2007 Overview

Americas Products & Distribution faced a challenging year with the sharp decline in new residential construction and financial market turmoil from mid-year. Against this backdrop, our Products businesses delivered a resilient performance with continued growth in nonresidential activity mitigating the impact of residential weakness, leaving full-year US$ operating profit only slightly below the record 2006 outcome. In Distribution, strong acquisition contributions were unable to compensate for an organic profit decline as residential demand weakened and Florida demand fell sharply from 2006 peak levels. Regionally, our Products & Distribution operations in the western and southern states performed relatively better; while the midwest and northeastern operations were noticeably weaker than 2006. Significant cost reduction measures were implemented in our residential-orientated businesses which mitigated the impact of volume declines. Overall, the Division recorded a 5% increase in sales and a 6% decline in operating profit before translation adjustments. We believe that this represents a very positive outcome and once again demonstrates the merits of the Division’s broad sectoral exposure and product diversity.

Architectural Products (APG)

APG, with 234 locations in 39 states and two Canadian provinces, is the leading North American producer of concrete products for the commercial masonry, professional landscaping and consumer DIY markets. The group is also a regional leader in clay brick, packaged dry-mixes, packaged decorative stone, mulches and soils.

APG faced difficult trading conditions in 2007 due to the sharp and continuing slowdown in the residential construction sector and weaker demand from the homecenter channel. These negative influences were partially offset by strong non-residential construction which limited the decline in like-for-like sales to approximately 10%. Despite the reduction in turnover, strong margin management, a significant turnaround in our Lawn & Garden bagged soil and mulch activities and a strong performance from our Canadian operations resulted in broadly maintained profits and an improved overall operating margin compared with 2006.

APG completed 12 acquisitions in 2007. These included the purchase of concrete block operations, masonry distribution businesses and other bolt-on acquisitions in masonry, packaged soils and mulches, and packaged specialty concrete products.

Precast

The Precast group is a leading manufacturer of precast, prestressed and polymer concrete products, small plastic box enclosures and concrete pipe in North America. The group operates from 81 locations in 26 states and the province of Québec.

The continued strength of the non-residential construction sector during the year was offset by a very weak residential sector. However, margins were sustained by good cost control and effective price management and profits were only slightly behind a record 2006. Backlog volumes and margins heading into 2008 are similar to 2007. Management’s focus will be on internal improvements and cost reduction as we move into a more challenging environment.

Internal developments completed during 2007 included the commissioning of the new concrete pipe production plant in the Panhandle region of Florida and the completion of two major concrete pipe plant expansions in eastern Pennsylvania and Utah. Together these investments will result in increased capacity and lower manufacturing costs in three key markets.

Precast completed two acquisitions in 2007 – the acquisition of a plastic and polymer box manufacturer with plants in California, Kentucky and Ohio, expanding our national leadership position in concrete, polymer and concrete small box enclosures, and the purchase of a concrete manhole producer in Southern California, adding to our strong market position in that region.

Glass

The Glass group custom manufactures high-performance architectural glass and engineered aluminium glazing systems for multistorey commercial, institutional and residential construction.

In June the Glass group acquired the Vistawall Group. With annual sales of US$323 million, Vistawall is a leading vertically-integrated manufacturer of a broad range of architectural aluminium glazing systems, including storefront systems, curtain wall, glass skylights, translucent roof and wall systems and operable windows. Headquartered in Terrell, Texas, Vistawall has 26 locations and a national footprint with sales in all 50 states. The acquisition of Vistawall provides scale and critical mass for Glass group’s growth strategy to assemble a unique product and service bundle of architectural glass and architectural aluminium glazing systems. With an expanded network of 73 locations in 26 states and four Canadian provinces, the Glass group continues to be the largest supplier of high-performance glazing products and services in North America.

