidates Glass group businesses in architectural-rated operable windows, engineered curtain walls, commercial and retail storefronts and doors, and all-glass door hardware.

 

In September, the group completed construction of a greenfield plant in Missouri to provide dedicated capacity for larger, complex architectural curtain-wall projects that incorporate high-performance solar-control glass. This specialist plant has achieved early success and has a rapidly growing commercial order book.

 

South America

 

With increased production capacity and good construction activity, our Argentine clay products business had a strong performance in its local market which was complemented by export sales. The Argentine glass business performed ahead of expectations benefiting from the recovery of commercial building and a growing contribution from exports. The Chilean glass operation continued to refocus its business towards architectural value-added products, and achieved another improved performance in competitive markets.

 

All the operations in the region have benefited from a continuing emphasis on strict cost control and customer-focused product/service initiatives.

 

Americas Distribution

 

2005 overview

 

     % of
Group


   2005

    2004

    Change

   Analysis of change

€ million


             Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic

Revenue

   8    1,156     1,014     +142    —      +7    +50    +85

Operating Income

   6    80     63     +17    —      +1    +3    +13

Operating Income Margin

        7.0 %   6.2 %                        

1. The U.S. dollar was little changed against the euro in 2005 ($1.2438) when compared to 2004 ($1.2439).

 

Demand in this business is largely influenced by replacement with many roofing/siding products having an average life span of roughly 20 years. Similarly, replacement/refurbishment is also the main end-market for interior products in commercial construction while new residential construction is a major market for gypsum wallboard.

 

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As in the latter months of 2004, our Distribution operations benefited substantially in the first half of 2005 from significant repair work in Florida in the aftermath of the devastating 2004 hurricanes. This additional Florida demand moderated through the second half of 2005 and the late-2004 gains arising from steep price increases for many of the products handled by these businesses were not repeated. Despite the tougher second-half comparatives, our Distribution operations delivered further organic growth helped by robust markets in Southern California and Hawaii and benefited from good acquisition contributions.

 

The group invested a total of €73 million on the completion of eight acquisitions during the year. Five of these were in the fast-growing interior products segment with the remaining three in the roofing and siding segment.

 

Full-year operating income advanced strongly with a further healthy improvement in overall operating margin.

 

Outlook 2006—Americas Products & Distribution Division

 

While global energy prices remain a concern, the United States economy continues to expand. Although economic strength is broad-based, there are as always regional variations with the Mid-West weakest overall, while some modest benefits may be forthcoming in 2006 from Gulf Coast reconstruction.

 

Although some softening in the current strong level of United States housing construction is generally forecast for 2006, good employment levels, strong demographics and moderate interest rates continue to support underlying demand in this sector. Non-residential construction, which in real terms is still well below its peak of the early 2000’s, is expected to continue its recovery in 2006.

 

We also expect our Canadian and South American operations to see further progress in 2006.

 

We look to a further operating income advance for our Products operations and, although its margins may ease from current high levels, our Distribution business should also deliver improved income in 2006.

 

Europe Materials Division

 

In 2005, the Europe Materials Division was the fourth and smallest contributor to Group revenue and the second largest to Group operating income. This Division is comprised of two segments based on a geographical split, Ireland and the Rest of Europe.

 

Europe Materials—Ireland

 

2005 overview

 

     % of
Group


   2005

    2004

    Change

   Analysis of change

€ million


             Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic

Revenue

   8    1,112     1,008     +104    -2    —      —      +106

Operating Income

   10    145     139     +6       —      —      +6

Operating Income Margin

        13.0 %   13.8 %                        

1. Increase of €106 million in underlying net sales was not reflected in operating income due to a decline in operating margins as price increases for aggregates and concrete products failed to match inflation.

 

We had another good year in Ireland in 2005 with an increase of approximately 5% in our total cement volumes. In the Republic of Ireland, the housing sector remained the main driver with house completions increased over 2004 at approximately 81,000 units. The National Development Plan continued to deliver strong road construction activity and the commercial and industrial sectors improved with the sustained growth in the economy.

 

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With the concrete products market performing well, our cement plants in both Limerick and Platin once again produced at maximum output. We continue to pursue an active capital expenditure program in both plants to optimize capacity and improve efficiencies. In Northern Ireland, the commercial sector and public sectors were very strong although this was partly offset by a decline in housing activity due to delays in the planning process, rather than any underlying lacks of demand.

 

Despite very competitive markets, our aggregate and concrete products companies performed strongly and made good progress in recovering cost inflation. Our on-going program of investment in raw material reserves and new efficient plant and machinery continued during 2005.

 

Europe Materials—Rest of Europe

 

CRH’s other European Materials operations are based primarily in Finland and the Baltics, Poland, Ukraine, Switzerland, Spain, Portugal, Tunisia and Israel.

 

2005 overview

 

     % of
Group


   2005

    2004

    Change

   Analysis of change

€ million


             Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic

Revenue

   10    1,534     1,299     +235    +30    +107    +24    +74

Operating Income

   17    232     181     +51    +4    +17    +3    +27

Operating Income Margin

        15.1 %   13.9 %                        

1. Operating income margins in organic operations increased in 2005 due to better margins and tight cost control.

 

Finland/Baltics

 

The Finnish economy grew by approximately 2.5% in 2005 helped by buoyant exports particularly to Russia. After a flat start to the year, construction activity recovered in the second half giving overall growth of approximately 3%. This was evident across all sectors of the market with our cement volumes also exceeding 2004 levels by approximately 3%.

 

The project to replace and upgrade the clinker production facility at Lappeenranta in southeastern Finland is well under way and the modern efficient kiln is scheduled to be on-line in 2007. The Baltic region, including St. Petersburg, enjoyed strong growth and volumes exceeded 2004 levels in all products.

 

Income grew for the year due to increased second-half demand, better margins and tight cost control in all areas.

 

Poland/Ukraine

 

The Polish economy grew at a lower rate than 2004 with GDP up 3.7%. Despite this, building materials sales benefited from the support of European Union investment, particularly in road construction.

 

The extended winter reduced sales of all products at the start of the year. However, cement demand in the second half proved exceptionally strong, leaving volumes just ahead of 2004 by year-end. The aggregates and blacktop businesses benefited most from increased road building activity, and volumes were better. As expected, lime sales were down on 2004; however, ongoing rationalization resulted in an improved performance. The concrete products businesses had varying fortunes with both readymixed concrete and pavers experiencing higher demand, whilst aerated concrete volumes were down. Overall, income in Poland improved on 2004 levels.

 

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Although GDP growth in Ukraine slowed somewhat, cement sales grew significantly resulting in a substantial income increase.

 

Switzerland

 

The Swiss economy grew by 1.7% in 2005 helped by growth in exports of 5.5%. Inflation remained low at 1.2% and unemployment declined slightly. Construction activity increased by about 2.5% with growth in housing and continuing good infrastructure spend more than compensating for modest declines in other sectors. Our aggregates operations performed well, while our cement volumes increased by approximately 6%, driven by infrastructure projects.

 

Despite strong competition, overall income performance was in line with the high level achieved in 2004 as a result of efficiency improvements and greater use of alternative fuels in the Wildegg cement plant.

 

Spain

 

In Spain, construction markets were active with output up about 4%. The residential market was the main driver, together with strong infrastructural investment in the Madrid and Catalonia markets. Overall sales and income were ahead of 2004.

 

Portugal

 

Economic activity levelled off in Portugal in 2005, with construction output moderating in the second half of the year due to reduced housing activity and constraints on public expenditure. Higher input costs at our joint venture Secil were offset by good cost control and pricing discipline in our main regional markets. Cement sales by Secil in Tunisia were in line with prior years and operational performance at the facility in Gabes improved. Overall, while cement volumes showed a slight reduction on full-year 2004 levels, the Secil group performed satisfactorily with sales and income in line with expectations.

 

Israel

 

Mashav, in which CRH has a 25% stake, delivered an improved operating result. Despite continuing political difficulties, a better economy led to higher Israeli cement demand, while stronger activity in the West Bank and Gaza favorably influenced sales.

 

Outlook 2006—Europe Materials Division

 

Ireland

 

In Ireland, housing output is expected to ease in the second half of 2006 from the current very high levels. However, this is likely to be offset by increased activity in the commercial and industrial sectors. The new Government National Development Plan announced in the Republic of Ireland during 2005 is expected to continue to underpin a high level of expenditure on infrastructure and public projects in 2006 and beyond.

 

Rest of Europe

 

In Finland, GDP growth of over 3% is expected in 2006 helped by continuing growth in exports. Construction volumes are expected to develop in line with GDP, especially in the commercial and industrial sectors, while housing and infrastructure should remain strong. Construction activity in the Baltic States will benefit from European Union funds and demand in St. Petersburg remains brisk.

 

Polish GDP is predicted to increase by 4% in 2006 with higher growth forecast for the construction sector. With full membership of the European Union, funds are now available for infrastructure projects; roads and environmental projects are the major beneficiaries. The housing market is expected to improve significantly, especially in the major cities, while strong advances are also expected in the non-residential sector.

 

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The Swiss construction outlook for 2006 is stable with a small decline in housing expected to be offset by a pick-up in industrial activity. While some infrastructure projects in our markets are now complete, overall activity levels are expected to remain stable for 2006.

 

Spanish construction is forecast to remain at current levels due to the ongoing strength of housing and infrastructure markets. In Portugal, some small decline in the construction market is likely due to continued residential weakness and tightening government expenditure.

 

Current forecasts show Israel benefiting from a slight improvement in the underlying economy and ongoing activity in the West Bank and Gaza.

 

With a broadly positive market outlook and capital expenditure programs focused on cost reduction and productivity improvement beginning to feed through to the bottom line, 2006 should see further organic growth. This, combined with the benefit of 2005 development initiatives, should deliver another year of progress for the Division.

 

Americas Materials Division

 

In 2005, the Americas Materials Division was the third largest contributor to Group revenue and Group operating income.

 

2005 overview

 

     % of
Group


   2005

    2004

    Change

   Analysis of change

€ million


             Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic

Revenue

   22    3,165     2,823     +342    —      +54    +109    +179

Operating Income

   23    328     274     +54    —      +6    +8    +40

Operating Income Margin

        10.4 %   9.7 %                        

1. The U.S. dollar was little changed against the euro in 2005 ($1.2438) when compared to 2004 ($1.2439).

 

Another year of rapidly escalating energy costs created a challenging environment for Americas Materials. Bitumen costs increased for the fourth consecutive year, rising 13% despite a very successful winter-fill program, which covered 33% of our total bitumen requirements. Energy used at our asphalt plants, consisting of fuel oil, recycled oil and natural gas, had a composite cost increase of 25%. Diesel fuel and gasoline used to power our mobile fleet increased by 37%. Against this difficult backdrop, the Division had significant success in recovering these higher costs with strong price improvements across its operations. As expected, the sharp rise in energy costs in the third quarter absorbed a greater proportion of the pricing benefits than in the first half; nevertheless, the Division delivered good organic growth for the year and a welcome improvement in both operating income and margin.

 

Highway markets were generally favorable with increases in Federal and State spending. However, the strong product price increases somewhat constrained the volume of asphalt paving work available in the final quarter, as most roadwork is tied to relatively fixed budgets at State, municipal and local level. The Federal Highway Bill, SAFETEA-LU, was signed by President Bush in August but came too late to impact 2005 activity levels. Residential markets remained strong, buoyed by low interest rates, while non-residential construction continued to improve.

 

Total volumes, including acquisition effects, increased 3% in aggregates, 6% in readymixed concrete and 1% in asphalt. Overall prices increased 7% in aggregates, 9% in readymixed concrete and 11% in asphalt, reflecting the successful effort to recover higher energy costs. However, the higher prices, combined with cement shortages in some western markets late in the year, hampered heritage demand, with flat volumes in aggregates and readymixed concrete and a 3% decline in asphalt.

 

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Development activity was brisk with 20 transactions closed and combined investment of €416 million, a welcome pick-up from the relatively subdued 2004 level of €160 million. We entered new markets in Minnesota with the acquisition of Southern Minnesota Construction, and in Kentucky and Virginia with the acquisition of Mountain Companies and 50% of Mountain’s heavy construction affiliate, Bizzack. These deals cost a combined €344 million. We also completed 17 other bolt-on transactions across our operations.

 

New England

 

New Hampshire and Vermont enjoyed better trading in 2005 in improving markets. These gains were partially offset by declines in Maine and Connecticut where volumes were stable, but price increases did not fully recover sharply higher input costs. Massachusetts performed well with a solid highway program partially offset by higher energy costs. In mid-December, we acquired Blue Rock Industries, an integrated aggregates, asphalt and construction business, with valuable reserves near Portland, Maine. This transaction improves the vertical integration of our existing operations and provides greater exposure to the private and commercial sectors in the Portland area.

 

New York/New Jersey

 

Our New York/New Jersey businesses saw improved results compared with 2004 as the Gallo acquisition was integrated with heritage operations in the New York metro area. Significant price increases for all products, however, did not fully offset the higher energy costs. We are addressing capacity constraints at a number of our quarries in the area with several large capital projects scheduled for completion over the next few years. In Upstate New York, our Albany operations increased income in good markets, while Rochester results declined once again as the market continued to contract with many large local employers continuing to scale back their activities. In July, we added to our concrete operations with the purchase of bolt-on readymixed concrete assets in the greater Albany area.

 

Central

 

Overall, operating income increased in all states in this region. West Virginia had a strong year benefiting from good highway markets and success in recovering higher input costs. Michigan saw some improvement from low levels, but our primary highway market remains depressed with both state and private markets continuing to deteriorate. Ohio benefited from steadier markets and the integration of recent acquisitions while Pennsylvania and Delaware improved due to management action in generating cost efficiencies. Our investment in bitumen storage paid off, as significant cost increases during the paving season were mitigated by our winter-fill program.

 

It was an active year on the development front. While the most significant transactions were the purchase of Mountain Companies in Kentucky and West Virginia and the acquisition of a 50% stake in Bizzack, Mountain’s heavy construction affiliate, we completed five bolt-on acquisitions in Ohio, expanding our readymixed concrete, aggregates and asphalt operations in what is the Division’s largest individual state ranked by revenue.

