## Directors’ Report 

The Directors submit their report and financial statements for the year ended 31 December 2012. 

## Accounts and Business Review 

Sales revenue for 2012 of €18.7 billion was 3% higher than in 2011 (€18.1 billion). Operating profit for the Group decreased by 3% to €845 million after restructuring and impairment charges totalling €88 million (2011: €82 million). In CRH’s European segments operating profit decreased by €102 million to €418 million, a decrease of 20%, reflecting the slowing momentum in European economies and the impact of divestments. In the Americas operating profit increased by €76 million (22%) to €427 million (2011: €351 million). Overall operating profit margin for the Group decreased to 4.5% (2011: 4.8%). Profit on disposal of non-current assets at €230 million was significantly higher than last year (€55 million) due primarily to the significant profit recorded on the divestment of our 49% stake in Secil. 

Profit before tax amounted to €674 million, a decrease of €37 million (5%) on 2011. After providing for tax, Group profit for the financial year amounted to €554 million (2011: €597 million). Basic earnings per share amounted to 76.5c compared with 82.6c in the previous year, a decrease of 7%. 

Comprehensive reviews of the financial and operating performance of the Group during 2012 are set out in the Chief Executive’s Review on pages 13 to 15, the Finance Review on pages 17 to 19 - which includes Key Financial Performance Indicators on page 18 - and the separate Operations Reviews for each of the business segments on pages 24 to 35. The treasury policy and objectives of the Group are set out in detail in note 22 to the financial statements on page 101. 

## Dividend 

An interim dividend of 18.5c (2011: 18.5c) per share was paid in October 2012. The Board is recommending a final dividend of 44c per share, in line with the final dividend for 2011. This gives a total dividend of 62.5c for the year, maintaining last year’s level. It is proposed to pay the final dividend on 13 May 2013 to shareholders registered at the close of business on 8 March 2013. A scrip dividend alternative will be offered to shareholders. 

## Development Activity 

The €0.65 billion of development activity during 2012 reflects CRH’s long-term, value-based approach to developing the Group’s balanced portfolio. Excluding net deferred payments, spend for 2012 amounted to €526 million (2011: €610 million) on a total of 36 bolt-on transactions which will contribute annualised sales of approximately €680 million, of which €274 million has been reflected in our 2012 results. Our pipeline of acquisition opportunities remains healthy. 

Expenditure of €256 million in the first half of 2012 included 18 acquisition and investment initiatives which strengthened our existing market positions and added valuable and well-located aggregates reserves. The second half of the year saw a step-up in the level of development activity with 18 transactions at a total cost of €390 million (€270 million cash spend excluding deferred payments), with the largest transaction being a majority stake in 

Trap Rock Industries, an integrated aggregates and asphalt business in New Jersey. 

Total proceeds from completed disposals in 2012 amounted to €859 million. The major disposals were the divestment in May 2012 of our 49% stake in Portuguese cement producer Secil and the sale in April of our wholly-owned Magnetic Autocontrol business. The sales impact of these disposals, and of the 2011 disposal of Europe Products’ Insulation and Climate Control business, was €389 million in 2012. 

The Group’s strategy and its business model are summarised on page 14. 

## 2013 Outlook 

After a slower second quarter, GDP in the United States picked up strongly in the third quarter of 2012. However, some once-off factors contributed to a weaker final quarter with GDP growth currently estimated at approximately 2% for 2012 as a whole. Despite this variable pattern, we believe that the fundamentals are in place for continued positive momentum in the US economy in 2013, although the moderate fiscal tightening resulting from payroll tax increases may weigh somewhat on first-half economic growth. Against this backdrop we expect our Americas operations to show progress in 2013. 

In contrast to the United States, economic growth in Europe turned negative in the second quarter and full-year GDP for the European Union as a whole is estimated to have fallen slightly. Current forecasts suggest only modest growth at best for 2013. On the positive side, however, the strong commitment from the European Central Bank to providing support for peripheral Eurozone economies has resulted in a more stable financial backdrop which is encouraging from a confidence building perspective and is an essential prerequisite for European economic recovery. Nevertheless, 2013 will be another challenging year for our European Divisions with significant actions, as already announced, being implemented to counteract market weakness. 

Assuming no major financial or energy market dislocations, we expect that ongoing improvements in our businesses in the Americas combined with further profit improvement initiatives throughout our operations will outweigh continuing trading pressures in our European segments enabling the Group to achieve progress in 2013. 

## Corporate and Social Responsibility 

As set out in the Corporate Social Responsibility (CSR) section on page 6, the Group is fully committed to operating ethically and responsibly in all aspects of its business relating to employees, customers, neighbours and other stakeholders. Details of CRH’s policies and performance relating to Health and Safety, Environment and Climate Change, and People and Community matters are set out in the separately published annual CSR Reports which are available on the Group’s website at www. crh.com. 

## Principal Risks and Uncertainties 

Under Irish Company law (Regulation 5(4)(c)(ii) of the Transparency (Directive 2004/109/EC) Regulations 2007), the Group is required to give a description of 

the principal risks and uncertainties which it faces. These risks and uncertainties reflect the international scope of the Group’s operations and the Group’s decentralised structure. The list provided in the 2011 Annual Report has been updated to group the key strategic risks facing the Group separately from the key financial and reporting risks. 

## Principal strategic risks and uncertainties 

Industry cyclicality:  The level of construction activity in local and national markets is inherently cyclical being influenced by a wide variety of factors including global and national economic circumstances, ongoing austerity programmes in the developed world, governments’ ability to fund infrastructure projects, consumer sentiment and weather conditions. The Group’s financial performance may also be negatively impacted by unfavourable swings in fuel and other commodity/ raw material prices. The adequacy and timeliness of management’s response to unfavourable events are of critical importance. 

Political and economic uncertainty:  As an international business, CRH operates in many countries with differing, and in some cases potentially fast-changing, economic, social and political conditions. Changes in these conditions, including the possibility of disintegration of the eurozone and/or a failure to resolve current fiscal and budgetary issues in the United States, or in the governmental and regulatory requirements in any of the countries in which CRH operates (with particular reference to developing markets), may, for example, adversely affect CRH’s business thus leading to possible impairment of financial performance and/or restrictions on future growth opportunities. 

Commodity products and substitution: CRH faces strong volume and price competition across its product lines. In addition, existing products may be replaced by substitute products which CRH does not produce or distribute. Against this backdrop, if CRH fails to generate competitive advantage through differentiation across the supply chain (for example, through superior product quality, engendering customer loyalty or excellence in logistics), market share, and thus financial performance, may decline. 

Acquisition activity: Growth through acquisition is a key element of CRH’s strategy. CRH may not be able to continue to grow as contemplated in its business plan if it is unable to identify attractive targets (including potential new platforms for growth), execute full and proper due diligence, raise funds on acceptable terms, complete such acquisition transactions, integrate the operations of the acquired businesses and realise anticipated levels of profitability and cash flows. 

Joint ventures and associates: CRH does not have a controlling interest in certain businesses (i.e. joint ventures and associates) in which it has invested and may invest; the greater complexity inherent in these arrangements accompanied by the need for proactive relationship management may restrict the Group’s ability to generate adequate returns and to develop and grow its business. 

