Operating review

Conditions in our major markets

In 2011, many of our major global construction markets saw further decline and the debt crisis in Europe had a damaging effect on financial markets around the world. Generally, across our mature markets, investment in public infrastructure continued to reduce, as government austerity programmes gained traction. Continued weakness in privately-financed construction meant that the private sector was unable to take up the slack.

Although conditions in the US construction market overall remained difficult, there were signs that the market had stabilised. Overall, US construction expenditure reduced in the year by a further 2%. This compares with a fall of 10% in the corresponding period last year, indicating that, although expenditure continues to fall, the rate of reduction has slowed significantly. Private non-residential construction expenditure was up by 2% year-on-year³ following two years of significant reduction, whereas residential construction was reasonably steady, picking up towards the end of the year. For the second consecutive year, however, US public infrastructure spending declined, with a 6% year-on-year reduction.

Within our principal European markets, Poland and Germany saw growth across most sectors. However, France continued to stagnate; the UK - particularly the housing and commercial sectors of the market - declined; and Spain contracted still further.

Elsewhere, in Australia the “two-speed” construction market continued to mirror the underlying economy, offering strong prospects for projects related to the resources sector, but weaker demand across the other sectors in the underlying market. Our Asian markets remained strong, but we saw little change in our Middle Eastern markets.

Changes to the Group’s reporting structure

From January 2012, we have changed the reporting structure of the Group, with the UK business joining Europe, Middle East and Africa to form a new EMEA division and the Asian business forming a separate division. The resultant four reporting divisions of North America, EMEA, Asia and Australia are better aligned geographically and represent more closely the expected future revenue and profit contributions to the Group. The four divisional heads now sit on a new Group Executive Committee.

This Operating Review has been structured to reflect our new reporting structure; however, segmental analyses on both the new and old bases are shown in note 3 to the financial statements.

³The North America Census Bureau of the Department of Commerce, 1 February 2012.