 

West

 

Our operations in the West had an outstanding year. Strong local economies and exposure to the housing market, particularly through readymixed concrete, combined to deliver improved results. Cement shortages hampered our readymixed concrete operations in some western markets, especially in the second half; however, the income impact was limited. Once again, Utah and Idaho saw significant income gains as our operations benefited from buoyant markets for all products. In Washington, results improved despite increasing competition. Solid progress was made in Wyoming, Montana, South Dakota and Colorado, and our small New Mexico operations continued to improve. A total of five bolt-on acquisitions during the year strengthened our existing activities in Utah, Idaho, Oregon, Wyoming and New Mexico.

 

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The acquisition during the year of Southern Minnesota Construction, the leading aggregates and asphalt supplier with extensive reserves in the south-central region of the state, represented a superb geographic fit with our existing Iowa business and a significant expansion into a new state. Our heritage Iowa operations had another good year with income increasing in generally buoyant markets. Five smaller transactions, serving markets in northwest Iowa and southern Minnesota were also completed during 2005.

 

Outlook 2006—Americas Materials

 

The re-authorization of the Federal Highway funding program, SAFETEA-LU, and improving State finances should lead to strengthening highway markets in 2006. The housing market, which has performed strongly in recent years, is forecast to soften slightly in 2006, but this should be more than offset by a continued recovery in non-residential building markets, and together these factors should lead to moderate volume growth. Our pricing strategy will continue to focus on the recovery of higher input costs. Combined with management’s sustained focus on operating efficiency, and with benefits from 2005 development activity, we look forward to another year of progress in 2006.

 

Europe Products & Distribution Division

 

In 2005, the Europe Products & Distribution Division was the largest contributor to Group revenue and the smallest contributor to Group operating income. The Division is comprised of two segments, Products and Distribution.

 

2005 saw generally subdued trading conditions, with significant differences in economic activity between our major markets. The Netherlands, U.K. and Germany were weak while France, Belgium, Switzerland and the Nordic countries were somewhat stronger. The Division achieved sales growth of 14%, mainly due to 2004 and 2005 acquisitions. With flat markets and significant increases in input costs, operating income fell, largely due to a sharp decline in results from our Insulation activities.

 

Europe Products

 

2005 overview

 

                           Analysis of change

€ million


   % of
Group


   2005

    2004

    Change

   Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Re-org.
Costs


   Organic

Revenue

   18    2,533     2,245     +288    +9    +124    +137    —      +18

Operating Income

   13    176     191     -15    —      +11    +4    -7    -23

Operating Income Margin

        6.9 %   8.5 %                             

The Products segment is organized into three product groups: Concrete Products, Clay Products and Building Products.

 

Concrete Products

 

This group manufactures concrete products for two principal end-uses: pavers and tiles/blocks for architectural use, and floor/wall elements, beams, vaults, and drainage for structural use. In addition, it manufactures sand-lime brick for the residential market, and through its 45% Cementbouw joint venture, is involved in materials trading and readymixed concrete. The group reported similar income in 2005 with contributions from acquisitions offsetting heritage declines in challenging markets.

 

In August 2005, the Concrete group acquired Stradal, the leading landscaping and infrastructural products business in France. This acquisition provides opportunities for savings and synergies with our existing businesses

 

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in France, Belgium and Germany. Stradal performed in line with expectations during the period since acquisition. Further acquisitions included Marmorith, an important bolt-on operation for our structural business in Belgium, and the acquisition of the Danish paving producer RBR, thereby establishing the group’s first presence in the Nordic paving market. Finally, a natural stone trading operation was acquired in Belgium, which enlarges our product offering to the public market in the Benelux.

 

Architectural

 

Similar to last year, our Dutch and Belgian concrete businesses faced tough competition due to market over-capacity and downward price pressure. In Germany, lower volumes and higher raw material costs led to a decline in profitability. In Slovakia, our business performed ahead of expectations and income advanced. The softening U.K. housing market impacted on our business and our results in the U.K. were lower than in 2004.

 

Structural

 

The Belgian structural companies delivered an excellent performance with synergies being realized from recent acquisitions. Our businesses in France and Poland performed strongly on the back of robust markets and benefits from recent cost-cutting actions. The Dutch companies performed in line with 2004 with the commercial market still weak. Our Danish businesses, which provide a complete design, production and installation service, grew strongly and income was well up on 2004.

 

Sand-lime brick

 

Our sand-lime brick business was successfully rebranded under the name of Calduran and introduced several new innovative products to the market. We continue to focus on devising new methods of improving efficiencies and flexibility in the application of its products. Supported by an upturn in the housing market, Calduran sales and income advanced in 2005.

 

Cementbouw joint venture

 

Trading conditions remained tough for this joint venture in materials trading and readymixed concrete in the Netherlands, and income declined.

 

Clay Products

 

In the U.K., brick industry volumes continued to decline, due to falls in both the new residential and RMI sectors. Energy prices increased significantly, particularly towards the end of the year. Nevertheless, Ibstock’s income remained at similar levels to last year, supported by strong pricing, improved factory and energy efficiencies and good cost control. In March, Ibstock acquired Manchester Brick & Precast, a specialist manufacturer of brick-clad precast components, to add to its Kevington division.

 

In Mainland Europe, overall profitability remained stable for our activities in the Netherlands, Belgium, Germany and Poland, despite strong increases in energy costs. The group continued to expand through the acquisition of a strong regional construction block business in Poland and a façade system specialist in the Netherlands.

 

Building Products

 

The Building Products group comprises four product segments: Insulation, Fencing & Security, Daylight & Ventilation and Construction Accessories. Market conditions for these businesses in Germany and the Netherlands remained difficult and pressure on income was only partly offset by strong cost control and acquisition benefits. Sales in our other markets showed good progress. Four bolt-on acquisitions during the year strengthened market positions in France, Belgium, Switzerland and Germany.

 

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Insulation

 

The business has strong market positions in the U.K., Ireland, Benelux, Germany, Poland and the Nordic area. Overall sales were unchanged, with the incremental contribution of acquisitions offset by the impact of challenging markets in the Netherlands, Germany and Poland. Our operations suffered from severe volatility in energy-related input costs in the first half of the year and, despite making good progress with restructuring initiatives and delivering a more stable second-half performance, income declined sharply.

 

Fencing & Security

 

Fencing & Security had another year of progress despite income pressure in Germany arising from fierce competition. Our fencing operations in the Netherlands once again delivered a strong performance despite dull markets. In the U.K., good results were achieved for the second year in succession due to strong government spending and good organizational performance. Arfman, a specialist Dutch supplier and installer of railway and fauna fencing solutions, was acquired in May.

 

Daylight & Ventilation

 

Daylight & Ventilation faced strong German and Dutch competition resulting in lower margins. In Germany, a restructuring program adversely affected income. The Laubeuf group, involved in the engineering, manufacturing and installation of glass roofs in France and Belgium, was acquired in February adding significantly to our market positions.

 

Construction Accessories

 

Our heritage operations delivered higher income, successfully passing on steel price increases. The business was enlarged by two acquisitions, strengthening our positions in Germany and Switzerland. Aschwanden, a major Swiss producer of metal-based construction accessories, was acquired in June. In October, we acquired Syncotec; a major European producer of plastic, metal and concrete spacers, with strong market positions in France and Germany. These acquisitions contributed strongly to income.

 

Europe Distribution

 

2005 overview

 

          Analysis of change

€ million


   % of
Group


   2005

    2004

    Change

   Exchange
Translation


   2004
Acquisitions


   2005
Acquisitions


   Organic

Revenue

   15    2,193     1,904     +289    +2    +186    +70    +31

Operating Income

   9    123     121     +2    —      +5    —      -3

Operating Income Margin

        5.6 %   6.4 %                        

After record 2004 sales and operating income, 2005 was a year of further growth for the Europe Distribution group despite less favorable market conditions, especially in the Dutch and Belgian DIY businesses. 2005 was a very active development year with a total of four acquisitions. Together with 12 greenfield locations, we added 154 new locations to our existing network. This is a solid basis for further sales and income improvements in 2006 and onwards. With 533 branches in seven countries (of which 178 are operated in joint ventures), Europe Distribution is a leading distributor of building materials in its regions.

 

A 47.82% stake in Bauking was acquired in late-December 2005. Bauking is one of the major German builders merchants and DIY operators with 108 branches in the northern part of Germany. Given the timing of acquisition, no sales or income for Bauking are included in our 2005 results.

 

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DIY

 

In a slow-moving Benelux market driven by reduced consumer confidence leading to generally weak retail sales, our DIY business had another satisfactory year, although income was somewhat below the record 2004. With the opening of four new stores, our network was expanded to 139 stores. However, our DIY joint venture in Portugal made a good advance in sales, supported by the opening of five new stores, bringing the total network to 21 stores.

 

Builders Merchants

 

Netherlands: Although the number of new house completions increased, our Dutch general builders merchant business faced increased competition. Rigorous cost control and synergy effects from 2004 acquisition activity resulted in a solid income increase, despite restructuring costs. Our Dutch roofing business reported a record year both in sales and income, our ironmongery business remained disappointing, but the aluminum business was at a satisfactory level ahead of last year.

 

France: Our businesses in Ile-de-France had an improved year and the completion of restructuring gives good confidence for future income improvement. Our Doras joint venture made further progress in lackluster markets in the Burgundy and Franche-Comté regions.

 

Switzerland: Our operations benefited from good market conditions and, helped by the positive impact of internal improvement programs, our business out-performed. This resulted in an excellent year with further progress in sales and income. In 2005, we completed two acquisitions, adding three branches to the existing network.

 

Austria: Quester, a leading builders merchant with 32 locations, was acquired in October 2005 as a platform for growth in the fragmented Austrian builders merchants market and its post-acquisition performance had only minimal impact in 2005.

 

Outlook 2006—Europe Products & Distribution Division

 

Forecasts for construction output in our major markets are showing some growth in 2006, with the exception of Germany and the U.K. For the Netherlands, we expect a pick-up in the economy with continued growth in new housing construction and strengthening consumer confidence from the low 2005 levels.

 

The forecast for the U.K. construction industry is for continued growth but at a more moderate pace than in recent years and with the housing market showing signs of cooling-down.

 

In Germany, construction volumes have been decreasing steadily and no recovery is expected before 2007. Residential and non-residential construction will continue to decline in 2006, with infrastructure and civil engineering likely to be flat. The significant upturn in demand for new residential and new non-residential in Belgium that we have seen in the last few years is expected to continue, although maybe at a less vigorous pace. With elections coming up in 2006, a further increase is expected in public investments in civil engineering projects.

 

While the construction market for new housing in France is expected to decrease, the non-residential sector is expected to be reasonable and elections will likely cause an upswing in civil engineering projects.

 

For Switzerland, expectations are that GDP growth in 2006 will accelerate further. Solid growth is foreseen in residential construction and the downward trend in non-residential construction should stabilize.

 

Our operating teams will continue to focus on further margin improvements and cost efficiencies throughout the Division. We look to another active year on the development front and an advance in income in 2006.

 

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Taxation

 

The Company is subject to Corporation Tax in the Republic of Ireland on income arising from sources within Ireland. Companies in Ireland are subject to different Corporation Tax rates depending on the activity carried out by the company. Except for certain companies engaged in specified manufacturing activities, companies in Ireland are in general subject to Corporation Tax at the highest rate of 12.5% (the highest rate was 16% prior to December 31, 2002).

 

Group companies with income arising from the sale of goods manufactured in Ireland, regardless of whether the goods are exported, are liable to Corporation Tax at a reduced rate of 10% up to December 31, 2010.

 

Critical Accounting Policies

 

The Consolidated Financial Statements are prepared in accordance with IFRS, which differ in certain significant respects from U.S. GAAP. These differences are described and outlined in Note 36 of the Notes to Consolidated Financial Statements.

 

These accounting principles require management to make certain estimates, judgments and assumptions. Management believes that the estimates, judgments and assumptions upon which it relies are reasonable based on the information available to it at the time that those estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are material differences between these estimates, judgments or assumptions and actual results, the Group’s Consolidated Financial Statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by IFRS and/or U.S. GAAP, and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

 

The significant accounting policies adopted by the Group are set out in Statement of Significant Accounting Policies in the Notes to Consolidated Financial Statements, while the other Notes to Consolidated Financial Statements contain the disclosures required by IFRS and U.S. GAAP.

 

The accounting policies which involve significant estimates, judgments or assumptions, the actual outcome of which could have a material impact on the Group’s results and financial positions, are:

 

Measurement of environmental liabilities

 

The measurement of environmental liabilities is based on an evaluation of currently available facts with respect to each individual site and considers factors such as existing technology, currently enacted laws and regulations and prior experience in remediation of contaminated sites. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, the protracted length of the clean-up periods and evolving technologies. Environmental remediation costs are accrued when environmental assessments and the need for remediation are probable and the costs can be reasonably estimated. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The environmental liabilities provided for in the Consolidated Financial Statements reflect the information available to management at the time of determination of the liability, and involve inherent uncertainties as described above, many of which are not under management’s control. As a result, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future accounting periods.

 

For further discussion related to environmental matters, see “Item 4 – Information on the Company – Environmental Regulations” on page 30.

 

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Allowance for doubtful accounts

 

The Group makes judgments as to its ability to collect outstanding receivables and provides allowances for a portion of the receivable when collection becomes doubtful. Provisions are based on a review of outstanding invoices and take into account historical collection experience and current economic trends. If the historical data used by the Group to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

 

Legal contingencies

 

The Group is currently involved in various claims and legal proceedings. Periodically, the status of each significant matter is reviewed by management and the Group’s potential financial exposure is assessed. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be estimated, a liability is accrued for the estimated loss. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available on pending claims, the potential liability is reassessed and revisions are made to the amounts accrued where appropriate. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial position of the Group.

