After a strong first half, housing demand in the Netherlands moderated later in the year. Germany also reported a robust start, but slowed somewhat in the latter months. Nordic markets witnessed significant growth while Belgium, Switzerland and France remained positive. The UK saw stable markets with operational efficiencies leading to good profit growth. Results in Eastern Europe were exceptional with strong growth and high margins.

During 2007 we invested €663 million in 26 acquisitions including the Builders Merchants business Gétaz Romang, a major addition to our Swiss distribution business. We also completed several strategically important bolt-on acquisitions in our various markets, in line with our strategy of building local leadership positions.

Overall, the Division once again achieved record sales and operating profits, up 18% and 32% respectively.

Concrete Products

This group manufactures concrete products for two principal enduses: pavers, tiles and blocks for architectural use, and floor and wall elements, beams and vaults for structural use. In addition, sand-lime bricks are produced for the residential market. 2007 saw good progress on the development front with eight acquisitions which further consolidated our positions in existing Western European markets and expanded our operations in Eastern Europe, in particular in Poland and Romania. The group reported a solid underlying profit advance boosted by contributions from acquisitions.

Architectural

Architectural operations performed ahead of 2006 despite difficult market conditions in several markets. Our Dutch and Belgian businesses continued to face tough competition due to market over-capacity and downward price pressure. The German business posted strong results despite a downturn in new residential construction. In France results improved driven by operational synergies. Our Danish and Slovakian businesses continued to perform strongly. Supreme in the UK, acquired in April 2006, contributed above expectations in its first full year. The architectural group made four acquisitions in 2007 including an add-on to Supreme in the UK, two bolt-ons to our water treatment and paving business in Belgium, and Elpreco, an entry into the Romanian market.

Structural

Our structural concrete operations again delivered excellent results driven by tight operational control and strong markets in Belgium, France, Denmark and Poland, in particular in the new non-residential sector. Our sand-lime brick business posted lower results reflecting slower activity levels in the Dutch residential market. The structural group expanded its product range and market position in Denmark with the acquisition of a concrete stairs business in March followed by the purchase of a lightweight wall panels and flooring manufacturer in August; this group also acquired a small add-on in France and completed the buyout of the remaining 75% of Ergon Poland.

Clay Products

The Clay Products group, with operations in the UK, the Netherlands, Germany, Poland and Belgium, principally produces clay facing bricks, pavers, blocks and rooftiles. This group delivered increased profits for 2007.

UK brick industry volumes showed a welcome return to growth in the first half of 2007; however, with heavy rain across the UK in mid-summer, volumes for the year finished at a similar level to 2006. Ibstock profits advanced strongly due to operating and overhead efficiencies.

In the Netherlands our markets slowed as the year progressed and profitability declined slightly.

In Germany the initial early optimism was not sustained and our clay operations were restructured and capacity reduced. However, underlying results improved on 2006. Our Polish operation advanced strongly and profits increased sharply, as a result of good volume and price growth. In November, we expanded our presence with the acquisition of a clay brick, block and rooftile manufacturer in western Poland.

Building Products

The Building Products group is active in lightside building materials and focuses on three core business areas: Construction Accessories, Building Envelope Products and Insulation Products. Market conditions in 2007 were positive, particularly in non-residential sectors in Germany, the Benelux and the UK. All business units contributed to organic improvement, complemented by acquisitive growth.

Construction Accessories

This business unit, market leader in construction accessories in Europe, experienced another year of top performance and growth. The full year contribution of Halfen, acquired in May 2006, exceeded our expectations and all our other businesses showed solid operating results. We closed four small bolton acquisitions during the year, which performed as expected. With its main focus on non-residential construction and civil engineering, Construction Accessories is well positioned for further growth.

Building Envelope Products

This business unit comprises Fencing & Security (F&S), Daylight & Ventilation (D&V) and Roller Shutters & Awnings (RSA) businesses which specialise in entrance control and climate control products. All segments contributed to a stronger 2007 performance. F&S once again delivered record results. Despite difficult markets for our glass projects business, D&V showed a year of progress in operating results, mainly driven by an excellent performance in its German roof lights business. The first full year contribution from our RSA business, acquired in August 2006, exceeded expectations. The Building Envelope unit continues to benefit from a growing market focus on repair, maintenance and improvement, safety and comfort.

Insulation Products

Insulation Products had another year of organic improvement in both sales and operating profits. Good returns from recent restructuring initiatives and growing demand in our key markets, especially in Poland, underpinned a solid performance. The business is well positioned for further improvements, given the ongoing European legislation for energy management of buildings.

Distribution

2007 was another strong year with a further improvement in sales and operating profit. Good market conditions in most of our markets, a mild winter and a continued focus on margin improvement and cost control underpinned organic growth. This was supplemented by excellent contributions from the ten acquisitions completed in 2007.

Professional Builders Merchants

With 448 locations in five countries, Professional Builders Merchants has strong market positions in all its regions and generated significant margin improvement in 2007.

The Netherlands: Following a good final quarter in 2006, this business performed very strongly in the first half of 2007, supported by a positive market and mild winter conditions. Although the global credit crunch impacted sentiment from mid-year, demand remained solid throughout the second half. This positive backdrop combined with a targeted “quality for quantity” margin improvement programme enabled our Dutch professional business to report strong sales and profit growth.

