Hanson plc - General - UK, Hanson Operating Profit Up 10% on Last Year

Date: 19 Dec 2006

Hanson PLC, the international building materials company, issues the following trading statement ahead of the 22 February 2007 announcement of its preliminary results for the year ending 31 December 2006.

Overview

Overall, trading for the second half of the year has been in line with our expectations and the full year operating profit* is anticipated to be more than 10% ahead of last year (2005: £488.8m).

In North America, our two divisions have maintained earnings growth momentum. This highlights the strength of our geographic spread and our balanced end-use exposure, with the majority of our demand coming from infrastructure, industrial and commercial construction.

Our businesses in the UK are performing well in a challenging market. Demand for building products is starting to show tentative signs of recovery. Overall, demand in Australia and Continental Europe remains solid.

The acquisitions completed in the first half have made a good contribution to earnings. A further four acquisitions have been completed to date in the second half of the year. Acquisition investment for the year to date now totals around £560m and the pipeline of potential acquisitions for 2007 is encouraging.

Alan Murray, Chief Executive, commented:

"Hanson has continued to deliver earnings growth in 2006 against a strong 2005.

We have a unique mineral reserve position. Our network of assets and people provide a strong platform for growth, particularly in the USA which has an attractive demographic profile and a $286 billion ring-fenced spending programme for infrastructure. We remain confident for the future."

*Includes share of joint ventures' and associates' profit after tax, and excludes operating impairments.

Trading update

Aggregates North America

Full year operating profit* is anticipated to be significantly ahead of last year (2005: £138.4m).

Strong selling price discipline has been maintained to recover higher input costs and to reflect the underlying economic value of our reserves. There has been some regional softening in demand. Excluding acquisitions, full year aggregates volumes are expected to be slightly below last year, whilst average aggregates selling price increases should exceed 10% against 2005.

Acquisitions, primarily Material Service acquired for $300m in June 2006, have performed well.

Building Products North America

2006 operating profit* is expected to be considerably above last year (2005: £125.7m).

Pipe and pre-cast concrete products are enjoying higher volumes than last year in most markets, due largely to stronger infrastructure demand. Brick volumes are lower than last year, reflecting the reduction in US residential demand and a weak Canadian market. We have achieved increases in average selling prices of over 5% across the main product lines.

Earnings contributions from recent acquisitions, in particular PaverModule, our Florida based concrete paver company acquired in January, have been strong.

Aggregates UK

2006 operating profit* is expected to be above last year (2005: £108.8m).

We have seen strong earnings growth as a result of the acquisition of Civil and Marine, which we completed in March 2006.

Excluding acquisitions, earnings have declined in the second half due to a continuation of the weak market demand experienced in the first half of the year. There has been a significant decline in asphalt volumes and high single digit price increases have not been sufficient to recover additional bitumen and fuel related costs. Full year aggregates and ready-mixed concrete volumes are anticipated to be below last full year. However, we have achieved increases in average selling prices of over 5% in these two product lines.

Building Products UK

Operating profit* improved in the second half of the year against the same period last year, although full year results are expected to remain below last year (2005: £37.8m).

Brick volumes in the second half of the year were slightly below the same period last year, but recent trends indicate some signs of recovery. High single digit price increases offset energy cost increases. The full year results are expected to include around £5m of one-off restructuring costs.

Australia and Asia Pacific

Operating profit* is expected to be slightly below the strong results achieved last year (2005: £89.7m).

Increased demand in Western Australia and Queensland has compensated for market softness elsewhere in Australia. We expect to achieve increases in both volume and average selling prices for the full year compared to 2005.

This year, the results include additional property profits of an amount similar to the one-off tax benefit of £6.6m last year (which related to our joint-ventures and is shown within operating profit).

The operations in Asia Pacific showed year on year improvement in Malaysia and Hong Kong.

Hanson Continental Europe

Full year operating profit* is expected to be above last year (2005: £19.9m).

The continued improvement is due to good performances in all operating countries plus acquisition earnings in Spain.

Other operating items
Central costs remain in line with expectations at approximately £5m above last year (2005: £31.5m).

Operating profit* includes a reduction due to foreign exchange translation of approximately £5m (assuming an average US dollar exchange rate for the year of $1.85/£1) offset by a similar amount of additional property profits (around £20m completed to date compared to £14.9m in 2005).

Financial update

Operating impairments, relating to operations closed during the second half of the year, are estimated to be approximately £4m.

Net finance costs are expected to be approximately £25m above last year (2005: £55.5m), subject to the year end revaluation of certain energy hedges and discount rates. The increase is due primarily to higher net debt levels.

Net debt at the end of the year is anticipated to be around £1,400m (subject to the closing US dollar exchange rate) compared to £1,574.8m at 30 June 2006 and £989.6m at 31 December 2005.

The underlying tax rate for 2006, excluding one off adjustments, is expected to be slightly below the 18.6% half year rate.

In the second half of the year to date, Hanson bought back 3.66 million of its shares for £24.7m, giving a full year 2006 total to date of 9.96 million shares for £64.1m. This programme is ongoing, and a total of 24.645 million shares have now been repurchased for £136.9m since it started in October 2004, leaving a net 712.3 million shares in issue.

Discontinued items

The net charge for discontinued items is not expected to be significant. The charge for the cost of asbestos of approximately £15m will be offset by the one-off impact of additional insurance secured in the first half of £15m.

Asbestos

The number of new asbestos claimants for the year is expected to be around 6,000 compared to 10,350 in 2005. Over 11,000 claimants are expected to be resolved in the period, over 90% by dismissal, resulting in a net reduction in outstanding claimants of over 5,000 to approximately 126,000.

The gross cost of settlements and legal fees for the second half of the year is expected to be similar to the first half of the year, giving a full year gross cost of approximately $55m, above last year ($43.2m) but below 2004 ($59.3m). Hanson continues to provide for the next eight years at a gross cost of $60m pa, equivalent to approximately £15m pa after insurance secured to date and tax. Further insurance exists, but recognition remains subject to litigation and negotiation.

Outlook

We expect to make further progress in 2007 and will provide more detail with our preliminary results on 22 February 2007.

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