 

Taxation – current and deferred

 

The Group’s income tax charge is based on expected income, statutory tax rates, various allowances and reliefs and tax planning opportunities available to the Group in the multiple taxing jurisdictions in which it operates. The determination of the Group’s provision for income tax requires certain judgments and estimates in relation to matters where the ultimate tax outcome may not be certain. In addition, the Group is subject to tax audits which can involve complex issues that could require extended periods for resolution. Although management believes that the estimates included in the Consolidated Financial Statements and its tax return positions are reasonable, no assurance can be given that the final outcome of these matters will not be different than that which is reflected in the Group’s historical income tax provisions and accruals. Any such differences could have a material impact on the income tax provision and net income for the period in which such a determination is made. In management’s opinion, adequate provisions for income taxes have been made.

 

Property, plant and equipment

 

With the exception of the one-time revaluation of land and buildings addressed in Note 13 of the Notes to Consolidated Financial Statements, items of property, plant and equipment are stated at historical cost less any accumulated depreciation and any accumulated impairments.

 

In the application of Group accounting policy, judgment is exercised by management in the determination of residual values and useful lives. Depreciation is calculated to write-off the book value of each item of property, plant and equipment over its useful economic life on a straight-line basis. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. Impairments of property, plant and equipment are addressed in the section addressing “Impairment of long-lived assets and goodwill” below.

 

Intangible assets

 

The preparation of the Consolidated Financial Statements requires the exercise of judgment in relation to the recognition and subsequent amortization of intangible assets arising on business combination activity. Intangible assets are recognized to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that the fair value can be measured reliably at the date of consummation of the business combination.

 

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Impairments of definite-lived intangible assets are addressed in the section addressing “Impairment of long-lived assets and goodwill” below. There are no indefinite-lived intangible assets in the Consolidated Financial Statements which would require annual testing for impairment in line with the methodology applied for goodwill impairment under IAS 38 Intangible Assets.

 

Impairment of long-lived assets and goodwill

 

The carrying value of long-lived assets (comprising property, plant and equipment and intangible assets other than goodwill) is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable; in the case of goodwill, impairment testing is required on an annual basis or at any time during the year if an indicator of impairment is considered to exist. Under IFRS, impairment is assessed by comparing the carrying value of an asset with its recoverable amount (being the greater of fair value less costs to sell and value-in-use). Fair value less costs to sell is defined as the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable and willing parties, less the costs which would be incurred in disposal. Value-in-use is defined as the present value of the future cash flows expected to be derived through the continued use of an asset or cash-generating unit including those anticipated to be realized on its eventual disposal. The impairment process requires management to make significant judgments and estimates regarding the future cash flows expected to be generated by the use of, and if applicable the eventual disposition of, those assets, and regarding other factors to determine the fair value of the assets. The key variables which management must estimate include: sales volumes, prices and growth, production and operating costs, capital expenditures, market conditions, and other economic factors. Significant management judgment is involved in estimating these variables, and such estimates are inherently uncertain; however, the assumptions used are consistent with the Company’s internal strategic planning. Management periodically evaluates and updates the estimates based on the conditions which influence these variables.

 

The assumptions and conditions for determining impairments of property, plant and equipment and goodwill reflect management’s best assumptions and estimates, but these items involve inherent uncertainties described above, many of which are not under management’s control. As a result, the accounting for such items could result in different estimates or amounts if management used different assumptions or if different conditions occur in future accounting periods.

 

Share-based payments

 

For equity-settled share-based payment transactions (i.e. the issuance of share options which are subject to non-market vesting criteria as defined in IFRS 2 Share-based Payment), the Group measures the services received and the corresponding increase in equity at fair value at the grant date using a recognized valuation methodology for the pricing of financial instruments (i.e. the trinomial model). The valuation process requires estimation on the part of management of the following items: (i) risk-free interest rate; (ii) expected life; (iii) expected dividend payments over the expected life; and (iv) expected volatility. The assumptions employed in relation to each of these items are set out in Note 7 of the Notes to Consolidated Financial Statements.

 

Derivative financial instruments

 

Where hedge accounting is availed of in the context of derivative financial instruments, the related accounting standards require stringent documentation of these exposures and the performance of retrospective and prospective hedge effectiveness testing at predetermined intervals. Changes in interest rates and currency exchange rates may lead to hedges failing the effectiveness testing thresholds in IAS 39 Financial Instruments: Recognition and Measurement and may thus lead to significant charges or credits in the Consolidated Statements of Income. The relevant disclosures are included in Note 23 of the Notes to Consolidated Financial Statements.

 

Pensions and other post-retirement benefits

 

The amounts recognized in the Consolidated Financial Statements related to pension and other post-retirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions

 

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including discount rates, expected return on plan assets, rate of increase in future compensation levels, mortality rates and healthcare cost trend rates. These assumptions are updated annually based on current economic conditions and, if required, also for any changes to the terms and conditions of the pension and post-retirement plans. These assumptions can be affected by (i) for the discount rate, changes in the rates of return on high- quality fixed income investments currently available in the market and those expected to be available during the period to maturity of the pension benefits; (ii) for the expected return on plan assets, changes in the pension plans’ strategic asset allocations to various investment types or to long-term return trend rates in the capital markets in which the pension fund assets are invested; (iii) for future compensation levels, on future labor market conditions and (iv) for healthcare cost trend rates, on the rate of medical cost inflation in the regions of the world where the benefits are offered to the Group’s employees. The weighted average actuarial assumptions used to compute the pension and post-retirement benefit obligation for 2005 and 2004 are disclosed in Note 27 of the Notes to Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the assumptions used in calculating the annual retirement benefit liabilities and costs are accumulated and amortized over future periods and therefore generally affect recognized expense and recorded obligations in future accounting periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Group’s pension and other post-retirement obligations and expenses in future accounting periods.

 

Impact of Inflation

 

Inflation has not had a material effect on the Group’s consolidated results of operations and financial condition during the two-year period ended December 31, 2005.

 

Liquidity and Capital Resources

 

While spending a total of €1,812.3 million on acquisitions, investments and capital projects in 2005, the strong cash generation characteristics of the Group limited the increase in net debt to just €690.2 million, despite an adverse translation adjustment of €165.0 million.

 

The increased charges for depreciation and amortization of intangible assets mainly reflect the impact of acquisitions completed in 2004 and 2005.

 

The working capital outflow for the year amounted to €149.4 million.

 

Tax payments were higher than in 2004 reflecting both improved Group profitability and the expiration in 2005 of certain United States tax incentives. These incentives, introduced in September 2001 to promote capital investment in a weaker United States economy, allowed for accelerated tax depreciation on purchases of plant and equipment favorably impacting tax payments in 2004. The Group’s policy of providing for deferred tax, however, has ensured that reported annual tax charges have not been distorted by the cash flow benefits of these incentives.

 

The 2005 cash outflow of €1,812.3 relating to acquisitions, investments and capital projects includes deferred acquisition consideration paid during 2005 in respect of acquisitions in previous years and excludes deferred consideration relating to 2005 acquisitions payable in future years.

 

Proceeds from share issues reflect the issue of shares under Group share option and share participation schemes (€39.5 million).

 

The increase in dividends paid reflects the 17% increase in both final 2004 and interim 2005 dividends which were paid during the course of 2005.

 

Capital expenditure of €652.1 million represented 4.5% of Group revenue (2004: 4.3%) and amounted to 1.17 times depreciation (2004: 1.07 times). Higher energy costs, with a resultant improvement in the returns generated on energy-saving investments, have led to an increase in such projects across the Group. In addition, we continued to invest in a number of larger development projects particularly in the United States to meet growing customer demand. Of the total capital spend, 48% was invested in Europe with 52% in the Americas.

 

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Exchange rate movements during 2005 increased the euro amount of net foreign currency debt by €165.0 million principally due to the 13% devaluation of the euro against the U.S. Dollar from 1.3621 at end-2004 to 1.1797 at end-2005. The favorable translation adjustment in 2004 reflected an 8% positive revaluation of the euro versus the U.S. Dollar from 1.2630 at end-2003 to 1.3621 at end-2004.

 

Year-end net debt of €3,448 million (2004 : €2,758 million) includes €271 million (2004 : €257 million) in respect of the Group’s proportionate share of net debt in joint ventures, principally Secil in Portugal and Cementbouw in the Netherlands. Following transition to IFRS, net debt comprises amounts included in the Consolidated Balance Sheets for derivative financial instruments in addition to interest-bearing loans and borrowings net of liquid investments and cash and cash equivalents.

 

Although year-end debt increased by €690.2 million, increased total ordinary shareholders’ equity resulted in the ratio of net debt to equity remaining broadly in line with 2004 at 55.7%. EBITDA interest cover (as defined on page 34 was 12.7 times in 2005 (2004: 12.3 times).

 

Cash and cash equivalents increased to €1,148.6 million at December 31, 2005 from €1,072.0 million at December 31, 2004 primarily as a result of positive foreign exchange translation of €47.5 million and cash acquired of €58.0 million partially offset by cash outflows of €28.9 million. Currency analysis of the cash and cash equivalents balances is as follows (all at floating interest rates):

 

     euro

   U.S. dollar

   Sterling

   Swiss franc

   Other

   Total

     (euro millions)

December 31, 2005

   562.5    235.0    86.4    188.8    75.9    1,148.6

December 31, 2004

   421.9    284.2    179.9    147.7    38.3    1,072.0

 

Ordinary shareholders’ equity (which is calculated as total shareholders’ equity less cumulative preference shares of €1.2 million) increased from €4,944.0 million at December 31, 2004 to €6,194.2 million at year-end 2005. Earnings of €1,024.1 million (after the add-back of €26.2 million reflecting the expensing of employee share options and related deferred tax) retained for 2005, combined with proceeds of €60.3 million (net of expenses) from share issues (appropriations under the Group Share Participation Schemes (see “Item 6 – Directors, Senior Management and Employees”) and issues in lieu of dividends) and favorable currency translation effects of €413.4 million, net gains on cash flow hedges less deferred tax of €2.0 million, were only partly offset by actuarial losses on defined benefit pension schemes net of deferred tax amounting to €64.4 million and dividends paid of €185.2 million.

 

Borrowings and Credit Facilities

 

The Group has a U.K.£100 million Sterling Commercial Paper Program, supported by a U.K.£300 million multicurrency revolving credit facility, which is available for general corporate purposes. There were no amounts outstanding under this Program at December 31, 2005 (2004: nil).

 

The Group finished the year in a very strong financial position with 97% of the Group’s gross debt drawn under committed term facilities, 91% of which mature after more than one year. These committed facilities are mainly with a number of international banks. Commitment fees are paid on the unused portion of the lines of credit, and borrowings under the facilities will be at prevailing money market rates. In addition, at year-end, the Group held €279.8 million of undrawn committed facilities. The maturity schedule is disclosed in Note 22 of Notes to Consolidated Financial Statements.

 

At December 31, 2005, gross debt (including finance leases) amounted to €5,106.8 million (2004: €4,053.8 million) of which approximately 65% was at fixed interest rates (2004: 70%).

 

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An analysis of the maturity profile of debt, finance and operating leases and deferred acquisition consideration at December 31, 2005 is as follows:

 

Payments due by period


  

less than

1 year


  

1-3

years


  

3-5

years


  

more than

5 years


     €m    €m    €m    €m

Gross debt

   569.0    545.1    1,510.0    2,433.3

Finance leases

   13.3    23.7    6.4    6.0

Operating leases

   152.3    208.8    136.1    187.8

Purchase obligations

   263.3    60.8    43.7    188.2

Deferred acquisition consideration

   72.5    67.5    49.4    45.6
    
  
  
  
     1,070.4    905.9    1,745.6    2,860.9
    
  
  
  

 

Interest Rate Swap Agreements

 

In order to manage interest rate risk, the Group enters into interest rate swap agreements to alter the interest payable on debt from fixed to variable and vice versa. While the Group is exposed to market risk to the extent that receipts and payments under interest rate agreements are affected by market interest rates, the combination of interest rate swaps and fixed rate debt reduces the Group’s interest rate market risk by fixing interest rates on a portion of the Group’s net debt in individual currencies. The majority of these swaps are designated under IAS 39 to hedge underlying debt obligations; undesignated financial instruments are termed “not designated as hedges” in the analysis of derivative financial instruments in Note 23 of the Notes to Consolidated Financial Statements.

 

Currency Swap Agreements

 

The Group enters into currency swap agreements to manage the Group’s mix of fixed and floating debt by currency to ensure that the debt funding sources match the currency of Group operations.

 

Guarantees

 

The Company has given letters of guarantee to secure obligations of subsidiary undertakings as follows: €4,587.2 million in respect of loans, bank advances and future lease obligations, €23.1 million in respect of deferred acquisition consideration, €186.4 million in respect of letters of credit and €14.2 million in respect of other obligations.

 

Working Capital

 

CRH believes that its current working capital cash flows and cash generated from operations together with funds raised through its borrowing facilities are sufficient to meet its capital expenditure and other expenditure requirements for 2006.

 

Off-Balance Sheet Arrangements

 

CRH does not have any off-balance sheet arrangements, as such term is defined for purposes of Item 5.E of Form 20-F, that have or are reasonably likely to have a current or future effect on CRH’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Material Commitments for Capital Expenditure

 

At December 31, 2005, capital expenditure contracted but not provided in the financial statements amounted to €219.2 million and capital expenditure commitments authorized by the Directors but not contracted for amounted to €115.9 million. CRH expects that capital expenditure for the year 2006 will be somewhat higher

 

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than the amount spent in 2005, which amounted to €652.1 million. These expenditures will be financed from internal resources and management estimates that 2006 expenditure will be split approximately evenly between Europe and the Americas. The level of capital expenditure is regularly reviewed during the year and may be increased or decreased in the light of prevailing economic and market conditions and other financial considerations.

 

Governmental Policies

 

The overall level of government capital expenditures and the allocation by state entities of available funds to different projects as well as interest rate and tax policies directly affect the overall levels of construction activity. The terms and general availability of government permits required to conduct Group business also has an impact on the scope of Group operations. As a result such governmental decisions and policies can have a significant impact on the operating results of the Group.