France: Our heritage operations in Ile-de-France (100%), Burgundy and Franche-Comté (58%) benefited from good market conditions resulting in improved sales and profits. LDP (100%), acquired in January 2007 with 17 locations in Normandy, delivered very satisfactory results exceeding our initial expectations.

Switzerland: Our acquisition (effective 1st May 2007) of Gétaz Romang, created the largest builders merchants business in Switzerland with more than 100 locations and annualised sales of approximately €1 billion. In addition to its traditional builders merchants business, the new group has a leading position in a number of specialised builders merchants businesses including sanitary ware, tiles, kitchens and ironmongery. Organic improvement in the heritage Baubedarf and Richner operations, a performance well above initial expectations from Gétaz Romang and a successful integration of all three businesses, resulted in a highly satisfactory 2007 performance. In addition, two further acquisitions added three branches to the existing network.

Austria: Quester, our Austrian builders merchants company, failed to benefit in 2007 from the positive market conditions and from re-organisation measures taken in 2006. As a result, sales, operating profit and margins were lower than 2006. In response, further restructuring initiatives were implemented from mid-2007 which are expected to restore margins to appropriate levels. Taking account of these restructuring costs, Quester was loss-making at operating profit level in 2007.

Germany: Bauking, in which we have a 48% stake, operates primarily in the northwestern half of Germany. After a good start to the year due to mild winter weather, the expiry of home ownership grants and the increase in value added tax (VAT) effective 1st January 2007 began to impact from the second quarter. As a result, like-for-like sales were lower than in 2006. However, with relentless cost control, like-for-like operating profit was maintained and, with an active year on the development front, overall sales and operating profit advanced.

DIY

The DIY Europe platform has activities in five countries with 240 DIY stores. These stores are operated under five different brands: Gamma (The Netherlands and Belgium), Karwei (The Netherlands), Hagebau (Germany), Maxmat (Portugal) and BricoHouse (Spain).

The Netherlands: After some flat years, 2007 saw a healthy increase in the total DIY market underpinned by increasing consumer confidence. The mild winter and sunny spring period resulted in a very successful garden season, while good promotional campaigns and sharp formula management resulted in an increase in market share. Organic sales and profit advanced strongly. In addition, two stores were added from one acquisition, and three greenfield stores were opened.

Belgium: Gamma Belgium showed a healthy increase in both sales and profits but, in the absence of new greenfield store openings, market share declined.

Germany: Bauking operates 54 DIY stores under the brand name Hagebau. In a very competitive market which was depressed by the effect of the VAT increase, Bauking’s Hagebau stores reported sales and profits in line with 2006. From two acquisitions Bauking added 14 Hagebau stores bringing its total network to 140 stores.

Portugal: Despite generally weak economic conditions, like-forlike sales at Maxmat remained at 2006 levels. With the lifting of legal limitations on new store openings, Maxmat greenfielded seven new stores in 2007 and introduced the Maxgarden concept. Start-up losses for the new openings resulted in lower profits than in 2006.

Spain: We entered the Spanish DIY market in May 2007 with the acquisition of a 60% interest in a small business in the Alicante/Valencia region.

Outlook

Current forecasts for our European construction markets are for a slower pace of growth than in 2007. In the Netherlands, we expect the residential and non-residential sectors to be stable in 2008. In Belgium after several years of strong growth, the market is expected to vary somewhat by segment, with a slower new residential market, growth in non-residential spend and a stable infrastructure sector.

While we anticipate a slowdown in the new non-residential sector in France the residential markets are expected to remain stable.

After a long downturn, 2006 and 2007 saw the start of a modest recovery in overall German construction activity. Although the residential sector remains weak, we expect that non-residential and infrastructure will continue growth into 2008.

Swiss construction output is anticipated to grow at a moderate pace in 2008 with a slight decrease in the new housing sector more than offset by a positive non-residential outlook.

In the UK despite recent reductions in interest rates, we expect the more cautious lending environment generally to dampen 2008 demand with the exception of non-residential, which is expected to remain relatively stable.

Strong growth is expected in Eastern Europe, with the current robust climate in Poland expected to continue. Strong but more moderate growth is still expected in Slovakia and we see a positive outlook to our newly acquired Romanian concrete operations. The growth we have experienced in our Scandinavian businesses will be tempered somewhat by the slowdown in Danish new housing, but overall we consider the outlook for these markets to be positive.

Following successful delivery in 2006 and 2007, ongoing margin improvement through a combination of price recovery and cost reduction remains the key focus of our management teams. The search for acquisition opportunities in Europe across our full range of activities continues. We look to further success on the operational and development front in 2008 leading to further profit advances, despite a somewhat slower growth backdrop.

The Products & Distribution Division in Europe is organised as three groups of related manufacturing businesses and a distribution group. The manufacturing groups are involved in concrete, clay and other building products. Distribution encompasses professional builders merchants and “do-it-yourself” (DIY) stores. The Division operates in 19 European countries with the Netherlands, Belgium, UK, Germany, France and Switzerland being our major markets. Europe Products & Distribution seeks leadership positions in the markets and sectors in which it operates and employs more than 30,000 people at over 1,200 locations.

*CRH share of annualised production volumes.