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## Europe Materials 

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A slowdown in construction activity in central Europe together with continuing declines in western and southwestern Europe resulted in a reduction of 7% in like-for-like sales. The impact of divestments during the year exceeded contributions from acquisitions, and both EBITDA and operating profit were lower than last year. 

The results reported above include gains from pension curtailments and CO ² trading. Despite lower volumes, margins excluding these gains, which are also excluded from the regional comments below, were similar to 2011 reflecting the benefit of our continued focus on cost containment and efficiency measures. 

Development spend of €103 million comprised four acquisitions/investments, the more significant of which were the acquisition of a readymixed concrete and concrete products business in Finland together with further investment in our associate Yatai Building Materials as it continued to expand its presence in northeastern China. The divestment of the Group’s 49% holding in Secil in Portugal was completed in May. 

## Central and Eastern Europe (40% of EBITDA) 

Construction activity in Poland contracted during 2012, reflecting completion of projects associated with the June 2012 European football championship and a sharp decline in infrastructure road projects as a number of contractors experienced financial difficulties. Notwithstanding this, construction activity in infrastructure remained at a level consistent with 2011. The residential market continued to be sluggish with the tightening of mortgage lending criteria and some weakening in residential prices. While national cement volumes for the year were down 17%, our volumes declined by 11%. Pricing remained under pressure throughout the year in most of our product lines and overall operating profit declined. In Ukraine the strong increase in cement volumes in the first half was reversed in the second half of the year, affected by the completion of European football championship projects and the national cement market finished down 5% compared with 2011. However, with the benefit of our new cement plant and the acquisition in Odessa that was completed in 2011, our volumes increased by 32% and operating profit improved significantly due to better pricing and our low cost producer advantage. 

## Switzerland, Finland, Benelux (45% of EBITDA) 

Overall construction spend in Switzerland was up slightly in 2012. The downstream businesses of aggregates and readymixed concrete remained strong; however, cement volumes were down 8% due mainly to poor weather in the early part of the year. Sales prices, particularly in cement, remained under pressure due to the strong Swiss Franc, and operating profit was lower than in 2011. In Finland, construction output declined in 2012 mainly due to lower residential starts, and our cement volumes declined by 6%. 

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While our businesses delivered price increases in cement, aggregates and readymixed concrete, operating profit was lower than in 2011. In the Benelux, our readymixed concrete and aggregates business in the Netherlands was impacted by a 7% decline in construction activity levels and operating profit was lower than in 2011. In Belgium the cement grinding business acquired in mid-2011 performed somewhat behind expectations. 

## Ireland, Spain (5% of EBITDA) 

Construction activity in Ireland continued to fall with domestic cement volumes 17% lower than in 2011. Our cost and capacity reduction programmes continued during the year and with this lower cost base, operating losses reduced. In Spain, while construction activity fell by a further 30% with declines across all sectors, with the benefit of the significant cost reduction initiatives implemented in prior years our results were in line with 2011. 

## Eastern Mediterranean, Asia (10% of EBITDA) 

In Turkey, while domestic volumes for our 50% joint venture in the Aegean region were in line with 2011, export volumes increased resulting in a total volume increase of 3%; however, operating profit was lower due mainly to domestic pricing pressure in the second half. Cement volumes in our 50% joint venture in Southern India increased as the business continued to broaden its market scope; while selling prices also improved, higher input and transport costs resulted in an operating profit similar to 2011. In China a general slowdown in residential, non-residential and infrastructure construction saw a year-on-year decline of 21% in cement demand across the northeast region consequently profits were lower. 

## Outlook 

The 2012 decline in Polish cement volumes is expected to moderate with some potential for improvement as the affected road contracts, currently being re-tendered, should add to construction materials volumes in the second half of 2013. We anticipate flat demand in Ukraine but expect further improvements in margin through cost efficiencies from our new cement plant. In Switzerland we expect an improvement in construction spend in 2013. While a slight decline is expected in Finland, our business will benefit from rationalisation of our readymixed concrete, paving and precast concrete operations following the concrete products acquisition in September 2012. The outlook remains challenging for Ireland and Spain with further volume declines expected in 2013; however, ongoing capacity reduction, cost efficiencies and increased use of alternative fuels should help our businesses to maintain margins. In Southern India relatively flat demand is anticipated in our main Andhra Pradesh market while cement demand in northeast China is expected to pick up in the second half of the year as government spending on infrastructure projects recommences. 