 

Research & Development

 

Research and development is not a focus of CRH’s business. CRH’s policy is to expense all research and development costs as they occur.

 

Trend Information—2006

 

Overall trading in the first four months of the year has been favorable with in particular a strong start from our operations in the Americas. Recent weeks have seen further increases in energy costs in response to world political tensions and concerns over supply/demand balance. Accordingly, as in 2005, the continued recovery of these significant energy cost increases will be key to the results of CRH for the current year.

 

The early months of 2006 have seen good momentum across our businesses and further success on the acquisition front. While as always risks remain, with a continuing focus on operational effectiveness and ongoing acquisition benefits we look forward with confidence as we move into the busier trading months across our operations.

 

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ITEM 6—DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

The Board of Directors manages the business of the Company. The Directors, other than the non-executive Directors, serve as executive officers of the Company.

 

Directors and Senior Management

 

Name


     

Title


 

Period during which the individual has served

in this office (from appointment to May 2006)


D.W. Doyle

  (Age 59)   Managing Director—CRH Europe Materials  

2 years 4 months

N. Hartery

  (Age 55)   Director (Non-executive)  

1 year and 11 months

T.W. Hill

  (Age 50)   Chief Executive Officer—Oldcastle Inc.  

4 years 5 months

J.M. de Jong

  (Age 60)   Director (Non-executive)  

2 years 4 months

D.M. Kennedy

  (Age 67)   Director (Non-executive)—Senior Independent Director  

17 years

M. Lee

  (Age 53)   Finance Director  

2 years 6 months

K. McGowan

  (Age 62)   Director (Non-executive)  

7 years 7 months

P.J. Molloy

  (Age 68)   Chairman (Non-executive)  

8 years 5 months

T.V. Neill

  (Age 60)   Director (Non-executive)  

2 years 4 months

J.M.C. O’Connor

  (Age 59)   Director (Non-executive)  

1 year and 11 months

W.I. O’Mahony

  (Age 59)   Chief Executive  

13 years 5 months

A. Malone

  (Age 52)   Secretary  

11 years

 

D.W. Doyle BE, MIE Declan Doyle joined CRH in 1968 and has held a number of senior management positions within the Group’s European materials businesses, including Managing Director of Irish Cement Limited and Roadstone-Wood and Regional Director with responsibility for Poland and Ukraine. He was appointed Managing Director CRH Europe Materials in January 2003 and became a CRH Board Director in January 2004.

 

N. Hartery CEng FIEI, MBA Nicky Hartery became a non-executive Director in June 2004. He is Vice President of Manufacturing, Business Operations and Customer Experience for Dell Europe, the Middle East and Africa. Prior to joining Dell, he was Executive Vice President at Eastman Kodak and previously held the position of President and CEO at Verbatim Corporation, based in the United States.

 

T.W. Hill BA, MBA Tom Hill joined CRH in 1980. He was appointed President of Oldcastle Materials, Inc. in 1991, became its Chief Executive Officer in January 2000 and has been appointed Chief Executive Officer Oldcastle Inc. effective July 1, 2006. A United States citizen, he is responsible for the Group’s United States operations. He was appointed a CRH Board Director with effect from January 1, 2002.

 

J.M. de Jong Jan Maarten de Jong, a Dutch national, became a non-executive Director in January 2004. He is Vice Chairman of the Supervisory Board of Heineken N.V. He is a former member of the Managing Board of ABN Amro Bank N.V. He also holds a number of other directorships of European companies including Cementbouw bv, in which CRH acquired 45% of the equity as part of the Cementbouw transaction in 2003.

 

D.M. Kennedy MSc David Kennedy became a non-executive Director in 1989. He is a director of a number of companies in Ireland and overseas, including The Manchester Airport Group plc, Bon Secours Health System Limited, Drury Communications Ltd and Pimco Funds Global Investors Series plc. He was formerly Chief Executive of Aer Lingus plc.

 

M. Lee BE, FCA Myles Lee joined CRH in 1982. Prior to this he worked in a professional accountancy practice and in the oil industry. He was appointed General Manager Finance in 1988 and became Finance Director in November 2003.

 

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K. McGowan Kieran McGowan became a non-executive Director in 1998. He retired as Chief Executive of IDA Ireland in December 1998. He is a director of a number of companies including Elan Corporation plc, Enterprise Ireland and Irish Life & Permanent plc and Chairman of the Governing Authority of University College Dublin.

 

P.J. Molloy Pat Molloy became Chairman of CRH in 2000 having been a non-executive Director since 1997. He is Chairman of the Blackrock Clinic and Enterprise Ireland and a director of Waterford Wedgwood plc. He retired as Group Chief Executive of Bank of Ireland in January 1998.

 

T.V. Neill MA, MSc Terry Neill became a non-executive Director in January 2004. He was, until August 2001, Senior Partner in Accenture and had been Chairman of Accenture/Andersen Consulting’s global board. He is a member of the Court of Bank of Ireland and Chairman of Meridea Financial Software Oy. He is a member of the Governing Body of the London Business School, where he is Chair of the Finance Committee, and of the Trinity Foundation Board.

 

J.M.C. O’Connor

 

Joyce O’Connor became a non-executive Director in June 2004. She is President of the National College of Ireland. She is currently Chair of the Further Education and Training Awards Council (FETAC), the National Guidance Forum and the Expert Group on Mental Health Policy and a member of the National Qualifications Authority. She also chairs Dublin Inner City Partnership, is a Council Member of the Dublin Chamber of Commerce and an Eisenhower Fellow.

 

W.I. O’Mahony BE, BL, MBA, CEng FIEI

 

Liam O’Mahony joined CRH in 1971. He has held senior management positions including Chief Operating Officer of the United States operations and Managing Director, Republic of Ireland and U.K. Group companies. He joined the CRH Board in 1992, was appointed Chief Executive, Oldcastle, Inc. in November 1994 and became Group Chief Executive in January 2000. He is a member of The Irish Management Institute Council and of the Harvard Business School European Advisory Board.

 

A. Malone FCIS

 

Angela Malone joined CRH in 1990 and was appointed Company Secretary in 1995.

 

Directors’ Compensation

 

The information on executive and non-executive Directors’ compensation, pension entitlements and options to purchase securities from the registrant or its subsidiaries is set out on pages R-1 to R-10 inclusive which are incorporated by reference in this Item.

 

Corporate Governance

 

CRH has primary listings on the Irish and London Stock Exchanges. The Group’s ADRs had been quoted on NASDAQ in the United States since 1989; CRH transferred its United States listing to the New York Stock Exchange (NYSE) with effect from March 31, 2006.

 

The Directors are committed to maintaining the highest standards of corporate governance and this statement describes how CRH applies the main and supporting principles of the 2003 Combined Code on Corporate Governance, which is appended to the Listing Rules of the Irish and London Stock Exchanges.

 

Board of Directors

 

Role

 

The Board is responsible for the leadership and control of the Company. There is a formal schedule of matters reserved to the Board for consideration and decision. This includes Board appointments, approval of strategic plans for the Group, approval of financial statements, the annual budget, major acquisitions and significant capital expenditure, and review of the Group’s system of internal controls.

 

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The Board has delegated responsibility for the management of the Group, through the Chief Executive, to executive management. The roles of Chairman and Chief Executive are not combined and there is a clear division of responsibilities between them, which is set out in writing and has been approved by the Board. The Chief Executive is accountable to the Board for all authority delegated to executive management.

 

The Board has also delegated some of its responsibilities to Committees of the Board. Individual Directors may seek independent professional advice, at the expense of the Company, in the furtherance of their duties as a Director.

 

The Group has a policy in place which indemnifies the Directors in respect of legal action taken against them.

 

Membership

 

It is the practice of CRH that a majority of the Board comprises non-executive Directors and that the Chairman be non-executive. At present, there are four executive and seven non-executive Directors. Biographical details are set out above. The Board considers that, between them, the Directors bring the range of skills, knowledge and experience, including international experience, necessary to lead the Company.

 

All of the Directors bring independent judgment to bear on issues of strategy, performance, resources, key appointments and standards. The Board has determined that each of the non-executive Directors is independent. In reaching that conclusion, the Board took into account a number of factors that might appear to affect the independence of some of the Directors, including length of service on the Board and cross-directorships. In each case the Board decided that the independence of the relevant Director was not compromised.

 

Chairman

 

Mr. Pat Molloy has been Chairman of the Group since May 2000. The Chairman is responsible for the efficient and effective working of the Board. He ensures that Board agendas cover the key strategic issues confronting the Group; that the Board reviews and approves management’s plans for the Group; and that Directors receive accurate, timely, clear and relevant information. While Mr. Molloy holds a number of other directorships (see details above), the Board considers that these do not interfere with the discharge of his duties to CRH.

 

Senior Independent Director

 

The Board has appointed Mr. David Kennedy as the Senior Independent Director. Mr. Kennedy is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director.

 

Company Secretary

 

The appointment and removal of the Company Secretary is a matter for the Board. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with.

 

Terms of appointment

 

The standard terms of the letter of appointment of non-executive Directors is available, on request, from the Company Secretary.

 

Induction and development

 

New Directors are provided with extensive briefing materials on the Group and its operations. Directors meet with key executives and, in the course of twice-yearly visits by the Board to Group locations, see the businesses at first hand and meet with local management teams.

 

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Remuneration

 

Details of remuneration paid to the Directors (executive and non-executive) are set out in the Report on Directors’ Remuneration on pages R-5 and R-6.

 

Share ownership and dealing

 

Details of the shares held by Directors are set out on page R-10. CRH has a policy on dealings in securities that applies to Directors and senior management. Under the policy, Directors are required to obtain clearance from the Chairman and Chief Executive before dealing in CRH shares. Directors and senior management are prohibited from dealing in CRH shares during designated prohibited periods and at any time at which the individual is in possession of price-sensitive information. The policy adopts the terms of the Model Code, as set out in the Listing Rules published by the U.K. Listing Authority and the Irish Stock Exchange.

 

Performance appraisal

 

The Senior Independent Director conducts an annual review of corporate governance, the operation and performance of the Board and its Committees and the performance of the Chairman. This is achieved through discussion with each Director and the Company Secretary. A review of individual Directors’ performance is conducted by the Chairman and each Director is provided with feedback gathered from other members of the Board.

 

Directors’ retirement and re-election

 

The Board has determined that when a non-executive Director has served on the Board for more than nine years, that Director will be subject to annual re-election. Of the remaining Directors, at least one-third retire at each Annual General Meeting and Directors must submit themselves to shareholders for re-election every three years. Directors appointed by the Board must submit themselves to shareholders for election at the Annual General Meeting following their appointment.

 

Board succession planning

 

The Board plans for its own succession with the assistance of the Nomination Committee. In so doing, the Board considers the skill, knowledge and experience necessary to allow it to meet the strategic vision for the Group. The Board engages the services of independent consultants to undertake a search for suitable candidates to serve as non-executive Directors.

 

Meetings

 

There were eight full meetings of the Board during 2005. Details of Directors’ attendance at those meetings are set out in the table on page 63. The Chairman sets the agenda for each meeting, in consultation with the Chief Executive and Company Secretary. Two visits are made each year by the Board to Group operations; one in Europe and one in North America. Each visit lasts between three and five days and incorporates a scheduled Board meeting. In 2005, these visits were to southwest Ireland and to Albany, New York and Florida in the United States. Additional meetings, to consider specific matters, are held when and if required. Board papers are circulated to Directors in advance of meetings. The non-executive Directors met twice during 2005 without executives being present.

 

Committees

 

The Board has established five permanent Committees to assist in the execution of its responsibilities. These are the Acquisitions Committee, the Audit Committee, the Finance Committee, the Nomination Committee and the Remuneration Committee. Ad hoc committees are formed from time to time to deal with specific matters.

 

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Each of the permanent Committees has terms of reference, under which authority is delegated to them by the Board. The terms of reference are available on the Group’s website, www.crh.com. Minutes of all Committee meetings are circulated to all members of the Board.

 

The current membership of each Committee is set out on page 63. Attendance at meetings held in 2005 is set out in the table on page 63.

 

Chairmen of the Committees attend the Annual General Meeting and are available to answer questions from shareholders.

 

The role of the Acquisitions Committee is to approve acquisitions and capital expenditure projects within limits agreed by the Board.

 

The Audit Committee consists of four non-executive Directors, considered by the Board to be independent. The Board has determined that Mr. Jan Maarten de Jong is the Committee’s financial expert. It will be seen from the Directors’ biographical details, appearing above, that the members of the Committee bring to it a wide range of experience and expertise.

 

The Committee met ten times during the year under review. The Finance Director and the Head of Internal Audit normally attend meetings of the Committee, while the external auditors attend as required and have direct access to the Committee Chairman at all times.

 

The main role and responsibilities are set out in written terms of reference and include:

 

    monitoring the integrity of the Group’s financial statements and reviewing significant financial reporting issues and judgments contained therein;

 

    reviewing the effectiveness of the Group’s internal financial controls;

 

    monitoring and reviewing the effectiveness of the Group’s internal auditors;

 

    making recommendations to the Board on the appointment and removal of the external auditors and approving their remuneration and terms of engagement; and

 

    monitoring and reviewing the external auditors’ independence, objectivity and effectiveness, taking into account professional and regulatory requirements.

 

These responsibilities are discharged as follows:

 

    the Committee reviews the trading statements issued by the Company in January and July;

 

    at its meeting in February, the Committee reviews the Company’s preliminary results announcement/Annual Report and accounts. The Committee receives reports at that meeting from the external auditors identifying any accounting or judgmental issues requiring its attention;

 

    the Committee also meets with the external auditors to review the Annual Report on Form 20-F, which is filed annually with the United States Securities and Exchange Commission;

 

    in August, the Committee reviews the interim report;

 

    the external auditors present their audit plans in advance to the Committee;

 

    the Committee approves the annual internal audit plan;

 

    regular reports are received from the Head of Internal Audit on reviews carried out; and

 

    the Head of Internal Audit also reports to the Committee on other issues including, in the year under review, progress on the implementation of Section 404 of the Sarbanes-Oxley Act 2002 and the arrangements in place to enable employees to raise concerns, in confidence, in relation to possible wrongdoing in financial reporting or other matters.

