CRH Annual Report 2007 PERFORMANCE AND GROWTH

Finance Review continuedCash GenerationWhile spending a total of over €3.25billion on acquisitions, investmentsand capital projects, the strongcash generation characteristics ofthe Group limited the increase innet debt to €0.7 billion, helped bya positive translation adjustmentof €0.2 billion. Table 5 summarisesCRH’s cash flows for 2007and 2006.The increased charges fordepreciation and amortisation ofintangible assets mainly reflect theimpact of acquisitions completed in2006 and 2007.A continuing strong focus onworking capital management acrossthe Group’s heritage operationscombined with a significantreduction in working capital levels atAPAC, associated with the scalingback of its low margin contractingactivities, resulted in a workingcapital inflow for the year of €227million compared with a €76 millionoutflow in 2006.Taxation payments were slightlyhigher than in 2006.The increase in dividend costreflects the 39% increase in thefinal 2006 dividend and the 48%increase in the interim 2007dividend both of which were paidduring the course of 2007.Capital expenditure of €1,028million represented 4.9% ofGroup turnover (2006: 4.4%)and amounted to 1.39 timesdepreciation (2006: 1.25 times).Of the total capital expenditure50% was invested in Europe with50% in the Americas.The caption denoted “Other” mainlyreflects the elimination of noncashincome items, mainly shareof associates’ profits and profiton disposal of fixed assets, andnon-cash expense items such asIFRS share based compensationexpense, which are included inarriving at profit before tax.2007 saw a record €2.2 billionspend on acquisitions andinvestments. This compared witha net €2.1 billion in 2006 afteradjusting the reported gross spendof €2.3 billion for subsequentselective APAC asset disposals ofapproximately €0.2 billion.Proceeds from share issuesprincipally reflect the take-up ofshares in lieu of dividends under theCompany’s scrip dividend scheme(€68 million, 2006: €25 million)augmented by issues under Groupshare option and share participationschemes of €36 million (2006: €87million).Purchase of shares reflects thepurchase of existing shares inrespect of the Performance SharePlan (€10 million) and purchases tosatisfy the exercise of share optionsduring the year (€21 million net ofproceeds from exercise of options).In 2006 shares were purchased inrespect of the Performance SharePlan only.Exchange rate movements during2007 reduced the euro amount ofnet foreign currency debt by €237million principally due to the 12%revaluation of the euro against theUS Dollar from 1.3170 at end-2006to 1.4721 at end-2007. Thefavourable translation adjustmentin 2006 also reflected a 12%revaluation of the euro versus theUS Dollar from 1.1797 at end-2005to 1.3170 at end-2006.Year-end net debt of €5,163 million(2006: €4,492 million) includes€164 million (2006: €248 million) inrespect of the Group’s proportionateshare of net debt in joint ventureundertakings. The reduction reflectsthe fact that following the August2007 buy-out of the remaining 55%of Cementbouw bv its net debt isno longer included in the jointventure total.Employee BenefitsIn compliance with IFRS, the netassets and actuarial liabilities(excluding related deferred taxation)of the defined benefit pensionschemes operated by variousGroup companies, computed inaccordance with IAS 19, have beenincluded on the face of the balancesheet under retirement benefitobligations. At end-2007, retirementbenefit obligations amounted to€95 million (2006: €262 million);after deducting deferred tax thenet liability amounted to €62 million(2006: €177 million). The net liabilityrepresented 0.5% of CRH’s yearend2007 market capitalisation(2006: 1.0%).Share Price and ShareRepurchase ProgrammeThe Company’s Ordinary Sharestraded in the range €21.92 to€38.20 during 2007. The year-endshare price was €23.85 (2006:€31.54). Shareholders recordeda negative gross return of -23%(dividends and capital depreciation)during 2007 following returns of+29% in 2006, +28% in 2005 and+23% in 2004.Subsequent to year-end, on 3rdJanuary 2008, CRH introduceda share repurchase programmelimited to 5% of the 547 millionOrdinary Shares then in issue. Todate, 6 million shares have beenrepurchased at an average priceof €25. These shares are held asTreasury Shares.CRH is one of six buildingmaterials companies included inthe FTSE Eurotop 300, a marketcapitalisation-weightedindex ofEurope’s largest 300 companies.At year-end 2007 CRH’s marketcapitalisation of €13.1 billion (2006:€17.1 billion) placed it among thetop 6 building materials companiesworldwide.InsuranceGroup headquarters advisesmanagement on different aspectsof risk and monitors overall safetyand loss prevention performance;operational management isresponsible for the day-to-daymanagement of business risks.Insurance cover is held for allsignificant insurable risks andagainst major catastrophe. For anysuch events, the Group generallybears an initial cost before externalcover begins.Legal ProceedingsGroup companies are parties tovarious legal proceedings, includingsome in which claims for damageshave been asserted against thecompanies. The final outcome ofall the legal proceedings to whichGroup companies are party cannotbe accurately forecast. However,having taken appropriate advice,we believe that the aggregateoutcome of such proceedings willnot have a material effect on theGroup’s financial condition, resultsof operations or liquidity.Financial Risk ManagementThe Board of Directors sets thetreasury policies and objectives ofthe Group, which include controlsover the procedures used tomanage financial market risks.These are set out in detail in note23 to the financial statements.Interest rate and debt/liquiditymanagementAt the end of 2007, 46% of theGroup’s net debt was at interest38 CRH