Hanson PLC Trading Statement

• 
• 28th June 2006
• Quarrying
 

Hanson PLC, one of the world’s leading heavy building materials companies, is issuing this trading statement in advance of the August 2, 2006 announcement of its interim results for the six months ending June 30, 2006.

Overview
Hanson expects to report an increase in operating profit* of approximately 10% for the first half of 2006 compared to the first half of 2005 (H1 2005: £197.3m).

Alan Murray, Chief Executive, said: "The first half performance of both North American divisions has been excellent, and our UK Aggregates, Australian and Continental European operations have performed well. These have more than offset difficult market conditions for our UK Building Products division. We have completed over £500 million of acquisition investment so far this year and earnings from these transactions are in line with our expectations. Overall, we look forward to further progress in the second half of this year."

Trading update
Hanson Aggregates North America is expected to generate margin improvement and a significant increase in operating profit* in excess of 25% for the first half of 2006. Average price increases in excess of 10% across our main product lines should be achieved compared to the first half of 2005. These price increases reflect both energy and raw material cost increases and the increasingly valuable nature of the division’s reserve base. Aggregates volumes to date are ahead of last year following a particularly strong first quarter.

Hanson Building Products North America is anticipated to deliver an increase in first half operating profit* of a similar amount to that of Hanson Aggregates North America. It is expected that much of this increase will be due to good demand for pipe and pre-cast products, particularly in Florida. Brick volumes should be in line with the first half of last year. The division has continued its growth and cost saving initiatives and secured selling price increases across all main product lines.

In Hanson Aggregates UK, operating profit*, excluding acquisitions, is expected to be slightly below the strong first half of last year. This is a good performance given weak market demand, in particular in asphalt, compared to the strong first half of 2005. Significant increases in energy costs and bitumen have been mitigated by cost reduction initiatives. Good selling price increases have been achieved across all main product lines to date. Results from the Civil and Marine operations acquired in March 2006 have been encouraging and operating profit* including acquisitions should be ahead of the first half of 2005.

For Hanson Building Products UK, the severe reduction in the brick market has continued, led by weak demand in the repair, maintenance and improvement sector. First half brick volumes are expected to be around 20% below the first six months of last year. The earnings impact of this volume reduction, and of higher energy costs, has been mitigated by selling price increases, aggressive cost saving initiatives, production cutbacks and closures. Nevertheless, operating profit* for this division for the first six months of 2006, which includes the cost of restructuring and closures, is expected to be around half of that achieved in the first six months of last year (£21.5m).

The first half operating profit* for Hanson Australia & Asia Pacific is expected to be similar to the strong first six months of 2005. In general, demand has remained good in Australia and a combination of cost saving initiatives and selling price increases has largely offset cost inflation.

Hanson Continental Europe is expected to deliver a first half operating profit* slightly ahead of the first half of 2005. In Spain, the impact of the closure last year of depleted quarries has been offset by acquisition contributions and strong aggregates demand. Elsewhere, operating profit is expected to have improved in each country, with the exception of the Czech Republic, where trading was impacted by a longer than usual winter period.

Central costs are anticipated to increase by around £5 million for the full year, due primarily to compliance costs and incentive accruals. Much of this increase is expected to be recognised at the half year.

The translation of foreign currency earnings is expected to have a small positive impact on the first half of 2006 compared with the first half of 2005. This is expected to reverse in the full year 2006. At today’s date, profits from property disposals are similar to the first half of 2005 (£1.3m).

Development update
Investment in eleven acquisitions to date this year totals £508 million.
Completion of the acquisition of Material Service Corporation, an aggregates operation based in Chicago, for approximately $300 million (£160 million) was announced on June 19, 2006. Material Service will be managed as part of Hanson Aggregates North America.

Integration of Civil and Marine, acquired on March 2, 2006 for £245 million, is progressing well. Civil and Marine is the UK’s leading producer of ground granulated blast furnace slag and, in addition, has operations in Florida, USA.
PaverModule, a manufacturer of pavers in Florida, USA acquired on January 30, 2006, has delivered a strong performance within Hanson Building Products North America.

The eight other smaller acquisitions include operations in the UK, USA, Australia and Spain.

At present, a number of further acquisition opportunities are being pursued although, as always, the amount and timing of these transactions is difficult to predict. Hanson remains committed to strengthening and expanding its operational footprint through value adding acquisitions in both aggregates and building products.

Financing update
Finance costs are expected to be nearly £10 million above the first half of 2005 (£22.8m), due largely to acquisition spend.

The effective tax rate for the first six months of 2006 is expected to be in the 15-20% range previously provided as guidance for 2006. This tax rate excludes the tax relating to joint-ventures and associates which is reported within operating profit*. Sensitivities to the tax rate include changes in legislation, profit mix and non-recurring items recognised under IFRS.

Net debt is expected to be approximately £1.6 billion, increasing half year gearing to approximately 60%. This is due primarily to acquisition spend partly offset by the favourable impact of foreign exchange on US dollar denominated debt.

Hanson continues to repurchase its shares and has spent £39.1 million buying back 6,165,000 shares to date in 2006. At present, 716.1 million shares remain in issue excluding those shares repurchased and held in Treasury.

Discontinued operations
Discontinued operations are expected to include a one-off benefit of approximately £15 million post tax for a previously announced asbestos insurance settlement, and a first half post-tax charge of approximately £8 million (equivalent to $24 million pre-tax) for ongoing asbestos costs net of insurance. Further details on asbestos are provided in the appendix.

Outlook
Overall, Hanson expects to continue to make progress in the second half of 2006.

For the two North American divisions, volumes are anticipated to remain robust. Full year heritage aggregates volumes are expected to increase by 2-3% compared to 2005, in line with previous guidance. Infrastructure demand is strong, and increased activity in the industrial and commercial sectors should help mitigate some weakening in housing spend. Continued progress against the second half of 2005 is anticipated in these divisions, supplemented by additional contributions from acquisitions.

In the UK, whilst there are some signs that the brick market may have reached the bottom of the cycle, no significant improvement in demand is anticipated in the second half of the year. In Hanson Aggregates UK, cost increases have been particularly severe in the asphalt operations and a mid year selling price increase, effective July 1, 2006, has been announced to recover additional increases in bitumen costs. Overall, further progress is expected in the UK against the second half of last year, much of which will be provided by the acquisition contribution in Hanson Aggregates UK.

Trading conditions are expected to remain stable in Australia, Asia Pacific and Continental Europe in the second half of 2006.The operating profit* for Australia in the second half of 2006 will not repeat the one-off tax benefit of £6.6m, included in share of joint ventures’ and associates’ profit after tax within operating profit under IFRS, in the second half of 2005.

*Note: "Operating profit" denotes operating profit before impairments, including share of joint ventures’ and associates’ profit after tax

A conference call for analysts, hosted by Alan Murray (Chief Executive) and Jonathan Nicholls (Finance Director), will take place today at 8.00am (BST). The dial-in number is +44 (0) 208 515 2386. A recording of the conference call will be available for 48 hours from 11.30am (BST) today. The dial-in number is +44 (0) 208 515 2499 (PIN number 628692#) or, for US investors, +1 303-590-3000 (PIN number 11064140#)

Further information on Hanson can be found at www.hanson.biz
Inquiries: Nick Swift / Hilary Reid Evans