 

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As noted above, one of the duties of the Audit Committee is to make recommendations to the Board in relation to the appointment of the external auditors. A number of factors are taken into account by the Committee in assessing whether to recommend the auditors for reappointment. These include:

 

    the quality of reports provided to the Audit Committee and the Board, and the quality of advice given;

 

    the level of understanding demonstrated of the Group’s business and industry; and

 

    the objectivity of the auditors’ views on the controls around the Group and their ability to co-ordinate a global audit, working to tight deadlines.

 

The Committee has put in place safeguards to ensure that the independence of the audit is not compromised. Such safeguards include:

 

    seeking confirmation that the auditors are, in their professional judgment, independent from the Group;

 

    obtaining from the external auditors an account of all relationships between the auditors and the Group;

 

    monitoring the number of former employees of the external auditors currently employed in senior positions in the Group and assessing whether those appointments impair, or appear to impair, the auditors’ judgment or independence;

 

    considering whether, taken as a whole, the various relationships between the Group and the external auditors impair, or appear to impair, the auditors’ judgment or independence; and

 

    reviewing the economic importance of the Group to the external auditors and assessing whether that importance impairs, or appears to impair, the external auditors’ judgment or independence.

 

The Group has a policy governing the conduct of non-audit work by the auditors. Under that policy, the auditors are prohibited from performing services where the auditors:

 

    may be required to audit their own work;

 

    participate in activities that would normally be undertaken by management;

 

    are remunerated through a ‘success fee’ structure, where success is dependent on the audit; or

 

    act in an advocacy role for the Group.

 

Other than the above, the Group does not impose an automatic ban on the Group auditors undertaking non-audit work. The auditors are permitted to provide non-audit services that are not, or are not perceived to be, in conflict with auditor independence, providing they have the skill, competence and integrity to carry out the work and are considered by the Committee to be the most appropriate to undertake such work in the best interests of the Group. The engagement of the external auditors to provide any non-audit services must be pre-approved by the Audit Committee or entered into pursuant to pre-approval policies and procedures established by the Committee.

 

Details of the amounts paid to the external auditors during the year for audit and other services are set out in the Notes to the Consolidated Financial Statements on page F-28.

 

The Finance Committee advises the Board on the financial requirements of the Group and on appropriate funding arrangements.

 

The Nomination Committee assists the Board in ensuring that the composition of the Board and its Committees is appropriate to the needs of the Group by:

 

    assessing the skills, knowledge, experience and diversity required on the Board and the extent to which each are represented;

 

    establishing processes for the identification of suitable candidates for appointment to the Board; and

 

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    overseeing succession planning for the Board and senior management.

 

To facilitate the search for suitable candidates to serve as non-executive Directors, the Committee uses the services of independent consultants.

 

The Remuneration Committee, which consists solely of non-executive Directors considered by the Board to be independent:

 

    determines the Group’s policy on executive remuneration;

 

    determines the remuneration of the executive Directors;

 

    monitors the level and structure of remuneration for senior management; and

 

    reviews and approves the design of all share incentive plans.

 

The Committee receives advice from leading independent firms of compensation and benefit consultants when necessary and the Chief Executive is fully consulted about remuneration proposals. The Committee oversees the preparation of the Report on Directors’ Remuneration.

 

In 2005, the Committee determined the salaries of the executive Directors and the awards under the annual and long-term incentive plans; set the remuneration of the Chairman; and reviewed the remuneration of senior management. It also approved the award of share options to the executive Directors and key management.

 

Also in 2005, the Committee, with the assistance of external advisers, undertook an extensive review of the Company’s compensation arrangements for executive Directors and senior managers. Further commentary on this review is contained in the Report on Directors’ Remuneration on page R-3.

 

Corporate Social Responsibility

 

Corporate Social Responsibility is embedded in all CRH operations and activities. Excellence in environmental, health, safety and social performance is a daily key priority of line management. Group policies and implementation systems are described in detail in the CSR presentation on the Group’s website, www.crh.com. During 2005, CRH was again recognized by several key rating agencies as being among the leaders in its sector in respect of sustainability performance.

 

Code of Business Conduct

 

The CRH Code of Business Conduct is applicable to all Group employees and is supplemented by local codes throughout the Group’s operations. The Code is available on the Group’s website, www.crh.com.

 

Communications with shareholders

 

Communications with shareholders are given high priority and there is regular dialogue with institutional shareholders, as well as presentations at the time of the release of the annual and interim results. Conference calls are held following the issuance of trading statements and major announcements by the Group, which afford Directors the opportunity to hear investors’ reactions to the announcements and their views on other issues. In 2005, a visit was organized for buy and sell-side analysts to Group operations in Pennsylvania and New Jersey.

 

Trading statements are issued in January and July. Major acquisitions are notified to the Stock Exchanges in accordance with the requirements of the Listing Rules. In addition, development updates, giving details of other acquisitions completed and major capital expenditure projects, are issued in January and July each year.

 

During 2005, the Board received reports from management on the issues raised by investors in the course of presentations following the annual and interim results.

 

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The Group’s website, www.crh.com, provides the full text of the Annual and Interim Reports, the Annual Report on Form 20-F, which is filed annually with the United States Securities and Exchange Commission, trading statements and copies of presentations to analysts and investors. News releases are made available in the News & Media section of the website immediately after release to the Stock Exchanges.

 

The Company’s Annual General Meeting affords individual shareholders the opportunity to question the Chairman and the Board. Notice of the Annual General Meeting is sent to shareholders at least 20 working days before the meeting. At the meeting, after each resolution has been dealt with, details are given of the level of proxy votes lodged, the balance for and against that resolution and the number of abstentions.

 

In addition, the Company responds throughout the year to numerous letters from shareholders on a wide range of issues.

 

Internal control

 

The Directors have overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.

 

The Directors confirm that the Group’s ongoing process for identifying, evaluating and managing its significant risks is in accordance with the updated Turnbull guidance (Internal Control: Revised Guidance for Directors on the Combined Code) published in October 2005. The process has been in place throughout the accounting period and up to the date of approval of the Annual Report and financial statements and is regularly reviewed by the Board.

 

Group management has responsibility for major strategic development and financing decisions. Responsibility for operational issues is devolved, subject to limits of authority, to product group and operating company management. Management at all levels is responsible for internal control over the respective business functions that have been delegated. This embedding of the system of internal control throughout the Group’s operations ensures that the organization is capable of responding quickly to evolving business risks, and that significant internal control issues, should they arise, are reported promptly to appropriate levels of management.

 

The Board receives, on a regular basis, reports on the key risks to the business and the steps being taken to manage such risks. It considers whether the significant risks faced by the Group are being identified, evaluated and appropriately managed, having regard to the balance of risk, cost and opportunity. In addition, the Audit Committee meets with internal auditors on a regular basis and satisfies itself as to the adequacy of the Group’s internal control system. The Audit Committee also meets with and receives reports from the external auditors. The Chairman of the Audit Committee reports to the Board on all significant issues considered by the Committee and the minutes of its meetings are circulated to all Directors.

 

The Directors confirm that they have conducted an annual review of the effectiveness of the system of internal control up to and including the date of approval of the IFRS Consolidated Financial Statements. This had regard to the material risks that could affect the Group’s business, the methods of managing those risks, the controls that are in place to contain them and the procedures to monitor them.

 

The Sarbanes-Oxley Act of 2002 will require public companies, both U.S. and non-U.S., to file with each Annual Report an internal control report prepared by management and attested by the company’s independent auditor. The report must assess the effectiveness of CRH’s internal controls over financial reporting, based on management’s evaluation as of the end of the fiscal year. The rules requiring filing of the internal control report will be effective in the case of non-U.S. issuers for fiscal years ending on or after July 15, 2006. Accordingly, CRH will provide its first report on the company’s internal controls over financial reporting as part of its Annual Report on Form 20-F for the financial year ending December 31, 2006. As part of its Annual Report on Form 20-F, CRH will also be required to disclose the attestation report by its auditors relating to its report on internal control over financial reporting.

 

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Going concern

 

After making enquiries, the Directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

Compliance

 

As at March 6, 2006 (the date of approval of the IFRS Consolidated Financial Statements), the Board has taken the necessary steps to be in compliance with the provisions set out in section 1 of the 2003 Combined Code and with the rules issued by the United States Securities and Exchange Commission to implement the Sarbanes-Oxley Act 2002, in so far as they apply to the Group.

 

Attendance at Board and Board Committee meetings during the year ended December 31, 2005

 

     Board

   Acquisitions

   Audit

   Finance

   Nomination

   Remuneration

     A    B    A    B    A    B    A    B    A    B    A    B

D.W. Doyle

   8    8                                                  

N. Hartery

   8    8                                  4    4    4    4

T.W. Hill

   8    7                                                  

J.M. de Jong

   8    8              10    9                              

D.M. Kennedy

   8    8    4    2    10    9                              

M. Lee

   8    8    4    4              2    2                    

K. McGowan

   8    8    4    4    10    10                              

P.J. Molloy

   8    8    4    4              2    2    4    4          

T.V. Neill

   8    8                                  4    4    4    4

A. O’Brien***

   8    8                        2    2    4    4    4    4

J.M.C. O’Connor

   8    8              10    8                              

W.I. O’Mahony

   8    8    4    4              2    2    4    4          

W.P. Roef*

   2    1                                  1    0    2    1

J.L. Wittstock**

   8    5                                                  

Column A - indicates the number of meetings held during the period the Director was a member of the Board and/or Committee.

Column B - indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee.

* Retired May 4, 2005
** Retired April 26, 2006
*** Retired May 3, 2006

 

A brief description of the significant differences between CRH’s corporate governance practices and those followed by U.S. companies under the New York Stock Exchange’s listing standards is provided on CRH’s website at http://www.crh.com/crhcorp/responsibility/corpgov/#9. The information found at this website or from links on this website is not incorporated by reference into this document.

 

Employees

 

A majority of the Irish employees of the Group and less than 30% of the employees outside the Republic of Ireland are members of unions. No significant work stoppages have occurred at any of CRH’s factories or plants during the past five years. The Group believes that relations with its employees are satisfactory.

 

The Group operates share participation plans and savings-related share option schemes for eligible employees in all regions where the regulations permit the operation of such plans. In total there are approximately 6,050 employees of all categories who are shareholders in the Group.

 

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The average number of employees for each of the three past financial years is as follows:

 

     2005

   2004

   2003

Americas Materials

   14,493    13,915    13,186

Americas Products & Distribution

   19,292    17,890    16,527

Europe Materials

   11,605    11,256    10,104

Europe Products & Distribution

   21,076    20,432    15,154
    
  
  
     66,466    63,493    54,971
    
  
  

 

1990 Share Option Schemes

 

At the Extraordinary General Meeting held on May 9, 1990, the shareholders approved Share Option Schemes for the Republic of Ireland and the United Kingdom of Great Britain and Northern Ireland (the “Share Option Schemes”), following which the share option scheme approved in 1987 was terminated (schemes approved in 1979 and 1973 had previously been terminated).

 

All share options issued up to December 31, 2000 were under the 1990 Share Option Schemes.

 

Directors and employees of the Company or of any of its subsidiaries who were nominated by the Board of Directors (the “Board”) and who were at least two years from normal retirement age were eligible to participate in the Share Option Schemes.

 

The Board could at any time within ten years from the adoption date (May 9, 1990) offer to grant options exercisable at the option price (as defined below) to such Directors and employees for such number of Ordinary Shares as the Board specified, provided that the limits described below had not been reached.

 

The exercise of options under the Share Option Schemes is related to performance and the Share Option Schemes include provisions to measure this performance in terms of growth in earnings per share (“EPS”) and also include a number of protections to ensure that options will not be exercisable unless performance actually occurs.

 

The option price in relation to an option was the market price of the shares, computed as on the day prior to the date on which the option was offered or, in the case of options granted after April 1, 1997 to participants whose employment services were performed primarily in the United States, the greater of such market price or the market price computed as at the date on which the option was offered. The market price per Ordinary Share was related to the middle market quotation on the Irish Stock Exchange, or the London Stock Exchange, Daily Official Lists on the day on which the price fell to be computed.

 

During the ten-year period ended on May 9, 2000, the aggregate number of shares issued under or to be issued pursuant to rights acquired under the Share Option Schemes, the U.K. Savings Scheme or any approved Share Participation Scheme (as described below) was limited to 44,367,400 Ordinary Shares (representing approximately 15% of the total issued ordinary share capital of CRH as at May 9, 1990 as adjusted following the Rights Issue in September 1993). This limit was further adjusted to 48,706,532 Ordinary Shares following the Rights Issue in March 2001 and may be adjusted by the appropriate proportion in the event of any future alteration of the capital structure of the Company by way of capitalization of reserves, rights issues, or any subdivisions, consolidations or reductions of capital. The total number of Ordinary Shares issued during the ten-year period ended May 9, 2000 in respect of the Share Option Schemes or any subsequent share option schemes was limited to a maximum of 10% of the issued ordinary share capital of the Company from time to time.

 

The total number of Ordinary Shares over which options could be granted during any three-year period in respect of the Share Option Schemes’ basic tier was limited to a maximum of 3% of the issued ordinary share capital of CRH, and the number of Ordinary Shares over which options could be granted under the aggregate of the basic and second tiers during any three-year period was limited to a maximum of 5% of the issued ordinary share capital of CRH.

 

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The 1990 Share Option Schemes expired in May 2000. A new share option scheme was approved by shareholders at the Annual General Meeting held on May 3, 2000.

 

2000 Share Option Scheme

 

This Share Option Scheme was approved by the shareholders at the Annual General Meeting held on May 3, 2000. There are two elements to the Option Scheme, a “basic tier” and a “second tier”.