Trading conditions in the architectural glass market weakened in the second half of the year, although continued demand for high-performance energy-efficient architectural glass products and value-added fabrication services resulted in similar like-for-like sales and operating profit. This, combined with an excellent firsttime contribution from Vistawall due to strong demand for storefront, curtain wall systems and operable windows, enabled the group to achieve a record performance in 2007.

MMI

MMI, acquired in April 2006, has 17 manufacturing plants and 59 distribution centres across 29 states plus a plant in Mexico.

Sales and profitability in its fencing division (which depends to an important degree on residential applications) declined significantly due to the dramatic fall in residential construction activity and price development which failed to keep up with increasing steel costs. The residential downturn also impacted certain product categories in the welded wire reinforcement division and this weakness was not sufficiently offset by demand from the commercial and infrastructure sectors. Although disappointing volumes and pricing were also factors for the construction accessories division (especially in the state of Florida), it performed relatively well for the year particularly in those products used in tilt-up wall construction and as anchoring systems for building facades and structural components. In light of market conditions, strong management actions are underway to rationalise MMI’s cost structure and improve operating profit margins.

Distribution

Oldcastle Distribution, trading primarily as Allied Building Products (“Allied”), has 200 branches in 30 US states and 2 Mexican states, focused on major metropolitan areas. It comprises two divisions which supply contractor groups specialising in Roofing/Siding and Interior Products (wallboard, steel studs and acoustical ceiling systems).

Roofing/Siding is the group’s traditional business and Allied is one of the top three distributors in this segment in the United States. Demand is largely influenced by residential replacement activity with the key products having an average life span of roughly 20 years. In 2005, we organised our fast-growing Interior Products operations, focused equally on the commercial and residential construction markets, into a separate division. We have significantly expanded this segment and, with the recent acquisition of Acoustical Materials Services in the western United States and Baja California, Mexico, Interior Products accounts for approximately 47% of annualised Distribution sales and we are now the third largest Interior Products distributor in the United States. Key to Oldcastle Distribution’s success is its well-trained, highly motivated workforce and strategically-focused organisational structure, supported by superior IT.

2007 was a challenging year for Americas Distribution in both its business sectors. Roofing/Siding demand declined in almost all areas reflecting the downturn in both new and remodel activity. Florida was particularly impacted due to the absence of extensive 2006 roofing/siding repair activity which followed active hurricane seasons in both 2004 and 2005. Hawaii and the Pacific Northwest were the bright spots for the year. Interior Products performed well despite a generally weakening background and significant price deflation in gypsum wallboard and, with the benefits of good contributions from acquisition activity in recent years particularly in Hawaii, Texas and North Carolina, profits were maintained. Against this backdrop, full year operating profit for Americas Distribution declined by 26% before translation effects; while down from the record 2006 level, the operating margin of 5.3% was resilient in the circumstances.

South America

Our operations in Argentina and Chile had another record year in a robust regional economic environment. In Argentina, the recent capacity expansion made in our ceramic tile business resulted in further strong gains in sales and profits. Our Chilean glass business performed extremely well and the new state-of-the-art laminating facility remains on track for start up in March 2008.

Outlook 2008

New United States residential demand is forecast to show further declines in 2008 and the timing and pace of a recovery is not clear given the continued uncertainty in credit markets. Residential repair, maintenance and improvement activity is historically less cyclical and is expected to remain close to 2007 levels. Following good momentum in 2007, non-residential construction looks likely to moderate later in 2008. Benefits from acquisitons, improvements made in 2007, and further targeted cost reductions measures will mitigate the effects of an overall weaker market, and we look to a slightly lower US$ outcome for our Products and Distribution activities.

The Americas Products & Distribution Division operates primarily in the United States and has a significant presence in Canada. Its product groups – Architectural Products, Precast, Glass, MMI and Distribution – all have leading positions in national and regional markets. The Division is also a leading producer of clay tile products in Argentina and operates glass fabrication businesses in Argentina and Chile. Employees total approximately 24,000 at almost 600 locations.

*CRH share of annualised production volumes.