 

The basic tier is the standard form of share option scheme. It allows options to be granted up to an aggregate maximum number of options equal to 5% of the issued Ordinary share capital, from time to time. These options become exercisable once EPS growth exceeds growth in the Consumer Price Index by 5% compounded over a period of at least three years subsequent to the granting of a basic tier option.

 

Under the second tier, options up to a further 5% of the issued Ordinary share capital, from time to time, may be granted, but may only be exercised if demanding performance targets are met. In effect, second tier options may only be exercised if, over a period of at least five years subsequent to the granting of a second tier option, the growth in EPS exceeds growth in the Consumer Price Index by 10% compounded and places the Company in the top quartile of EPS performance of a peer group of international building materials companies. If below the 75th percentile, these options are not exercisable.

 

Principal features

 

No option may be granted later than ten years from the date of approval by the shareholders at the Annual General Meeting held on May 3, 2000 (“Adoption Date”).

 

The Option Scheme will be available to executive Directors and employees of the Company, or of any subsidiary or of any company controlled by CRH, who will be approved by the Board for the purpose of being granted an option.

 

During the ten-year period, commencing on the Adoption Date, the total number of shares which may be issued in respect of the Option Scheme and any subsequent option schemes, may not exceed 10% in aggregate of the issued Ordinary share capital from time to time.

 

The flow rate of option grants will not exceed on average 1% of the issued Ordinary share capital per year. In general, the maximum number of shares over which any one participant may be granted options shall not exceed in value, at the option price, four times that individual’s annual emoluments in respect of the basic tier, disregarding any options exercised, and eight times annual emoluments in respect of basic and second tier options.

 

Replacement options will be granted only if the Remuneration Committee is satisfied that there has been a significant improvement in the performance of the Company in the previous two to three years, and that an individual’s past performance and potential for future contribution merits such replacement options.

 

The subscription price per share at which options may be exercised will be the higher of par and the mid-market price of the shares on the day preceding the date on which the option is granted or, in the case of options granted to U.S. participants, the greater of that mid-market price or the mid-market price of the shares on the date of the grant.

 

Options may be exercised not later than ten years from the date of grant of the option, and not earlier than the expiration of three years from the date of grant for the basic tier and five years for the second tier. Benefits under the scheme will not be pensionable. The shares issued under the Option Scheme will rank pari passu in all respects with the Ordinary and Income shares of the Company.

 

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The provisions relating to eligibility, limitation on number of shares to be issued under the scheme, maximum entitlement for any one participant, the basis of individual entitlement or the adjustment of grants in the event of a variation in share capital may not be altered to the advantage of participants without the prior approval of shareholders, except for minor amendments to benefit the administration of the scheme, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for any Group company or any participant.

 

2000 Savings-Related Share Option Schemes

 

A CRH Group scheme has been established in the Republic of Ireland and the United Kingdom, under which eligible subsidiary companies of the Group have been nominated as participating subsidiaries. Further schemes may be established in other jurisdictions.

 

The shares issued under the Savings-Related Share Option Schemes will rank pari passu in all respects with the Ordinary and Income shares of the Company.

 

During the ten-year period commencing on May 3, 2000, the total number of shares which may be issued in respect of the Share Option Schemes, the Savings-Related Share Option Schemes, the Share Participation Schemes and any subsequent share option schemes, may not exceed 15% in aggregate of the issued Ordinary share capital from time to time.

 

The provisions relating to eligibility, limitation on number of shares to be issued under the scheme, maximum entitlement for any one participant, the basis of individual entitlement or the adjustment of grants in the event of a variation in share capital may not be altered to the advantage of participants without the prior approval of shareholders, except for minor amendments to benefit the administration of the scheme, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for any Group company or any participant.

 

381,750 Ordinary Shares have been issued pursuant to the 2000 Savings-Related Share Option Schemes.

 

Share Participation Schemes

 

At the Annual General Meeting on May 13, 1987, the shareholders approved the establishment of Share Participation Schemes for the Company, its subsidiaries and companies under its control. Directors and employees of the companies who have at least one year’s service may elect to participate in these Share Participation Schemes. At May 24, 2006, 5,446,287 Ordinary Shares had been issued pursuant to the Share Participation Schemes.

 

Performance Share Plan

 

At the Annual General Meeting on May 3, 2006 the shareholders approved the establishment of the 2006 Performance Share Plan for the Company, its subsidiaries and companies under its control.

 

During 2005, the Remuneration Committee, with the assistance of external advisers, undertook a thorough review of the Company’s compensation arrangements for executive Directors and senior managers, the structure of which has been largely unchanged since the 1990s. The review took account of the global nature of the Group’s business, changes in the accounting treatment of long-term incentive schemes and developments in market practice in relation to these schemes.

 

It is CRH policy to provide market competitive reward opportunities for key employees and to link a substantial proportion of their remuneration to the financial performance of the Group. Long-term incentive plans involving conditional awards of shares are now a common part of executive remuneration packages, motivating performance and aligning the interests of executives and shareholders. The Remuneration Committee concluded

 

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that CRH should introduce a Performance Share Plan (the “Plan”), tied to Total Shareholder Return (“TSR”) to be measured over a three year period. Half of the award will be assessed against TSR for a group of global building materials companies and the other half against TSR for the constituents of the EuroFirst 300 Index. An Earnings Per Share (“EPS”) underpin of Consumer Price Index (“CPI”) plus 5% per annum will also be applied; if this EPS growth target is not achieved, the award will lapse, irrespective of the TSR performance.

 

Each half of the award will lapse if over the three year period CRH’s TSR is below the median of the relevant peer group/index; 30% of the relevant half of an award will vest if CRH’s performance is equal to the median of the relevant peer group/index, while all of the half will vest if CRH’s performance is equal to or greater than the 75th percentile. For performance between the 50th and 75th percentiles, between 30% and 100% of the relevant half of an award will vest on a straight-line basis.

 

Awards may be made to any eligible employee of shares worth up to 150% of the individual’s basic salary in any year. The number of shares to be awarded will be determined by reference to the market value of the Company’s shares at the time of the grant.

 

The Remuneration Committee believes that the introduction of the Plan, which reflects changing market practices for companies of a similar size and complexity, with large operations in Europe and the United States, will ensure that CRH can continue to recruit, retain and motivate high quality executives across its global areas of operation. The Plan has been approved by the Irish Association of Investment Managers.

 

In the light of the introduction of the Performance Share Plan, the Remuneration Committee has decided that no further second tier options will be granted under the current Executive Share Option Scheme, approved by shareholders in May 2000. However, basic tier options will continue to be granted under that Scheme.

 

Share Ownership by Directors

 

The following table sets forth certain information regarding the ownership of the Company’s Ordinary Shares at May 24, 2006 and options to subscribe for Ordinary Shares by all Directors as a group:

 

Identity of Person or Group


   Share options (i)

   Ordinary Shares

   % of Class of Ordinary Shares

D.W. Doyle (ii)

   349,712    189,167    0.0350

N. Hartery

   —      1,000    0.0002

T.W. Hill

   497,335    78,466    0.0145

J.M. de Jong

   —      3,072    0.0006

D.M. Kennedy

   —      56,362    0.0104

—non beneficial

   —      9,250    0.0017

M. Lee (ii)

   374,893    225,904    0.0418

K. McGowan

   —      7,883    0.0015

P.J. Molloy

   —      13,294    0.0025

T.V. Neill

   —      56,031    0.0104

J.M.C. O’Connor

   —      1,000    0.0002

W.I. O’Mahony

   1,014,609    662,165    0.1226
    
  
  
     2,236,549    1,303,594    0.2414
    
  
  

(i) Additional details regarding the options granted, including exercise price and expiry dates, are found under the heading “Directors’ Interests—Directors’ share options” on pages R-8 to R-10.
(ii) Includes options granted under the 2000 Savings-Related Share Option Scheme.

 

ITEM 7—MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

Major Shareholders

 

The Company is not owned or controlled directly or indirectly by any government or by any other corporation.

 

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As at May 24, 2006, the Company had received notification of the following interests in its Ordinary share capital:

 

Name


   Holding

   %

Bank of Ireland Asset Management Limited

   42,721,272    7.90

The Capital Group Companies, Inc. and its affiliates

   24,877,842    4.60

UBS AG*

   26,380,604    4.88

* On August 31, 2005 the Company received notification from UBS AG of its interest in the Ordinary share capital of CRH plc.

 

Each of the above states that these shares are not beneficially owned by them.

 

The major shareholders do not have different voting rights.

 

The number of shareholders with U.S. addresses (excluding ADS record holders) as at May 24, 2006 was 220 with a shareholding of 1,771,495 shares. For the number of ADS record holders, see Item 9.

 

Related Party Transactions

 

None.

 

ITEM 8—FINANCIAL INFORMATION

 

Consolidated Statements and Other Financial Information

 

Reference is made to Item 18 for a list of all financial statements filed with this Annual Report.

 

Dividends

 

The Company has paid dividends on its Ordinary Shares in respect of each fiscal year since the formation of the Group in 1970. Dividends are paid to shareholders as of record dates, which are determined by the Board of Directors. An interim dividend is normally declared by the Board of Directors in September of each year and is generally paid in November. A final dividend is normally recommended by the Board of Directors following the end of the fiscal year to which it relates and, if approved by the shareholders at an Annual General Meeting, is generally paid in May of that year.

 

Each ordinary shareholder in CRH holds an Income Share which is tied to each Ordinary Share and may only be transferred or otherwise dealt with in conjunction with that Ordinary Share.

 

The payment of future cash dividends will be dependent upon future earnings, the financial condition of the Group and other factors.

 

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by holders of ADSs upon conversion by the Depositary of cash dividends paid in euro on the Ordinary Shares represented by the ADSs. Furthermore, fluctuations in the exchange rates between the euro and the U.S. dollar may affect the relative market prices of the ADSs in the United States and of the Ordinary Shares in the Republic of Ireland.

 

Legal Proceed ings

 

Group companies are parties to various legal proceedings, including some in which claims for damages have been asserted against the companies. The final outcome of all the legal proceedings to which Group companies are party cannot be accurately forecast. However, having taken appropriate advice, we believe that the aggregate outcome of such proceedings will not have a material effect on the Group’s financial condition, results of operations or liquidity.

 

Significant Chan ges

 

CRH has completed acquisitions totaling approximately €748 million from January 1, 2006 to May 24, 2006.

 

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In April 2006, CRH reached agreement to acquire MMI Products, Inc. (MMI), a leading U.S. manufacturer and distributor of building products used in the non-residential, residential and infrastructure construction sectors, for a cash consideration, including debt acquired, of approximately U.S.$350 million.

 

Headquartered in Houston, Texas, MMI’s operations fall into three distinct product segments, encompassing fencing products, welded wire reinforcement and construction accessories. Merchants Metals manufactures and distributes a variety of fencing and security products. Ivy Steel and Wire produces welded wire reinforcement used primarily in non-residential and infrastructure applications. The third business, Meadow-Burke, is a manufacturer of construction accessories, offering over 2,000 specialized products also used primarily in non-residential and non-building concrete construction. Approximately 70% of total MMI sales are for non-residential applications.

 

ITEM 9—THE OFFER AND LISTING

 

CRH registered shares have a primary listing on both the Irish and London Stock Exchanges.

 

American Depositary Shares (“ADSs”), each representing one Ordinary Share, are quoted on the New York Stock Exchange (“NYSE”). The ADSs are evidenced by American Depositary Receipts (“ADRs”) issued by Citibank, N.A., of New York as Depositary under a Deposit Agreement. Each ADS represents one Ordinary Share of the Company. The ticker symbol for the ADSs on the NYSE is CRH (prior to March 31, 2006, CRH’s ADSs were quoted on the NASDAQ National Market under the ticker symbol CRHCY).

 

The following table sets forth, for the periods indicated, the reported high and low middle market quotations in euro, for the Ordinary Shares on the Irish Stock Exchange, based on its Daily Official List, and the high and low sale prices of the ADSs as reported in The NASDAQ National Market monthly statistical reports through March 30, 2006 and as reported on the NYSE composite tape from March 31, 2006 through May 24, 2006.

 

NASDAQ listing period    euro per Ordinary Share

   U.S. dollars per ADS

Calendar Year


     High  

     Low  

     High  

     Low  

2004

                   

First Quarter

   17.90    16.08    22.67    20.01

Second Quarter

   18.50    16.61    21.94    20.52

Third Quarter

   20.02    17.36    24.55    21.11

Fourth Quarter

   20.05    18.35    26.64    23.41

2005

                   

First Quarter

   22.25    19.59    29.09    26.04

Second Quarter

   22.10    18.87    27.05    24.37

Third Quarter

   23.69    20.19    29.50    25.33

Fourth Quarter

   24.85    20.33    31.11    24.71

2006

                   

First Quarter

   29.70    24.75    36.93    29.80

Calendar Year


                   

2001

   21.90    14.45    19.23    13.15

2002

   20.70    11.10    18.18    10.89

2003

   17.37    11.00    19.08    11.95

2004

   20.05    16.08    26.64    20.01

2005

   24.85    18.87    31.11    24.37

Month

                   

December 2005

   24.85    22.46    31.11    26.45

January 2006

   26.35    24.75    32.75    29.80

February 2006

   28.10    25.50    34.47    31.34

March 2006

   29.70    26.50    36.93    32.01

(i) The 2001 share data have been adjusted for the bonus element of the March 2001 Rights Issue.

 

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     euro per Ordinary Share

   U.S. dollars per ADS

Calendar Year


     High  

     Low  

     High  

     Low  

NYSE listing period

                   

2006

                   

Second Quarter (through May 24, 2006)

   29.98    25.35    38.00    32.80

Month

                   

April 2006

   29.98    27.85    37.11    34.10

May 2006 (through May 24, 2006)

   29.74    25.35    38.00    32.80

(i) On May 24, 2006, 7,279,108 American Depositary Shares (equivalent to 7,279,108 Ordinary Shares or 1.35% of the total outstanding Ordinary Shares) were outstanding and were held by 65 record holders.

 

ITEM 10—ADDITIONAL INFORMA TION

 

Memorandum and Artic les of Association

 

The following summarizes certain provisions of CRH’s Memorandum and Articles of Association and applicable Irish law.

 

Objects and Purposes

 

CRH is incorporated under the name CRH public limited company and is registered in Ireland with registered number 12965. Clause 4 of CRH’s memorandum of association provides that its objects include the business of quarry masters and proprietors, lessees and workers of quarries, sand and gravel pits, mines and the like generally; the business of road-makers and contractors, building contractors, builders merchants and providers and dealers in road making and building materials, timber merchants; and the carrying on of any other business calculated to benefit CRH. The memorandum grants CRH a range of corporate capabilities to effect these objects.

 

Directors

 

The Directors manage the business and affairs of CRH.

 

Directors who are in any way, whether directly or indirectly, interested in contracts or other arrangements with CRH must declare the nature of their interest at a meeting of the Directors, and, subject to certain exemptions, may not vote in respect of any contract or arrangement or other proposal whatsoever in which they have any material interest other than by virtue of their interest in shares or debentures in the Company. However, in the absence of some other material interest not indicated below, a Director is entitled to vote and to be counted in a quorum for the purpose of any vote relating to a resolution concerning the following matters:

 

    the giving of security or indemnity with respect to money lent or obligations taken by the Director at the request or for the benefit of the Company;

 

    the giving of security or indemnity to a third party with respect to a debt or obligation of the Company which the Director has assumed responsibility for under a guarantee, indemnity or the giving of security;

 

    any proposal under which the Director is interested concerning the underwriting of Company shares, debentures or other securities;

 

    any other proposal concerning any other company in which the Director is interested, directly or indirectly (whether as an officer, shareholder or otherwise) provided that the Director is not the holder of one per cent or more of the voting interest in the shares of such company; and

 

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    proposals concerning the modification of certain retirement benefits under which the Director may benefit and which have been approved or are subject to approval by the Irish Revenue Commissioners.

 

The Directors may exercise all the powers of the Company to borrow money, except that such general power is restricted to the aggregate amount of principal borrowed less cash balances of the Company and its subsidiaries not exceeding an amount twice the aggregate of the share capital and reserves of the Company and its subsidiaries including capital grants, deferred taxation and minority shareholders’ interest, less the amount of intangible assets and repayable capital grants.

 

The Company in general meeting from time to time determines the fees payable to the Directors. The CRH Board may grant special remuneration to any of its number who being called upon, shall render any special or extra services to the Company or go or reside abroad in connection with the conduct of any of the affairs of the Company.

 

The qualification of a Director is the holding alone and not jointly with any other person of 1,000 ordinary shares in the capital of the Company.

 

No person may be appointed a Director of the Company who has attained the age of sixty-five years and a Director shall vacate office at the next Annual General Meeting after they attain the age of sixty-eight years; however, a person may be appointed as a Director after attaining the age of sixty-five years and a Director may continue in office and will not be required to retire upon attaining the age of sixty-eight years if the continuance as a Director is approved by a Resolution of the Directors.

 

Voting rights

 

The Articles provide that, at shareholders’ meetings, holders of ordinary shares, either in person or by proxy, are entitled on a show of hands to one vote and on a poll to one vote per share. No member is entitled to vote at any general meeting unless all calls or other sums immediately payable in respect of their shares in the Company have been paid.

 

Laws, Decrees or other Regulations

 

There are no restrictions under the Memorandum and Articles of Association of the Company or under Irish law that limit the right of non-Irish residents or foreign owners freely to hold their Ordinary Shares or to vote their Ordinary Shares.

 

Liquidation Rights/Return of Capital

 

In the event of the Company being wound-up, the liquidator may, with the sanction of a shareholders’ special resolution, divide among the holders of the Ordinary Shares the whole or any part of the net assets of the Company (after the return of capital and payment of accrued dividends on the preference shares) in cash or in kind, and may set such values as he deems fair upon any property to be so divided and determine how such division will be carried out. The liquidator may, with a like sanction, vest such assets in trust as he thinks fit, but no shareholders will be compelled to accept any shares or other assets upon which there is any liability.

 

Variation in Class Rights

 

Subject to the provisions of the Irish Companies Acts, the rights attached to any class of shares may be varied with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares.

 

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Disclosure of Shareholders’ Interests

 

A shareholder may lose the right to vote by not complying with any statutory notice or notice pursuant to Article 14 of the Articles of Association given by the Company requiring an indication in writing of: (a) the capacity in which the shares are held or any interest therein; (b) so far as it is within the shareholder’s knowledge, the persons who have an interest in the shares and the nature of their interest; or (c) whether any of the voting rights carried by such shares are the subject of any agreement or arrangement under which another person is entitled to control the shareholder’s exercise of these rights.

 

Issue of Shares

 

Subject to the provisions of the Irish Companies Acts and the Articles of Association, the issue of shares is at the discretion of the Directors.

 

Dividends

 

Shareholders may by ordinary resolution declare final dividends and the Directors may declare interim dividends but no final dividend may be declared in excess of the amount recommended by the Directors and no dividend may be paid otherwise than out of income available for that purpose in accordance with the Irish Companies Acts. There is provision to offer scrip dividends in lieu of cash. The preference shares rank for fixed rate dividends in priority to the ordinary and income shares for the time being of the Company. Any dividend which has remained unclaimed for twelve years from the date of its declaration shall, if the Directors so decide, be forfeited and cease to remain owing by the Company.

 

Meetings

 

A quorum for a general meeting of the Company is constituted by five or more shareholders present in person and entitled to vote. The passing of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. A special resolution, in respect of which not less than 21 days’ notice in writing must be given, requires the affirmative vote of at least 75 per cent of the votes cast.

 

5% Cumulative Preference Shares

 

The holders of the 5% Cumulative Preference Shares are entitled to a fixed cumulative preferential dividend at a rate of 5% per annum and priority in a winding-up to repayment of capital, but have no further right to participate in profits or assets and are not entitled to be present or vote at general meetings unless their dividend is six months in arrears or a resolution is proposed for the winding-up of the Company or otherwise affecting their rights and privileges. Dividends on the 5% Cumulative Preference Shares are payable half yearly on April 15 and October 15 in each year.

 

7% ‘A’ Cumulative Preference Shares

 

The holders of the 7% ‘A’ Cumulative Preference Shares are entitled to a fixed cumulative preference dividend at a rate of 7% per annum, and priority in a winding-up to repayment of capital, both subject to the rights of the holders of the 5% Cumulative Preference Shares but have no further right to participate in profits or assets and are not entitled to be present or vote at general meetings unless their dividend is six months in arrears or a resolution is proposed for, among others, the winding-up of the Company, the reduction of the capital of the Company or the abrogation of any special rights or privileges of any preference shares. Dividends on the 7% ‘A’ Cumulative Preference Shares are payable half yearly on April 5 and October 5 in each year.

 

Use of electronic communication

 

Whenever the Company, a Director, the Secretary, a member or any officer or person is required or permitted by the Articles of Association to give information in writing, such information may be given by electronic means or in electronic form, whether as electronic communication or otherwise.

 

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Material Contra cts

 

The following section contains summaries of all contracts (not being contracts entered into in the ordinary course of business) which have been entered into by any member of the Group since January 1, 2004 and which are or may be material and all other contracts (not being contracts entered into in the ordinary course of business) which contain any provision under which any member of the Group has any obligation or entitlement that may be material:

 

The facility agreement dated September 15, 2004, between CRH plc, Barclays Capital, ING Bank N.V. and The Royal Bank of Scotland PLC, under which a five-year £300,000,000 and a €200,000,000 multi-currency syndicated facility was made available to the Company. CRH plc unconditionally guarantees on a subordinated basis the due and punctual payment of the principal and interest due on the notes.

 

Exchan ge Controls

 

Certain aspects of CRH’s international monetary operations outside the EU were, prior to December 31, 1992, subject to regulation by the Central Bank of Ireland. These controls have now ceased. There are currently no Irish foreign exchange controls, or other statute or regulations that restrict the export or import of capital, that affect the remittance of dividends, other than dividend withholding tax on the ordinary shares, or that affect the conduct of the Company’s operations.

 

Tax ation

 

The following summary outlines certain aspects of U.S. federal income and Republic of Ireland tax law regarding the ownership and disposition of ADSs or Ordinary Shares. Because it is a summary, holders of ADSs or Ordinary Shares are advised to consult their tax advisors with respect to the tax consequences of their ownership or disposition. This summary does not take into account the specific circumstances of any particular holders (such as tax-exempt entities, certain insurance companies, broker-dealers, traders in securities that elect to mark-to-market, investors liable for alternative minimum tax, investors that actually or constructively own 10% or more of the stock of the Company (by vote or value), investors that hold shares or ADSs as part of a straddle or a hedging or conversion transaction or investors whose functional currency is not the U.S. dollar), some of which may be subject to special rules. The statements regarding U.S. and Irish laws set forth below are based, in part, on representations of the Depositary and assume that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with their terms.

 

Holders of ADRs will be treated as the owners of Ordinary Shares represented thereby for the purposes of the Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the “Income Tax Treaty”) relating to income taxes and for the purposes of the U.S. Internal Revenue Code of 1986, as amended.

 

As used herein, the term “U.S. holder” means a beneficial owner of an ADS or Ordinary Share who (i) is a citizen or resident of the U.S., a U.S. corporation, an estate whose income is subject to U.S. federal income tax regardless of its source, or a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, and (ii) is not a resident of, or ordinarily resident in, the Republic of Ireland for purposes of Irish taxes.

 

Republic of IrelandCorporation Tax

 

The Company and certain of its subsidiaries are resident for tax purposes in the Republic of Ireland. As discussed above under “Item5—Operating and Financial Review and Prospects—Taxation”, the two rates of Corporation Tax, which apply to the income of the Company in Ireland, are 12.5% from January 1, 2003 and 10%, with the major portion of the Irish operations being taxed at the 10% rate. The 10% rate, which applies to companies in manufacturing industry, will continue until December 31, 2010. The 10% rate also applies to companies located in the International Financial Services Center in Dublin and ceased on December 31, 2005.

 

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Taxation of Dividends paid to U.S. Holders

 

Under general Irish tax law, U.S. holders are not liable for Irish tax on dividends received from CRH. On the payment of dividends, CRH is obliged to withhold a Dividend Withholding Tax (“DWT”). The rate at present is 20% of the dividend payable (prior to April 6, 2001 the rate was 22%).

 

Dividends paid by CRH to a U.S. tax resident individual will be exempt from DWT, provided the following conditions are met:

 

1. The individual (who must be the beneficial owner) is resident for tax purposes in the U.S. (or any country with which Ireland has a double tax treaty) and neither resident nor ordinarily resident in Ireland.

 

2. The individual signs a declaration to CRH, which states that he/she is a U.S. tax resident individual at the time of making the declaration and that he/she will notify CRH when he/she no longer meets the condition in (1) above.

 

3. The individual provides CRH with a certificate of tax residency from the U.S. tax authorities.

 

Dividends paid by CRH to a U.S. tax resident company (which must be the beneficial owner) will be exempt from DWT provided that the following conditions are met:

 

1. The company is resident for tax purposes in the U.S. (or any country with which Ireland has a double tax treaty) and not under the control, either directly or indirectly, of Irish resident persons.

 

2. The company provides a declaration to CRH, which states that it is entitled to an exemption from DWT, on the basis that it meets the condition in (1) above at the time of making the declaration, and that it will notify CRH when it no longer meets the condition in (1) above.

 

3. The company provides CRH with a certificate of tax residency from the U.S. tax authorities and a certificate from its auditors certifying that the company is not under the direct/indirect control of Irish residents.

 

For U.S. federal income tax purposes, and subject to the passive foreign investment company (“PFIC”) rules discussed below, U.S. holders will include in gross income the amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) as ordinary income when the dividend is actually or constructively received by the U.S. holder, in the case of Ordinary Shares, or by the Depositary, in the case of ADSs. Dividends paid to non-corporate U.S. holders in taxable years beginning before January 1, 2009 that constitute qualified dividend income will be subject to a maximum tax rate of 15% provided certain holding period requirements are met. Dividends the Company pays with respect to Ordinary Shares or ADSs generally will be qualified dividend income.

 

Dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution includible in income of a U.S. holder will be the U.S. dollar value of the euro payments made, determined at the spot euro/U.S. dollar rate on the date such dividend distribution is includible in the income of the U.S. holder, regardless of whether the payment is in fact converted to U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a return of capital to the extent of the U.S. holder’s basis in the Ordinary Shares or ADSs and thereafter as capital gain.

 

For foreign tax credit limitation purposes, dividends will be income from sources outside the U.S., and dividends paid in taxable years beginning before January 1, 2007 generally will be “passive” or “financial services” income, while dividends paid in taxable years beginning after December 31, 2006 will generally be “passive” or “general” income, which , in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to a U.S. holder.

 

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Capital Gains Tax

 

A U.S. holder will not be liable for Republic of Ireland tax on gains realized on the sale or other disposition of ADSs or Ordinary Shares unless the ADSs or Ordinary Shares are held in connection with a trade or business carried on by such holder in the Republic of Ireland through a branch or agency. A U.S. holder will be liable for U.S. federal income tax on such gains in the same manner as gains from a sale or other disposition of any other shares in a company. Capital gains of a non-corporate U.S. holder that are recognized in taxable years beginning before January 1, 2009 are generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year, and the capital gain or loss in all cases is U.S. source for foreign tax credit limitation purposes.

 

Capital Acquisition Tax (Estate/Gift Tax)

 

Although non-residents may hold Ordinary Shares, the shares are deemed to be situated in the Republic of Ireland, because the Company is required to maintain its Share Register in the Republic of Ireland. Accordingly, holders of Ordinary Shares may be subject to gift or inheritance tax, notwithstanding that the parties involved are domiciled and resident outside the Republic of Ireland. Certain exemptions apply to gifts and inheritances depending on the relationship between the donor and donee.

 

Under the Income Tax Treaty with respect to taxes on the estates of deceased persons, credit against U.S. federal estate tax is available in respect of any Irish inheritance tax payable in respect of transfers of Ordinary Shares.

 

Additional Federal U.S. Income Tax Considerations

 

The Company believes that Ordinary Shares and ADSs should not be treated as stock of a PFIC for U.S. federal income tax purposes, but this conclusion is made annually and thus may be subject to change. If the Company is treated as a PFIC and you are a U.S. holder that did not make a mark-to-market election, you will be subject to special rules with respect to any gain you realize on the disposition of your Ordinary Shares or ADSs and any excess distribution that the Company makes to you. Generally, gains or excess distributions will be allocated ratably over your holding period for the Ordinary Shares or ADSs, taxed at ordinary rates, and an interest charge will be applied to tax attributable to such gain. In addition, dividends that you receive from the Company will not constitute qualified dividend income to you if the Company is deemed to be a PFIC either in the taxable year of the distribution or the preceding taxable year.

 

Stamp Duty

 

The Irish Finance Act, 1992 Section 90 Stamp Duties Consolidation Act 1999 exempts from Irish stamp duty transfers of ADRs where the ADRs are dealt in and quoted on a recognized stock exchange in the U.S. and the underlying deposited securities are dealt in and quoted on a recognized stock exchange. The Irish tax authorities regard NASDAQ and the NYSE as recognized stock exchanges. Irish stamp duty will be charged at the rate of 1% of the amount or value of the consideration on any conveyance or transfer on sale of Ordinary Shares.

 

Documents on Display

 

It is possible to read and copy documents referred to in this Annual Report on Form 20-F, which have been filed with the SEC at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800–SEC-0330 for further information on the public reference rooms and their copy charges. The SEC filings are also available to the public from commercial document retrieval services and, for most recent CRH periodic filings only, at the Internet World Wide Web site maintained by the SEC at www.sec.gov.

 

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ITEM 11—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Qualitative information about Market Risk

 

The Group uses financial instruments throughout its businesses: interest-bearing loans and borrowings, cash and cash equivalents, short-dated liquid investments and finance leases are used to finance the Group’s operations; trade receivables and trade payables arise directly from operations; and derivatives, principally interest rate and currency swaps and forward foreign exchange contracts, are used to manage interest rate risks and currency exposures and to achieve the desired profile of borrowings. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions.

 

The main risks attaching to the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. Commodity price risk is of minimal relevance given that exposure is confined to a small number of contracts entered into for the purpose of hedging future movements in energy costs. The Board reviews and agrees policies for the prudent management of each of these risks as documented below.

 

Foreign currency risk

 

Due to the nature of building materials, which in general exhibit a low value to weight ratio, CRH’s activities are conducted primarily in the local currency of the country of operation resulting in low levels of foreign currency transaction risk; variances arising in this regard are reflected in operating costs or cost of sales in the Consolidated Statement of Income in the period in which they arise.

 

Given its presence in 25 countries worldwide, the principal foreign exchange risk is translation-related arising from fluctuations in the euro value of the Group’s net investment in currencies other than the euro. The Group’s established policy is to spread its net worth across the currencies of its various operations with the objective of limiting its exposure to individual currencies and thus promoting consistency with the geographical balance of its operations. In order to achieve this objective, the Group manages its borrowings, where practicable and cost effective, to partially hedge its foreign currency assets. Hedging is done using currency borrowings in the same currency as the assets being hedged or through the use of other hedging methods such as currency swaps.

 

Transactional currency exposures arise in a number of the Group’s operations and these result in net currency gains and losses, which are recognized in the Consolidated Statements of Income. As at December 31, 2005, these exposures were not material.

 

Liquidity risk

 

The Group is exposed to liquidity risk which arises primarily from the maturing of short-term and long-term debt obligations and derivative transactions. The Group’s policy is to ensure that sufficient resources are available either from cash balances, cash flows or undrawn committed bank facilities, to ensure all obligations can be met as they fall due. To achieve this objective, the Group:

 

    maintains cash balances and liquid investments with highly-rated counterparties;

 

    limits the maturity of cash balances; and

 

    borrows the bulk of its debt needs under committed bank lines or other term financing.

 

Commodity price risk

 

The Group’s exposure to price risk in this regard is minimal with derivatives to hedge future energy costs accounting for 0.9% of the total fair value of derivatives as at December 31, 2005 (2004: 0.9%).

 

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Quantitative information about Market Risk

 

Credit risk

 

In addition to cash at bank and in hand, the Group holds significant cash balances which are invested on a short-term basis and are classified as either cash equivalents or liquid investments. These deposits and other financial instruments (principally certain derivatives and loans and receivables included within financial assets) give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty primarily depending on its credit rating and by regular review of these ratings. The maximum exposure arising in the event of default on the part of the counterparty is the carrying value of the relevant financial instrument.

 

Credit risk arising in the context of the Group’s operations is not significant. Customers who wish to trade on credit terms are subject to strict verification procedures prior to credit being advanced and are subject to continued monitoring at operating company level.

 

Interest rate risk

 

The Group’s exposure to market risk for changes in interest rates stems predominantly from its long-term debt obligations. Interest cost is managed by a centrally-controlled treasury function using a mix of fixed and floating rate debt; in recent years, the Group’s target has been to fix interest rates on approximately 50% of net debt. With the objective of managing this mix in a cost-efficient manner, the Group enters into interest rate swaps, under which the Group contracts to exchange, at predetermined intervals, the difference between fixed and variable interest amounts calculated by reference to a pre-agreed notional principal. The majority of these swaps are designated under IAS 39 to hedge underlying debt obligations; undesignated financial instruments are termed “not designated as hedges” in the preceding analysis of derivative financial instruments in the Consolidated Balance Sheets.

 

Based on the level and composition of year-end 2005 net debt, an increase in average interest rates of one per cent per annum would result in a decrease in future income before tax of €18.5 million per annum (2004: €14.1 million).

 

The following table shows the Group’s interest rate swaps and debt obligations that are sensitive to changes in interest rates at December 31, 2005 and 2004. For long-term debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected maturity dates. For cross currency swaps, the table presents the principal amounts to be exchanged on maturity and weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates set at the balance sheet date. The information is presented in euro, which is the Group’s reporting currency. The actual currencies of the instruments are as indicated.

 

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     As at December 31, 2005:

 

Maturity

Before December 31


   2006

    2007

    2008

    2009

    2010

    After
2010


    Total

    Fair
value*


 
     € million (except percentages)  

Long-term debt

                                                

Fixed Rate—U.S.$

   111.9     149.1     150.2     136.0     133.8     2,218.4     2,899.4     3,105.9  

Average Interest Rate

   7.4 %   8.0 %   7.6 %   7.7 %   8.1 %   6.7 %   7.0 %      

Fixed Rate—Other

   62.1     137.5     25.9     8.0     4.1     69.5     307.1     305.6  

Average Interest Rate

   3.9 %   2.6 %   4.3 %   4.8 %   5.1 %   8.2 %   4.4 %      

Variable Rate—U.S.$

   92.5     10.7     12.4     46.2     9.7     —       171.5     171.5  

Average Interest Rate

   4.9 %   5.9 %   5.9 %   5.0 %   5.9 %   6.3 %   5.1 %      

Variable Rate—Other

   169.5     32.0     48.3     1,072.5     86.3     66.0     1,474.6     1,474.6  

Average Interest Rate

   3.2 %   3.6 %   3.2 %   3.4 %   2.8 %   4.1 %   3.4 %      

Interest Rate Swaps

                                                

Notional Principal—U.S.$

   —       87.3     —       134.7     133.1     1,967.5     2,322.6     (109.5 )

Variable Rate Payable

   —       4.1 %   —       4.1 %   3.9 %   4.3 %   4.2 %      

Fixed Rate Receivable

   —       6.6 %   —       6.9 %   6.7 %   5.7 %   5.8 %      

Notional Principal—U.S.$

   106.0     —       148.3     —       —       12.7     267.0     (0.4 )

Fixed Rate Payable

   6.2 %   —       7.2 %   —       —       7.0 %   6.8 %      

Fixed Rate Receivable

   7.1 %   —       7.2 %   —       —       7.3 %   7.1 %      

Notional Principal—Euro

   37.8     16.6     114.3     17.7     6.5     —       192.9     0.3  

Fixed Rate Payable

   3.1 %   3.2 %   3.0 %   3.2 %   3.4 %   —       3.1 %      

Variable Rate Receivable

   2.6 %   3.2 %   2.8 %   3.1 %   3.4 %   —       2.8 %      

Notional Principal—GBP

   —       —       21.9     —       —       —       21.9     0.1  

Fixed Rate Payable

   —       —       4.8 %   —       —       —       4.8 %      

Variable Rate Receivable

   —       —       4.6 %   —       —       —       4.6 %      

Currency Swaps and forward agreements

                                                

Principal Payable—Euro

   200.0     170.0     —       —       —       —       370.0     370.3  

Fixed Rate Payable

   2.7 %   3.0 %   —       —       —       —       2.9 %      

Principal Payable—Euro

   341.6     150.0     260.0     110.0     —       —       861.6     861.6  

Variable Rate Payable

   2.5 %   2.6 %   2.4 %   2.3 %   —       —       2.5 %      

Principal Receivable—Euro

   (68.5 )   (18.4 )   (102.2 )   (21.5 )   —       —       (210.6 )   (212.0 )

Variable Rate Receivable

   2.8 %   3.0 %   3.0 %   2.8 %               2.9 %      

Principal Payable—Swiss Franc

   —       32.8     —       —       —       —       32.8     32.7  

Fixed Rate Payable

   —       1.4 %   —       —       —       —       1.4 %      

Principal Payable—Swiss Franc

   218.7     109.3     —       —       —       —       328.0     328.1  

Variable Rate Payable

   1.2 %   1.2 %   —       —       —       —       1.2 %      

Principal Receivable—GBP

   (125.5 )   —       —       —       —       —       (125.5 )   (125.5 )

Variable Rate Receivable

   4.6 %   —       —       —       —       —       4.6 %      

Principal Payable—Other

   19.4     —       51.8     23.4     —       —       94.6     96.4  

Fixed Rate Payable

   7.0 %   —       5.0 %   6.8 %   —       —       5.8 %      

Principal Payable—Other

   88.8     20.0     50.0     —       —       —       158.8     160.0  

Variable Rate Payable

   5.4 %   4.9 %   5.0 %   —       —       —       5.2 %      

Principal Receivable—U.S.$

   (700.2 )   (486.0 )   (267.4 )   (115.7 )   —       —       (1,569.3 )   (1,568.4 )

Variable Rate Receivable

   4.4 %   4.4 %   4.4 %   4.3 %   —       —       4.4 %      

* Represents the net present value of the expected cash flows discounted at current market rates of interest. Figures in parentheses represent assets.

 

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     As at December 31, 2004:

 

Maturity

Before December 31


   2005

    2006

    2007

    2008

    2009

    After
2009


    Total

    Fair
value*


 
     € million (except percentages)  

Long-term debt

                                                

Fixed Rate—U.S.$

   5.7     95.2     128.3     129.4     117.4     2,033.1     2,509.1     2,744.6  

Average Interest Rate

   3.3 %   7.5 %   8.0 %   7.6 %   7.7 %   6.8 %   6.9 %      

Fixed Rate—Other

   35.5     54.2     21.0     15.9     3.0     3.9     133.5     133.7  

Average Interest Rate

   5.3 %   3.6 %   4.8 %   5.0 %   5.3 %   5.5 %   4.5 %      

Variable Rate—U.S.$

   0.5     36.8     —       —       —       54.2     91.5     91.5  

Average Interest Rate

   3.1 %   2.6 %   —       —       —       3.8 %   3.3 %      

Variable Rate—Other

   93.6     143.2     41.1     50.5     566.5     137.5     1,032.4     1,032.4  

Average Interest Rate

   2.4 %   2.8 %   3.9 %   2.6 %   4.4 %   3.6 %   3.8 %      

Interest Rate Swaps

                                                

Notional Principal—U.S.$

   —       —       127.0     —       116.7     1,819.2     2,062.9     (173.2 )

Variable Rate Payable

   —       —       2.8 %   —       2.7 %   2.7 %   2.7 %      

Fixed Rate Receivable

   —       —       6.6 %   —       6.9 %   5.7 %   5.8 %      

Notional Principal—U.S.$

   —       91.8     —       128.5     —       11.0     231.3     (0.6 )

Fixed Rate Payable

   —       6.2 %   —       7.2 %   —       7.0 %   6.8 %      

Fixed Rate Receivable

   —       7.1 %   —       7.2 %   —       7.3 %   7.2 %      

Notional Principal—Euro

   8.6     —       —       —       —       —       8.6     (0.1 )

Fixed Rate Payable

   5.3 %   —       —       —       —       —       5.3 %      

Fixed Rate Receivable

   6.8 %   —       —       —       —       —       6.8 %      

Notional Principal—Euro

   26.0     23.6     —       —       —       —       49.6     0.3  

Fixed Rate Payable

   3.0 %   3.0 %   —       —       —       —       3.0 %      

Variable Rate Receivable

   2.2 %   2.2 %   —       —       —       —       2.2 %      

Notional Principal—GBP

   —       —       —       21.3     —       —       21.3     0.1  

Fixed Rate Payable

   —       —       —       4.8 %   —       —       4.8 %      

Variable Rate Receivable

   —       —       —       4.9 %   —       —       4.9 %      

Currency Swaps and forward agreements

                                                

Principal Payable—Euro

   100.0     200.0     170.0     —       —       —       470.0     472.4  

Fixed Rate Payable

   2.7 %   2.7 %   3.0 %   —       —       —       2.8 %      

Principal Payable—Euro

   558.4     —       —       110.0     110.0     —       778.4     778.9  

Variable Rate Payable

   2.3 %   —       —       2.2 %   2.2 %   —       2.2 %      

Principal Receivable—Euro

   (30.4 )   —       —       —       —       —       (30.4 )   (30.4 )

Fixed Rate Receivable

   2.5 %   —       —       —       —       —       2.5